Citation:
2014 TCC 347
Date: 20141124
Docket: 2012-1845(IT)G
BETWEEN:
THE
ESTATE OF THE LATE EDWARD S. ROGERS,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Hogan J.
I. Overview
[1]
The present case is an appeal from a reassessment
made by the Minister of National Revenue (the “Minister”) for the Appellant’s
2007 taxation year. The dispute concerns the characterization of an amount
(the “Cash Payment”) received by the taxpayer, Edward S. Rogers (“Mr. Rogers”),
in that year. The Cash Payment was made to Mr. Rogers by Rogers
Communications Inc. (“RCI”) in exchange for the surrender of stock options which
had been granted to Mr. Rogers in 1997 under RCI’s employee stock option plan.
The taxpayer reported the Cash Payment as a capital gain in his tax return for
that year and, accordingly, included one-half of the amount in his taxable
income for that year. In 2011, the Minister reassessed the taxpayer to include
the entire Cash Payment.
[2]
The Minister concluded that the Cash Payment was
fully taxable income, and not a capital gain, on the basis of any of three
alternative arguments, namely: (i) that the amount was income from
employment or an employment benefit pursuant to either section 5 or
paragraph 6(1)(a) of the Income Tax Act (the “Act”); (ii) that
the amount was a shareholder benefit under subsection 15(1) of the Act; (iii)
that the amount was a profit from an adventure in the nature of trade and is
thus caught by subsection 9(1) of the Act (the “Section 9 Argument”).
[3]
At trial, the Respondent abandoned the last of
these arguments – the Section 9 Argument – for lack of evidence. The hearing
was then adjourned pending further submissions from the parties on whether I
could still consider the Section 9 Argument. While the parties’ further submissions
on the Section 9 Argument were still pending, the Tax Court of Canada (the
“TCC”) released its reasons for judgment in Mathieu c. La Reine, a case that likewise concerns
the taxation of employee stock options disposed of to a non-arm’s length party.
[4]
The Appellant seeks leave to amend its notice of
appeal in order to address issues raised during the Court’s consideration of
the Section 9 Argument, which issues, it argues, are addressed by the recent Mathieu
decision. The amendment sought advances a new argument, namely: that the Cash Payment
is a “tax nothing”. Mr. Rogers’ tax return
was therefore prepared in error. The Appellant contends that the Cash Payment
is a nothing because, although it is income from a source that is employment, the
payment is nevertheless not income from employment under sections 5, 6 or 7 of
the Act. Since the Cash Payment is income from a specific source (employment),
it cannot be considered income from any other source, i.e. a capital gain.
Given that none of sections 5, 6 or 7 imposes tax on the Cash Payment, the
Court must conclude that the Cash Payment is not included in income under the
Act.
[5]
The Appellant has therefore brought a motion to
amend its notice of appeal in order to raise the new issue and to seek relief on
new grounds.
II. Parties’ Positions
Appellant’s
Position
[6]
The Appellant makes two arguments in support of its
motion to amend. First, it argues that the amendment addresses an issue that
arose under the Section 9 Argument, which it was, in essence, invited to pursue
by the Court’s request for further submissions. Secondly, the Appellant argues
that the Mathieu decision represents new law. In short, the Appellant
argues that proper consideration of the issues arising under the Section 9 Argument
necessitates the Court’s considering both Mathieu and the new “tax nothing” argument.
[7]
The Appellant further argues that the amendment
causes no prejudice to the Respondent because it is not based on any new facts.
Respondent’s
Position
[8]
Not surprisingly, the Respondent defends the
contrary view.
III. Analysis
[9]
Pursuant to section 54 of the Tax Court of
Canada Rules (General Procedure), the Court may grant a party leave to
amend its pleadings at any time. The leading case in this regard, upon which
the Appellant relies, is Canderel Ltd. v. Canada.
[10]
In Canderel, the Minister sought to raise
a new issue by a motion to amend the reply to the taxpayer’s notice of appeal.
The Tax Court of Canada (the “TCC”) judge denied the motion and the
Minister appealed the decision to the Federal Court of Appeal (the “FCA”).
The proposed amendment would have been the Minister’s fourth and was proposed
after five days of trial despite the fact that the existence of the new issue
was known to the Minister well in advance. The amendment could have led to a
recall of all the witnesses and experts. The FCA denied the amendment.
[11]
Canderel set
forth the following two principles for determining whether or not to allow a
motion to amend: (i) in general, an amendment ought to be allowed at any stage
in the proceedings for the purpose of determining the real questions in controversy
between the parties; (ii) allowing the amendment must not result in an injustice
to the other party that cannot be compensated with an award of costs. In this
regard, the FCA summarized the case law as follows:
. . . while it is
impossible to enumerate all the factors that a judge must take into
consideration in determining whether it is just, in a given case, to authorize
an amendment, the general rule is that an amendment should be allowed at any
stage of an action for the purpose of determining the real questions in
controversy between the parties, provided, notably, that the allowance would
not result in an injustice to the other party not capable of being compensated
by an award of costs and that it would serve the interests of justice.
[12]
Regarding the factors that a judge must take
into consideration in determining whether an amendment would lead to injustice
to the other party beyond what can be repaired with costs, Décary J.A. cites
the decision of Judge Bowman, as he then was, in Continental Bank Leasing
Corporation et al. v. The Queen:
. . . I prefer to
put the matter on a broader basis: whether it is more consonant with the
interests of justice that the withdrawal or amendment be permitted or that it
be denied. The tests mentioned in cases in other courts are of course helpful
but other factors should also be emphasized, including the timeliness of the
motion to amend or withdraw, the extent to which the proposed amendments would
delay the expeditious trial of the matter, the extent to which a position
taken originally by one party has led another party to follow a course of
action in the litigation which it would be difficult or impossible to alter
and whether the amendments sought will facilitate the court’s consideration of
the true substance of the dispute on its merits. No single factor predominates
nor is its presence or absence necessarily determinative. All must be assigned
their proper weight in the context of the particular case. Ultimately it boils
down to a consideration of simple fairness, common sense and the interest that
the courts have that justice be done.
[Emphasis
added.]
[13]
Regarding delay, Décary J.A. notes that the
later in the proceedings the amendment is sought, the more difficult it will be
to obtain:
While it is true
that leave to amend may be sought at any stage of a trial, it is safe to say
that the nearer the end of the trial a motion to amend is made, the more
difficult it will be for the applicant to get through both the hurdles of
injustice to the other party and interests of justice. . . .
[14]
Regarding novel issues, Décary J.A. quotes from
the House of Lords decision in Ketteman v. Hansel Properties Ltd. an excerpt to the effect that
an amendment that raises a wholly new issue is more difficult to obtain than
one which merely clarifies existing matters between the parties: “There is a clear difference between allowing amendments to
clarify the issues in dispute and those that permit a distinct defence to be
raised for the first time.”
[15]
Therefore, Canderel establishes that, in
general, courts should be disposed to allow amendments while at the same time
assigning weight to various factors that would lead to injustice for the other
side. One such factor in particular is the extent to which the other party has
adopted a course of conduct in response to the moving party’s original position.
In such circumstances, the Court must consider whether the other party would be
able to “course correct” in response to the new
amendment.
[16]
The Appellant further relies on two cases in
which amendments were allowed at a late stage in the proceedings: Scavuzzo v.
R.
and Elliott v. Canada.
Both are director’s liability cases. In Scavuzzo, the appellants’ lawyer
was forced to withdraw in mid-trial due to a conflict of interest. The appellants’
new counsel was given leave to amend the notices of appeals to put forward a
new argument. With respect to the delay in making the amendment, Bowman A.C.J.,
as he then was, distinguished Canderel on the facts, noting:
. . . The
circumstances in this application to amend are somewhat unusual. This is not a
case in which evidence has been completed or nearly completed. The first
witness has testified and been cross-examined. The re-examination has not
begun. The other appellant has not been called. Previous counsel withdrew from
the case and new counsel has now been retained. The matter has moved along in a
rather sedate and leisurely way, if I may say so, and the trial will not resume
until after the pleadings have been amended and further discoveries and
production of documents have been completed. In light of the manner in which
this case has proceeded I can see no prejudice to the Crown that is not
compensable in costs. The possibility that the appellants might succeed on
the new point is not the kind of prejudice the case law contemplates in cases
of this kind.
[Emphasis added.]
[17]
The circumstances in Elliott, a case
concerning director’s liability for unremitted HST, are unique. Although the
FCA in Elliott reaffirms the suggestion in Canderel to the effect
that new issues can be raised via amendment at a late stage in the proceedings, the case more properly stands
for the narrow principle that the Minister cannot rely on assumptions that the
requirements in paragraph 323(2)(a) of the Excise Tax Act −
i.e., that a certificate of the corporation’s debt have been registered in the
Federal Court and that execution have been returned unsatisfied − were
met, since those facts are fully within the Minister’s knowledge. The
appellants in that case argued for the first time in closing argument that the
Minister had not satisfied the conditions in paragraph 323(2)(a). The TCC
judge considered this new issue
without a formal amendment. At the FCA, it was held that the new issue should
not have been considered without first giving the Minister the chance to
provide evidence on that issue. However, since the appellants conceded that the
Minister was able to provide evidence of the certificate, it was a moot point.
Consequently, although Elliott reiterates the principle that amendments
may be granted at a late stage in proceedings, it is not a case in which such
an amendment was granted, or even sought.
[18]
On the other hand, there are cases in which a
motion to amend has been denied for undue delay and because the other party had
relied on the moving party’s initial position. In Last v. The Queen, the Minister made the
assumption that unexplained bank deposits were revenue from the taxpayer’s car
business as opposed to some other source of income. The pleadings were limited
in this regard to the issue of determining the income from the car business.
During the hearing, the Minister applied to amend her reply in order to frame
the issue more broadly, i.e., by stating that the unexplained deposits were
income from any source. The appellant had by then already presented three days
of evidence and his trial strategy had been based on the existing pleadings.
The Court therefore denied the application.
[19]
Likewise, in Fourney v. The Queen, the Court stated that the
discretion to allow an amendment to the Crown’s reply is generally not
exercised once the trial has begun. This is so in order to prevent trial by
ambush and to preserve the parties’ right to properly prepare for trial. However, in Fourney, the
issue was raised by the Respondent, rather than the taxpayer. Another case, Burchat
v. The Queen,
suggests that the onus on the Crown may be higher than that on a taxpayer.
It must be noted, however, that Burchat is an informal procedure
decision involving a self-represented litigant.
[20]
In summary, the case law establishes that it is
possible to obtain an amendment to raise a new argument at a late stage in
proceedings, but it will be difficult to do so. In the preponderance of cases,
the motion is denied. Scavuzzo is a notable exception.
[21]
In support of its motion to amend, the Appellant
points to the somewhat unique circumstances regarding the adjournment of the
hearing pending submissions on the Section 9 Argument and to the timing of the
Court’s decision in Mathieu. In my interpretation, this is an indirect
way of suggesting that the “tax nothing”
argument is not a new issue at all but rather an extension of issues that were
at play all along.
[22]
As discussed above, the case law establishes
that it is more difficult to get an amendment at a late stage in the proceedings
if the amendment raises an altogether new issue. The FCA in Canderel
noted the clear distinction between “allowing amendments
to clarify the issues in dispute and those that permit a distinct defence to be
raised for the first time.”
[23]
Therefore, we must consider whether the “tax nothing” argument is a new issue, or whether it is
a facet of the existing controversy regarding section 9. In my opinion,
the connection between the Section 9 Argument and the “tax nothing”
argument is tenuous. The Section 9 Argument had to do with whether the Cash
Payment was in the nature of income or of capital. The “tax nothing” argument is that the Cash Payment is
neither of these things. It is a wholly different characterization of the Cash Payment
that is totally at odds with the Appellant’s original characterization.
[24]
In addition, the Appellant contends that it
ought to be permitted to rely on Mathieu. While it is true that parties
can rely on new decisions in support of their arguments, the decision in Mathieu
supports (arguably) an argument that the Appellant has never made until
this point. In Mathieu, whether the amounts received on the disposition
of the employee stock options were capital in nature was never in issue. The
parties did not raise this issue and consequently the Court did not consider
it. In Mathieu, it is clear that the issue was whether the amounts
received were taxable as employment income. In any case, a new decision of the
Court is not an invitation to raise at a late stage in proceedings a wholly new
argument which has the potential to be more advantageous to the appellant. The
new argument here invites the Court to recharacterize the income in a manner
that is different from how the amount was characterized on the taxpayer’s tax
return, in the notice of appeal and the Appellant’s prior written submissions,
and at trial.
[25]
The Appellant contends that there is no
prejudice to the Respondent because the new argument is founded on no new
facts. However, as the case law analysis demonstrates, this is not the end of
the question as to whether there is prejudice. The Court must also consider
other factors, including the timing of the amendment, whether it raises new
issues, and whether the moving party’s original position caused the other party
to adopt a course of action that it cannot undo.
[26]
In this case, the amendment was sought almost three
and a half months after the initial hearing and it raises a new issue. It was
occasioned solely by the Mathieu decision, which does not address the
capital versus income issue at all. In addition, the Crown has throughout taken
the position that the Cash Payment cannot be a capital gain. The Appellant now
wishes to take that same position as a basis for the conclusion that the
amount in question is therefore a “tax nothing”.
The Respondent would inevitable be prejudiced because her arguments to this
point have been against characterizing the Cash Payment as a capital gain.
IV. Conclusion
[27]
For all of these reasons, the Appellant’s motion is dismissed.
Signed at Toronto, Ontario, this 24th day of November 2014.
“Robert J. Hogan”
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