Sourani v. The Queen, docket 91-2631-IT-G

Date: 20020403

Docket: 91-2631-IT-G

BETWEEN:

RON S. SOURANI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Order

Mogan J.

[1]            By Notice of Motion dated December 20, 2001, the Respondent seeks an order dismissing the Appellant's appeal with respect to his 1983 taxation year. By Notice of Motion dated February 20, 2002, the Appellant seeks first an order compelling Revenue Canada to produce certain documents and to disclose certain information; and second an order adjourning the Respondent's Motion until the documents have been produced. Both Motions were set down for hearing at Toronto on Monday, March 18, 2002. The Appellant represented himself and Ms. Annette Evans was counsel for the Respondent. After hearing both parties on the question of which Motion should be heard first, I decided to hear the Respondent's Motion first and the Appellant's Motion immediately thereafter.

The Respondent's Motion

[2]            The Respondent seeks an order dismissing the Appellant's appeal with respect to his 1983 taxation year. The motion is simple but the history of this appeal is complicated. The Appellant (Mr. Sourani) is one of approximately 300 taxpayers who were clients of J.K. Maguire & Associates ("Maguire") in the period 1983 to 1987. Maguire had developed a tax avoidance strategy for its clients. Revenue Canada challenged the Maguire tax avoidance strategy and issued assessments to approximately 300 taxpayers (including Mr. Sourani) which had the effect of disallowing the tax advantage that Maguire had hoped to achieve. As a result, there were about 300 appeals launched in this Court and, in most of those appeals, the issues were identical. The appeals fall into two general categories: (i) the investment club strategy; and (ii) the convertible hedge strategy. Mr. Sourani's appeal was under the investment club strategy.

[3]            Eventually, a husband/wife appeal came to Court as a test case. The appeals of Thomas and Lois Schultz were decided by this Court in 1993 (93 DTC 953) and by the Federal Court of Appeal in 1995 (95 DTC 5657). The decision of the Federal Court of Appeal in Schultz was delivered on November 2, 1995. Donald Zaldin was counsel for all of the Maguire clients (approximately 300) who appealed to this Court against assessments for the taxation years 1983 to 1987. While the Schultz appeals were proceeding from this Court to a decision in the Federal Court of Appeal, Mr. Zaldin and counsel for the Respondent entered into two written agreements concerning the other appeals (including the appeal of Ron Sourani). The first agreement is dated April 28, 1995 and, because it is short, the entire agreement is set out below:

TAX COURT OF CANADA

B E T W E E N:

D. BRUCE RIVERS, and the Appellants listed in

Schedule (a) hereto,

Appellants

- and -

HER MAJESTY THE QUEEN,

Respondent

AGREEMENT

                The parties agree that with respect to all of the Appellants save those listed in paragraph (a) of the Order of Judge Bonner dated August 18, 1994, the issue remaining to be decided by the Tax Court of Canada is with respect to whether the Minister of National Revenue exercised his statutory duty described in paragraph 165(3) of the Income Tax Act with all due dispatch, and, if not, the legal consequences arising therefrom.

                With respect to those Appellants listed in paragraph (a) of the Order of Judge Bonner, the Appellants limit the issue with respect to the Investment Club strategy as to whether or not the Minister of National Revenue exercised his statutory duty pursuant to paragraph 165(3) of the Income Tax Act with all due dispatch, and, if not, the legal consequences arising therefrom.

                For greater clarity, the Appellants listed in paragraph (a) of the Order of Judge Bonner may raise all issues pleaded in the Notices of Appeal with respect only to the hedge strategy.

                DATED at Toronto, this 28th day of April, 1995.

[4]            Having regard to the terms of the first agreement, I infer that the Appellants listed in paragraph (a) of Judge Bonner's Order were those taxpayers who used the convertible hedge strategy and, perhaps, also the investment club strategy. Otherwise, the above agreement speaks for itself. The second agreement between Mr. Zaldin and counsel for the Respondent is dated May 25, 1995. Because this second agreement is longer than the first, it is summarized in paragraph 6 below.

[5]            I will endeavour to state what I regard as the substance of the first agreement. Those taxpayers who were appealing only the investment club strategy agreed that they would argue only the question of whether the Minister exercised his duty under paragraph 165(3)(a) of the Income Tax Act with "all due dispatch" and, if not, the legal consequences therefrom. Other taxpayers (sometimes referred to as "Hybrid Appellants" because they were appealing both the investment club strategy and the convertible hedge strategy) agreed that (i) with respect to the investment club strategy, they would argue only the question of "all due dispatch" like the taxpayers who were appealing only the investment club strategy; and (ii) with respect to the convertible hedge strategy, they could argue all issues pleaded in their Notices of Appeal.

[6]            According to the second agreement, in seven numbered paragraphs the parties agreed respectively as follows:

1.              The Investment Club Appellants would accept the ultimate decision of the Federal Court of Appeal (or if applicable, the Supreme Court of Canada) in Schultz concerning the "all due dispatch" issue; thereby reversing in part their prior agreement of April 28, 1995.

2.              All investment club appeals were adjourned until after the ultimate decision of an appellate court in Schultz.

3.              The Hybrid Appellants would accept the ultimate decision of the Federal Court of Appeal (or the Supreme Court of Canada) in Schultz concerning the "all due dispatch" issue and the void-for-vagueness issue in subsection 245(1).

4.              The Hybrid Appellants abandoned three other issues.

5.              Immediately after the ultimate decision of an appellate court in Schultz, the Hybrid Appellants would consider the manner in which the convertible hedge strategy issue had been dealt with, and would inform this Court as to whether some of the Hybrid Appellants would consent to judgment with respect to such issue.

6.              Counsel agreed to prosecute the Schultz appeal expeditiously.

7.              Consents to Judgment in accordance with paragraph 1 and paragraph 3 would be filed within 90 days after the ultimate decision of an appellate court in Schultz.

[7]            The Federal Court of Appeal delivered extensive reasons for judgment in Schultz on November 2, 1995 (95 DTC 5657) considering, inter alia, the investment club strategy, the convertible hedge strategy which included the partnership issue, and the "all due dispatch" issue. In the Respondent's Motion Record, the list of documents to be used at the hearing included document no. 7, the Respondent's Notice of Motion dated July 5, 1996; and document no. 8, the affidavit of Nancy Arnold sworn on July 4, 1996 in support of the Respondent's Notice of Motion. I rely on the affidavit of Nancy Arnold and the Respondent's Motion dated July 5, 1996 to establish the following facts:

1.              Leave to appeal to the Supreme Court of Canada in Schultz was refused on May 23, 1996.

2.              Mr. Zaldin, counsel for all the Investment Club Appellants, did not file Notices of Discontinuance in this Court.

3.              The Respondent filed a Notice of Motion with this Court on July 5, 1996, seeking (inter alia) judgments dismissing all of the appeals listed on a schedule attached to the Notice (including the appeal of Ron Sourani, Court File No. 91-2631(IT)G).

[8]            The Respondent's Motion filed on July 5, 1996 was heard by Judge Rip of this Court on July 17, 1996 and, on February 4, 1997, Judge Rip issued his Order on the Respondent's Motion and Reasons for that Order are reported at 97 DTC 175. In summary, Judge Rip dismissed all of the investment club appeals (including the appeal of Ron Sourani, Court File No. 91-2631(IT)G); and ordered Mr. Zaldin to pay $10,279.64 toward the Respondent's total costs of $98,479.64. There were a number of appeals taken to the Federal Court of Appeal from Judge Rip's Order.

[9]            Donald Zaldin appealed from that part of Judge Rip's Order which required him (Zaldin) to contribute $10,279.64 toward the Respondent's costs. The Federal Court of Appeal allowed Mr. Zaldin's appeal (2000 DTC 6403) by oral judgment delivered June 8, 2000, and quashed paragraph 3(b) of Judge Rip's Order. George Vasiga appealed from paragraph 2 of Judge Rip's Order which purported to allow the Hybrid appeals and to refer them back to the Minister for reassessment on the basis that any amounts allowed by the Minister on an agency basis (arising from convertible hedge transactions) be allowed on a partnership basis. The Federal Court of Appeal allowed Mr. Vasiga's appeal (2000 DTC 6405) by oral judgment also delivered June 8, 2000, ordering that the parties return to their position prior to Judge Rip's Order so that they could settle or proceed to discovery and trial as required.

[10]          Ron Sourani (the Appellant in this Motion by the Respondent) appealed from paragraph 1 of Judge Rip's Order which purported to dismiss all of the investment club appeals. Mr. Sourani's appeal was heard in the Federal Court of Appeal by the same panel of Judges who had heard and decided the appeals of Zaldin and Vasiga, but it appears that the Sourani appeal was heard many months after the appeals of Zaldin and Vasiga. The Federal Court of Appeal allowed Mr. Sourani's appeal (2001 DTC 5393). Reviewing what the Federal Court of Appeal stated when allowing Mr. Sourani's appeal, I regard the following paragraphs as particularly important:

[2]            In the Vasiga appeal, this panel found an absence of procedural fairness in the proceedings leading to the February 4, 1997 Tax Court judgment. As these same proceedings and judgment involved Mr. Sourani, his appeal in this case should also be allowed and the matter should be remitted to a different judge of the Tax Court of Canada for redetermination.

[6] Mr. Sourani's counsel had the ostensible authority to sign the agreements dated April 28, 1995 and May 25, 1995. Mr. Sourani is accordingly bound by those agreements and the authority of his lawyer to enter into them is not an issue for redetermination by the Tax Court. I make no comment on whether Mr. Sourani may have recourse against his counsel in any other forum.

[7] Mr. Sourani's appeal is an "Investment Club" appeal. Proceedings on redetermination by the Tax Court shall be limited to the matters raised in the Minister's motion for judgment in the Tax Court dated July 5, 1996, as they pertain to Investment Club appeals.

[11]          The reference to the Vasiga appeal is important because it was in Vasiga that the Federal Court of Appeal found "an absence of procedural fairness". In Vasiga (2000 DTC 6405), the issue was whether Mr. Vasiga, through his counsel, had consented to the judgment and order of Judge Rip dated February 4, 1997. The Federal Court of Appeal recited the documents before them in Vasiga; concluded that the documents taken together created confusion; and also concluded that the same documents raised their concern as to the nature of Mr. Vasiga's consent to judgment and whether such consent was given. It must be remembered, however, that Mr. Vasiga was a Hybrid Appellant, and many of the Hybrid appeals were to be allowed to recognize a partnership. It is possible that, in the Respondent's Motion before Judge Rip, the Respondent assumed that the only relief available to any Hybrid Appellant was recognition of the partnership basis over the agency basis for convertible hedge transactions. In those circumstances, the Federal Court of Appeal decided that Mr. Vasiga "should not be denied his day in court".

[12]          Although there may have been a lack of procedural fairness in the proceeding of July 17, 1996 before Judge Rip, the consequences of that unfairness for an Investment Club Appellant (like Mr. Sourani) may be quite different from the consequences for a Hybrid Appellant (like Mr. Vasiga). The Federal Court of Appeal seems to have been most conscious of that distinction. Mr. Vasiga was given "his day in court" either to settle or to proceed to trial. Mr. Sourani's redetermination by a different judge of this Court is limited to "matters raised in the Minister's motion for judgment in the Tax Court dated July 5, 1996, as they pertain to Investment Club appeals".

[13]          The Respondent brought this Motion in December 2001 following the decision of the Federal Court of Appeal on June 4, 2001 concerning Ron Sourani (2001 DTC 5393). For the "guidance" of this Court (see paragraph 3 of the reasons at page 5394), the Federal Court of Appeal confirmed that Mr. Sourani is bound by the two agreements of counsel dated April 28, 1995 and May 25, 1995. The first agreement is set out in paragraph 3 above, and the second agreement is summarized in paragraph 6 above.

[14]          The Respondent's Motion Record contains the pleadings. The Notice of Appeal dated December 3, 1991 (document no. 3) is from a reassessment for the 1983 taxation year; and it raises the following issues:

(i)             whether the Minister responded to the Appellant's Notice of Objection "with all due dispatch" under paragraph 165(3)(a) of the Income Tax Act given that the objection was in June 1987 and the confirmation was in October 1991 (52 months);

(ii)            whether the Minister committed an abuse of process/rights of the Appellant when issuing the Notice of Confirmation;

(iii)           whether the Minister could justify increasing the Appellant's income by the Notice of Reassessment;

(iv)           whether subsection 245(1) of the Act should be struck down for being too vague; and

(v)            whether the Minister infringed upon the Appellant's rights under sections 7, 12 and 15 of the Charter of Rights and Freedoms.

The Respondent's Reply dated February 27, 1992 raised six additional issues not contained in the Notice of Appeal but the six additional issues are not relevant for the purpose of the Respondent's Motion and these reasons.

[15]          The Respondent's Motion seeks an order dismissing the Appellant's appeal with respect to his 1983 taxation year. My primary concern is whether the Respondent's Motion can be the "redetermination" required by the Federal Court of Appeal in its decision at pages 5393-5394:

[2]            ... As these same proceedings and judgment involved Mr. Sourani, his appeal in this case should also be allowed and the matter should be remitted to a different judge of the Tax Court of Canada for redetermination.

[3]            For the guidance of the Tax Court, I would make the following observations. ...

In paragraph 10 above, I set out all of paragraphs 6 and 7 of the reasons of the Federal Court of Appeal because those paragraphs contain the essence of the "guidance" from that Court. If the Respondent had not brought this Motion, and if this Court had simply rescheduled the appeal herein for redetermination, would the Respondent's position on such rescheduling be any different from its position on this Motion? I think not.

[16]          Any judge of this Court attempting a redetermination of Mr. Sourani's appeal or the Minister's Motion would be restricted by the following documents and proceedings:

(a)            the issues raised in the Notice of Appeal;

(b)            the written agreements of counsel dated April 28, 1995 and May 25, 1995 which the Federal Court of Appeal decided are binding on Mr. Sourani; and

(c)            matters raised in the Respondent's Motion of July 5, 1996 with respect to the Investment Club appeals, per paragraph 7 of the reasons of the Federal Court of Appeal.

The issues raised in the Notice of Appeal are summarized in paragraph 14 above. The written agreements of counsel are directly related to those issues. In the first agreement of April 1995, the Investment Club Appellants agreed that they would argue only the question of whether the Minister exercised his duty under paragraph 165(3)(a) of the Act with "all due dispatch" and, if not, the legal consequences therefrom. See paragraphs 3, 4 and 5 above. In the second agreement of May 1995, the Investment Club Appellants agreed that they would accept the ultimate decision of the Federal Court of Appeal in Schultz concerning the "all due dispatch" issue.

[17]          In Schultz, the Federal Court of Appeal clearly decided the "all due dispatch" issue against the taxpayers. Delivering judgment for the Court, Stone J.A. stated in paragraphs 36 and 37:

36             In my view, the appellants have not shown that the Tax Court Judge erred in concluding that the Minister had acted with "all due dispatch" in the circumstances. These transactions were indeed numerous and complicated. ... I am further of the view that the words "with all due dispatch" did not bind the Minister to fixed time limits. Indeed, it has been suggested that they confer a "discretion of the Minister to be exercised, for the good administration of the Act, with reason, justice and legal principles", (per Fournier J. in Jolicoeur v. M.N.R., 60 DTC 1254 (Ex. Ct.), at page 1261. ...

37             I am also of the view that the appellants could have appealed the reassessments pursuant to paragraph 169(b) of the Act. That paragraph provides:

169 ...

The delays on the part of the Minister in confirming his reassessments did not stand in the way of the appellants launching and pursuing appeals in the Tax Court of Canada under that paragraph. (See Jolicoeur, supra, at pages 1260-1261.) The appellants can scarcely be heard to complain of undue delays on the part of the Minister when, had they wished to do so, they could have attacked his reassessments in the Tax Court of Canada notwithstanding that they had not yet received his confirmations. ...

[18]          The decision of the Federal Court of Appeal in Schultz concerning the "all due dispatch" issue is consistent with the decision of the same Court on the same issue in Bolton v. The Queen, 96 DTC 6413, and with the decision of the late Associate Chief Judge Christie of this Court in Apfelbaum v. M.N.R., 91 DTC 800.

[19]          In argument, Mr. Sourani took comfort from the following statement of Stone J.A. in Schultz at paragraph 33:

33             I turn next to the issue of whether the Minister acted with "all due dispatch" in confirming his reassessments for the taxation years 1984, 1985, 1986 and 1987. If he failed to do so then the reassessments would have to be vacated. ...

This statement is not consistent with what Stone J.A. later stated in paragraphs 36 and 37 (quoted above) and is also in conflict with the Federal Court of Appeal decision in Bolton (96 DTC 6413) where Hugessen J.A., writing for the Court, stated:

... Parliament clearly did not intend that the Minister's failure to reconsider an assessment with all due dispatch should have the effect of vacating such assessment. If the Minister does not act, the taxpayer's recourse is to appeal pursuant to s. 169 ...

When Judge Rip of this Court delivered his reasons on February 4, 1997, he described the above statement by Stone J.A. in paragraph 33 as obiter dicta. I am satisfied that it was either obiter or simply a casual comment in conflict with what the learned Appellate Judge later said in paragraph 37 about the taxpayer's remedy under section 169.

[20]          In the first written agreement of counsel in April 1995, the parties agreed that the Investment Club Appellants would argue only the "all due dispatch" issue. And in the second agreement in May 1995, the parties agreed that they would consent to judgment in terms consistent with the decision of the Federal Court of Appeal in Schultz regarding the "all due dispatch" issue. The Federal Court of Appeal decided the "all due dispatch" issue conclusively against Schultz.

[21]          Paragraph one of the second agreement refers to the issues of "all due dispatch" and the consequences if the Minister did not so act. Paragraph two of the second agreement states:

2.              As these are the only issues outstanding in the Investment Club/B.P. Appeals by virtue of the agreement of April 28, 1995, the parties agree to have the hearing of these appeals adjourned until the Schultz appeals are ultimately disposed of by the Federal Court of Appeal (or if applicable, the Supreme Court of Canada).

I am satisfied that the "all due dispatch" issue was the only issue outstanding between the Respondent and the Investment Club Appellants after the first written agreement of counsel; and that all Investment Club Appellants were bound by the decision of the Federal Court of Appeal in Schultz concerning "all due dispatch" after the second written agreement of counsel. Mr. Sourani is an Investment Club Appellant.

[22]          Accordingly, I see no remaining issue between Mr. Sourani and the Respondent. Having regard to the two written agreements of counsel and the decision of the Federal Court of Appeal in Schultz on the "all due dispatch" issue, I conclude that the Respondent's Motion to dismiss Mr. Sourani's appeal is consistent with the direction from the Federal Court of Appeal to redetermine Mr. Sourani's appeal or the Minister's Motion of July 5, 1996 recognizing the validity of the two written agreements of counsel. I will therefore dismiss Mr. Sourani's appeal for the 1983 taxation year. The Respondent is entitled to costs in the amount of $300.

The Appellant's Motion

[23]          As a consequence of my decision to grant the Respondent's Motion and dismiss the Appellant's appeal for 1983, it is not necessary to consider the merits of the Appellant's Motion. I do, however, wish to comment on certain arguments which the Appellant made in Court.

[24]          Mr. Sourani emphasized his willingness to cooperate with Revenue Canada in its audit of his 1983 taxation year. He described a particular envelope which he hand-delivered to Revenue Canada on June 15, 1983. He was attempting to distinguish his case from Schultz where the Federal Court of Appeal described in paragraph 34 how the Minister had to resort to a requirement pursuant to section 231.2 because the Schultz advisor failed to provide requested information. I believe Mr. Sourani's testimony and I have no difficulty concluding that he attempted to cooperate with Revenue Canada.

[25]          One of Mr. Sourani's problems is that his cooperation with Revenue Canada is irrelevant. After his counsel (Mr. Zaldin) signed the two agreements of April 28, 1995 and May 25, 1995, the conduct and result of Mr. Sourani's personal appeal for 1983 was out of his hands, and would be determined by the Federal Court of Appeal decision in Schultz with respect to the "all due dispatch" issue. There was no other issue outstanding between Mr. Sourani and the Respondent. Mr. Sourani's Motion is dismissed, without costs.

Signed at Ottawa, Canada, this 3rd day of April, 2002.

"M.A. Mogan"

J.T.C.C.

COURT FILE NO.:                                                 91-2631(IT)G

STYLE OF CAUSE:                                               Ron S. Sourani and Her Majesty the Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           March 18, 2002

REASONS FOR ORDER BY:                               The Honourable Judge M.A. Mogan

DATE OF ORDER:                                                April 3, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              H. Annette Evans

COUNSEL OF RECORD:

For the Appellant:                

Name:                                N/A

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

91-2631(IT)G

BETWEEN:

RON S. SOURANI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Motions heard on March 18, 2002, at Toronto, Ontario

the Honourable Judge M.A. Mogan

Appearances

For the Appellant:                                The Appellant himself

Counsel for the Respondent:                H. Annette Evans

ORDER

          Upon motion by the Respondent for an order dismissing the Appellant's appeal from an assessment of tax made under the Income Tax Act for the 1983 taxation year;

          And upon reading the pleadings, the written agreements of counsel dated April 28, 1995 and May 25, 1995, and selected decisions of the Federal Court of Appeal;

          And upon hearing the Appellant and counsel for the Respondent;

          It is ordered that the Respondent's motion is allowed with costs in the amount of $300; and

It is further ordered that the appeal from an assessment of tax made under the Act for the 1983 taxation year is dismissed.

          Upon motion by the Appellant for an order compelling Revenue Canada to produce certain documents and disclose certain information; and for an order adjourning the hearing of the Respondent's motion;

          And upon reading the affidavit of the Appellant;

          And upon hearing the Appellant and counsel for the Respondent;

          It is ordered that the motion is dismissed, without costs.

Signed at Ottawa, Canada, this 3rd day of April, 2002.

"M.A. Mogan"

J.T.C.C.