Rockwood v. M.N.R., docket 98-449-UI

Date: 19990907

Docket: 98-449-UI

BETWEEN:

BRENT ROCKWOOD,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Lamarre, J.T.C.C.

[1] This is an appeal from a decision of the Minister of National Revenue ("Minister") that the appellant was not engaged in insurable employment with Late Nite Enterprises Limited ("payor") for the period from February 17, 1997 to May 9, 1997 pursuant to paragraphs 5(2)(i) and 5(3)(b) of the Employment Insurance Act ("Act").

[2] In making his decision, the Minister relied on the facts listed in paragraph 6 of the Reply to the Notice of Appeal, which reads as follows:

(a) the Appellant filed a prior appeal, case no. 96-2038(UI), related to services performed for the Payor for the periods from January 1, 1995 to March 24, 1995 and from January 28, 1996 to April 20, 1996;

(b) a decision was issued on March 30, 1998, by the Honourable Edgar Allard, D.J.T.C.C., which affirmed the Minister's decision;

(c) the Appellant performed services under substantially similar terms and conditions for both the prior and current appeals;

(d) the Payor is a corporation duly incorporated under the laws of the province of Newfoundland;

(e) the Payor incorporated in 1987 with the Appellant as sole shareholder;

(f) the Appellant transferred his shares to Joan Rockwood six months after incorporation as the Newfoundland Liquor Licensing Board ordered the Appellant not to be involved with the management or operation of the business;

(g) the Appellant did not receive compensation from Joan Rockwood for the shares transferred;

(h) Joan Rockwood is the spouse of the Appellant;

(i) the Payor operates a night club known as the Pirate's Cave;

(j) the Payor was represented by the Appellant in dealings with officers from the Collections Division of Revenue Canada;

(k) during the period under review the Appellant was engaged to do repairs, renovations and maintenance work on the Payor's premises;

(l) the Appellant was assisted in his duties by a friend, who was not paid for his services;

(m) the Appellant performed similar services for the Payor outside the period under review without compensation;

(n) the Appellant received a Record of Employment from the Payor relating to the period under review showing 480 hours of insurable employment over 12 calendar weeks with weekly earnings of $520;

(o) the Payor issued Records of Employment to the Appellant each year since 1993 showing sufficient weeks/hours of insurable employment to qualify for Unemployment/Employment Insurance benefits;

(p) the Appellant and the Payor created an artificial situation designed to give the appearance that the Appellant was hired to benefit the Payor's business interests while allowing the Appellant to maximize his qualification to Unemployment Insurance benefits;

(q) the Appellant is related to the Payor within the meaning of the Income Tax Act;

(r) the Appellant is not dealing with the Payor at arm's length;

(s) having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is not reasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[3] In the Reply to the Notice of Appeal, the Minister submitted only that the appellant was not engaged by the payor in insurable employment on the basis that the said employment was excluded employment pursuant to paragraph 5(2)(i) as the appellant and the payor were not dealing with each other at arm's length.

[4] At the hearing, the respondent intended to demonstrate that the appellant was hired by the payor under a contract for services, and not under a contract of service within the meaning of paragraph 5(1)(a) of the Act.

[5] As counsel for the respondent raised a new argument that had not been raised in the Reply to the Notice of Appeal, I decided that the appellant did not bear the burden of proving that he was not hired under a contract for services. Counsel for the respondent accordingly abandoned this first argument and relied entirely on his main argument that the said employment was excluded employment pursuant to paragraphs 5(2)(i) and 5(3)(b) of the Act. The respondent submitted that it was reasonable for him to conclude that the appellant and the payor would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[6] With respect to subparagraphs 6(a), (b) and (c) reproduced above, the appellant admitted that he had performed services under substantially similar terms and conditions for both the prior and current appeals. However, in the previous appeals, the facts taken into account by the Minister to make his decision with regard to services rendered by the appellant for the payor in 1995 and 1996 did not all relate to the conditions of employment. Those other facts were not adduced in evidence in the present appeal. The present appeal is for a different period and I have to rely solely on the evidence adduced before me. I do not feel therefore that I am bound by the decision rendered by Deputy Judge E. Allard on March 30, 1998 in the previous appeals.

[7] As for the other facts relied upon by the Minister, I am of the opinion that the appellant has shown on a balance of probabilities that some of them were incorrect and that the Minister failed to take all the relevant circumstances into account with respect to the others.

[8] With regard to subparagraphs 6(d), (e), (f), (g) and (h), the appellant explained that the business was in debt and after the order of the Newfoundland Liquor Licensing Board forced him to transfer his shares, he could only transfer them to his wife, as nobody else would have bought them. It is not true that the appellant did not receive compensation from his wife for the shares transferred, because in becoming the owner of those shares, she assumed all the payor’s debts.

[9] The appellant also stated that he did not represent the payor in dealings with officers from the Collections Division of Revenue Canada. He simply gave answers by telephone to some very general questions he was asked in the course of the audit.

[10] The appellant also testified that he was not assisted in his duties by a friend who was not paid for his services. He said that it only happened occasionally that a friend was there with him while he was working. The appellant also denied that he performed services for the payor without compensation outside the period under review.

[11] My analysis of the evidence leads me to conclude that I have no reason not to believe the appellant, whom I found to be a credible witness. Counsel for the Minister emphasized the fact that Joan Rockwood was not called to testify and suggested that I should draw a negative inference from this against the appellant. I should point out that I could draw the same negative inference against the respondent, as no one testified on behalf of the respondent to explain how the Minister exercised his discretion in the present appeal.

[12] After having heard the appellant’s testimony and since, as I said before, I have no reason to disbelieve his explanations, I am not at all convinced that the Minister was right in saying that "the Appellant and the Payor created an artificial situation designed to give the appearance that the Appellant was hired to benefit the Payor's business interests while allowing the Appellant to maximize his qualification to unemployment insurance benefits” (see subparagraph 6(p) of the Reply).

[13] I therefore conclude that the appellant has on a balance of probabilities disproved most of the assumptions relied upon by the Minister. I find that the remaining evidence is insufficient to support the Minister’s decision. I therefore conclude that the Minister exercised his discretion in a manner that was contrary to law, and that I am therefore justified in interfering with his decision.

[14] I also conclude that the employment was not excluded employment under paragraph 5(2)(i) of the Act, as I believe that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that the appellant and the payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[15] The appeal is therefore allowed and the Minister’s decision is vacated.

Signed at Ottawa, Canada, this 7th day of September 1999.

"Lucie Lamarre"

J.T.C.C.