Citation: 2008TCC23
Date: 20080121
Dockets: 2003-1581(IT)G
2003-1582(IT)G
BETWEEN:
ROGER ST‑FORT,
ANTONINE ST‑FORT,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
(Delivered orally from the bench on November 5, 2007,
at Ottawa,
Ontario, and amended for
greater clarity and precision.)
Archambault J.
[1] The appellants, Mr. and Mrs. St-Fort, are appealing assessments
made by the Minister of National Revenue ("the Minister") under
section 160 of the Income Tax Act ("the Act").
The Minister is holding the appellants jointly and severally liable for
the tax debts of their son René St‑Fort, which total $365,238. The appellants
are contesting the Minister's assessments because they believe that their son
did not transfer any immovable to them.
[2] At the beginning of the hearing, the appellants
admitted essentially all the facts assumed by the Minister, subject to what I have
to say later on in these reasons. I reproduce here paragraph 10 of the reply
to Roger St-Fort's notice of appeal ("the Reply"):
[TRANSLATION]
(a) on June 2,
1992, René St‑Fort and Fausta Delbeau acquired a property located at
48 Chemin du Roc Est, Chelsea, Quebec ("the
immovable") for $250,000;
(b) the purchase
of the immovable was financed through a $50,000 down payment, a $150,000
first-ranking hypothec from the National Bank of Canada ("the National Bank") and a $50,000
second-ranking hypothec from the Hongkong Bank;
(c) on December
20, 1992, Fausta Delbeau transferred her share in the immovable to René St‑Fort;
(d) the appellant
is René St‑Fort's father and Fausta Delbeau's father-in-law;
(e) as of April 1996,
René St‑Fort and Fausta Delbeau ceased making the monthly principal and
interest payments on their hypothecary loan from the National Bank;
(f) on September
18, 1996, the National Bank gave a notice of intent to take the property in
payment, which was published on September 26, 2003;
(g) on December
13, 1996, the National Bank filed against René St‑Fort and Fausta Delbeau
in the Superior Court of Quebec a motion for forced surrender and for taking in
payment;
(h) on January 10,
1997, the Superior Court of Quebec granted the National Bank the right to
possess the immovable, and ordered René St‑Fort and Fausta Delbeau to
voluntarily surrender the property;
(i) on January
31, 1997, the appellant and his spouse registered on the immovable a $130,000
hypothec granted to the Caisse Populaire St‑Jean Bosco;
(j) on February
13, 1997, the National Bank renounced the judgment of January 10, 1997;
(k) by notarial
deed dated April 1, 1997, the National Bank, in consideration of the payment of
$142,016.52, subrogated the appellant and his spouse into all its rights, in
particular its rights in respect of any hypothecary proceedings against the
immovable;
(l) on April 7,
1997, a copy of the notarial deed of April 1, 1997, was published in the Gatineau registration division;
(m) on June 23,
1997, a motion for forced surrender and for taking in payment was brought before
the Superior Court of Quebec by the National Bank as original applicant and by
the appellant and his spouse as applicants in the continuance of suit;
(n) on June 27,
1997, the Superior Court ordered René St‑Fort and Fausta Delbeau to
surrender the immovable to the appellant and his spouse and declared the appellant
and his spouse sole owners thereof retroactive to the registration of the
notice of intent, that is, September 26, 1996;
(o) René St‑Fort
and Fausta Delbeau have been living in the immovable since June 1992 and
have never surrendered it;
(p) at the time of
the transfer, that is, on April 7, 1997, René St‑Fort's liability to the
Minister of National Revenue was $365,238.69;
(q) at the time of
the transfer, that is, on April 7, 1997, the immovable's fair market value was
$220,000; and
(r) at the time of
the transfer, that is, on April 7, 1997, the appellant and his spouse acquired
the immovable for a consideration of $142,016.52.
[3] The appellants
admit subparagraph (o) provided
the reference to Fausta Delbeau is removed. Indeed, Ms. Delbeau
ceased to live in the immovable following her separation from René St‑Fort
and the assignment of her share in it to René St‑Fort, which was entered
in the land register on December 29, 1992. The appellants
were not able to admit the amount of their son's tax liability referred to in
subparagraph 10(p) of the Reply, but they did not dispute it either.
[4] The sole issue to be determined is whether the
immovable was indeed transferred from René St‑Fort to the appellants.
More specifically, the dispute has to do with the effect of the National Bank's
renunciation (of the judgment of January 10, 1997) dated
February 13, 1997 and filed on the same date. (See the renunciation
tendered as Exhibit A‑1, Tab 10).
[5] Following the National
Bank's assignment of its hypothecary claim to the appellants by notarial deed
on April 1, 1997, as stated in subparagraph 10(k) of the Reply (admitted by the
appellants), the appellants were subrogated into all the National Bank's rights
in relation to any hypothecary proceedings that could be brought as a result of René St‑Fort's failure to pay
his hypothecary debt to the bank.
[6] After the appellants
continued the suit on May 27, 1997, the Superior Court of Quebec rendered a new
decision on June 27, 1997. The judgment was signed by special registrar Yves Daoust, the
same person who had signed the judgment of January 10, 1997. By its
judgment of June 27, 1997, the Superior Court of Quebec recognized
the appellants' ownership of the immovable by virtue of their having received
it in payment of the hypothecary claim that they had obtained from the National
Bank under the terms of the notarial deed of April 1, 1997, and for which they had
paid $142,016.52. The defendants in the continuance of suit were René St‑Fort
and Fausta Delbeau. Consequently, the judgment of
June 27, 1997, applies to both of them, even though, at the time of
the judgment, René St‑Fort was the sole owner of the residence located
at 48 Chemin du Roc Est in Chelsea, and the appellants
became the owners of that immovable by reason of the judgment.
The parties' positions
[7] Essentially, the position taken by the appellants
was that, at the time of the judgment of June 27, 1997, their son was no longer
the owner of the immovable, that is, his residence in Chelsea. Consequently,
they submitted, they became owners of the residence through a transfer by the
National Bank to them.
[8] In her oral argument, counsel for the respondent
referred the Court to article 476 of Quebec's Code of Civil Procedure,
which provides as follows:
A party may renounce rights arising from a
judgment rendered in his favour, by filing in the office of the court a total
or partial renunciation signed by him or by his special attorney. A total
renunciation accepted by the opposite party places the case in the position it
was in immediately before the judgment.
[9] It is true that a reading of the renunciation
itself might suggest that it was not signed in a personal capacity by a bank
representative (or special attorney). However, counsel for the respondent raised
the possibility that the document filed as Exhibit A‑1, at Tab 10, might
not be complete, and that there might be another document bearing the National
Bank's signature (or that of a special attorney).
[10] In any event,
counsel relied on article 2944
of the Civil Code of Québec, which states that "[r]egistration of a
right in the register of personal and movable real rights or the land register
carries, in respect of all persons, simple presumption of the existence of that
right." The evidence adduced by the appellants discloses that the first
judgment rendered by the Superior Court on January 10, 1997, was never registered
in the land register, as shown by Tab 14 of Exhibit A‑1. The only judgment
to be found there is that of June 27, 1997, which was registered on August 18, 1997,
and which was rendered
following the continuance of the suit by the appellants on
May 27, 1997, as appears from Exhibit A‑1, Tabs 12, 13 and
14.
Analysis
[11] In my opinion, the appellants'
position is wrong in law as, on February 13, 1997, the National
Bank renounced its ownership of the immovable, which it had obtained under the
Superior Court judgment of January 10, 1997. Under article 476 of the Code of Civil Procedure, the
bank could renounce the rights that had been conferred upon it by that
judgment, namely, the ownership of the immovable, and the renunciation of the
judgment put the case in the position it was in prior to the judgment of
January 10, 1997, that is to say, René St‑Fort was
restored to the status of owner and the National Bank was restored to the
status of René St‑Fort's hypothecary creditor.
[12] Since the bank
transferred the hypothecary claim to the appellants in April 1997, with
subrogation rights, by reason of the appellants' paying the bank $142,016.52,
the appellants were the ones who had the right to continue the suit against René St‑Fort, which in fact they
did with the co-operation of Louis Bertrand, who was the National
Bank's lawyer at the time, but who subsequently became the appellants' lawyer.
[13] Roger St‑Fort acknowledged that
it was his son, an immigration lawyer practising in the National Capital
Region, who introduced him to Mr. Bertrand, and that it was following
steps taken by Mr. Bertrand that the National Bank's renunciation of the
judgment came about. As I stated earlier, the effect of this was the
retrocession of the ownership of the Chelsea residence to René St‑Fort
and then the subrogation of the appellants into the National Bank's rights,
which enabled them to continue the proceedings for the payment of the
hypothecary claim and to avail themselves of the giving in payment clause in
the deed of hypothec signed by the National Bank and their son (Exhibit A‑1,
Tab 5, clause 9).
[14] I accept the
arguments put forward by counsel for the respondent in support of the validity
of the renunciation of the judgment, even though the bank did not personally
sign the renunciation document. Moreover, Serge Bastien, as the person duly authorized
by the National Bank's board of directors, signed on the bank's behalf the
subrogation document in favour of the appellants, and the National Bank is
named as the [TRANSLATION] "original plaintiff" in the appearance filed
in connection with the continuance of suit (Exhibit A‑1, Tab 12).
[15] If it had been in the
National Bank's interest to seek the annulment of the renunciation, it would
have done so. In any event, the only judgment recorded in the land register is
the judgment of June 27, 1997. The proceedings herein are for the recovery of a
tax debt by the Minister under section 160. In such proceedings, the
Minister is entitled, in my view, to rely on the land register, which indicated
that the appellants had become the owners of the immovable pursuant to the
judgment of the Superior Court of Quebec dated June 27, 1997. Consequently, as
a third party, the Minister is entitled to the benefit of article 2944 of the Civil
Code.
[16] In Roger Riverin
and Les Placements R.I.O. Inc. v. The Queen, [1999] F.C.J. No. 913 (QL), 99 DTC 5356,
the Federal Court of Appeal affirmed two decisions of the Tax Court of
Canada: my decision in Riverin
v. R., 1995 CarswellNat 1727, and the decision of Judge Lamarre Proulx in Les
Placements R.I.O. Inc. v. Canada, [1996] T.C.J. No. 695 (QL). The
Federal Court of Appeal confirmed that, in situations similar to the appellants',
that is to say, where the Superior Court orders that the possession of an
immovable be given to hypothecary creditors who have the benefit of a giving in
payment clause, and declares them to be the [TRANSLATION] "sole and
exclusive owners" of the immovable, there is a transfer, "either
directly or indirectly, by means of a trust or by any other means whatever", and
this "gives rise to the process by which [the tax debtor's] property will
ultimately end up in the patrimony of any of these persons with whom he has a
non‑arm's length relationship."
[17] Here, the appellants acknowledge that René St‑Fort
is their son; thus, they are connected by a blood relationship. This
relationship means that they are related persons within the meaning of
subsection 251(2) of the Act and therefore are deemed, under paragraph 251(1)(a)
of the Act, not to be dealing with each other at arm's length.
[18] Thus, the condition for the application of section 160
of the Act which is disputed here —
namely, the condition with regard to the transfer of property to persons (here,
René St-Fort's parents) with whom the transferor (René St-Fort) was not dealing
at arm's length — has been met. By virtue
of the judgment rendered by the Quebec Superior Court, the immovable
located in Chelsea left René St‑Fort's patrimony and became part of
his parents' patrimony.
[19] For all these reasons, the appellants'
appeals are dismissed, with costs.
Signed at Ottawa, Canada, this 21st day of January 2008.
"Pierre Archambault"
Translation
certified true
on this 27th day
of June 2008.
Erich Klein, Revisor
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