Citation: 2010TCC644
Date: 20101220
Docket: 2009-398(IT)G
BETWEEN:
ALLAN McEWAN HUPPE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Webb, J.
[1]
The Appellant brought a
motion to enforce an agreement to settle his appeal that the Appellant alleges
was made between the Appellant and the Respondent.
[2]
The Respondent does not
agree that the parties had reached an agreement to settle this appeal and in
any event it is the position of the Respondent that even if an agreement had
been reached to settle this appeal that the Respondent is not bound by any such
agreement.
[3]
The Appellant filed an
affidavit which sets out the facts as alleged by the Appellant in relation to
the settlement agreement that the Appellant states was reached between the Appellant
and the Respondent. A status hearing was scheduled for the Appeal and at the
commencement of the status hearing the Appellant raised the issue of the motion
that he had filed. The Respondent was clearly taking the position that even if
a settlement agreement had been reached, it was not bound by any such
agreement. It therefore seemed to me that the preliminary question of whether
the Respondent is correct should be addressed before witnesses were subjected
to examination and cross examination. As well there is an additional issue of
whether counsel for the Respondent may also be a witness.
[4]
The following question
was submitted to the parties:
Assume that an agreement to settle an appeal (that has been filed
with this Court) has been reached between a taxpayer and the Respondent. Assume
that this agreement was not reached at or following a settlement conference
with a Judge of this Court but by the parties negotiating on their own. Assume that
the Respondent subsequently notifies the taxpayer that the Respondent will not
be following the agreement and is taking the position that the Respondent is
not bound by the agreement. Does this Court have the jurisdiction to enforce
the agreement?
[5]
The parties agreed to
provide written submissions in relation to this question on or before the
following dates:
By the Appellant – on or before August 31, 2010;
By the Respondent – on or before September 30, 2010; and
If the Appellant chooses to make submissions in response to the
written submissions of the Respondent, such submissions shall be filed on or
before October 15, 2010.
[6]
The Appellant and the
Respondent each provided written submissions. However both parties provided
submissions before Justice Bowie rendered his decision in 1390758 Ontario Corporation v. The Queen, 2010 TCC 572 on November 4, 2010. In his decision, Justice Bowie noted
that:
16 The
question whether the Minister and a taxpayer may enter into a binding
settlement agreement in respect of the taxpayer's liability for tax under the Act
has arisen in at least seven cases since 1972. As has been observed by others,
some of the decisions are difficult to reconcile.
[7]
After reviewing the
various decisions, Justice Bowie stated as follows:
35 I
agree with Bowman C.J. and the authors Hogg, Magee and Li that there are sound
policy reasons to uphold negotiated settlements of tax disputes freely arrived
at between taxpayers and the Minister's representatives. The addition of
subsection 169(3) to the Act in 1994 is recognition by Parliament of
that. It is not for the Courts to purport to review the propriety of such
settlements. That task properly belongs to the Auditor General.
36 The
reality is that tax disputes are settled every day in this country. If they
were not, and every difference had to be litigated to judgment, unmanageable
backlogs would quickly accumulate and the system would break down.
37 The
Crown settles tort and contract claims brought by and against it on a regular
basis. There is no reason why it should not settle tax disputes as well. Both
sides of a dispute are entitled to know that if they invest the time and effort
required to negotiate a settlement, then their agreement will bind both
parties.
38 I
have come to the conclusion, contrary to the views of Bowman C.J. and Professor
Hogg to which I have referred, that it is possible to reconcile the decision in
Smerchanski and Cohen.
39 The
decisions in Galway and Cohen are grounded in the perceived
illegality of the assessments that the Minister would have to make in order to
consummate those settlements. In Smerchanski there was no suggestion
that the assessments were anything other than the result that flowed from the
application of the law to the facts that were revealed by the audit. It is
obvious, surely, that in the course of the litigation process additional facts
may come to light, and some facts that the Minister may have thought to be true
turn out not to be. It is even possible that the Minster may, in the course of negotiations,
be persuaded that his initial view of the law was not totally correct.
40 In
the present case, I have no reason to believe that the reassessments that the
Minister has already made of both the corporation and Peter Tindall, or the
redeterminations that will be made of Susan Tindall's CTB entitlements, are not
justifiable on the facts and the law. Put another way, the results agreed to
are results that could be arrived at following the trial of all three cases on
their merits. That being so, it is Smerchanksi, and not Cohen and
Galway, that applies.
[8]
In Galway v.
Minister of National Revenue, [1974]
1 F.C. 600 (FCA) the issue was whether the amount of $200,500 should have been
included in the taxpayer’s income. Either the full amount would have been
included in income or no portion of it would have been included in income. In Cohen
v. The Queen, 78 DTC 6099 (FCTD); affirmed 80 DTC 6250, the issue
was whether the gain of $105,603.75
realized on the sale of certain lands should be included in the taxpayer’s
income as income from a business or not included in his income on the basis
that it was a non-taxable capital gain. In both cases either the full amount
would have been included in income or no amount would have been included in
income. There was no middle ground.
[9]
In Garber v.
The Queen, 2006 FCA 177, the Appellants had alleged that a settlement
agreement that had been reached in 1994 but which was repudiated shortly
thereafter by the Crown, was still enforceable. The Appellants had accepted the
repudiation and continued to negotiate with the Crown. It appears that the
Appellants did not attempt to enforce the settlement agreement until the matter
continued to this Court following the discontinuance of the settlement
discussions in 2005.
[10]
Given the absence of
any attempt to enforce the agreement reached in 1994 until after the expiration
of over 10 years and after the apparent acceptance by the Appellants of the
repudiation, it does not seem surprising that the agreement reached in 1994 was
not found to be enforceable against the Crown.
[11]
In this case the
Appellant was reassessed to deny the following expenses that the Appellant had
claimed in computing his income for 1998:
|
Item
|
Amount
|
|
Office expenses
|
$12,000.00
|
|
Legal, accounting and other professional fees
|
$104,918.14
|
|
Rent
|
$77,121.20
|
|
Travel
|
$45,000.00
|
|
Telephone and utilities
|
$12,000.00
|
|
Investment expense (Loss)
|
$89,655.00
|
|
Total:
|
$340,694.34
|
[12]
The Appellant was also
reassessed to deny the expenses claimed in 1998 in the amount of $26,821.70 that
the Appellant claimed were expenses related to the business use of his home
that were carried forward from his 1997 taxation year.
[13]
It seems to me that
this case can be distinguished from Galway, Cohen and Garber. This is not a case whether it is all or nothing and
this is not a case where the Appellant continued to negotiate following the
repudiation by the Crown. As a result I do not agree with the position of the
Crown that the Crown is simply not bound even if there was an agreement to
settle this Appeal.
[14]
If the Appellant should
be able to establish that there was an agreement to settle the appeal, the
remedy that the Appellant would be seeking is specific performance, which is
generally an equitable remedy. In Pro
Swing Inc. v. Elta Golf Inc., [2006] 2 S.C.R. 612, Justice Deschamps, writing on
behalf of a majority of the Justices of the Supreme Court of Canada, stated
that:
22 At
common law, the typical remedy is an award for damages. However, a wide range
of equitable remedies are available, and they take various forms. Their
commonality is that they are awarded at the judge's discretion. Judges do not
apply strict rules, but follow general guidelines illustrated by such maxims as
"Equity follows the law", "Delay defeats equities",
"Where the equities are equal the law prevails", "He who comes
to equity must come with clean hands" and "Equity acts in personam"
(Hanbury & Martin Modern Equity (17th ed. 2005), at paras. 1-024 to
1-036, and I. C. F. Spry, The Principles of Equitable Remedies: Specific
Performance, Injunctions, Rectification and Equitable Damages (6th ed.
2001), at p. 6). The application of equitable principles is largely dependent
on the social fabric. As Spry puts it:
... the maxims of equity are of significance, for they reflect the
ethical quality of the body of principles that has tended not so much to the
formation of fixed and immutable rules, as rather to a determination of the
conscionability or justice of the behaviour of the parties according to
recognised moral principles. This ethical quality remains, and its presence
explains to a large extent the adoption by courts of equity of broad general
principles that may be applied with flexibility to new situations as they
arise.[p. 6]
23 The
traditional rule does not leave any room for discretion as regards such
considerations or forms of relief. In contrast, equitable orders are crafted in
accordance with the specific circumstances of each case. The most relevant
equitable remedies for the purposes of the present case are specific
performance, that is, an order by the court to a party to perform its
contractual obligations, and the injunction, that is, an order to a party to do
or refrain from doing a particular act.
[15]
Justice Sobier made the
following comments on whether this Court is a court of equity in Sunil
Lighting Products v. Minister of National Revenue, [1993]
T.C.J. No. 666:
18 The jurisprudence clearly affirms that the Tax Court of Canada is not a court of equity and its jurisdiction is based within its enabling statute*.
In addition, the Court cannot grant declaratory relief given that such relief
is beyond the jurisdiction of the Court*. In an income tax appeal, the Court's
powers are spelled out in subsection 171(1) of the Income Tax Act.
Consequently, these powers essentially entail the determination of whether the
assessment was made in accordance with the provisions of the Income Tax Act*.
(* denotes a
footnote reference that was in the original text but which has not been
included.)
[16]
This Court is not a
Court of equity and therefore, absent some specific authority, cannot grant the
remedy of specific performance. The jurisdiction of this Court is specified by
section 12 of the Tax Court of Canada Act. This section provides in part
that:
12. (1) The
Court has exclusive original jurisdiction to hear and determine references
and appeals to the Court on matters arising under the Air
Travellers Security Charge Act, the Canada Pension Plan, the Cultural
Property Export and Import Act, Part V.1 of the Customs Act, the Employment
Insurance Act, the Excise Act, 2001, Part IX of the Excise Tax
Act, the Income Tax Act, the Old Age Security Act,
the Petroleum and Gas Revenue Tax Act and the Softwood Lumber
Products Export Charge Act, 2006 when references or appeals
to the Court are provided for in those Acts.
(emphasis added)
[17]
Subsection 171(1) of
the Income Tax Act (the “Act”) provides that:
171. (1) The
Tax Court of Canada may dispose
of an appeal by
(a) dismissing
it; or
(b) allowing it
and
(i) vacating the
assessment,
(ii) varying the
assessment, or
(iii) referring
the assessment back to the Minister for reconsideration and reassessment.
[18]
Therefore this Court
has been granted the jurisdiction to determine appeals under the Act and
in relation to such appeals has been granted the power to allow an appeal and
to grant the remedies provided in paragraph 171(1)(b) of the Act including
the power to vary the assessment or refer the assessment back to the Minister
for reconsideration and reassessment. Since the remedy that the Appellant would
be seeking (since the Appellant indicated that the matter was settled) would be
to vary the assessment or to refer the matter back to the Minister for
reconsideration and reassessment, and since this Court has been specifically granted
the power to order this remedy in disposing of an appeal, it seems to me that
this Court does have the jurisdiction to enforce the agreement (by allowing the
appeal and varying the assessment or referring the assessment back to the
Minister for reconsideration and reassessment), if the Appellant can establish
that such an agreement was made in this case. For any of the remedies as
provided in paragraph 171(1)(b) of the Act, this Court does not
need to be a court of equity to grant such remedy as this Court has been
granted the power to grant these specific remedies. If, however, specific
performance of the contract would require the granting of any remedy other than
one of the remedies as provided in paragraph 171(1)(b) of the Act, then
this Court would not have the jurisdiction to grant such remedy.
[19]
There is one other
matter that the parties should consider. It will be necessary to hear evidence
to determine whether an agreement was reached in this case. It appears from the
affidavit of the Appellant that Frédéric Morand, who appeared on behalf of the
Respondent, could be a witness at the hearing as the Appellant has indicated
that the settlement discussions took place between the Appellant and Frédéric
Morand. Mr. Morand indicated that he would not be testifying as the auditor
knew as much as he did. However, there is no rule that would allow a person who
is subpoenaed or who is called as a witness in a hearing to appoint someone
else to testify in their place.
[20]
In the Rules of
Professional Conduct of the Law Society of Upper Canada, Rule 4.02(2) and
the commentary that follows provide as follows:
4.02 THE LAWYER AS WITNESS
Submission of Testimony
(2) Subject to any contrary provisions of the
law or the discretion of the tribunal before which a lawyer is appearing, a
lawyer who appears as advocate shall not testify before the tribunal unless
permitted to do so by the rules of court or the rules of procedure of the
tribunal, or unless the matter is purely formal or uncontroverted.
Commentary
A lawyer should not express
personal opinions or beliefs or assert as a fact anything that is properly
subject to legal proof, cross-examination, or challenge. The lawyer should not
in effect appear as an unsworn witness or put the lawyer's own credibility in
issue. The lawyer who is a necessary witness should testify and entrust the
conduct of the case to another lawyer. There are no restrictions on the
advocate's right to cross-examine another lawyer, however, and the lawyer who
does appear as a witness should not expect to receive special treatment because
of professional status.
[21]
It seems to me that it
would not be appropriate for Frédéric Morand to be both an advocate and a
witness at the same hearing. It also seems to me that given the direct involvement
of Frédéric Morand in the negotiations with the Appellant there is a
significant risk that he will either be subpoenaed or called to testify or that
he will want to testify. The Appellant could subpoena Frédéric Morand or could
call him as a witness if he is attendance without being subpoenaed. Therefore,
it is not entirely the decision of Frédéric Morand whether he will testify. If
he is subpoenaed or is called to testify he cannot designate someone else to
testify instead of himself. Even if he is not subpoenaed or called to testify there
is a risk that after the commencement of the hearing he may want to testify. What
will happen if Frédéric Morand should call the auditor to testify but either
the auditor does not recall a particular part of what was said or the
recollection of the auditor of what was said is not the same as that of
Frédéric Morand?
[22]
As a result, the
Appellant’s motion to seek enforcement of the settlement agreement that the
Appellant alleges was reached with the Respondent is not summarily dismissed on
the basis that even if an agreement to settle the appeal is established this
Court does not have the jurisdiction to enforce such agreement. The Appellant’s
motion is therefore to be scheduled to be heard. The issue of whether Frédéric
Morand will be an advocate at the hearing of this motion should be resolved
prior to the commencement of the hearing of this motion.
Signed at Halifax, Nova Scotia, this 20th day of December, 2010.
“Wyman W. Webb”
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