Date: 20020506
Docket: 2000-1291-GST-G
BETWEEN:
CAMBRIDGE ENVIRONMENTAL SYSTEMS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Beaubier, J.T.C.C.
[1]
This appeal pursuant to the General Procedure was heard at
Edmonton, Alberta on April 24 and 25, 2002. The Appellant
called Monty Donaldson, a former officer and director of the
Appellant, of Skimmer Oil Separators Ltd. ("Skimmer"),
of Western Oil Processors Ltd. ("Processors"), of
Western Oil Disposal Wells Ltd. ("Disposal") of 731059
Alberta Ltd. ("731059") and of Soiltech Environmental
Systems Canada Inc. ("Soiltech"). The Respondent did
not call any witnesses, but read in parts of the examination for
discovery of Mr. Donaldson.
[2]
Two issues are in dispute. The first - whether the Appellant is
entitled to disputed input tax credits - was settled by a
"Notice of Agreement" filed in Court on April 25, 2002
which is attached hereto. The appeal is allowed pursuant to the
agreement and the matter is referred to the Minister of National
Revenue for reconsideration and reassessment pursuant to that
agreement.
[3]
The second matter in dispute is what the consideration was for
the waste disposal licence issued by the Alberta Energy Utilities
Board ("AEUB") described as WM014. This licence allowed
the operation of a waste disposal plant for oilfield waste
products. The plant was located near Marwayne, Alberta and
the licence granted a monopoly on gathering and disposing of
oilfield waste production over a geographic area to be served by
that plant. The trial itself only dealt with this issue.
[4]
The parties filed an agreement of general facts respecting the
dispute which reads:
GENERAL FACTS
1.
The Applicant was continued under the laws of the Province of
Alberta throughout the Assessment Period.
2.
The Applicant was a GST registrant throughout the Assessment
Period.
3.
The Appellant was a "reporting issuer" in the provinces
of Alberta and British Columbia throughout the Assessment
period.
4.
As a consequence of being a reporting issuer, the Appellant was
required to retain independent chartered accountant to audit the
books and records of Cambridge throughout the Assessment Period
and to file such audited financial statements with the Alberta
Securities Commission and the British Columbia Securities
Commission.
5.
The common shares of the Appellant were listed and posted for
trading on the VSE throughout the Assessment Period.
6.
As a term of the listing agreement with the VSE, the Appellant
was required to:
(a)
retain the services of a registrar and transfer agent with
offices in Vancouver;
(b)
apply for and obtain the approval of the VSE with respect to any
share issuances or major transactions;
(c)
pay fees to the VSE as part of its listing agreement.
7.
Skimmer was an Alberta corporation.
8.
Skimmer carried on a waste remediation business with its
principal location being near Marwayne, Alberta.
9.
Skimmer was a GST registrant throughout the Assessment
Period.
10.
Skimmer was engaged exclusively in "commercial
activities" as defined in subsection 123(l) of the Act.
11.
Western Oil was an Alberta corporation.
12.
Western Oil carried on a waste oil remediation business with its
principal location near new Sarepta, Alberta.
13.
Western Oil was a GST registrant throughout the Assessment
Period.
14.
Western Oil was engaged exclusively in "commercial
activities" as defined in subsection 123(1) of the Act
throughout the Assessment Period.
15.
Disposal Wells was an Alberta corporation.
16.
Disposal Wells carried on a business as a waste oil disposal well
with its principal location being near
New Sarepta, Alberta.
17.
Disposal Wells was a GST registrant throughout the Assessment
Period.
18.
Disposal Wells was engaged exclusively in "commercial
activities as defined in subsection 123(1) of the Act.
19.
Western Oil, Disposal Wells, 731059 and Skimmer were amalgamated
and carried on business under the name "Western Oil
Producers Ltd." after the end of the Assessment Period.
20.
Cambridge is to be considered related to Skimmer (from October
1992), Western Oil (from June 1996), Disposal Wells (from
June 1996) and 731059 (from March 1997) for the purposes of the
Act and for the purposes of this appeal.
[5]
An outline of facts in dispute is contained in the following
assumptions from the Reply to the Notice of Appeal which were not
refuted by the evidence. They are assumptions 12 b) to m)
inclusive and 12 s) to v) inclusive.
They read as follows:
12.
In so assessing the Appellant, the Minster relied on,
inter alia, the following assumptions of fact:
...
b)
the Appellant is a GST registrant with GST Registration No.
126659176;
c)
at all material times, the Appellant was a Canadian-based public
company listed on the Vancouver Stock Exchange
("VSE");
d)
throughout the Assessment Period, the Appellant was a holding
company;
e)
in 1993, the Appellant acquired 250 of the 1000 shares
outstanding in Skimmer Oil Separators Ltd.
("Skimmer") (GST Registration No. 127899342) and
was assigned the rights of another corporation to acquire the
remaining 750 shares;
f)
in May 1996, the Appellant acquired the remaining 750 shares
in Skimmer;
g)
the Appellant held an interest in 731059 Alberta Ltd. (GST
Registration No. 884661588);
h)
in November, 1996, the Appellant acquired 100% of the shares in
Western Oil Processors ("Processors") (GST Registration
No. 129566220) and Western Oil Disposal Wells
("Disposal") (GST Registration No. 139523302);
i)
Processors and Disposal were involved in oilfield waste
elimination and resource recovery;
j)
during the Assessment Period, the Appellant's income
consisted of interest on loans to subsidiaries, the redemption of
unexercised options granted in lieu of payment to creditors and
consideration for the supply of an operating authority in the
form of a regulatory licence (the "Licence", as earlier
defined) to Newalta Corporation ("Newalta");
k)
other than in respect of the supply of the Licence to Newalta,
the Appellant did not charge or receive any consideration during
the relevant period for any taxable supplies of property or
services;
l)
the Appellant effected a debt and share restructuring;
m)
the restructuring of the Appellant entailed a private placement
of the Appellant's shares to raise $3.26 million and the
retirement of debt by swapping the debt for shares in the
Appellant;
...
s)
the Appellant sold the Licence to Newalta under an agreement
dated May 22, 1997, amended June 4, 1997;
t)
the Appellant and Newalta were acting at arm's length;
u)
the value of the consideration for the Licence was $349,999;
v)
the GST arising from this transaction was $24,773.
[6]
The Appellant's counsel was at pains in his argument and
presentation of evidence to blame the chartered accountants who
prepared the Appellant's financial statements for an
"error" which resulted in this assessment. In fact, the
assessment and the financial statements prepared by the
accountants follow logically and legally from the actual
documents and agreements executed by the Appellant respecting the
licence. Because it may also relate to other matters, that chain
will be outlined here. However the outline given by the Court is
merely an exposition of the written argument filed by the
Respondent's counsel. At the outset, it should be stated that
the Appellant argued that the Appellant owned the licence in
trust for Skimmer. There is no evidence whatsoever of any such
trust relation by the Appellant or of any agreement between the
two that a trust would or did exist.
[7]
On June 1, 1994 the Alberta Energy Resources Conservation Board
(the predecessor to the AEUB) granted licence WM014 to the
Appellant (Exhibit A-1, Tab 1). The Appellant accepted
licence WM014. The first four paragraphs of that grant outline
the background of that grant to the Appellant. They read:
WHEREAS the Energy Resources Conservation Board, by Approval
No. CW4708, granted approval to Skimmer Oil Separators Ltd. to
construct and operate a waste processing and disposal facility as
described in the application dated 29 October 1986;
and
WHEREAS Cambridge Environmental Systems Inc. acquired Skimmer
Oil Separators Ltd. and then submitted additional information on
their Marwayne facility; and
WHEREAS the Board deems it desirable that a new approval be
issued to replace Approval No. CW4708, subject to the terms and
the conditions herein contained.
THEREFORE the Energy Resources Conservation Board, pursuant to
the Oil and Gas Conservation Act, being chapter 0-5 of the
Revised Statutes of Alberta, 1980, hereby grants to Cambridge
Environmental Systems Inc. (herein after called
"Cambridge") approval to operate an oilfield waste
management facility located in Legal Subdivision 14 of Section
31, Township 51, Range 2 West of the 4th Meridian, as
described in the submission dated 23 March 1994 and the addendum
dated 9 May 1994 and are subject to the following terms and
conditions;
[8]
Skimmer had granted the licence as security respecting monies
received from both Alberta Treasury Branch and Western Economic
Diversification. When they discovered (at an unknown date) that
the Appellant had acquired licence WM014, which allowed the plant
to operate, they demanded that it be returned to Skimmer. The
Appellant first acted on this demand on
January 31, 1996. There is no evidence that the licence
was ever put in Skimmer's name or title after it was granted
to the Appellant on June 1, 1994. Moreover, the clarity of the
licence as quoted would clearly bring to the Appellant's
attention the fact that its licence WM014 had replaced
Skimmer's old licence. On this basis the Court finds that the
Appellant knew after June 1, 1994 that it owned licence WM014 and
the Appellant kept it for its own purposes and benefit. The
licence itself was never specifically recorded as an asset of
Skimmer or of the Appellant in any of their financial statements
except in the financial statement attached to its income tax
return for the year ending June 30, 1997. That is described in
paragraph [12] herein.
[9]
On May 2, 1997 the Appellant and 731059 agreed to sell assets,
including licence WM014 to Newalta Corporation
("Newalta"), (Exhibit A-1, Tab 3). Paragraph 4 states
that "Cambridge would assign or consent to the assignment of
the licence directly to Newalta" (referring to licence
WM014).
[10] "As
of" 4 June, 1997, Cambridge, 731059 and Newalta signed an
"Amending Agreement" to the May 22, 1997 agreement
which agrees in paragraph 2 that the purchase price shall be
allocated to the "licence" in the sum of $349,999.
[11] "As
of the 4th day of June, 1997" Cambridge and Newalta executed
a further assignment agreement (Exhibit R-1, Tab 5) which states,
in full:
THIS ASSIGNMENT AGREEMENT MADE AS OF THE 4TH DAY OF JUNE,
1997.
BETWEEN:
CAMBRIDGE ENVIRONMENTAL SYSTEMS INC.
2010 - 80 Avenue
Edmonton, Alberta T6P 1N2
(hereinafter referred to as "Cambridge")
OF THE FIRST PART
- and -
NEWALTA CORPORATION
c/o 4500 Bankers Hall East
855 - 2nd Street, S.W.
CALGARY, Alberta T2P 4K7
(hereinafter referred to as "Newalta")
OF THE SECOND PART
WHEREAS Cambridge is approved to operate an oilfield waste
management facility by the Alberta Energy Utility Board
("AEUB") under the provisions of The Oil and Gas
Conservation Act being License #WM014, as amended on November
10, 1994 and November 18, 1994 and as further amended pursuant to
AEUB Miscellaneous Order 95099 dated January 3, 1996 as
amended on July 25, 1996 and September 27, 1996 (the
"Cambridge Operating Authority");
NOW WITNESSETH IN CONSIDERATION of the sum of ONE ($1.00) DOLLAR
and other consideration set out in an agreement dated May 22,
1997, as amended, the parties agree as follows:
1.
Cambridge hereby represents and warrants to Newalta that it is
the sole legal and beneficial owner of the Cambridge Operating
Authority and it is entitled to assign same as here contemplated
free and clear of all liens, charges and encumbrances.
2.
Cambridge hereby assigns to Newalta absolutely all of its right,
title and interest in and to the Cambridge Operating Authority
free and clear of all liens, charges and encumbrances.
3.
The parties hereto shall execute such further documents and give
such further assurances as may be required to give effect to this
Assignment Agreement.
IN WITNESS WHEREOF the parties hereto have executed this
Assignment Agreement as of the day and year first above
written.
CAMBRIDGE ENVIRONMENTAL SYSTEMS INC.
PER:
____"signature"_________________________
NEWALTA CORPORATION
PER:
_____"signature"_________________________
[12] Thereupon
Cambridge filed its income tax return for the year ending
June 30, 1997 (signed by Mr. Donaldson) in which it recorded
"Gain on sale of Skimmer license" as $349,999.
[13] The
evidence is clear that the Appellant owned licence WM014 and sold
it to Newalta for $349,999 as agreed on May 22, 1997 and June 4,
1997. The parties were at arm's length and so agreed. The
Appellant itself set all of those facts out clearly in writing.
The appeal respecting this issue is dismissed.
[14] The
Respondent is awarded party and party costs for this
proceeding.
Signed at Saskatoon, Saskatchewan, this 6th day of May, 2002.
"D. W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
2000-1291(GST)G
STYLE OF
CAUSE:
Cambridge Environmental Systems Inc. v.
Her Majesty the Queen
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
April 24 and 25, 2002
REASONS FOR JUDGMENT BY: The
Honourable Judge D. W. Beaubier
DATE OF
JUDGMENT:
May 6, 2002
APPEARANCES:
Counsel for the Appellant: Gregory J. Leia
Counsel for the
Respondent:
Julia S. Parker
COUNSEL OF RECORD:
For the
Appellant:
Name:
Gregory J. Leia
Firm:
Wolff Leia Huckell
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1291(GST)G
BETWEEN:
CAMBRIDGE ENVIRONMENTAL SYSTEMS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 24 and 25, 2002 at
Edmonton, Alberta, by
the Honourable Judge D. W. Beaubier
Appearances
Counsel for the
Appellant:
Gregory J. Leia
Counsel for the
Respondent:
Julia S. Parker
JUDGMENT
The
appeal from the assessment made under the Excise Tax Act,
notice of which is dated July 3, 1998 and bears number
00000000753, is allowed and the assessment is referred to the
Minister of National Revenue for reconsideration and reassessment
pursuant to the Notice of Agreement attached to the Reasons for
Judgment.
The
Respondent is awarded party and party costs.
Signed at Saskatoon, Saskatchewan, this 6th day of May,
2002.
J.T.C.C.
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