Date: 20001207
Docket: 94-1068-IT-G
BETWEEN:
LESLIE ANN RUTLEDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bell, J.T.C.C.
[1]
The Appellant, by document dated April 6, 1999, made written
application for an Order setting aside the dismissal of her
appeal effected by section 16.2(2) of the Tax Court of Canada
Act ("Act") respecting her Counsel's
August 29, 1996 letter of abandonment of appeal and September 4,
1996 letter from this Court to her counsel advising, that
pursuant to the aforesaid section, the appeal was dismissed.
FACTS:
[2]
No viva voce evidence was presented. The following facts
are taken from admissions of fact in the pleadings, two
affidavits of the Appellant, an affidavit of John Hopwood
("Hopwood"), Canada Customs & Revenue Agency
("Agency"), and unchallenged statements of counsel:
1.
The Minister of National Revenue ("Minister") by notice
of assessment dated October 10, 1991, assessed the Appellant,
pursuant to section 160 of the Income Tax Act
("ITA"), for the sum of $130,000 respecting
property transferred to her by her husband, Donald Rutledge
("Donald"), on October 4, 1988.
2.
The Minister had previously assessed Donald in respect of his
income tax matters in an amount substantially in excess of the
sum of $130,000.
3.
Examinations for Discovery of the Appellant and an employee of
Revenue Canada were conducted in April, 1995.
4.
In or about March, 1996, Donald filed with Revenue Canada a
proposal to settle all outstanding tax matters.
5.
The hearing of the matter was adjourned pending the outcome of
the proposal discussions.
6.
The Appellant stated in her May 6, 1999 affidavit:
In late August of 1996, I instructed my Solicitor to abandon my
Appeal as I have been advised by my Husband, Donald Rutledge,
that he and through his accountant had in fact secured a tax
settlement with Revenue Canada which wiped out all of my tax
liability. I now understand that the settlement was not
completely finalized until March of 1997. I did not know that the
tax settlement had not been finalized when I instructed my
Counsel to abandon the Appeal.
7.
Paragraph 10 of that affidavit reads in part:
I was therefore astonished to receive a letter from Revenue
Canada on January 26, 1999 after two and half (sic) years after
abandoning my Appeal, stating I owed $249,920.81.
8.
In a second affidavit the Appellant stated that her solicitor
advised her that counsel for the Minister offered to extinguish
any liability she may have had upon payment of the sum of
$130,000. She instructed her solicitor to accept the settlement
offer but did advise that "I need time to pay". She
also said that she was advised by her solicitor and verily
believed that counsel for the Respondent then withdrew the offer
of $130,000 and "takes the position that I do not have a
valid appeal".
9.
On March 26, 1997 the Minister and Donald agreed that he would
pay $1,100,000 on account of his income tax liability by four
payments of $275,000, each due on March 31, 1997, September 30,
1997, December 31, 1997 and March 31, 1998, the balance of
interest to be waived upon all such payments being made.
10.
Donald made two such payments only prior to the hearing of this
motion.
APPELLANT'S SUBMISSIONS:
[3]
Appellant's counsel referred to the foregoing facts and
submitted that the amount of debt on the aforesaid property was
equal to the Minister's valuation thereof and "that the
value of that property was really a wash", there being no
equity at that time. He submitted that the Appellant relied upon
information received from her husband about the settlement of his
tax matters and that she was mistaken in this belief. He also
submitted that there was an argument on the doctrine of
laches, the Minister not having contacted the Appellant
for approximately two and one-half years after the discontinuance
of her appeal. This communication was the Minister's written
advice to the effect that at that time she was indebted to
Revenue Canada in the sum of approximately $250,000.
RESPONDENT'S SUBMISSIONS:
[4]
Respondent's counsel submitted that the value of the
consideration given by the Appellant to Donald for the property
was $130,000 less than the value of the property and that this
Court could offer no relief, the matter being solely one of
settlement by the Appellant with the collections branch of the
Agency.
[5]
During clarification of one matter addressed by Respondent's
counsel, Appellant's counsel stated that: "It's
correct that I didn't check with Revenue Canada."
[6]
Counsel also submitted that once the appeal is discontinued it is
simply deemed to be dismissed. She referred to two rules of the
General Procedure Rules under which the Court may vary an Order
but that they only dealt with varying or amending orders or
errors in the Judgment. She then stated that this Court could not
re-open a matter where there has been a discontinuance. She
referred to Bogie v. M.N.R. [1] in which the Federal Court of Appeal
stated:
1
Assuming, without deciding, that the Tax Court of Canada
possesses the inherent jurisdiction to set aside a notice of
discontinuance or that the requisite jurisdiction arises under s.
172 of the Tax Court of Canada Rules, we are all of the view that
this appeal cannot succeed on its merits.
2
In the present case, the taxpayer's solicitors advised the
taxpayer to discontinue his appeal from the Minister's notice
of assessment on the basis of information received from the
taxpayer's accountant. A notice of discontinuance was then
duly filed with the Tax Court. Subsequently, however, the
taxpayer was advised by his accountant that the earlier advice
had been given in error. That error pertains to a question of
fact: namely whether a capital cost allowance had been claimed by
the taxpayer in a previous taxation year.
3
Against this factual background, it is obvious to us that the
taxpayer cannot distance himself from the erroneous advice given
by his accountant. In these circumstances, there is no merit in
the argument that the taxpayer could not have discovered the true
state of affairs through the exercise of due diligence. In the
absence of fraud, the conduct of the taxpayer embraces the
conduct of his professional advisors. In our view, the facts of
the present case do not come within the ambit of the law as
stated by Stone, J.A. in Saywack v. Canada (Minister of
Employment & Immigration), [1986] 3 S.C. 189 (Fed. C.A.)
at 201. For these reasons the appeal must be dismissed with
costs.
[7]
Counsel said further that the Appellant had withdrawn her appeal
before September, 1996 but it was not until March, 1997 that an
agreement was reached between Donald and Revenue Canada.
[8]
Counsel also submitted that the argument made by Appellant's
counsel that the payments by Donald should have been applied
first to the $130,000 assessed against the Appellant, was faulty.
She stated that section 160 made the transferee liable for an
amount equal to the lesser of (i) the excess of value of the
property transferred by Donald over the value of the
consideration given by the Appellant, and (ii) the amount
Donald was liable to pay in respect of the year of transfer or
any preceding taxation year.
ANALYSIS AND CONCLUSION:
[9]
Section 16.2 reads as follows:
(1) a
party who instituted a proceeding in the Court may, at any time,
discontinue that proceeding by written notice;
(2)
where a proceeding is discontinued under subsection (1), it is
deemed to be dismissed as of the day on which the Court receives
the written notice.
[10] Section
160 of the General Procedure Rules ("Rules") provides
that where the Court has pronounced a Judgment disposing of an
appeal a party may move the Court to reconsider the terms of the
Judgment on specified limited grounds. Section 172 provides that
the Court may amend a Judgment in certain circumstances. Those
two sections do not apply here as no Judgment was issued, the
appeal having been deemed dismissed.
[11] The
Federal Court of Appeal, in Bogie, was dealing with an
error pertaining to a question of fact which was easily
discernible by a professional, namely whether capital cost
allowance had been claimed in a previous taxation year. It
appears that the answer to that question was clearly within the
knowledge of the Appellant's accountant who had misinformed
the Appellant's lawyers, resulting in the notice of
discontinuance being filed. The learned justice said that there
was no merit in the argument that the taxpayer could not have
discovered the true state of affairs through the exercise of due
diligence. That case involved a direct assessment of the
Appellant, not a secondary liability assessment as in the present
case. In this case, the Appellant earnestly believed the
information given to her by her husband who obviously believed it
to be accurate. It was not a mere matter of easily discernible
technical fact. The whole concept of spousal trust[2] demolishes any
suggestion that the Appellant should have challenged either her
husband or his accountant by pursuing the "exercise of due
diligence". She simply accepted, as valid, her husband's
information that his tax matters had been resolved and she acted
on same. In any event, there was no evidence that the
Appellant's counsel was counsel for her husband, Therefore,
neither she nor her counsel had any entitlement to receive any
information from Revenue Canada.
[12] The
Appellant was not the taxpayer whose actions had given rise to an
assessment of primary liability for tax. She would have no way of
knowing about that taxpayer's affairs other than by receiving
information from him. She was assessed for secondary, vicarious
liability based on an extremely unusual and far-reaching
provision of the Act. Her right to pursue an appeal should
not be neutered by due diligence quest which would effectively
require her to question the veracity of her own husband.
[13] Section
13 of the Act reads:
The Court has, with respect to the attendance, swearing and
examination of witnesses, the production and inspection of
documents and other matters necessary or proper for the due
exercise of its jurisdiction, all such powers, rights and
privileges as are vested in a superior court of record.
[14] This
Court has the inherent jurisdiction to set aside a dismissal of
an appeal on the basis of erroneous advice, such dismissal not
have been created by a Judgment of this Court.
[15] In the
circumstances, justice is served by permitting the Appellant to
proceed with a case in which, as submitted by her counsel,
meritorious arguments can be advanced on her behalf. In this
regard, the recent judgment of the Federal court of Appeal in
Joanne Gaucher held that, in respect of subsection
160(1):
... a second person must have a full right of defence to
challenge the assessment made against her ...
[16]
Obviously, the reason for the Appellant not having made
application sooner for the relief she now seeks is Revenue
Canada's delay of some 2 ½ years after her abandonment
of appeal before having any contact with her - that communication
being, as above set out, written notice that her indebtedness had
reached the sum of approximately $250,000.
[17] I will
grant the application and issue an Order setting aside the
dismissal.
Signed at Ottawa, Canada this 7th day of December,
2000.
"R.D. Bell"
J.T.C.C.
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