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Citation: 2005TCC176
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Date: 20050303
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Docket: 2004-3281(CPP)
2004-3282(EI)
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BETWEEN:
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DOUGLAS R. GARLAND,
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Appellant,
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And
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Miller J.
[1] The Minister of National Revenue
(the Minister) decided that Mr. Douglas Garland was not employed
under a contract of service with Can Test Ltd. (Can Test)
for the period October 16, 1996 to October 17, 1997. The Minister
did not elaborate in his response to Mr. Garland, but it was
clear at trial that the Minister holds a view that because Mr.
Garland obtained employment with Can Test under an assumed
name, and with a social insurance number (SIN) that he illegally
obtained under that name, the contract is void ab initio.
Mr. Garland worked at Can Test for four years under the name
of Matthew Kemper Hartley. He maintains he performed such work
under a valid contract of service. I agree with him.
[2] Mr. Garland is in his mid-forties.
He suffers from attention deficient disorder (ADD). It was clear
that he was agitated throughout the trial, but it was also
apparent that he was an intelligent individual. Mr. Garland
attended medical school in Alberta for one year until he suffered
a breakdown. He also seems to have been traumatized by causing
what he described as a horrific accident due to falling asleep at
the wheel.
[3] Mr. Garland produced his own
amphetamines. This somehow came to the attention of the Royal
Canadian Mounted Police (RCMP). In 1992, they raided
Mr. Garland's parents' farm. Mr. Garland was charged
with an offence under, he believes, the Food and Drug Act.
He was released on bail. At this point he acknowledged that he
made some not very well thought out decisions. He skipped the
province of Alberta and moved to Vancouver. He assumed the name
of a deceased individual, Matthew Hartley. In May 1993 he applied
for a SIN under this assumed name. He had his own SIN in his own
name since 1980. He also applied for a driver's license under
the name Matthew Hartley. Indeed, Mr. Garland conducted all
his activities in Vancouver under the name
Matthew Hartley.
[4] Mr. Garland responded to an ad in
the Vancouver newspaper and successfully applied for a job with
Can Test. He applied under his new identity, claiming to
have a BSc. degree. He explained in Court that he considered his
year in medical school qualified him to make this claim. Mr.
Garland was a coordinator in the company's trace organics
department, testing pesticides, herbicides and organic compounds.
He rose to become a supervisor of 30 or more employees, but found
he was unable to cope, and he suffered another breakdown in late
1997. He was dismissed in October 1997. He considered a wrongful
dismissal suit. He obtained employment insurance benefits under
the name Matthew Hartley.
[5] Subsequent to his dismissal Mr.
Garland took courses on how to seek employment after a breakdown.
He found part-time work with the British Columbia Institute of
Technology. The RCMP eventually caught up to Mr. Garland,
and he was arrested in May 1999. He pleaded guilty to all drug
offences and all offences in connection with the assumed
identity. He served time in prison.
[6] Human Resources Development Canada
(HRDC) requested a ruling with regards to Mr. Garland's
employment with Can Test. In December 2003 the Vancouver
Island Tax Services office ruled Mr. Garland was not in insurable
employment. Mr. Garland appealed to the Minister. The Minister
decided Mr. Garland was not employed under a contract of
service with Can Test. Mr. Garland expressed concern
that in none of the communications was it made clear why his work
was not considered to be under a contract of service. Also, apart
from receiving copies of cases from the Department of Justice, he
never discussed the rationale for the government's position
with anyone from the Department of Justice. This is
regrettable.
[7] The issue is whether Mr.
Garland's work with Can Test was under a valid contract
of service. There is no question Mr. Garland worked as an
employee of Can Test for approximately four years. There is
also no question that there was nothing illegal about the
substance, object or terms of the contract. The question is
whether Mr. Garland's entering the contract under an assumed
name and with a SIN obtained contrary to the provisions of the
Employment Insurance Act (the Act)[1] renders the contract void ab
initio and therefore a nullity for the purposes of subsection
5(1) of the Act, which reads in part:
5(1) Subject to subsection (2),
insurable employment is
(a)
employment in Canada by one or more employers, under any express
or implied contract of service or apprenticeship, written or
oral, whether the earnings of the employed person are received
from the employer or some other person and whether the earnings
are calculated by time or by the piece, or partly by time and
partly by the piece, or otherwise; ...
[8] The Respondent was unable to find
any case exactly on point but referred me to several cases
dealing with immigrants working without work permits. I find the
Federal Court of Appeal case of Still v. M.N.R.[2] particularly
helpful. Justice Robertson went through a careful review of
the law of the illegality of contracts and moved away from what
he described as the classical approach to a more principled
approach:
43 The second reason
for rejecting the classical model is that it fails to account for
the reality that today a finding of illegality is dependent, not
only on the purpose underlying the statutory prohibition, but
also on the remedy being sought and the consequences which flow
from a finding that a contract is unenforceable. It must be
remembered that the law of illegality arose out of a live
controversy between parties to an allegedly illegal contract. In
this case, there is no live controversy between contracting
parties and the ramifications of declaring an employment contract
illegal are too far-reaching. ... The fact that so many
statutes predicate entitlement or eligibility on an existing
contract of service is reason enough for any court to decline the
invitation to automatically declare any employment contract
invalid on grounds of illegality, and more so if the declaration
is based on the tenets of the classical doctrine of
illegality.
...
46 ... As the
doctrine of illegality is not a creature of statute, but of
judicial creation, it is incumbent on the present judiciary to
ensure that its premises accord with contemporary values.
...
[9] The first issue to be determined
is whether, indeed, the contract is illegal, either based on
common law or statute law. Then, even if found to be an illegal
contract, consider the objects of the employment insurance
legislation and the particular circumstances of each case to
determine if the illegality renders the contract void ab
initio.
[10] Is the contract illegal? First, from a
common-law perspective, does a contract entered under an assumed
identity render the contract illegal? This depends on whether the
mistake goes to the individual's attributes or to the
individual's very identity. In Lake v. Simmons,[3] Viscount
Holdane wrote:
Jurists have laid down, as I think rightly, the test to be
applied as to whether there is such a mistake as to the party as
is fatal to there being any contract at all, or as to whether
there is an intention to contract with a de facto
individual, which constitutes a contract that may be induced by
misrepresentation so as to be voidable but not void [...]
Pothier (Traité des Obligations, section 19) lays down the
principle thus, in a passage adopted by Fry, J. in Smith v.
Wheatcroft [(1878) 9 ch. D. 223, at 230.].
Does error in regard to the person with whom I contract destroy
the consent and annul the agreement? I think that this question
ought to be decided by a distinction. Whenever the consideration
of the person with whom I am willing to contract enters as an
element into the contract which I am willing to make, error with
regard to the person destroys my consent, and consequently annuls
the contract. ... On the contrary, when the consideration of
the person which whom I thought I was contracting does not enter
at all into the contract, and I should have been equally willing
to make the contract with any person whatever as with whom I
thought I was contracting, the contract ought to stand.
[11] It comes down to this. Was the exact
identity of Mr. Garland material? No, it was not. It is not akin
to a contract, for example, where the province of Alberta
contracts to have Pavarotti perform at their one hundredth
anniversary celebration, and instead get some unknown performer
claiming to be Pavarotti. Can Test simply needed someone to
work in the laboratory - they did not seek a particular one
individual: it was not Mr. Garland's identity that caused
Can Test to hire him. Where the mistake goes to attributes
and not identity and the contract is induced by misrepresentation
or even fraud, the remedy is that such contract is voidable. It
is not void ab initio. Further, it would be voidable at
the option of Can Test, not the government of Canada. This
does not excuse Mr. Garland for the misrepresentation; he would
remain liable to Can Test for any common law remedies for
fraud. Based on common law principles, I find there was a valid
contract of service for the four years Mr. Garland was employed
by Can Test.
[12] Was the contract illegal due to some
breach of a statutory requirement? As noted earlier, paragraphs
141(1)(a) and (b) set out two prohibitions of the
Act:
(i) no person with a SIN shall
knowingly apply for another SIN; and
(ii) no person shall present a SIN
with the intent to deceive any person.
A breach of either of these provisions is a summary conviction
offence subject to fine or imprisonment. Do these provisions
expressly or impliedly render an employment contract illegal, by
reliance upon an illegally obtained SIN? Certainly not expressly.
The provisions do not state "no contract shall be entered
into using a SIN relied upon in contravention of paragraphs
141(1)(a) or (b)". The result of breaching
paragraphs 141(1)(a) or (b) is a fine or
imprisonment. The provision is silent as to the effect on an
employment contract. Indeed, paragraph 141(1)(a) has no
reference to a contract with a third party; it is simply illegal
to apply for a second SIN.
[13] Paragraph 141(1)(b),
however, does address the real possibility of an employee
deceiving an employer. Does this then imply that if an employee
does so deceive an employer in contravention of paragraph
141(1)(b) that the ensuing contract is illegal? The thrust
of the prohibition is not to keep Mr. Garland from working.
Neither can it be to preclude another Canadian from gaining
employment, least of all the deceased Matthew Hartley. Mr.
Garland, as a Canadian citizen, could and did work. Nothing in
any legislation made it unlawful for him to do so. What he could
not do was deceive or defraud an employer into thinking he was
someone else by the use of a false SIN. I come full circle,
falling back on common-law principles to find that such
deceit would only render the contract voidable. So, the
implication, if any, of the statutory prohibition in
paragraph 141(1)(b) on the legality of an employment
contract is that it is voidable, but not illegal.
[14] If I am wrong in this view of the
impact of the Employment Insurance Act prohibitions on the
contract itself, and it is illegal, then I look to
Justice Robertson's principled approach in the
Still case. I find that an illegal contract is not always
void ab initio. The Federal Court of Appeal in
Still stated:
56 Having regard to
objects of the Unemployment Insurance Act, the fact that
the applicant is a legal immigrant to this country and that she
acted in good faith, I am not prepared to conclude that she is
disentitled to unemployment insurance benefits on the ground of
illegality. I recognize that the object of the statutory
prohibition is a compelling one, but that in the circumstances of
this case the penalty imposed is disproportionate to the breach.
Allowing the applicant to claim benefits would not invite people
to come to Canada and work illegally. ...
57 Undoubtedly,
there will be a few who would prefer to see the classical model
of the illegality doctrine applied to the issue at hand.
Admittedly, that approach promotes certainty in the law and ease
of administration, at least for the Unemployment Insurance
Commission. But a uniform approach, while convenient, carries
with it the risk of undue rigidity. There are occasions, and this
is one, where certainty must give way to flexibility, as Lord
Mansfield would surely agree. ...
[15] In the more recent Supreme Court of
Canada case of Transport North American Express Inc. v. New
Solutions Financial Corp.,[4] the majority had this to say on
the doctrine of illegality:
40 Thus, the
appropriate approach is to vest the greatest possible amount of
remedial discretion in judges in courts of first instance. The
spectrum of available remedies runs from a court holding
contracts in violation of s. 347 void ab initio, in the
most egregious and abusive cases, according to the criteria
identified in Thomson, supra, to notional severance. In
the determination of where along the spectrum a particular
contract lies, the considerations identified in Thomson by
Blair J.A. should be referred to and analysed carefully. Although
Blair J.A. was considering the desirability of severing illegal
interest from principal, the same factors are helpful in
determining whether to reduce illegal interest to a legal
level.
There are circumstances before me that move me along the
spectrum of possible remedies, as alluded to by the Supreme Court
of Canada, away from finding the contract void ab initio.
Firstly, the legislation itself. What Mr. Garland did was wrong,
but the employment insurance legislation specifically provides
for the consequences of such wrongness. And, although it was not
made clear in any detail at trial as to the extent of Mr.
Garland's penalties as they pertained specifically to the
employment insurance legislation, it was clear that he went to
jail upon pleading guilty to offences in connection with the
assumed identity. A denial of benefits is not a further pecuniary
penalty that he should suffer. This seems entirely
disproportionate to the offence, for which he has already paid
the price.
[16] Secondly, I do not classify Mr.
Garland's actions as egregious and abusive, as they pertain
to the employment contract itself. I am mindful of Mr.
Garland's state of health. His attention deficient disorder
contributed to some muddled thinking. His reliance on the false
SIN was to escape the reach of the RCMP. As he acknowledged, it
was not a bright idea. But, vis-à-vis his employment with
Can Test, the employer got what it sought - someone who
could perform the work, and did so for a period of four years,
four years during which both employer and employee paid into the
employment insurance program.
[17] The Supreme Court of Canada in
Transport North American Express Inc.,[5] though dealing with the
issue of severance of an illegal portion of a contract, went on
to state:
42 As outlined
above, in Thomson, Blair J.A. identified four
considerations relevant to the determination of whether public
policy ought to allow an otherwise illegal agreement to be
partially enforced rather than being declared void ab
initio in the face of illegality in the contract:
1. whether the
purpose or policy of s. 347 would be subverted by severance;
2. whether the
parties entered into the agreement for an illegal purpose or with
an evil intention;
3. the
relative bargaining positions of the parties and their conduct in
reaching the agreement;
4. the
potential for the debtor to enjoy an unjustified windfall.
Applying those factors to the case before me I find:
(i) the purpose of section 141 of the
Employment Insurance Act is not subverted by finding the
contract is voidable rather than void ab initio;
(ii) while Mr. Garland assumed the name
to avoid detection, he did not enter the employment agreement
with any evil intention - he simply needed to work in a job for
which he was qualified;
(iii) Can Test and Mr. Garland's
bargaining positions were in no way impacted by the assumed
identity; and
(iv) this is not a question of any unjustified
windfall. Mr. Garland could have worked under his own name. He
gained no additional earnings from Can Test by use of an
assumed name.
[18] Mr. Garland contravened the
employment insurance legislation and paid the price. He also
worked for four years doing what he was supposed to do, actually
increasing his job responsibilities. This troubled man should not
be precluded from receiving benefits from a program into which he
and his employer paid on the basis of the illegality of the
contract. I recognize the public policy for the classical
approach to the illegality of contract principle that no Court
should help someone who bases his cause on an illegal act.
However, the modern doctrine allows a trial judge to exercise
discretion in weighing the public's interest versus the
individual's interest. I exercise that discretion in this
case in favour of Mr. Garland by finding his contract of
employment with Can Test was not void ab initio but
was voidable, and as such was a legitimate contract of
service.
[19] The appeals are allowed and the
decisions vacated on the basis that Mr. Garland was engaged
under a valid contract of service from October 16, 1996 to
October 17, 1997.
Signed at Ottawa, Canada, this 3rd day of March, 2005.
Miller J.
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