Krol v. M.N.R., docket 97-2046-UI

Date:19980507

Docket: 97-369-UI; 97-2046-UI

BETWEEN:

WAWRZYNIEC KROL,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

TESKEY, J.T.C.C.

[1] The Appellant appeals from determinations by the Minister of National Revenue (the "Minister") that his employment by his son was not insurable employment during the periods May 1, 1993 to October 31, 1993, May 22, 1994 to November 16, 1994, May 17, 1995 to November 17, 1995 and May 3, 1996 to October 31, 1996.

Issue

[2] Herein, there is no issue as to the nature of the contract between the Appellant and his son. It is a contract of service pursuant to section 3(1)(a) of the Unemployment Insurance Act (the "Act").

[3] The issue is did the Minister, when he declined to exercise his discretion pursuant to section 3(2)(a) of the Act, make a reviewable error?

The Law

[4] Chief Justice Isaac of the Federal Court of Appeal in Attorney General of Canada and Jencan Ltd. (1997) 215 N.R. 352, reviewed in detail the existing law on section 3(2)(c) of the Act and set out clearly the obligations of this Court on cases under this section.

[5] He said, starting at page 363 in paragraphs 31, 32, 33, 37, 42 and 50, namely:

[31] The decision of this court in Tignish, supra, requires that the Tax Court undertake a two-stage inquiry when hearing an appeal from a determination by the Minister under s. 3(2)(c)(ii). At the first stage, the Tax Court must confine the analysis to a determination of the legality of the Minister's decision. If, and only if, the Tax Court finds that one of the grounds for interference are established can it then consider the merits of the Minister's decision. As will be more fully developed below, it is by restricting the threshold inquiry that the Minister is granted judicial deference by the Tax Court when his discretionary determinations under s. 3(2)(c)(ii) are reviewed on appeal. Desjardins, J.A., speaking for this court in Tignish, supra, described the Tax Court's circumscribed jurisdiction at the first stage of the inquiry as follows at p. 77:

Section 71(1) of the Act provides that the Tax Court has authority to decide questions of fact and law. The applicant, who is the party appealing the determination of the Minister, has the burden of proving its case and is entitled to bring new evidence to contradict the facts relied on by the Minister. The respondent submits, however, that since the present determination is a discretionary one, the jurisdiction of the Tax Court is strictly circumscribed. The Minister is the only one who can satisfy himself, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions and importance of the work performed, that the applicant and its employee are to be deemed to deal with each other at arm's length. Under the authority of Minister of National Revenue v. Wrights' Canadian Ropes Ltd., contends the respondent, unless the Minister has not had regard to all the circumstances of the employment (as required by s. 3(2)(c)(ii) of the Act), has considered irrelevant factors, or has acted in contravention of some principle of law, the court may not interfere. Moreover, the court is entitled to examine the facts which are shown by evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion. If, however, those facts are, in the opinion of the court, insufficient in law to support the conclusion arrived at by the Minister, his determination cannot stand and the court is justified in intervening.

In my view, the respondent's position is correct in law ...

[32] In Ferme Émile Richard et Fils Inc. v. Ministre du Revenu national et al. (1994), 178 N.R. 361 (F.C.A.), this court confirmed its position. In obiter dictum, Décary, J.A., stated the following at pp. 362-363:

As this court recently noted in Tignish Auto Parts Inc. v. Minister of National Revenue, July 25, 1994, A-555-93, F.C.A., not reported, an appeal to the Tax Court of Canada in a case involving the application of s. 3(2)(c)(ii) is not an appeal in the strict sense of the word and more closely resembles an application for judicial review. In other words, the court does not have to consider whether the Minister's decision was correct: what it must consider is whether the Minister's decision resulted from the proper exercise of his discretionary authority. It is only where the court concludes that the Minister made an improper use of his discretion that the discussion before it is transformed into an appeal de novo and the court is empowered to decide whether, taking all the circumstances into account, such a contract of employment would have been concluded between the employer and employee if they had been dealing at arm's length.

[33] Section 70 provides a statutory right of appeal to the Tax Court from any determination made by the Minister under s. 61, including a determination made under s. 3(2)(c)(ii). The jurisdiction of the Tax Court to review a determination by the Minister under s. 3(2)(c)(ii) is circumscribed because Parliament, by the language of this provision, clearly intended to confer upon the Minister a discretionary power to make these determinations. The words "if the Minister of National Revenue is satisfied" contained in s. 3(2)(c)(ii) confer upon the Minister the authority to exercise an administrative discretion to make the type of decision contemplated by the section. Because it is a decision made pursuant to a discretionary power, as opposed to a quasi-judicial decision, it follows that the Tax Court must show judicial deference to the Minister's determination when he exercises that power. Thus, when Décary, J.A., stated in Ferme Émile, supra, that such an appeal to the Tax Court "more closely resembles an application for judicial review", he merely intended, in my respectful view, to emphasize that judicial deference must be accorded to a determination by the Minister under this provision unless and until the Tax Court finds that the Minister has exercised his discretion in a manner contrary to law.

[37] On the basis of the foregoing, the Deputy Tax Court Judge was justified in interfering with the Minister's determination under s. 3(2)(c)(ii) only if it was established that the Minister exercised his discretion in a manner that was contrary to law. And, as I already said, there are specific grounds for interference implied by the requirement to exercise a discretion judicially. The Tax Court is justified in interfering with the Minister's determination under s. 3(2)(c)(ii) - by proceeding to review the merits of the Minister's determination - where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by s. 3(2)(c)(ii); or (iii) took into account an irrelevant factor.

[42] Thus, while the Tax Court must exhibit judicial deference with respect to a determination by the Minister under s. 3(2)(c)(ii) - by restricting the threshold inquiry to a review of the legality of the Minister's determination - this judicial deference does not extend to the Minister's findings of fact. To say that the Deputy Tax Court Judge is not limited to the facts as relied upon by the Minister in making his determination is not to betray the intention of Parliament in vesting a discretionary power in the Minister (see Canada (Procureur général) v. Dunham (1996), 205 N.R. 289, at 295 (F.C.A.), per Marceau, J.A. (in the context of the right of appeal to the Board of Referees from a decision of the Unemployment Insurance Commission)). In assessing the manner in which the Minister has exercised his statutory discretion, the Tax Court may have regard to the facts that have come to its attention during the hearing of the appeal. As Desjardins, J.A., stated in Tignish, supra, at 77 (see also, Jolyn Sport, supra, at 4):

[t]he court is entitled to examine the facts which are shown by the evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But, if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion.

[50] The Deputy Tax Court Judge, however, erred in law in concluding that, because some of the assumptions of fact relied upon by the Minister had been disproved at trial, he was automatically entitled to review the merits of the determination made by the Minister. Having found that certain assumptions relied upon by the Minister were disproved at trial, the Deputy Tax Court Judge should have then asked whether the remaining facts which were proved at trial were sufficient in law to support the Minister's determination that the parties would not have entered into a substantially similar contract of service if they had been at arm's length. If there is sufficient material to support the Minister's determination, the Deputy Tax Court Judge is not at liberty to overrule the Minister merely because one or more of the Minister's assumptions were disproved at trial and the judge would have come to a different conclusion on the balance of probabilities. In other words, it is only where the Minister's determination lacks a reasonable evidentiary foundation that the Tax Court's intervention is warranted (see Director of Investigation and Research, Competition Act v. Southam Inc. et al. (1997), 209 N.R. 20; 144 D.L.R.(4th) 1, at 19 (S.C.C.), per Iacobucci, J.). An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. It will depend on the strength or weakness of the remaining evidence. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends. But, if answered in the negative, the determination is contrary to law, and only then is the Tax Court justified in engaging in its own assessment of the balance of probabilities. Hugessen, J.A., made this point most recently in Jolyn Sport, supra. At page 4 of his reasons for judgment, he stated:

In every appeal under s. 70 the Minister's findings of fact, or 'assumptions', will be set out in detail in the reply to the Notice of Appeal. If the Tax Court judge, who, unlike the Minister, is in a privileged position to assess the credibility of the witnesses she has seen and heard, comes to the conclusion that some or all of those assumptions of fact were wrong, she will then be required to determine whether the Minister could legally have concluded as he did on the facts that have been proven. That is clearly what happened here and we are quite unable to say that either the judge's findings of fact or the conclusion that the Minister's determination was not supportable, were wrong.

Facts

[6] The Minister in making his determinations relied upon the following facts:

1. The Appellant has been employed as a landscaper by Garden Rabbit Landscaping since 1990. Garden Rabbit Landscaping is owned by Marek Krol, the Appellant's son. The Appellant has no interest whatsoever in the ownership of Garden Rabbit Landscaping and never has.

2. Deductions were made from the Appellant's earnings for unemployment insurance benefits and other statutory deductions.

3. Garden Rabbit Landscaping is primarily in the business of exterior landscaping which is seasonal. In the winter, Garden Rabbit Landscaping also provides snow removal services.

4. The Appellant and his wife when they first emigrated to Canada, lived with their son and purchased their own home in 1996.

5. The Appellant was engaged by the Payor as a landscape worker.

6. It is not known if the Appellant is a fully qualified landscape worker since he does not hold any specific licences, certifications or designations in landscaping.

7. The Appellant does not possess a Canadian driver's licence and the Payor was required to transport him on a daily basis to each job site and back home again.

8. The Appellant speaks very little English making it extremely difficult, if not impossible, for him to supervise other persons whose services were contracted for by the Payor on a needs be basis.

9. The Appellant and the Payor did not provide all the records requested by the Respondent, to substantiate the Appellant's remuneration.

10. The Appellant was to be paid for his services either in cash or by cheque the gross amount of $3,170.00 per month (an advance of $1,150.00 on the 15th of the month and the balance at the end of the month) and averaged 40 hours per week.

11. The Appellant's approximate hourly wage was $18.43 ($3,170.00 divided by 172 hours).

12. The Appellant's hourly wage was excessive compared to the average hourly rate for a landscape worker in the Toronto area of $10.75.

13. The Appellant and the Payor had a number of common financial transactions between them which could influence the terms and conditions of the Appellant's employment with the Payor:

- the 1995 deposits to the Appellant's bank account exceeded his net wages by over $5,000.00,

- the Appellant purportedly loaned the Payor $10,000.00 to $15,000.00 to buy his house on condition that the Appellant and his wife could live in the house rent free (payments for same possibly made to the Appellant from the Payor),

- the Appellant also made mortgage payments on the Payor's house (reimbursements for same possibly made to the Appellant from the Payor),

- in March or April of 1996, the Appellant purchased a condominium for $82,000.00 and was able to pay half of the amount in cash (some of which apparently came from the Payor).

14. Because of his lack of a driver's licence, the Appellant could not do any snow removal work in the winter and the Payor had to subcontract out some of this work.

15. Prior to and subsequent to the period in question, the Payor did not engage anyone else to perform the Appellant's duties.

16. The Payor did not record or set the Appellant's actual hours of work.

17. The Appellant was neither supervised by the Payor with respect to the day to day performance of his duties nor was he controlled by the Payor with respect to the manner in which he worked.

18. During the period in question, the Appellant was not dealing with the Payor at arm's length;

[7] At the trial, I had the opportunity to hear the evidence of the Appellant, Marek Krol (Son), Colin Carry (the chartered accountant) and Dianne Andrioli ("Dianne"), a co-proprietor of a landscaping business in the Caledon area and Tony Di Giovanni ("Tony"), the Executive Director of Landscape Ontario, a Horticultural Trade Association.

[8] I accept all their testimony without hesitation and reservation. The cumulative effect of their testimony demonstrates that several of the facts assumed by the Minister were incorrect and several facts by themselves take on a different slant when the complete facts are known.

[9] Using the same numbers as above, I will deal with these.

3. The son has only enough snow removal business that he handles all of it himself and has no intention to hire anyone else to assist him in snow removal and has never subcontracted out any of the snow removal work.

6. Although the Minister admitted that the Appellant is very experienced and skilled in the areas of gardening (paragraph # 1, under Statement of facts in the Reply) in his assumptions, he stated it was not known if the Appellant is a fully qualified landscape worker. From the evidence, it is apparent that the Appellant was employed for 35 years in Poland as a landscape gardener and was fully qualified. There are no licences for this work.

Tony stated that there is a voluntary certification that can be obtained, but that most of the older workers do not have the certification having learned the work by experience.

7. This fact is only partially correct. The ability to drive a motor vehicle is not necessary, as only one person in a three or four person crew requires a motor vehicle driver's licence to take the crew from the shop to the job sites and from site to site.

8. This fact again is only partially correct. Although the Appellant speaks little English, he can and does supervise other employees of his son when required.

9. This fact was disproved as the Appellant and his son co-operated fully with the Respondent and produced all requested records.

12. This fact was also disproved. The evidence demonstrates that his wage was in the mid range for a worker of his experience.

13. The first paragraph should have stopped after the word them, as the balance of the sentence is a conclusion.

The second paragraph is an incomplete fact as the excess was repayment of a loan by the Appellant to the son.

The third and fourth paragraphs were proven to be false.

The portion of the fifth paragraph in brackets has to be deleted as it is not factual and the facts contained therein are irrelevant. Thus this assumption should now read:

The Appellant and the Payor had a number of common financial transactions between them.

14. A portion of these facts are wrong, his son does not subcontract out any snow removal, and would not use the Appellant even if he had a licence. In this context, he ought not to have considered the lack of a licence to drive a motor vehicle.

15. The proper explanation of these facts is that the son had no need for the Appellant prior to the first period in question, and that the Appellant has worked for the entire landscaping season since his first employment with his son here in Canada.

16. This fact is partially true however most employers do not record the hours of employees that are not paid by the hour, and the hours of work were set by the son.

17. The Appellant worked under the orders and direction of his son and when the business required the son to be elsewhere than on the job site, the Appellant supervised the other workers.

[10] On removing the wrong facts and the irrelevant ones, the Minister had before him the following facts:

1. The Appellant has been employed as a landscaper by Garden Rabbit Landscaping since 1990. Garden Rabbit Landscaping is owned by Marek Krol, the Appellant's son. The Appellant has no interest whatsoever in the ownership of Garden Rabbit Landscaping and never has.

2. Deductions were made from the Appellant's earnings for unemployment insurance benefits and other statutory deductions.

4. The Appellant and his wife when they first emigrated to Canada, lived with their son and purchased their own home in 1996.

5. The Appellant was engaged by the Payor as a landscape worker.

10. The Appellant was to be paid for his services either in cash or by cheque the gross amount of $3,170.00 per month (an advance of $1,150.00 on the 15th of the month and the balance at the end of the month) and averaged 40 hours per week.

13. The Appellant and the Payor had a number of common financial transactions between them.

18. During the period in question, the Appellant was not dealing with the Payor at arm's length;

[11] These facts alone will not support the Minister's decision not to exercise his discretion to deem the contract to be at arm's length.

[12] Having come to the conclusion that the Minister's determinations lack a reasonable evidentiary foundation, I must proceed to look at all the facts surrounding the employment and make such determinations. When I review all the facts proven by the Appellant and his witnesses, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, I find that it is not unreasonable to conclude that the Appellant and his son would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. Thus, I exercise the discretion and deem the contract of employment to be at arm's length and thus insurable employment.

[13] For these reasons, the appeal is allowed.

[14] I would be remiss if I did not comment on the excellent job performed by the solicitor for the Appellant in the manner the case was presented and the evidence adduced.

Signed in Ottawa, Canada, this 7th day of May 1998.

"Gordon Teskey"

J.T.C.C.