Citation: 2013 TCC 236
Date: 20130723
Docket: 2010-1565(GST)G
BETWEEN:
SALISBURY HOUSE OF CANADA LTD., EARL JOEL BARISH, LORNE SAIFER, HARRIS LIONTAS
AND HERSH WOLCH,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rowe D.J.
[1]
By Amended Notice of Motion, the
respondent sought an order:
1.
dismissing the appeal of the
appellants, pursuant to Rule 58(3) of the Tax Court of Canada Rules (General
Procedure);
2.
an order striking out the Notice
of Appeal without leave to amend, pursuant to Rules 53 and 58(1)(b);
3.
in the alternative, an order
setting aside the appellants’ Notice of Appeal and directing the appellant
Salisbury House of Canada Ltd. ( Salisbury) to file and serve a Notice of
Appeal in compliance with the Tax Court of Canada Act (Act) and
Tax Court of Canada Rules (Rules) within 60 days from the
date of the disposition of the motion;
4.
in the further alternative, an
order extending the time for the respondent to file a Reply to the Notice of
Appeal.
[2]
First, I will deal with the motion
as it pertains to Salisbury. The individual appellants Earl Joel Barish
(Barish), Lorne Saifer (Saifer), Harris Liontas(Liontas), and Hersh Wolch
(Wolch) were Directors of Salisbury at the time relevant to the within motion
and have been referred to in various documents and affidavits collectively as
the “Directors”.
[3]
Rules 53 states:
The Court may strike out or expunge all
or part of a pleading or other document, with or without leave to amend, on the
ground that the pleading or other document,
(a) may prejudice or
delay the fair hearing of the action,
(b) is scandalous,
frivolous or vexatious, or
(c) is an abuse of the
process of the Court.
[4]
Rule 53(b) states:
The Court may strike
out or expunge all or part of a pleading or other document, with or without
leave to amend, on the ground that the pleading or other document,
. . .
is scandalous,
frivolous or vexatious, or
[5]
Counsel for the respondent
submitted that an appeal to the Tax Court of Canada is a right provided by
statute and a person who has been assessed under the Excise Tax Act (ETA) may file with the Minister of National Revenue (the “Minister”) a notice of objection
within a specified timeline or – if necessary – apply for an extension of time
to do so. Although it is possible for a taxpayer to file an appeal to the Tax
Court of Canada before receiving a decision on an objection, it is still
necessary to have filed the objection. Salisbury was assessed under the ETA but did not file with the Minister an objection to those assessments and did not apply
for any extension of time.
[6]
As set forth in paragraphs 2 to 7,
inclusive, of the affidavit of Richard Baughman (Baughman) – Collections
Officer employed by Canada Revenue Agency (CRA) – filed and dated November 24, 2010 - Salisbury was assessed for Goods and Services Tax (GST) owing for the
monthly reporting periods of February, March, April and May of 2006. The
Minister assessed Salisbury, as filed, and the corporation did not object to
these assessments.
[7]
Section 301(1.1) of the ETA reads:
Objection to
assessment — Any person who has been assessed and who objects to the
assessment may, within ninety days after the day notice of the assessment is
sent to the person, file with the Minister a notice of objection in the
prescribed form and manner setting out the reasons for the objection and all
relevant facts.
[8]
The following provisions deal with
an extension of time by the Minister for filing an objection and state the
requirements for any extension application.
[9]
Sections 302 and 306 of the ETA are as follows:
302. Appeal to
Tax Court — Where a person files a notice of objection to an assessment and
the Minister sends to the person a notice of a reassessment or an additional
assessment, in respect of any matter dealt with in the notice of objection, the
person may, within ninety days after the day the notice of reassessment or
additional assessment was sent by the Minister,
(a)
appeal therefrom to the Tax Court; or
(b)
where an appeal has already been instituted in respect of the matter, amend the
appeal by joining thereto an appeal in respect of the reassessment or
additional assessment in such manner and on such terms as the Tax Court
directs.
306.
Appeal — A person who has filed a notice of
objection to an assessment under this Subdivision may appeal to the Tax Court
to have the assessment vacated or a reassessment made after either
(a) the Minister has confirmed the assessment or has reassessed, or
(b)
one hundred and eighty days have elapsed after the filing of the notice of
objection and the Minister has not notified the person that the minister has
vacated or confirmed the assessment or has reassessed.
but
no appeal under this section may be instituted after the expiration of ninety
days after the day notice is sent to the person under section 301 that the
Minister has confirmed the assessment or has reassessed.
[10]
Counsel for the respondent
submitted section 306 of the ETA is similar to section 169 of the
Income Tax Act (ITA) which obliges a taxpayer to serve a notice
of objection in order to appeal an assessment.
[11]
In the case of Whitford v
Canada, 2008 TCC 359, Webb J. ( as he then was) heard a motion brought by
the respondent to dismiss the appellant’s appeal on the basis the appellant did
not file a notice of objection in relation to the assessment issued by the
Minister pursuant to the ETA. At paragraph 6, Webb J. stated:
Both sections 302
and 306 include a prerequisite that a person must have filed a
notice of objection to an assessment before the person may appeal the
assessment to this Court. This is similar to the requirement under the Income
Tax Act. . . .
[12]
At paragraph 7, Webb J. stated:
In Bormann v. The Queen,
2006 D.T.C. 6147, the Federal Court of Appeal stated as follows:
3 Section 169(1) of the Income Tax Act
obliges a taxpayer to serve Notice of Objection in order to appeal an
assessment. In other words, service of a Notice is a condition precedent to the
institution of an appeal.
4 As mentioned, the appellant did not serve a Notice of
Objection nor is there evidence that the appellant made an application to the
Ministry to extend the time to file a Notice of Objection.
5 Once it is clear that no application for an extension of
time was made, the law is clear that there is no jurisdiction in the Tax Court
to further extend the time for equitable reasons.
Minuteman Press of Canada Company Limited v. M.N.R., 88 DTC 6278,
(F.C.A.).
6 As a result, there is no basis upon which it can be said
that the Tax Court Judge erred in quashing the appellant's appeals for the 1992
to 1998 taxation years.
[13]
Webb J. continued at paragraph 10
and then at paragraphs 13-15, inclusive, as follows:
10 As
noted by the Federal Court of Appeal in relation to appeals under the Income
Tax Act (which are governed by a similarly worded section) filing a notice
of objection is a condition precedent to filing an appeal to this Court. In
determining whether a person has a right to appeal an assessment to this Court
the circumstances related to a failure to file a notice of objection are not
relevant. Without first filing the notice of objection, there can be no appeal
of an assessment to this Court. The position of the Appellant appears to be
that the Canada Revenue Agency has garnished one-half of his Canada Pension
without first assessing him personally for any liability under the Act.
This is not a matter for this Court.
. . .
13 Justice Sobier
made the following comments on the powers of this Court in Sunil Lighting
Products v. Minister of National Revenue, [1993] T.C.J. No. 666:
18
The jurisprudence clearly affirms that the Tax Court of Canada is not a court
of equity and its jurisdiction is based within its enabling statute. In
addition, the Court cannot grant declaratory relief given that such relief is
beyond the jurisdiction of the Court. In an income tax appeal, the Court's
powers are spelled out in subsection 171(1) of the Income Tax Act.
Consequently, these powers essentially entail the determination of whether the
assessment was made in accordance with the provisions of the Income Tax Act.
14 These comments are equally
applicable to an assessment under the Act as the wording of subsection
309(1) of the Act is essentially the same as the wording of subsection
171(1) of the Income Tax Act. Therefore the only remedies that this
Court can grant are related to the validity of the assessment itself and
whether the tax as assessed is owing under the Act. If a person is
taking the position that no assessment was issued, this is not a matter that
can be dealt with by this Court.
15 As it is a condition precedent to
appealing to this Court that a person file a notice of objection and since it
is clear that the Appellant did not file a notice of objection in relation to
the assessment in question, there is no jurisdiction in this Court in relation
to his appeal and therefore, the Appellant's appeal is quashed.
[14]
In Goguen v The Queen, 2007
DTC 5171 Ryer J.A. heard an appeal from a decision of the Tax Court of Canada
quashing the appellant’s appeal on the basis the appellant had not filed a
notice of objection to his reassessment for that year.
[15]
At paragraph 3, Ryer J.A. stated:
We have not been persuaded that the Tax Court Judge erred
in finding as a fact that the appellant did not serve a notice of objection to
his 1999 reassessment. A matter of law, the failure of the appellant to serve a
notice of objection on the Minister deprived the Tax Court of Canada of the
jurisdiction to entertain an appeal in relation to the reassessment. (See
Bormann v. Canada, [2006 DTC 6147] 2006 FCA 83). Accordingly, the appeal will be dismissed with costs.
[16]
Counsel for the appellants agreed
that Salisbury had been assessed under the ETA and had not filed an
objection or otherwise dealt with the matter in accordance with the Act.
[17]
Therefore, with respect to the
appeal of Salisbury, it is apparent the purported appeal did not satisfy the condition
precedent for a valid appeal from said assessment.
[18]
I have chosen to refer to the
relevant provisions of the ETA and to the jurisprudence on this point
notwithstanding the position of counsel for the appellants with respect to
Salisbury was communicated at the outset of his submissions because they are
applicable to the issue whether the appeals of Barish, Saifer, Liontas and
Wolch should also be dismissed or quashed.
The motion as it pertains
to the individual appellants:
[19]
The facts are not in dispute
based, inter alia, on the affidavit of Baughman and the
cross-examination thereon by counsel for the appellants, the affidavit of
Thomas G. Frohlinger – dated October 4, 2011, and by affidavit dated May 31,
2013, re-filed to insert the correct Exhibit B therein – and the
cross-examination on said affidavit by Ms. Coté, co-counsel for the Respondent.
Relevant facts were contained within documents forming part of the Exhibit
Booklet filed by counsel for the appellants. Further, within the Written Representations
of the Respondent, relevant facts are recited at paragraphs 8 to 16, inclusive.
[20]
Paragraphs 7 to 20, inclusive, of
the Notice of Appeal read as follows:
A. STATEMENT OF
FACTS
7. Throughout
the material time Salisbury House has been in the business of operating a
series of retail restaurants located throughout the City of Winnipeg, its
operations having commended in 1931.
8. Corporate
governance of Salisbury House was under the auspices of a Board of Directors
who held office until March 1, 2006. For a period of time thereafter, and at
least until April 18, 2006, governance of Salisbury House was in a state of
disarray and during which time either no Board of Directors held office or an
ineffectual Board of Directors held office being the predecessors to the
appellants Barish, Saifer, Liontas and Wolch.
9. Effective
April 19, 2006, the plaintiffs volunteered to assume office as an elected Board
of Directors for the purpose of attempting to continue the business of
Salisbury House from that date onward.
10. At
all material times the respondent was liable for, and in respect of, the
matters or things hereinafter alleged on behalf of Canada Revenue Agency,
formerly Canada Customs and Revenue Agency (“CRA”) and including the levying
and collecting of GST remittances from various entities including Salisbury
House.
11. For
the months of February, March, April and May to and including May 23, 2006, being the day prior to Salisbury House making a proposal under the Bankruptcy
and Insolvency Act, GST returns were filed for all amounts assessed on that
account.
12. Pursuant
to a Statement of Arrears dated October 16, 2006, the respondent sought to collect from Salisbury House a total of $215,926.00, such amount based on a
notice date of October 16, 2006, relating to GST returns for the period
spanning February 1, 2006 to May 23, 2006, inclusive, and comprising:
|
Tax
assessed:
|
$214,834.50
|
|
Penalties:
|
$
410.06
|
|
Interest:
|
$
681.55
|
|
TOTAL
|
$215,926.11
|
13. In
respect of that Statement of Arrears, and in connection with the proposal under
the Bankruptcy and Insolvency Act, the respondent demanded payment by
Salisbury House of arrears accumulated between March 1, 2006 and April 18, 2006
being the time when either the previous Board of Salisbury House held office or
during a time when no Board of Directors held office, or during a time when the
previous Board of Salisbury House had abandoned or ignored its
responsibilities, such amount totaling $92,826.51 and comprising:
|
|
GST Collected
|
|
GST ITC
|
Net
|
|
March 1 to
31:
|
($87,552.73)
|
+
|
$25,609.39
|
$61,943.34
|
|
April 1 to 18
|
($52,454.73)
|
+
|
$21,571.56
TOTAL
|
$30,883.17
$92,826.51
|
|
|
|
|
|
|
14. Pursuant
to an agreement reached between the individual directors, Barish, Saifer,
Liontas and Wolch, on the one hand and the respondent on the other hand, which
agreement came into effect on or about September 5, 2006, (“the Agreement”),
the individual plaintiffs in their capacity as Directors of Salisbury House
agreed to remit to CRA in respect of their potential personal liability under
Section 232 of the Act amounts sufficient to satisfy any obligations under
Section 323, which amounts totaled $147,611.66 as of September 5, 2006 and
which included within that total the aforementioned sum of $92,826.51 referable
to GST remittances payable from March 1 to April 18, 2006, inclusive.
15. Pursuant
to the Agreement, on or about November 17, 2006, counsel for the appellants
forwarded to the respondent the sum of $147,611.66 being the entire balance
payable along with the further sum of $1,301.95 being the interest accrued on
said amount as a result of the funds having been held in counsel’s trust
account from September 7, 2006 to November 17, 2006.
16. The
funds as forwarded on November 17, 2006, in addition to being paid pursuant to
the terms of the Agreement, were forwarded on the express condition of trust
that CRA acknowledge that the within funds were being paid without prejudice to
the directors seeking a determination by a court of competent jurisdiction as
to their obligations to CRA on account of the amount of GST collected by
Salisbury House from March 1, 2006 to April 19, 2006.
17. By
letter dated December 15, 2006, counsel for the respondent confirmed that the
trust condition imposed upon the funds as transmitted had been accepted by CRA.
B.
ISSUES TO BE DECIDED
18. What
are the obligations, if any, of the appellants Barish, Saifer, Liontas and
Wolch to CRA on account of the amount of GST collected by Salisbury House from March 1, 2006 to April 19, 2006?
19. Whether
the said appellants are personally liable as directors for the sums payable by
Salisbury House as GST to the period between March 1 and April 19, 2006 either
pursuant to subsection 323(1) of the Act or on any other basis whatsoever.
20. Whether
the said appellants exercised the due diligence required of a director pursuant
to subsection 323(3) of the Act.
[21]
The appellants are seeking a
determination of the appropriateness of their payment under protest and request
an order to require the Minister to repay the sum of $92,826.51 to them
together with a pro-rata portion of the sum of $1,301.95, claimed as interest
on the balance owing on the Salisbury GST account during the relevant period.
[22]
Counsel for the respondent
submitted the appeal of Barish, Saifer, Liontas and Wolch (Directors) should be
dismissed because they were not assessed under the ETA and there is no
assessment from which to object or appeal. Therefore, as persons who were not
assessed, they have no right under statute to appeal to the Tax Court. Instead,
they purport to seek an order to return the money paid to CRA pursuant to an agreement within the context of a bankruptcy proposal made by Salisbury. The assessments issued to Salisbury under the ETA were not
challenged and no assessment was issued either severally or jointly against any
of the individual appellants. As a result, this Court has no jurisdiction to
entertain the appeal or to grant the relief sought as it has no other
jurisdiction other than that set out in section 309 of the ETA which is to dispose of an appeal by dismissing it, allowing it and vacating the
assessment or referring the assessment back to the Minister for reconsideration
and reassessment.
[23]
Counsel submitted the individual
appellants are in the same position as Salisbury despite the unique set of
circumstances. Regardless of the intention of the parties to the agreement, the
indisputable fact is there was never any assessment issued against the
individual appellants and it is too late to challenge the validity of the
assessment issued against Salisbury because it did not take steps to do so
within the time limited by statute.
[24]
Counsel for the appellants
submitted that the appeal to this Court is a right provided by statute which
must be considered in the context of the facts pertaining to the within appeal
by Directors by virtue of the broad wording of Rule 4(1) which states:
These rules shall be
liberally construed to secure the just, most
expeditious and least expensive determination of
every proceeding
on its merits.
[25]
Counsel submitted that the
traditional jurisprudence pertaining to the right to appeal to this Court is
not applicable in light of the particular and peculiar facts at issue. In the
within appeal, there was a clear and unambiguous written agreement between
then-counsel for the appellants and counsel for the Minister. Pursuant to that
agreement and confirmed by the letter of Frohlinger to Tim Doyle (Doyle),
Department of Justice, Tax Litigation Section – dated November 17, 2006, trust
cheques in the amounts of $147,611.66 together with an additional cheque in the
sum of $1,301.95 for accrued interest, were enclosed on account of the balance
owing by Salisbury as set out in Doyle’s letter of September 5, 2006.
Frohlinger – at paragraph 3 of his letter to Doyle stated:
These funds are
being forwarded to you on the express condition of trust that the Canada
Revenue Agency acknowledge that the within funds are being paid without
prejudice to the Director’s seeking a determination by a Court of competent
jurisdiction as to their obligation to the Canada Revenue Agency on account of
the amount of GST collected by the corporation from March 1, 2006 and April 19,
2006.
[26]
On December 5, 2006, Doyle wrote Frohlinger to confirm this trust condition had been accepted by CRA.
[27]
Counsel submitted that without the
agreement, CRA had the right to proceed against Salisbury and Directors who
were newly-appointed and therefore subject to liability for GST collected but
not remitted prior to April 19, 2006, if Salisbury was unable to pay in full.
By virtue of said agreement, the individual appellants were challenging the
correctness of any assessments that could be issued against them pursuant to
the relevant provisions of the ETA and had preserved that right when
Doyle – as counsel for the Minister – accepted the condition that the payment
of money was under protest and that the issue of their liability was to be
determined subsequently by a “Court of competent jurisdiction.” Counsel
submitted this Court has the jurisdiction to hear the appeal by Directors
because the issue whether they are liable is apparent and that the clear terms
of the written agreement superseded the statutory conditions in the ETA or, alternatively, that the respondent by its conduct waived reliance on those
statutory conditions and is estopped from asserting them at this point. Had CRA intended to assess Directors notwithstanding their voluntary payment, or if the process of
assessment - followed by notice of objection - was intended to be required,
these conditions were not included in the agreement. Under the circumstances
surrounding the potential bankruptcy of Salisbury and its inability to pay the
balance of GST owing in full, the future liability of Directors was apparent
and the letter of Doyle – dated September 5, 2006 – providing details of the
amount they should remit in respect of their personal liability under section
323 of the ETA - was tantamount to an assessment on behalf of the
Minister. It also stated a clear understanding that the legal basis for such
payment would be the subject of a determination in the appropriate forum.
Counsel submitted the arrangement was more than a factor to be taken into
account within the context of a proposal by Salisbury to avoid bankruptcy. Counsel
submitted the agreement was clear that the payment made by Directors was made
under protest in an attempt to avert the bankruptcy of Salisbury but that they
had reserved – specifically - their right to determine actual liability for
such remittance. The demand for payment by Doyle on behalf of CRA was equivalent to an assessment by the Minister and, although payment was made, the legal
foundation for the amount attributable to Directors was challenged at the
outset according to specific terms in the agreement which were subsequently
confirmed in writing by Doyle.
[28]
Counsel acknowledged the Notice of
Appeal has to be amended and requested leave to do so. With respect to the
applicability of Rules 53(b) and 53(c) in support of the Respondent’s motion,
counsel submitted the matter before the Court is far from being“ scandalous,
frivolous or vexatious” or “ an abuse of the process of the Court.” Instead, it
concerned a unique set of circumstances that required a determination utilizing
a novel approach to fashion an appropriate remedy.
[29]
In the alternative, counsel
submitted the unusual facts of the within appeal permitted the Court to hear
the matter in its entirety by having the matter scheduled for a hearing in the
usual course rather than to deal with it summarily by granting the Respondent’s
motion.
[30]
In the case of Pine Valley
Enterprises Inc v Canada 2010 TCC 324, Campbell J. heard a motion by the
respondent for an order striking certain paragraphs of the taxpayers Amended
Notice of Appeal. At paragraph 4, Campbell J. stated:
The test for striking pleadings was set
out at paragraph 3 of Main Rehabilitation Co. Ltd. v. The
Queen, 2004 D.T.C. 6762,
where the Federal Court of Appeal stated the following:
The test to be
applied for striking out pleadings is whether it is plain and obvious that Main's Notice of Appeal to the Tax Court discloses no reasonable claim. Only if its appeal
is certain to fail should the relevant portions of the Notice of Appeal be
struck out. As stated, the facts alleged in the Notice of Appeal are assumed to
be true. See Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959.
An Order to strike portions of a
pleading should not be made "...unless it be obvious that the plaintiff's
action is so clearly futile that it has not the slightest chance of
succeeding..." (Pfizer Canada Inc. v. Apotex Inc.,
[1999] F.C.J. No. 959
(Fed. T.D.) at paragraph 30).
[31]
In that case, the appellant in the
Notice of Appeal had described certain dealings with CRA during the objection
process and in striking those portions, Campbell J. – at paragraph 17 – stated:
17 These
paragraphs contain details concerning the garnishment proceedings in 2006. The
Respondent argued that the garnishment resulted from an earlier assessment
under the Act and that, if
the Appellant had objections to that assessment, it could have challenged the
validity of that assessment at the time. The Appellant's argument is that this
garnishment was never valid and that there was no opportunity to legitimately
dispute the amounts that CRA claimed were owed. If the Appellant can adduce evidence
to show that there was some duplication of amounts which the Appellant paid
under protest pursuant to this garnishment, then there may be an argument that
the present assessment is incorrect. This is particularly true if, as the
Appellant alleges, the garnishment was not issued pursuant to an independent
assessment. The relevance and weight, if any, is best left to the presiding
Judge to assess within the parameters of all the adduced evidence. It is not
clear and obvious to me that these impugned paragraphs should be struck because
they are scandalous, frivolous or vexatious, or an abuse of the process of the
Court. It would be premature for me on a motion to deprive the Appellant of its
right to present this argument to the presiding Judge. These paragraphs will
remain in the pleadings.
[32]
At paragraph 35, in response to
the request for an order that the monies paid pursuant to the garnishment be
returned, Campbell J. stated:
The
Appellant requests that this Court order that the monies, paid pursuant to the
garnishment proceedings, be returned to the Appellant with interest. This
relief is beyond the jurisdiction of this Court. The Appellant paid this money
voluntarily, although under protest, and if a claim for such relief is
possible, it may only be through an application to the Federal Court. This
subparagraph should therefore be struck.
[33]
In Minister of National Revenue
v Parsons, 84 DTC 6345, the Federal Court of Appeal heard an appeal
from a judgment of the Federal Court Trial Division. Pratte J. – writing for
the Court – allowed the appeal in a brief judgment which is quoted in full
below:
1 This is an appeal from a
judgment of the Trial Division [83 DTC 5329]
quashing assessments made by the Minister of National Revenue pursuant to
subsections 159(2) and (3) of the Income Tax Act. The special feature of
this case is that the judgment under attack was not rendered on an appeal under
the provisions of the Income Tax Act. Indeed, the respondents did not bring
such an appeal; instead, they chose to apply to the Trial Division under
section 18 of the Federal Court Act for an order quashing the
assessments made against them and restraining the Minister and his servants
from taking further action pursuant to those assessments. That application was
granted by the judgment appealed from.
2 We are all of opinion that
the appeal must succeed on the narrow ground that the only way in which the
assessments made against the respondents could be challenged was that provided
for in sections 169 and following of the Income Tax Act. This, in our
view, clearly results from section 29 of the Federal Court Act.
3 The learned judge of first
instance held that, in this case, section 29 did not deprive the Trial Division
of the jurisdiction to grant the application made by the respondents under
section 18 of the Federal Court Act because, in his view, the appeal
provided for in the Income Tax Act was restricted to questions of
'quantum and liability' while the respondents' application raised the more
fundamental question of the Minister's legal authority to make the assessments.
We cannot agree with that distinction. The right of appeal given by the Income
Tax Act is not subject to any such limitations.
4 In our view, the Income
Tax Act expressly provides for an appeal as such to the Federal Court from
assessments made by the Minister; it follows, according to section 29 of the Federal
Court Act, that those assessments may not be reviewed, restrained or set
aside by the Court in the exercise of its jurisdiction under sections 18 and 28
of the Federal Court Act.
5 The appeal will be allowed,
the decision of the Trial Division will be set aside and the respondents'
application to the Trial Division will be dismissed. The appellant will be
granted his [sic] costs both in this Court and in the Trial Division.
[34]
In Norejko v R, 2004 TCC 829, the taxpayer sought an exemption from payment of income tax for the years at issue
because of freedom of conscience and religion under the Canadian Charter of
Rights and Freedoms ( Charter). The Minister brought a motion for an order
quashing the appeal. After reviewing various decisions including Prior v R,
[1989] 2 C.T.C. 280 (Fed. C.A.), Woodside v R, [1993] 2 C.T.C. 2348
(T.C.C.) and O’Sullivan v R, [1991] 2 C.T.C. 117 (Fed. T.D.),
O’Connor J. - at paragraphs 11 and 12 stated:
11 Having
considered the submissions of the Appellant and of counsel for the Respondent
and having reviewed the legal provisions and authorities cited above, I
conclude that this Court has no jurisdiction to grant an exemption from income
tax, federal or provincial. Moreover even if the Court had jurisdiction to
consider the issues raised by the Appellant it does not have the authority to
grant the relief sought of ordering refunds of taxes paid and an exemption from
income taxes. These conclusions are not altered by the fact that the Appellant,
whether because of religious beliefs or otherwise, does not agree with or
conscientiously objects to the laws of the government of Canada and/or to the policies upon which such laws are based.
12 I
also conclude that even if the foregoing is incorrect, these appeals cannot be
heard because the required condition precedent of giving valid Notices of
Objection has not been met.
[35]
In the case of Fidelity Global
Opportunities Fund v Canada 2010 TCC 108, V.A. Miller J. heard a motion to
strike an appellant’s Notice of Appeal from an assessment made under the ITA.
The facts and analysis are found in paragraphs 9‑13, inclusive, of the
judgment as follows:
9 The
Appellant had 90 days after the day of mailing of the notice of assessment to
serve a notice of objection on the Minister2. It is my opinion that the
Appellant's letter of February 11, 2008 is sufficient to satisfy the conditions
in subsection 165(1) of the Act.
10 Subsection
165(2) of the Act stipulates that a notice of objection shall be served by
being addressed to the Chief of Appeals in a District Office or a Taxation
Centre. The language in subsection 165(2) is mandatory3 and a letter to the Ottawa
Technology Centre does not meet the requirements of this subsection4.
11 There are good reasons
why subsection 165(2) specifies that a notice of objection shall be served on
the Chief of Appeals. It is the Appeals Branch which deals with objections. If
objections are not served in accordance with subsection 165(2), then it would
be next to impossible for the Canada Revenue Agency to keep proper records and
to ensure that the objections are dealt with "with all due dispatch"
as is required in subsection 165(3) of the Act.5
12 I realize that subsection
165(6) gives the Minister the discretion to accept a notice of objection that
was not served in accordance with subsection 165(2). However, that discretion
lies with the Minister and not this Court.
13 For the above reasons,
the Respondent's motion is granted and the Notice of Appeal is quashed, with
costs to the Respondent.
_____________________________
2 Paragraph 165(1)b.
3 Interpretation Act, R.S.c. 1985,
c. I-21, s.11.
4 See McClelland v. R., 2004 FCA 315
at paragraph 5.
5 Pereira v. Canada, 2008 TCC 2 at paragraph 15; affirmed 2008 FCA 264.
[36]
The position of the individual
appellants is that the agreement relevant to these proceedings was equivalent
to an assessment by the Minister because of the unusual circumstances that
prevailed in relation to the bankruptcy proposal by Salisbury and the impending
liability on their part because of the inability of the corporation to satisfy
the outstanding balance of GST. The Canadian Oxford Paperback Dictionary, Oxford
University Press Canada 2000, defines “virtual” as:
1 that
is such in essence or effect, though not recognized as such
in name or according to
strict definition (she married a virtual
stranger).
2 a
computing – not physically existing but made by software to appear to do
so from the point of view of the program or user (virtual memory)
b designating or existing
or experienced in an environment created by virtual reality.
. . .
The term “ virtual reality” is
defined as:
1 a notional image
or environment created by computer, with which
a user can interact realistically
using gloves fitted with sensors and a helmet containing a screen.
2 the software or
technology used to generate this environment.
[37]
In McMillen Holdings Inc. v Minister
of National Revenue, 87 D.T.C. 585, Rip J. (as he then was) heard an
appeal from a reassessment by the Minister where the appellants did not object
to the levy of the tax. Instead, they appealed to the Court to vary the
reassessment to provide for the payment of interest by the Minister to them. At
paragraphs 44 to 48, inclusive, of his judgment Rip J. commented as follows:
44 Section 152 states that the Minister
shall examine a taxpayer's return of income for a taxation year, assess the tax
of the year, interest and penalties and determine any refund or tax paid on
account. The term “assessment” or “reassessment” is not defined in the Act
except to provide that an assessment includes a reassessment. The terms
“reassessment” and “notice of reassessment” were discussed by Mr. Justice
Thorson in Pure Spring Company Limited v. M.N.R., 2 DTC 844 at page
857:
The assessment is
different from the notice of assessment; the one is an operation, the other a
piece of paper. The nature of the assessment operation was clearly stated by
the Chief Justice of Australia, Isaacs, A.C.J., in Federal Commissioner of
Taxation v. Clarke ((1927) 40 C.L.R. 246 at 277):
An assessment is
only the ascertainment and fixation of liability.
a definition which
he had previously elaborated in The King v. Deputy Federal Commissioner of
Taxation (S.A.); ex parte Hooper ((1926) 37 C.L.R. 368 at 373):
An 'assessment' is not a piece of
paper; it is an official act or operation; it is the Commissioner's
ascertainment, on consideration of all relevant circumstances, including
sometimes his own opinion, of the amount of tax chargeable to a given taxpayer.
When he has completed his ascertainment of the amount he sends by post a notification
thereof called 'a notice of assessment'. . .But neither the paper sent nor the
notification it gives is the 'assessment'. That is and remains the act of
operation of the Commissioner.
It is the opinion as
formed, and not the material on which it was based, that is one of the
circumstances relevant to the assessment. The assessment, as I see it, is the
summation of all the factors representing tax liability, ascertained in a
variety of ways, and the fixation of the total after all the necessary computations
have been made.
45 An assessment by its very nature is a
determination of liability of a taxpayer. An amount of money owed to the
taxpayer by the Crown on account of interest is not an amount which is subject
to an assessment or an assessed amount of money.
46 It is the taxpayer who is assessed
tax, interest and penalties and he is assessed by the Minister. If the taxpayer
does not agree with an assessment he may object and if the assessment is
confirmed by the Minister, or if the Minister reassesses, the taxpayer may
appeal to this Court or the Federal Court to have the assessment vacated,
varied or referred back to the Minister for reconsideration and reassessment:
sections 165, 169 and 171.
47 Where in examining a taxpayer's
return of income for a taxation year the Minister has determined a refund of
tax or interest owing to the taxpayer on account of an overpayment of tax in
accordance with section 164, the Minister may, on or after mailing the notice
of assessment for the particular year, refund any overpayment made on account
of the tax and pay interest on that amount. The Minister may notify the
taxpayer of any interest due to him in the notice of assessment. If, however,
the Minister does not make such refund at the time of mailing the notice of
assessment the taxpayer has four years from the end of the taxation year to
apply for such refund. But the determination, calculation or amount of refund
and the interest resulting from any overpayment of tax do not constitute the
assessment of tax, interest or penalty although the question of interest is
determined in the assessment process and may be indicated on the notice of
assessment. However, the notice of assessment is not the assessment. In my view
the appellant at bar is not appealing from any assessment of income tax or
interest but is asking the Court to make a direction to order the Minister of
National Revenue to make a payment of interest.
48 In Guerin et al. v. The Queen [1982] 2 F.C. 445
the issue was whether or not the Federal Court had jurisdiction to award
prejudgment interest against the Crown in an action for breach of trust.
Collier, J. stated at page 448:
. . .this is a statutory Court.
Its jurisdiction, in respect of the subject-matter of claims, and over persons,
and its jurisdiction in respect of the remedies and other relief it can grant,
must be found in existing federal statute or federal common law: McNamara
Construction (Western) Ltd. et al. v. The Queen, (1977), 75 D.L.R. (3d) 273
at pp. 276-7, [1977] 2 S.C.R. 654
at p. 658, 13 N.R. 181.
[38]
Counsel for the appellants urged
the Court to dismiss the motion and to permit the appeal of the individual
appellants to survive despite the lack of compliance with the relevant
provisions of the ETA. Counsel stated the terms of the agreement
between Directors and the Minister – through CRA – were unambiguous.
Unfortunately, the manner in which subsequent events unfolded would leave them
unable to challenge the appropriateness of their payment if this motion is
granted.
[39]
There is no doubt that “the law of
unintended consequences” applies in this case. It is not within my bailiwick to
fashion a remedy to the wrong alleged by the appellants which is fortunate
because it has been 53 years since I studied contracts in first-year law and I
am not eager to revisit attacks of migraine headaches brought on by struggling
to comprehend fully the doctrine of mutual mistake. However, there may be a
forum capable of granting equitable relief to the individual appellants rooted
in contract or other ground.
[40]
In support of the contention that
this Court was the proper forum to deal with the issue of actual liability on
the part of the individual appellants, counsel relied on the decision by Décary
J.A. in Canada v Roitman, 2006 FCA 266, concerning the respective
jurisdiction of the Federal Court and the Tax Court of Canada with respect to
income tax assessments. The facts are set forth in paragraphs 3 to 11,
inclusive, of the judgment as follows:
3 The
Minister of National Revenue (the "Minister") disallowed certain
claims for expenses. Mr. Roitman and Gold Seal objected to the reassessments of
their 2000, 2001 and 2002 taxation years and provided the Minister with
submissions in support of their position.
4 The
Minister accepted the submissions in part and responded with a settlement
proposal. He advised Mr. Roitman that, if he did not agree with the settlement
proposal, the Minister would confirm the assessment and Mr. Roitman could then
pursue the issue in the Tax Court of Canada. At all material times Mr. Roitman
and Gold Seal were represented in the settlement negotiations by a chartered
accountant.
5 On
December 23, 2004, both Mr. Roitman and Gold Seal accepted the Minister's
settlement proposal. They signed a settlement agreement whereby the Minister
would reassess Mr. Roitman and Gold Seal in accordance with the Minister's
proposed settlement.
6 In
signing the agreement, Mr. Roitman and Gold Seal acknowledged that they were
"familiar with subsections 165(1.2) and 169(2.2) of the Income Tax Act"
and that they understood that in accepting the proposal, they "will be
precluded from filing an objection or an appeal under the Income Tax Act"
(A.B. p. 81).
7 Mr.
Roitman was reassessed in accordance with the terms of the settlement agreement
on January 24, 2005. Pursuant to those terms, Mr. Roitman filed no objection to
the reassessment.
8 On
June 15, 2005, Mr. Roitman filed the Statement of Claim which is at issue in
this appeal.
9 The Statement of Claim
identifies the claim as a Proposed Class Action. Mr. Roitman, "on his own
behalf and on behalf of all class members", seeks damages against Her
Majesty the Queen "joined herein as a representative of the Federal
Government of Canada and more specifically the Canada Customs and Revenue
Agency (the "Agency")". Mr. Roitman alleges that in reassessing
him, the Crown engaged in "deliberate conduct ... to deny ... the
plaintiff the benefit of the law". The damages sought are "damages
for misfeasance in public office", "special damages, including costs
of defending the proposed income tax assessments and in prosecuting the civil
income tax appeal" and "punitive, exemplary and aggravated
damages".
10 On August 2, 2005, the Crown filed a Statement of Defence.
11 On August 26, 2005, the
Crown filed a motion pursuant to Rule 221 of the Federal Court Rules,
1998 (the "Rules") on the ground that the Statement of Claim was
immaterial, redundant, scandalous, frivolous and vexatious, and was otherwise
an abuse of the process of the Court. The Crown argued, essentially, that the
Statement of Claim was to be struck out because in effect it challenges the
legality of assessments of income tax by the Minister, a matter which is
exclusively within the jurisdiction of the Tax Court of Canada and with respect
to which, in any event, Mr. Roitman had waived his right to object and appeal.
[41]
In the course of concluding the
motion to strike the Statement of Claim was warranted, Décary J.A. at
paragraphs 18 to 20, inclusive, stated:
18 Counsel
for Mr. Roitman all but conceded at the hearing that the claim could go nowhere
unless the notice of reassessment is found to be wrong in law, as well as the
result of the unlawful exercise of the Minister's statutory authority. His
position is that the Minister does not have the right to knowingly misinterpret
the law, which, the argument goes, is precisely what the Minister did in not
applying the teaching of this Court in Franklin. Counsel also confirmed
that no fraud was alleged and that the Statement of Claim does not refer to, or
seek to set aside, the settlement agreement or the waiver of the taxpayer's
right to file an objection or an appeal.
Jurisdiction of the Federal Court and of the Tax
Court of Canada
19 Subsection
152(8) of the Income Tax Act deems an assessment to be valid and binding
unless varied or vacated in accordance with the appeal process under the Act.
The Tax Court has exclusive jurisdiction to determine the correctness of tax
assessments. This exclusive jurisdiction is established by a combination of ss.
152(8) and 169 of the Income Tax Act, s. 12 of the Tax Court of
Canada Act and ss. 18, 18.1 and 18.5 of the Federal Courts Act.
20 It
is settled law that the Federal Court does not have jurisdiction to award
damages or grant any other relief that is sought on the basis of an invalid
reassessment of tax unless the reassessment has been overturned by the Tax
Court. To do so would be to permit a collateral attack on the correctness of an
assessment. . . .
[42]
However, in Roitman, there
had been an assessment issued by the Minister as noted by Décary J.A. at
paragraph 24:
24 In the
case at bar, the income tax assessment in issue is an assessment of Mr.
Roitman's own tax liability. The true ground for the relief sought is the allegation
that the assessment is contrary to the alleged teaching of this Court in Franklin. The damages are in reality
sought on the basis of an invalid reassessment made on the basis of a wrong
interpretation of the law. For all practical purposes, then, it is the very
legality or correctness in law of the notice of reassessment which is at issue.
This, clearly, is a matter within the exclusive jurisdiction of the Tax Court
of Canada.
[43]
It is not because the
circumstances before me are novel that drives the result. In a recent case in
British Columbia – Rosemari Surakka as the personal representative of Lisa
Cheryl Dudley v Minister of Public Safety and Solicitor General of the Province
of British Columbia, District of Mission, and Attorney General of Canada, 2013 BCSC 1005, Madam Justice H. Holmes heard an
application under the relevant rule by way of motion to strike the claim and
dismiss the action. Surakka was seeking a declaration under s. 24(1) of the Charter
that her deceased daughter was deprived of her right to life and security of
the person, as protected by s. 7 as a result of failures in the responses of
the Royal Canadian Mounted Police officers to reports of gunshots heard.
[44]
Justice Holmes dismissed the
application and in the course of her analysis referred to certain decisions
issued by the Supreme Court of Canada. At paragraphs 38 to 43, inclusive,
Justice Holmes stated:
38 As I have already noted, a claim
will only be struck under Rule 9-5(1) if, assuming the facts pleaded to be
true, it is plain and obvious that the claim has no reasonable prospect of
success. As the Supreme Court of Canada explained in R.
v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45
at paras. 19-20, the power to strike thus serves as a valuable housekeeping
measure that unclutters the proceedings by weeding out the hopeless claims:
The power to strike
out claims that have no reasonable prospect of success is a valuable
housekeeping measure essential to effective and fair litigation. It unclutters
the proceedings, weeding out the hopeless claims and ensuring that those that
have some chance of success go on to trial.
This promotes two
goods - efficiency in the conduct of the litigation and correct results.
Striking out claims that have no reasonable prospect of success promotes
litigation efficiency, reducing time and cost. The litigants can focus on
serious claims, without devoting days and sometimes weeks of evidence and
argument to claims that are in any event hopeless. The same applies to judges
and juries, whose attention is focused where it should be - on claims that have
a reasonable chance of success. The efficiency gained by weeding out
unmeritorious claims in turn contributes to better justice. The more the
evidence and arguments are trained on the real issues, the more likely it is
that the trial process will successfully come to grips with the parties'
respective positions on those issues and the merits of the case.
39 The Court
cautioned, at para. 21, that the power to strike must nonetheless be used with
care, because it has the potential to stifle developments in the law:
Valuable as it is,
the motion to strike is a tool that must be used with care. The law is not static and unchanging. Actions that yesterday
were deemed hopeless may tomorrow succeed. Before Donoghue v. Stevenson, [1932] A.C. 562 (H.L.)
introduced a general duty of care to one's neighbour premised on
foreseeability, few would have predicted that, absent a contractual
relationship, a bottling company could be held liable for physical injury and
emotional trauma resulting from a snail in a bottle of ginger beer. Before Hedley Byrne & Co. v. Heller & Partners, Ltd.,
[1963] 2 All E.R. 575 (H.L.), a tort action for negligent misstatement would
have been regarded as incapable of success. The history of our law reveals that
often new developments in the law first surface on motions to strike or similar
preliminary motions, like the one at issue in Donoghue v.
Stevenson. Therefore, on a motion to strike, it is not determinative
that the law has not yet recognized the particular claim. The court must rather
ask whether, assuming the facts pleaded are true, there is a reasonable
prospect that the claim will succeed. The approach
must be generous and err on the side of permitting a novel but arguable claim
to proceed to trial.
[Emphasis added.]
40 In my view, the
plaintiff's claim is precisely the type of novel but arguable claim that should
survive a motion to strike on a generous approach.
41 As the plaintiff herself
recognizes, her claim cannot succeed in the face of Wilson
Estate and Stinson Estate. However,
she articulates a reasoned and coherent basis for a reconsideration of those
authorities, drawing from subsequent developments in Canadian law and
international human rights law.
42 It is therefore not plain and
obvious that her claim has no reasonable prospect of success.
43 I reach this conclusion only in the
context of the present application that the plaintiff's claim be struck. At a
later stage and with a more developed factual context another judge may
conclude that the claim cannot succeed, whether for reasons of fact or of law.
[45]
In the within proceeding, it is
not a matter of seeking an expanded interpretation of a potential right within
the broad terms of the Charter. Instead, the question is whether there
has been compliance with the statutory requirements of relevant provisions in
the ETA that the jurisprudence defines as comprising a mandatory
condition precedent to a valid appeal under that legislation from an assessment
to persons as defined therein. It is unfortunate that the individual
appellants’ reservation - by written agreement - of the right to challenge the
legal basis for the payment to CRA remains -from their perspective - a wrong
seeking a remedy.
[46]
Rule 53(3)(b) permits the
respondent to apply to the Court to have an appeal dismissed on the ground “ a
condition precedent to instituting a valid appeal has not been met.”
[47]
As noted earlier in these Reasons,
Salisbury has no valid right of appeal to the assessment issued against it by
the Minister pursuant to the relevant provisions of the ETA. Despite
the unusual circumstances relevant to this proceeding, the individual
appellants must suffer the same fate as the corporation in that their appeal is
also not valid because the statutory condition precedent has not been met.
[48]
The respondent’s motion is granted
with costs and the appeal of Salisbury and the individual appellants is hereby
quashed. In the event the term “ dismissed” is preferred to conform with the
Rule, then, it is hereby dismissed. In my view, an appeal must be quashed when
void ab initio such as when a condition precedent has not been met,
whereas another appeal may exist initially even though dismissed for various
reasons at a subsequent stage in the process either before or after trial.
Signed at Sidney, British Columbia, this 23rd day of July
2013.
"D.W.
Rowe"
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