Date: 20060314
Docket: IMM-4464-05
Citation: 2006 FC 334
Ottawa, Ontario, March 14, 2006
PRESENT: The Honourable Mr. Justice Phelan
BETWEEN:
GEORGE CORNELIUS THOMAS
and KATHLEEN ANN DALY
Applicants
and
THE MINISTER OF CITIZENSHIP
AND IMMIGRATION
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
I. Overview
[1] A visa officer refused the application of George Cornelius Thomas (Thomas) and his wife, Kathleen Ann Daly (Daly) (collectively the Applicants) for permanent residence in Canada under the Entrepreneur Class. The officer held that the Applicants had not established that any of the Applicants' businesses met the definition of a "qualifying business" as required by s. 88(1) of the Immigration and Refugee Protection Regulations (Regulations).
[2] There are two principal issues in this judicial review:
1. Can an applicant aggregate his businesses' results under the Regulations or must each corporate entity stand on its own for purposes of determining whether the applicant's business is a "qualifying business"?
2. Is it appropriate to use "fair market" values in assessing the business rather than "book value" for the same purposes as in question 1?
[3] The Entrepreneur Class of immigrant prescribed for purposes of s. 12(2) of the Immigration Refugee and Protection Act (Act) is a class of persons who may become permanent residents on the basis of their ability to become economically established in Canada and who are entrepreneurs within the meaning of subsection 88(1) of the Regulations. (See s. 97(1) of the Regulations.)
[4] It is acknowledged that if the Applicants are successful on either issue, then they qualify for permanent residence under the Entrepreneur Class.
[5] There is a subsidiary issue which, on its own, would justify granting judicial review but would do little to give assistance to either the Applicants or the Respondent on the assessment of the merits of the Applicants' application for permanent residence. The officer had, as part of her reasons, concluded that no balance sheet for the Applicants' companies had been filed yet the balance sheets were, in fact, attached to the United States Corporate Tax Return which were provided to the officer. However, any referral back on this ground alone is likely to lead to the same result unless the two principal issues are addressed by the Court.
II. Background
[6] The Applicants are citizens of the United States of America. Thomas is the principal Applicant. He has a seasonal residence in Elgin, Ontario, as well as a restaurant/bar business operating as Ducks Roadhouse in Westport, Ontario. He purchased the business through his company 515688 NB Inc. of which he is the sole shareholder.
[7] In 1999 Thomas was the sole shareholder and chief executive officer of two corporations through which he carried on the business of two restaurant/bars at different locations in Pittsburgh, Pennsylvania. The corporation G.C.T. Inc. carried on business as Daly's Pub, the other corporation was Terrace Lounge Inc.
[8] In order to qualify under the Entrepreneur class, an applicant must manage a qualifying business for at least two of the five years before the application for permanent residence is filed. A qualifying business must have two of the following characteristics: a) two full-time equivalent jobs; b) annual sales greater than $500,000; c) net income exceeding $50,000; and d) net assets greater than $125,000. There is no issue in this case that Thomas managed the business which he says complies with the terms of a "qualifying business".
[9] In 1999, the business operations of the two corporations combined exceeded the requirements for net equity and full-time equivalent employment. The same can be said for other years within the five years before the application for permanent residence.
[10] In 2001, Thomas sold G.C.T. Inc. for $127,000 USD and in 2002 sold the building where the pub was located for $85,000 USD. It was agreed that this gave a fair market value of $212,000 USD in 2002 for that part of Thomas' businesses. The transaction suggests that the net assets in 2000 on a fair market basis exceeded $125,000 Canadian.
[11] In 2000, the employment for the two corporations managed by Thomas amounted to 5.8 full-time equivalents. The gross sales, at $366,266 USD, exceeded the $500,000 CDN prescribed in the Regulations.
[12] By 2002, Thomas was the sole shareholder and CEO of two separate corporations which carried on the business of the two restaurant/bars - one in Pittsburgh and one at Westport. The combined operating results of the two corporations, as shown through tax returns, exceeded the gross sales requirement of $500,000 and the employment requirement of two full-time equivalent employees set out in the Regulations.
[13] The Applicants also made the point that if fair market values were used for purposes of computing the value of net assets, the amount in 2002 would far exceed $125,000.
III. Analysis
[14] The Minister's representative took the position that the Regulations did not permit the Minister to aggregate the results of the two corporations. In addition, the Minister determined that net book value, rather than fair market value, should be used in calculating asset values.
A. Standard of Review
[15] As there are two parts to the Minister's determination, the Court must consider the standard of review in respect of each part. The issue, of whether s. 88(1) of the Regulations authorizes the aggregation of the results of the two corporations, involves a determination of the meaning of "qualifying business" under the Regulations. That interpretation requires the statutory interpretation of terms in the context of the Act and Regulations. It is a question of law in which the Court has greater expertise than a visa officer. The appropriate standard of review is correctness.
[16] In respect of the decision on values - whether to use "book value" or some other valuation method - the critical factor is that the decision is one of the exercise of discretion. Nonetheless, the officer possesses no special expertise in this matter of selection of valuation methods. There is, moreover, a need for policy consistency given that various countries have different ways of calculating values. In my view, the appropriate standard should be reasonableness simpliciter for this type of decision because of its discretionary nature.
B. Aggregation of Financial Results
[17] The critical issue is the scope of the term "qualifying business", as defined in s. 88 of the Regulations, which reads:
| "qualifying business" means a business - other than a business operated primarily for the purpose of deriving investment income such as interest, dividends or capital gains - for which, during the year under consideration, there is documentary evidence of any two of the following:
(a) the percentage of equity multiplied by the number of full time job equivalents is equal to or greater than two full-time job equivalents per year;
(b) the percentage of equity multiplied by the total annual sales is equal to or greater than $500,000;
(c) the percentage of equity multiplied by the net income in the year is equal to or greater than $50,000; and
(d) the percentage of equity multiplied by the net assets at the end of the year is equal to or greater than $125,000.
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« entreprise admissible » Toute entreprise - autre qu'une entreprise exploitée principalement dans le but de retirer un revenu de placement, tels des intérêts, des dividendes ou des gains en capitaux - à l'égard de laquelle il existe une preuve documentaire établissant que, au cours de l'année en cause, elle satisfaisait à deux des critères suivants :
a) le pourcentage des capitaux propres, multiplié par le nombre d'équivalents d'emploi à temps plein, est égal ou supérieur à deux équivalents d'emploi à temps plein par an;
b) le pourcentage des capitaux propres, multiplié par le chiffre d'affaires annuel, est égal ou supérieur à 500 000 $;
c) le pourcentage des capitaux propres, multiplié par le revenu net annuel, est égal ou supérieur à 50 000 $;
d) le pourcentage des capitaux propres, multiplié par l'actif net à la fin de l'année, est égal ou supérieur à 125 000 $.
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[18] In order to give meaning to the term "qualifying business", it is necessary to consider the terms "Entrepreneur" and "Business Experience":
| "entrepreneur" means a foreign national who
(a) has business experience;
(b) has a legally obtained minimum net worth; and
(c) provides a written statement to an officer that they intend and will be able to meet the conditions referred to in subsections 98(1) to (5).
"business experience", in respect of
(a) an investor, other than an investor selected by a province, means a minimum of two years of experience consisting of
(i) two one-year periods of experience in the management of a qualifying business and the control of a percentage of equity of the qualifying business during the period beginning five years before the date of application for a permanent resident visa and ending on the day a determination is made in respect of the application,
(ii) two one-year periods of experience in the management of at least five full-time job equivalents per year in a business during the period beginning five years before the date of application for a permanent resident visa and ending on the day a determination is made in respect of the application, or
(iii) a combination of a one-year period of experience described in subparagraph (i) and a one-year period of experience described in subparagraph (ii);
(b) an entrepreneur, other than an entrepreneur selected by a province, means a minimum of two years of experience consisting of two one-year periods of experience in the management of a qualifying business and the control of a percentage of equity of the qualifying business during the period beginning five years before the date of application for a permanent resident visa and ending on the day a determination is made in respect of the application; and
(c) an investor selected by a province or an entrepreneur selected by a province, has the meaning provided by the laws of the province and is calculated in accordance with the laws of the province.
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« entrepreneur » Étranger qui, à la fois :
a) a de l'expérience dans l'exploitation d'une entreprise;
b) a l'avoir net minimal et l'a obtenu licitement;
c) fournit à un agent une déclaration écrite portant qu'il a l'intention et est en mesure de remplir les conditions visées aux paragraphes 98(1) à (5).
« expérience dans l'exploitation d'une entreprise » :
a) S'agissant d'un investisseur, autre qu'un investisseur sélectionné par une province, s'entend de l'expérience d'une durée d'au moins deux ans composée :
(i) soit de deux périodes d'un an d'expérience dans la gestion d'une entreprise admissible et le contrôle d'un pourcentage des capitaux propres de celle-ci au cours de la période commençant cinq ans avant la date où la demande de visa de résident permanent est faite et prenant fin à la date où il est statué sur celle-ci,
(ii) soit de deux périodes d'un an d'expérience dans la direction de personnes exécutant au moins cinq équivalents d'emploi à temps plein par an dans une entreprise au cours de la période commençant cinq ans avant la date où la demande de visa de résident permanent est faite et prenant fin à la date où il est statué sur celle-ci,
(iii) soit d'un an d'expérience au titre du sous-alinéa (i) et d'un an d'expérience au titre du sous-alinéa (ii);
b) s'agissant d'un entrepreneur, autre qu'un entrepreneur sélectionné par une province, s'entend de l'expérience d'une durée d'au moins deux ans composée de deux périodes d'un an d'expérience dans la gestion d'une entreprise admissible et le contrôle d'un pourcentage des capitaux propres de celle-ci au cours de la période commençant cinq ans avant la date où la demande de visa de résident permanent est faite et prenant fin à la date où il est statué sur celle-ci;
c) s'agissant d'un investisseur sélectionné par une province ou d'un entrepreneur sélectionné par une province, s'entend de l'expérience évaluée conformément au droit provincial.
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[19] The starting point of the analysis is s. 12 of the Interpretation Act which requires that each enactment be given to fair and liberal interpretation as best obtains its objects.
| 12. Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.
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12. Tout texte est censé apporter une solution de droit et s'interprète de la manière la plus équitable et la plus large qui soit compatible avec la réalisation de son objet.
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[20] One of the objectives of the Immigration and Refugee Protection Act (Act) is to "support the development of a strong and prosperous Canadian economy, in which the benefits of immigration are shared across all regions of Canada". The Entrepreneur Class is established for purposes of s. 12(2) of the Act which provides that a foreign national may be selected as a member of the economic class on the basis of their ability to become economically established in Canada.
[21] The purpose underlying the statutory provision is to admit people who have proven ability to establish economically viable enterprises in Canada. The exercise of establishing that ability is retrospective in nature - a showing that the person has been successful in the past. It therefore focuses primary attention on the individual's ability to be successful, not on the legal vehicle, corporation or business name or other means, by which success was achieved.
[22] In defining "Entrepreneur", the Regulations focus on the individual, his or her business experience, the accumulation by that person of business experience and the acquisition by the person of a certain level of net worth. This attention does not end with a positive determination of permanent residence, but extends to encompass even the intention to meet certain financial conditions once that person becomes a permanent resident. (See s. 98(1) of the Regulations.)
[23] To a similar extent, the term "Business Experience" is defined as a personal characteristic of the entrepreneur: one who has management of a qualifying business for at least two out of five years prior to the application for permanent residence.
[24] A business is not defined in the Act or Regulations but it is generally an activity carried out for the purpose of profit. The legal vehicle by which the business is conducted is a different issue.
[25] In dealing with the term "Qualifying Business", the Regulation not only does not define a "business" but does not stipulate how it is structured. The definition simply excludes a business whose purpose is deriving investment income. The purpose of the definition is to ensure that the business in which the entrepreneur has management experience is an "active" business. This is confirmed by the imposition of such further requirements as employment levels and sales levels.
[26] In my view, the Regulation does not address and is not intended to address the structure or legal vehicle used to conduct the business, whether by a "business name", partnership, joint-venture, trust, or corporation. In the current situation, it was acknowledged that if Thomas had operated the two restaurant/bars in his own name "carrying on business as ...", he could aggregate the two operations for the purpose of the financial conditions of s. 88(1) of the Regulations.
[27] There is also no restriction on the number of operations which may be considered. The Respondent placed some weight on the use of "a business other than ..." as indicating a singular entity. In my view, the use of "a business other than a business operated primarily for the purpose of deriving investment income ..." is meant to separate active business from passive business and separates the character of the business - not the number of activities carried out by the qualifying business.
[28] I am not persuaded that the French version "experience dans l'exploitation d'une enterprise", by using "une" intended to limit consideration of the entrepreneur's experience to one, and only one, business. The French article, which can be both definite and indefinite, is not intended to signify a numerical value anymore than in the English version.
[29] With respect, I cannot agree with the Respondent's interpretation of the Regulations which compartmentalizes the consideration of an entrepreneur's experience to a separate consideration of the results of each corporation. The proper question to ask is what were the results of the active businesses managed by the Applicant. The Respondent put undue emphasis on the legal structure of the businesses, and ignored the results of the active business in all its components. The result of the Respondent's approach is to ignore the reality of the scope of the businesses managed by the entrepreneur.
[30] The Respondent's approach could lead to the unreasonable result that an entrepreneur who has structured his/her business through many corporations - for legitimate reasons such as liability, tax planning and so forth - is penalized for using the very business acumen that the Act and Regulations seeks to attract to Canada.
[31] It is more consistent with the purposes of the legislative provisions to focus the consideration of the entrepreneur on the overall results of the business activities managed by him/her. It leads to a result in keeping with the very aim of the statutory provision and the Regulations.
[32] In my view, the term "qualifying business" is not restricted to each legal entity conducting the non-investment income activity. It is more consistent with the purposes of the Act and the Regulations to include the financial results of the entrepreneur's non-investment income activities. Therefore, the results of the two companies were to be aggregated for a determination of whether Thomas met any two of the conditions contained in the term "qualifying business".
C. Net Book Value v. Fair Market Value
[33] In the consideration of net assets, the Respondent used net book value. The Applicant argued that fair market value was more appropriate where there had been a recent sale of assets which showed the net book value to be significantly lower than "true" value.
[34] Under the Regulations, the term "net assets" does not describe the method by which the assets are valued. It simply defines the calculation as:
| "net assets", in respect of a qualifying business or a qualifying Canadian business, means the assets of the business, minus the liabilities of the business, plus shareholder loans made to the business by the foreign national who is making or has made an application for a permanent resident visa and their spouse or common-law partner.
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« actif net » S'agissant d'une entreprise admissible ou d'une entreprise canadienne admissible, s'entend de l'excédent de l'actif de celle-ci sur son passif, augmenté des prêts octroyés à l'entreprise par l'étranger qui demande ou a demandé un visa de résident permanent et son époux ou conjoint de fait.
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[35] The affidavit of Michael Brodley, on behalf of the Respondent, outlines the policy rationale for the use by the Respondent of net book value (depreciated value rather than fair market value). These include consistency with GAAP Rules (Generally Accepted Accounting Standards). A further rationale lies in the Respondent's need for consistency in valuations given that it handles business valuations from across the world and that fair market valuation methods familiar in Canada or North America are not universally applied. In addition, the use of net book value is simpler for visa officers who are not necessarily in a position to assess the merits of a fair market valuation.
[36] This rationale for the choice of valuation is reasonable and is not a matter in which the Court should interfere. However, the Respondent recognized the problems that might occur using net book value rather than fair market value. In its OP8 Entrepreneurs and Self-Employed Applicants Manual, at page 11, the Respondent acknowledged that a relevant question is "if the business were to be sold, how much would it realize?"
[37] In analyzing the Applicant's financial results, there is no indication that the officer did anything but rigidly apply the net book value policy without regard for evidence of a recent sale. The officer does not appear to have considered the question posed in the Respondent's OP8 Manual.
[38] The Minister should have, at least, considered the use of fair market value in these circumstances given that the sale was recent and occurred in the United States where the financial regimes are nearly identical to Canada.
[39] The Respondent defends its decision to use net book values, in part, because the Applicant allegedly had not filed a balance sheet. As this is inaccurate and balance sheets were filed, it would be appropriate for the Minister to again consider the Applicant's request that fair market values be used in the calculation of the conditions of his "qualifying business".
IV. Conclusion
[40] The Court concludes that the Respondent erred in not aggregating the Applicant's financial results for purposes of s. 88(1) of the Regulations. The Respondent failed to adequately consider the issue of fair market value.
[41] Therefore, the application for judicial review will be granted, the matter is referred back to the Respondent and is to be reconsidered by a different officer in accordance with the reasons in this decision.
JUDGMENT
IT IS ORDERED THAT:
1. This application for judicial review will be granted.
2. The matter is to be referred back to the Respondent and is to be reconsidered by a different officer.
"Michael L. Phelan"
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