Docket: 2010-1860(IT)G
BETWEEN:
THE BRENT KERN FAMILY TRUST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on June 19, 2012 at Winnipeg, Manitoba
Before: The Honourable
Mr. Justice Randall Bocock
Appearances:
|
Counsel for the Appellant:
|
Jeff
D. Pniowsky
|
|
Counsel for the Respondent:
|
Bonnie F. Moon
|
____________________________________________________________________
ORDER
UPON
receiving submissions from the Respondent addressing the need of this Court to
consider new argument of the Respondent arising from the recently pronounced
decision of the Federal Court of Appeal in Canada v. Sommerer, 2012 FCA
207, 2012 DTC 5126;
AND UPON
considering the position adopted by counsel for the Appellant in opposing the
request made by counsel for the Respondent on the basis of prejudice, costs and
the Appellant’s need to reassess the Agreed Statement of Facts;
AND UPON
considering the matter in detail;
IT IS HEREBY ORDERED THAT the Court will hear the further submissions
of the Respondent and Appellant on the following basis:
1.
the Respondent shall
pay to the Appellant the sum of $5000.00 in respect of costs thrown away within
thirty (30) days of the date of this Order;
2.
the Appellant, if it
wishes, shall be entitled to one additional day of examination for discovery of
the Respondent to be completed within sixty (60) days of the date of this
Order;
3.
the parties shall be
entitled, if either wishes, to one additional day of hearing for the purposes
of providing supplementary or reply argument to the Court in light of the
Court’s pronounced need to consider the Sommerer decision’s
applicability in the matter before it; and
4.
the parties shall
advise the Hearings Coordinator on or before December 3, 2012 of agreeable
dates for the reopening of the Hearing for the purposes described in paragraph
3 above.
Signed at Toronto, Ontario, as of this 15th day of October 2012.
“R.S. Bocock”
Citation: 2012 TCC 358
Date: 20121015
Docket: 2010-1860(IT)G
BETWEEN:
THE BRENT KERN FAMILY TRUST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Bocock J.
[1]
The hearing of this
matter occurred at Winnipeg, Manitoba on June 19, 2012.
[2]
In an otherwise laudatory
step, both counsel shortened the proceedings by filing a complete Statement of
Agreed Facts and a Joint Book of Documents. Therefore, the Court heard only
argument at the Hearing.
[3]
Simply put, this matter
involves the engagement by the Appellant of the deeming provisions of
subsection 75(2) of the Income Tax Act (“Act”) in order to
attribute certain dividend income to a deemed recipient. In turn, section 112
of the Act permits the statutorily reallocated intercorporate dividend
to flow, through the use of an offsetting deduction, to a non-arm’s length
party on a tax free basis.
[4]
The bulk of argument
and submissions by both parties centred on the applicability of the GAAR to the
conjunctive effect of subsection 75(2) and section 112 of the Act.
[5]
At the conclusion of
the Respondent’s argument, cursory reference was made to the case of Canada
v. Sommerer, 2012 FCA 207, 2012 DTC 5126, identified as a pending judgment
before the Federal Court of Appeal. That trial decision precluded the
application of the deeming provision in subsection 75(2) where a preceding transfer
of shares had occurred at fair market value. Respondent’s counsel argued that
the case at bar was materially identical to Sommerer, the reallocation
of dividend income under subsection 75(2) was precluded and, accordingly, the Minister’s
reassessment remained correct.
[6]
In reply, at the Hearing,
the Appellant briefly, but adamantly argued that it was not for this Court to
concern itself with Sommerer. Among other things, Counsel argued that the
Respondent was precluded from submitting that subsection 75(2) of the Act
does not apply since such an argument was exactly opposite to the Minister’s
pleadings, factual assumptions and the agreements contained in the Statement of
Agreed Facts.
[7]
On July 13, 2012
several weeks after the Hearing ended, but before judgment was pronounced, the
Federal Court of Appeal rendered judgment in Sommerer by rejecting the
appeal and upholding the trial finding that the deeming provisions of subsection
75(2) do not apply where fair market value is paid for the applicable shares
acquired within the tax structure. On July 26, 2012, Respondent’s counsel wrote
to the Court, provided a copy of Sommerer, and requested that the Court
advise as to whether additional written submissions on Sommerer were
required.
[8]
In turn, counsel for
the Appellant wrote and argued that subsequent submissions were not necessary (nor
permissible) since the Respondent had failed in its pleadings and during the Hearing
(at least in any substantive way) to put forward the arguments necessary to
support the application of the decision in Sommerer to the present
matter.
[9]
On August 29, 2012, the
Court wrote to the parties and advised that the parties were invited, prior to
September 28, 2012, to submit further submissions on both the appropriateness
of considering the Federal Court of Appeal’s decision in Sommerer and on
the impact of that case on the matter before the Court. Both parties submitted
written submissions which somewhat expanded upon, but did not materially alter
their opposing views on the appropriateness of considering Sommerer nor
its application to the matter before the Court.
[10]
Courts have before considered
the issue of reopening a hearing after trial.
[11]
The relevant rule
applicable to this matter is Rule 138 of the Tax Court of Canada Rules
(General Procedure) which reads as follows:
138(1)
The judge may reopen a hearing before judgment has
been pronounced for such purposes and upon such terms as are just.
(2)
The judge may, at any time before judgment, draw the attention of the parties to
any failure to prove some fact or document material to a party’s case, or to
any defect in the proceeding, and permit a party to remedy the failure or
defect for such purposes and upon such terms as are just.
[12]
The Federal Court of
Appeal in Toronto-Dominion Bank v. Canada, 2011 FCA 221, [2011] 6 C.T.C.
19, stated as follows at paragraphs 27, 28 and 29:
27 Before this Court, TD argued that the Judge had acted
unfairly in permitting the Crown to advance arguments different from those on
which it had based its case in the Tax Court during discoveries and at the
hearing itself.
28 It is clear from subsection 152(9) of the Act that the
Minister has broad discretion to advance alternative arguments in support of an
assessment. The Tax Court Judge has an equally broad discretion under rule 138
of the Tax Court of Canada Rules (General Procedure) to reopen a trial
at any time before rendering judgment. In my view, the Judge’s exercise of his
discretion to permit the Crown to make written submissions after the close of
the hearing did not deprive TD of its right to procedural fairness.
29 The Judge permitted TD to make a full reply in writing to the Crown’s
submissions, which did not require additional evidence. Counsel for TD did not
request further discoveries when served with the Crown’s written submissions.
The Judge’s decision did not therefore deprive TD of the opportunity to
participate in the Tax Court’s proceeding: it was able to put its own case before
the Tax Court and to respond to the Crown’s. Whether the Crown took a position
on a question of law in its written submissions different from that taken
earlier in the proceeding is, in the circumstances of this case, irrelevant to
the fairness of the procedure.
[13]
Given this authority,
this Court cannot refuse to hear submissions where new and possibly binding
authority has been pronounced by an appeal court during the period between
trial and this Court’s judgment. To refuse to do so would lack jurisprudential
logic. Provided that both parties are afforded a fair opportunity to reorganize
their factual emphasis and submissions and provided that any prejudice suffered
has been addressed by additional process and costs, new arguments and
submissions should be heard in an appropriate manner.
[14]
As to the mentioned
issue of costs, the Court estimates, as best as it can, that at least one day
at discoveries and one day in total for both trial preparation and the trial
itself have been thrown away by the Appellant in marshalling a case against
assumptions and submissions recently abandoned (or at least supplanted) by Respondent’s
counsel and by not having the opportunity then to respond to the case it
now faces from the Minister. In fairness to the Respondent, the Court has
also taken into consideration the fact that the timing and outcome of the decision
(which is a matter of altered law and not fact) of the Federal Court of Appeal are
beyond the control of either party. However, the Court also observes that had
the Respondent highlighted her intention to rely upon Sommerer to the Appellant
or to the Court sooner (at least as a preliminary matter at the outset of the Hearing)
then the Court might well have adjourned the matter in order to await the pending
decision of the Federal Court of Appeal and not have otherwise allowed the
costs thrown away to have occurred.
[15]
Therefore, the Court
will hear the further submissions of the Respondent and Appellant on the
following basis:
a)
the Respondent shall
pay to the Appellant the sum of $5000.00 in respect of costs thrown away within
thirty (30) days of the date of this Order;
b)
the Appellant, if it
wishes, shall be entitled to one additional day of examination for discovery of
the Respondent to be completed within sixty (60) days of the date of this Order;
and
c)
the parties shall be
entitled, if either wishes, to one additional day of Hearing for the purposes
of providing supplementary or reply argument to the Court in light of the
Court’s pronounced need to consider the Sommerer decision’s applicability
in the matter before it.
Signed at Toronto, Ontario, as of this 15th day of October 2012.
“R.S. Bocock”
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