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Citation: 2003TCC107
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Date: 20030409
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Dockets: 2002-3147(EI)
2002-3145(CPP)
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BETWEEN:
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PROBED MEDICAL TECHNOLOGIES INC.,
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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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and
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ROGER JOHN MAWDSLEY,
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Intervenor.
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____________________________________________________________________
Appearances:
Agent for the
Appellant:
Peter W. Short
Counsel for the
Respondent:
Selena Sit (Student-at-Law)
For the
Intervenor:
The Intervenor himself
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the bench at Vancouver,
British Columbia
on January 14, 2003 and revised as to style
and syntax
at Ottawa, Ontario on April 9, 2003.)
Margeson, J.T.C.C.
[1] The matter before the Court at
this time for decision is that of Probed Medical Technologies
Inc. and the Minister of National Revenue ("Minister").
The questions before the Court are whether or not the alleged
worker, Roger John Mawdsley, was engaged in insurable
employment under the Employment Insurance Act
("Act"), whether or not he was engaged in
pensionable employment under the Canada Pension Plan,
("Plan") and what was the amount of his
pensionable earnings during the period January 15, 2001 to
September 14, 2001 ("period").
[2] The position of the Appellant is
that the worker was a volunteer. The position of the Respondent
and of the worker is that he was not a volunteer, he was an
employee employed under a contract of service during the
appropriate period of time at a wage of $3,000 per month for the
first three months, commencing January 15, 2001 and $5,000
per month for the next five months, to September 14, 2001,
the period in issue.
[3] The major issue in this case is
that of credibility. Credibility looms large in every case, but
here it takes on new significance, because the evidence of the
principal witness called on behalf of the Appellant and the
evidence introduced by the worker himself are completely at odds.
If the evidence of one is accepted, the evidence of the other has
to be rejected on the essential point, that is, as to whether or
not there was a contract of service. The worker said that he was
employed under a contract of service, the Appellant maintains
that he was a volunteer and he was only to receive payment in the
event that he was successful in obtaining funding for the
Appellant and that funding was not forthcoming.
[4] There is an issue between the
Appellant and the alleged worker even on that issue as to whether
or not funding was received. The worker said that funding was
received and even if the agreement was that he would be paid only
if he received funding, funding was received and therefore he
should be paid in any event.
[5] In the Reply to the Notice of
Appeal ("Reply"), the Minister relied upon certain
facts which facts were agreed upon by the Appellant except with
respect to several of the items as follows.
[6] With respect to
paragraph 4(c) of the Reply, the Appellant did not agree
exactly with what was said, that is, "on or about
December 14, 2000 the Appellant offered Mr. Mawdsley a
position as Chief Executive Officer commencing January 15,
2001". He said that something of that nature might have been
offered.
[7] With respect to
paragraph (d), "the offer made by the Appellant to
Mr. Mawdsley established a rate of pay at $3,000.00 per
month for the first three months and $5,000.00 per month after
that". This was completely denied by the Appellant.
[8] With respect to
paragraph (e), the only change that the witness made with
respect to the Minister's allegations was that one should
substitute the term "activities" for
"duties".
[9] This witness agreed with all of
the other submissions except paragraph (l) where the
Minister alleged that during the period, the Appellant paid
$7,943.17 to Mr. Mawdsley on account of salary and wages. He
said that this should be changed to "to defer
expenses".
[10] He agreed with paragraph (n), which was
an assertion that a certain decision was made by another body
other than this Court but it is not relevant to the issue
here.
[11] In order for the Appellant to succeed
here, he has to establish, on a balance of probabilities, that
the decision of the Minister was incorrect in deciding that the
worker was engaged in insurable employment and pensionable
employment during the period in question. The burden of proof is
really on the Appellant to establish on a balance of
probabilities that this was not insurable employment, considering
the evidence given and in light of the presumptions set out by
the Minister in the Reply.
[12] But again, even in that, it all boils
down to a question of credibility. If the Court believes the
evidence of the witness called on behalf of the Appellant, then
there was no agreement, there was no contract of service. His
position was that the company put forward a proposal, which was
Exhibit R-5, but it was a draft proposal only and this
proposal was never signed or acted upon. The terms set out in the
draft proposal would be considered as being terms of any final
agreement if the proposal was ever put into effect. He said that
it never went into effect because it was contingent upon the
worker being successful in obtaining the financing which would
enable the company, which was obviously in dire financial
straits, to receive funding. That is what he said.
[13] He said that the Appellant never
received any salary. The Court questioned him on this when he was
testifying and the Court asked him to explain, in light of his
position, what was written in Exhibit R-3 and
Exhibit R-4. Exhibit R-3 is the Appendix,
which sets out the different amounts of money, which were
received by the worker during the period February 8 to
August 24, by way of cheque. The cheques are attached also.
If the summary is accurate then what is in the summary is quite
informative and quite significant. It is significant because as
counsel for the Respondent argued, the periods which are covered
by the payments appear to be on a regular basis over a period of
every two weeks: February 8, February 23, March 2
and so on. This would appear to be consistent with the evidence
of the worker, Mr. Mawdsley, that he expected to be paid
every two weeks. That would be the normal way to be paid even
though he said that he was to be paid on the basis of $3,000 a
month for the first five months and $5,000 a month thereafter. In
his evidence, he said that he would expect to have been paid
every two weeks.
[14] But, in any event, even if he did not
expect to be paid, there is something to be drawn from the way in
which the payments were made. They appeared to have been made on
a regular basis. The payments would not appear to be consistent
with somebody paying out expenses, because all of the amounts are
basically similar amounts, $500 and $1,000.
[15] There were only a couple of payments,
which were odd amounts which one might fairly consider to be
expense amounts. One was $605, but that was a rental amount. One
might ask, why would a company pay somebody's rent? That
could hardly be considered to be an expense on behalf of the
company. It was obviously a personal expense. So one has to ask
why, if the worker was not an employee, would the company be
paying his rent? The only reason the company would do that, would
be if it were making a payment on his behalf as part of his
salary to pay one of his personal expenses and not an expense of
the company.
[16] The Appellant would have the Court
believe that all of these amounts that were shown in
Exhibit R-3 were amounts that were paid on account of
expenses made by the worker on behalf of the company. But this
belies reasonableness, because the very cheques themselves and
the summary sets out what the amounts are supposed to represent.
The February 8th cheque numbered 0340, says "$500
Payroll Advance". The February 23rd cheque numbered
0360, says "$500 Salary Advance", which just happens to
be a portion of the amount that the worker said that he was
supposed to receive on a monthly basis, $3,000 a month and $5,000
a month, except that he said he would be prepared to wait because
he knew the company was in financial difficulties. Then on and on
it goes and the only odd amounts, the only amounts which are not
combinations of $500 during the periods in time were those above
referred to amounts, $395 on June 29 and $605 on
June 29, which were paid to his landlord to cover rent.
[17] He would have the Court believe that
these amounts were expenses, but he was not able to show the
Court any evidence whatsoever as to what the total expenses of
this worker were during that period of time. He had no records
whatsoever to show what Mr. Mawdsley would have received
during the period on the basis of submitted expenses. The only
evidence on that was some evidence submitted by the worker
himself. This was not completely satisfactory but it was the best
that was presented.
[18] The worker presented documents which
were the type of expense claims which he said that he submitted.
He gave evidence that the amount of the payments that represented
expenses were not the amounts of $10,607.27 that he was paid
during the period in question, but a small portion of that,
roughly $2,500. The rest, approximately $7,500, would have been
wages.
[19] But again, the most significant factor
is that when one looks at the documents themselves, which cannot
be disregarded, they say "Payroll Advance",
"Salary Advance", "Salary Draw",
"Draw", "Draw", "Draw". The only
one that referred to an expense was the last one at the bottom,
which says "Expenses for Trip, Prince George and
Calgary". All of the other payments, which were supposed to
be for expenses do not specify that they were expenses, do not
specify as to what particular trip was made or what the expenses
related to, only the one of April 12.
[20] He was asked point-blankedly by the
Court: "Why would you indicate on these cheques that they
were for "Payroll Advance", "Salary Advance",
"Salary Draw", "Draw", "Draw",
"Draw", then indicate "Expenses" on the one
for $607.27 and then specify on the $605 one that it was for rent
paid on behalf of the worker? He said: "Well, the first
thing that came to my mind was put on there". Now, with due
respect, the Court cannot accept that explanation, it does not
really hold water. Nobody with the experience and the business
acumen of this witness would so indicate that it was an advance
on payroll or a draw, when he meant that it was to be a
reimbursement of expenses.
[21] This witness must have been at least
somewhat conversant with the Income Tax Act, which
requires one to specify what payments are made for. It was argued
by the Respondent that if the expenses were not specific and
properly identified then any amounts that are received are
considered to be receipts on account of income according to
bookkeeping standards.
[22] The Court looks for some evidence of
corroboration for the evidence of one or the other.
Exhibit I-5, was a fax letter sent to Mr. W.T.
(Terry) Plummer by Mr. Mawdsley on September 19,
2001, just shortly after Mr. Mawdsley resigned or withdrew
from working for the company. This letter is consistent with
Mr. Mawdsley's position that he was an employee working
under a contract during the relevant period of time, that he was
owed back pay, and that he was expecting to be paid because he
said:
As you are probably aware I am no longer employed by ProBed
Medical Technologies Inc. effective September 15, 2001. I
simply cannot continue working without a paycheque any longer.
Accordingly, please let receipt of this letter serve as my
resignation from the position of Director of the company,
immediately.
I would also like to draw to your attention the fact that,
effective September 15, 2001 the net wages owing to me from
the company amount to $18,265.74. Should you have access to these
funds, I would appreciate receiving them soon. Otherwise I will
have to take affirmative action to recover them. In addition
ProBed now has a liability for source deductions in the amount of
$14,053.75 for source deductions that should have been made and
remitted to the Receiver General for Canada on my behalf. I draw
this matter to your attention because as a director of ProBed you
and the other board members may have a personal liability for
these amounts.
[23] The evidence of Mr. Mawdsley in
Court was that he never received any response to that letter.
There was no denial of its content, no statement was made by
anybody in the company that that letter was incorrect until after
the complaint was made in this matter. Not until a complaint was
made was there any indication that Mr. Mawdsley was a
pro bono worker or that he was a volunteer until he
decided that he was going to do something about it.
[24] First of all, the letter is
corroboration, at least, of the worker's testimony in the
sense that it is consistent with the position that he took here
today. The fact that nobody on behalf of the company rejected
these statements set out in his letter of September 19, 2001
as being incorrect is of some significance because such rejection
would be consistent with the position that the Appellant takes
here today that the worker was not an employee but was only a
pro bono worker or a volunteer.
[25] Those pieces of evidence, particularly
Exhibit R-3, the evidence in general of the worker,
Mr. Mawdsley, in conjunction with the statement of facts set
out in the Reply, which to a large extent have been unrebutted
are significant. The Court looks at that evidence and asks the
question, "On a balance of probabilities, has the Appellant
established that the worker was a volunteer or a
pro bono worker and was not an employee?" It is
reasonable to conclude on a balance of probabilities that the
evidence of the worker was more than likely to be correct than
that of the party who testified on behalf of the company.
[26] On the question of credibility, which
is important here, where the evidence is at odds in the most
material respects, the Court has to decide which one it is to
believe. The Court believes the evidence of the worker,
Mr. Mawdsley in this case and does not accept the evidence
of the witness who testified on behalf of the company.
[27] Further, on the evidence, it would be
unreasonable for the Court to conclude that Mr. Mawdsley
would come down to Vancouver from Ontario, whether he came once
or twice or three times, but he came finally and stayed here, and
worked in the hope that the 100,000 shares that he was going to
receive would be his reward if they became valuable in the
future. These shares at the time were worthless. It is likewise
unreasonable to conclude that his only remuneration would be
received in the event that he was successful in obtaining
financing for the company.
[28] It would be unreasonable for the Court
to conclude that anybody would do that. In this case it would be
particularly unreasonable in light of his own indication that he
was financially strapped himself. He was just coming off one job
and he was doing a considerable amount of work. Further, it would
be unlikely that any company would give to a volunteer worker the
authority that he had and allow him to do the type of work or
activity that this worker was doing if he was going to be a
volunteer.
[29] There is some merit to Mr.
Mawdsley's argument that you do not do that to volunteers,
but you do that so somebody who is going to be a Chief Executive
Officer. Further, it would be highly unlikely that one would
offer to a volunteer the position of Chief Executive Officer of a
company and expect them to work for nothing in the event that the
funding was not received. The Court finds it very difficult to
accept the position that the Appellant takes in this matter.
[30] In argument, counsel for the Respondent
said that there were three issues: (1) Was
Mr. Mawdsley an employee or was he a volunteer? (If he was
not an employee, it does not matter what he was.) (2) What were
the net earnings for employment purposes? (3) What were the
pensionable earnings?
[31] Counsel discussed the various sections
of the Act, which the Court has taken into account, and
there is no doubt that under paragraph 5(1)(a), an
agreement can be written or oral. In respect of the Plan,
it is subsection 6(1) of the Act.
[32] On the issue of whether or not he was
an employee, he argued that there was evidence that the written
agreement was not signed. Mr. Mawdsley said that he
attempted on a number of occasions to get the written agreement
signed but the company would not sign it, did not sign it and
kept putting it off. But the only reasonable conclusion to draw
from what was said was that they were putting it off not because
they did not believe that he was an employee, but because they
were too busy or they were doing other things. That is the
impression that the Court draws from what Mr. Mawdsley
said.
[33] Counsel took the position that there
was an agreement, not a written agreement, but that some of the
terms that were in the written agreement were superseded by an
oral agreement. This was made later on between the parties. This
was put into effect when the worker came down to British Columbia
to work and did indeed work during the period in issue. The terms
of that agreement were that the worker would receive $3,000 a
month for the first three months and $5,000 per month for the
next five months (as it turned out), and that if he did not
receive all of his money during the period that he was working,
he would be repaid after the funding was received.
[34] Counsel looked at the relationship
between the company and the alleged employee and said that he
worked full-time for the period. He was reimbursed for his
expenses. The company supplied all of the tools, the workplace,
the office, the computer and the telephone. His duties were
carried out mostly on the premises, although some duties were
carried out off of the premises. He worked a regular shift,
eight-hours per day, Monday to Friday. He was put in possession
of keys to enter the building. He had signing authority. He had
an e-mail address supplied by the company. He was paid some
salary as the cheques indicate. He received in excess of $7,000
in wages and only about $2,500 was expenses.
[35] He received 125,000 shares. He was to
receive a portion of his money after the funds were received as
income came in during the year. That is how he was to be paid. He
did receive income on a regular basis as part of his salary. He
received $10,607.27 in total. Cheques were issued roughly every
two weeks. The amounts were regular amounts. It was not as if he
was receiving expenses. He did provide statements to show that he
made claims for expenses in a regular way by way of regular
expense reports and these were separate from the pay amounts.
[36] The Court concludes that there was a
shortcoming in the evidence on behalf of the company. It should
have been able to show what expenses were being paid out. Surely
the company would have been able to find some documents, which
would establish that the amounts that the worker received were
reimbursement of expenses and were not income, in light of the
very statements on the cheques themselves. That would only be
reasonable.
[37] There was no evidence given by anybody
except the one witness. There were other executives or board
members who should have been available to corroborate the
evidence of the person who testified on behalf of the company
today, but they were not here. The Court does not know what they
would have said. One would think that in a case like this where
notations on the cheques were contrary to the position of the
company, there would have been evidence to substantiate or
corroborate the evidence of the principal witness on behalf of
the company, but that was not forthcoming.
[38] Counsel said that at all material times
the worker was an employee. She referred to the various
provisions with respect to insurable earnings. The applicable
section does show that insurable earnings include amounts that
are unpaid and that pensionable earnings do not include amounts
that were unpaid. However, the amount of insurable earnings can
be calculated for the period in issue. According to the evidence,
the amount of $2,500 was the amount of the expenses. The rest
that was received was salary or wages, $7,500.
[39] There was a verbal contract in place
and the worker was to receive remuneration in accordance with his
evidence. He was also to receive vacation pay for six weeks.
[40] With respect to pensionable earnings
her position was that the worker received $7,500 in wages and
therefore his pensionable earnings should be based upon that
$7,500. He received insurable earnings that should be calculated
on the basis of the period of time that he was employed, as he
indicated, at the rate of $3,000 a month for the first five
months and then at the rate of $5,000 per month for the next
three months.
[41] The matter should be referred back to
the Minister for variation. It should be varied on the basis that
the worker was employed under a contract of service, that his
insurable earnings should be based upon the amount of income that
he earned during the relevant period of time at the rate of
$3,000 a month for the first five months and $5,000 a month for
the next three months. The Minister should be ordered to
calculate his insurable earnings on that basis.
[42] The worker should be found to have been
engaged in pensionable employment. The pensionable employment
should be based upon the amount of income that he received only,
which was $7,500. The Minister should calculate pensionable
earnings in that way. His insurable earnings should be what he
received together with the six weeks vacation pay as well. The
Court should vary the decision to that effect.
[43] The Appellant argued that the worker
was a very knowledgeable person and a businessperson. When he
came to the company he knew all of the conditions of the company
and he chose to come in under those circumstances. He came to
British Columbia not only once, not twice, but three times.
He knew what he was getting in for and he came in as a volunteer.
There never was a verbal agreement to pay him except in the event
that the funding was received. That funding, which was the basis
for the contract, was not received.
[44] The worker saw this as an opportunity
to make money, maybe even a killing, in the event that the
100,000 shares that he was going to be issued might shoot up in
value sometime later. That might happen. But it was just a chance
that he was taking. He was at the end of a job. He felt that he
might be able to make something for himself after a period of
time. He knew the problems that the company had. The company
could not afford to pay him, he knew the company could not afford
to pay him wages and salary on a regular basis and he decided to
come in as a volunteer.
[45] Only after he left in a huff, for his
own reasons, which the witness attributed to him looking for a
job somewhere else, "sour grapes set in" and he decided
to file a complaint as of a late date due to bitterness. There
was no contract of service and the appeal should be allowed.
[46] The Intervenor agreed basically with
the submissions made on behalf of the Respondent that the oral
agreement superseded all of the clauses with respect to the
requirements that the Community Futures Program funding be
received. Volunteers do not do these types of things. He, as the
worker, agreed to take payments on an accrual basis in the
expectation that he would get his back pay later on. But, he
said, if the Court should find that the hiring, the paying and
the employment was contingent upon the company obtaining funding,
that funding was received and therefore he has met the
requirement and he should be paid anyway.
[47] The cheques should be taken at face
value. Any attempt to make them appear to say something other
than what they do say is mere folly and it is a mere fabrication.
Further, the issue of him being a volunteer was not even raised
until after the complaint was made. That was his position. The
appeal should be dismissed.
[48] That is the evidence. Those are the
arguments. On the basis of the evidence given and the credibility
the Court attaches to the various witnesses, the Court is
satisfied that the Appellant has not met the burden upon him of
showing that the worker was not engaged in insurable employment.
The Court is satisfied that the evidence shows that the worker
was engaged under a contract of service during the appropriate
period of time, that is from January 15, 2001 to September 14,
2001. That is the period in issue. He was under a contract of
service within the meaning of paragraph 5(1)(a) of the
Act.
[49] The Court is further satisfied that the
Appellant had insurable earnings, which the Court directs the
Minister to calculate in accordance with the period of
employment, which is January 15, 2001 to September 14, 2001, at
the rate of $3,000 for three months and $5,000 for five months,
together with vacation pay during that period, which was agreed
upon, of six weeks.
[50] With respect to pensionable employment,
the Court is satisfied that the Appellant was engaged in
pensionable employment during the period of time and that the
pensionable employment should be calculated on the basis of the
wages that the Appellant was paid during the period of time,
which was $7,500.
[51] The Court will allow the appeal and
vary the findings of the Minister as indicated above.
Signed at Ottawa, Canada this 9th day of April 2003.
J.T.C.C.
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