REASONS
FOR JUDGMENT
Graham J.
[1]
John Tjelta was a director of a company named
Empire International Service Rigs Inc. Empire failed to remit over $400,000 in
GST and payroll withholdings. As a result, the Minister of National Revenue
assessed Mr. Tjelta as a director under sections 227.1 of the Income Tax Act
and 323 of the Excise Tax Act. Mr. Tjelta has appealed from those
assessments.
[2]
Mr. Tjelta does not dispute that Empire owes the
taxes, nor does he argue that he was duly diligent in fulfilling his role as a
director. His only argument is that the preconditions for a directors’
liability assessment set out in paragraphs 227.1(2)(a) and 323(2)(a) have not
been met. Those paragraphs provide that a director is not liable unless “a certificate for the amount of the
corporation's liability…has been registered in the Federal Court…and execution
for that amount has been returned unsatisfied in whole or in part”. Mr. Tjelta acknowledges that the appropriate certificate was
registered in Federal Court but questions whether the Minister made a good
faith attempt to determine and seize Empire’s assets.
[3]
In Barrett v. The Queen, the Federal Court of Appeal
stated that paragraph 323(2)(a), and, by extension, paragraph 227.1(2)(a), does
not impose an obligation on “the
Minister to take reasonable steps to search for assets of a corporate debtor”.
Mr. Tjelta acknowledges that there was therefore no obligation on the Minister
to take reasonable steps to search out Empire’s assets.
[4]
However, in Barrett, the Federal Court of
Appeal held that there was, nonetheless, a requirement that the Minister act in
good faith when determining that the precondition has been met. Mr. Tjelta
asserts that the Minister did not act in good faith. Mr. Tjelta submits that he
informed the Minister that there were assets available to seize and that the
Minister failed to act on that information.
[5]
I find that the Minister acted in good faith. I
will first describe the steps that the Canada Revenue Agency took and then describe
my reasons for concluding that those steps were taken in good faith.
Steps Taken by the CRA
[6]
Empire was in the business of manufacturing and
refurbishing oilfield equipment. In August 2011, Empire was in debt to its
landlord for slightly more than it was in debt to the CRA. The landlord retained
a civil enforcement agency licenced by the province of Alberta to seize
Empire’s property. The agency was named Stewart Belland & Assoc. Inc. Stewart
Belland & Assoc., in turn, instructed a bailiff named Robert Parry to affect
the seizure.
[7]
Stewart Belland & Assoc. is owned by Lyle
Stewart. The Respondent called both Mr. Stewart and Mr. Parry as witnesses. I
found them both to be credible.
[8]
On August 26, 2011, Mr. Parry arrived at
Empire’s property. Mr. Tjelta quickly called the CRA. He knew that Empire owed
significant money to the CRA. He also knew that he was potentially liable for
those funds as a director. He testified that he wanted the CRA to act to
protect its interests.
[9]
On the day of the seizure, Mr. Tjelta ended up
speaking to a CRA collections officer named Gordon Beatty. Mr. Beatty was not
Empire’s regular collections officer. He was assigned to handle the file
effective from the date of the seizure. The Respondent called Mr. Beatty as a
witness. I found Mr. Beatty to be a credible witness.
[10]
Mr. Beatty asked Mr. Tjelta to send him a copy
of the Warrant given to him by Mr. Parry. Mr. Tjelta did so. Mr. Tjelta also,
either at that time or later, provided Mr. Beatty with a copy of the Notice of
Seizure of Personal Property that Mr. Parry had prepared following the seizure.
[11]
On the day of the seizure, Mr. Beatty
immediately took a number of steps to protect the CRA’s interests. He drew up
certificates for Empire’s debts to the CRA, arranged to have those certificates
registered in Federal Court, obtained writs of seizure and sale for the debts
and registered those writs against Empire’s property in Alberta’s personal
property registry. Remarkably, Mr. Beatty managed to register the CRA’s
interest before the landlord registered its interest.
[12]
Mr. Parry ultimately left Empire’s assets with
Empire on the basis of a bailee’s undertaking that he had obtained from Mr.
Tjelta.
[13]
Within days of the seizure, Mr. Tjelta had a
conversation with Mr. Beatty in which Mr. Beatty explained the steps that he
had taken to secure the CRA’s interest. Mr. Beatty also advised Mr. Tjelta that
the CRA had a deemed trust over Empire’s assets and would therefore have first
priority on the proceeds of any assets that were sold by Stewart Belland. Thus,
the CRA would be paid in priority to the landlord. Mr. Beatty clarified that
the deemed trust would not apply to either the penalties and interest that had
been assessed against Empire or the employer portion of EI and CPP payments.
[14]
Mr. Tjelta believes that, at this point, he gave
Mr. Beatty a verbal list of Empire’s assets. Mr. Tjelta did not provide Mr.
Beatty with any documentary evidence supporting Empire’s ownership of those
assets or their fair market value. The following are the key assets that Mr.
Tjelta described to Mr. Beatty:
a)
Rig: a piece of
equipment called a slant service rig worth $1,000,000 that Empire was building for
a company called Central Alberta Well Service Corp. (“CWC”);
b) Pump Trucks: two pump trucks whose value
Mr. Tjelta did not describe; and
c)
Other Assets: other
significant pieces of equipment worth between $390,000 and $400,000.
[15]
Given my conclusion that the Minister acted in
good faith, it is not necessary for me to determine the precise assets owned by
Empire when the seizure occurred or their fair market value. It is sufficient
to find that Mr. Tjelta informed Mr. Beatty that Empire had large physical
assets with significant value.
[16]
Mr. Tjelta testified that he asked Mr. Beatty to
seize these assets. Mr. Beatty testified that the CRA could not have seized
the assets. He explained that, once the assets had been seized by Stewart
Belland & Assoc., the CRA could not step in and “seize-over”
the assets. Mr. Beatty clarified that, once seized, the assets were held by
Stewart Belland & Assoc. on behalf of all creditors, not just the landlord,
and thus there was no need to take any further actions.
[17]
On September 1, 2011, the landlord changed the
locks on Empire’s premises.
[18]
On September 5, 2011, Mr. Tjelta informed Mr.
Beatty that he had heard that Stewart Belland & Assoc. was releasing the
rig to CWC despite the fact that Empire still owned the rig because CWC had not
paid Empire in full.
[19]
On September 6, 2011, Mr. Tjelta spoke to Mr. Stewart.
Mr. Tjelta told him that Empire still owned the rig and that Stewart Belland
& Assoc. should therefore not release it to CWC. Mr. Tjelta drove by
Empire’s property later that day and saw that the rig was, nonetheless, being
removed.
[20]
Mr. Tjelta and Mr. Beatty had a number of other
conversations in the days that followed. Mr. Beatty testified that Mr. Tjelta
told him that various assets were being released to third parties and that, as
a result, he had spoken to Mr. Stewart to find out what was going on. Mr.
Beatty testified that Mr. Stewart had confirmed that certain assets had been
released but assured him that that had only occurred after Stewart Belland
& Assoc. had determined that the assets belonged to third parties. Mr.
Beatty specifically asked Mr. Stewart about the rig. He testified that Mr.
Stewart had informed him that CWC had bought and paid for the rig and that,
accordingly, Stewart Belland & Assoc. had allowed CWC to take it. These
statements are hearsay and I do not accept them as being proof of either the
ownership of the rig or what happened to it. I do, however, accept that, after
his conversation with Mr. Stewart, Mr. Beatty had reason to believe that Mr.
Tjelta’s concerns were unfounded and that Mr. Stewart was handling Empire’s
assets appropriately. Mr. Beatty testified on cross-examination that he did not
ask Stewart Belland & Assoc. to produce a bill of sale for the rig. He explained
that the CRA would not normally ask for such documents as they would rely on
the civil enforcement agency to do their job.
[21]
Mr. Stewart testified that he recalled speaking
to an individual at CWC about the rig and stated that CWC ultimately provided
sufficient documentation to satisfy Stewart Belland & Assoc. that CWC owned
the rig. On cross-examination, Mr. Stewart testified that he does not recall
Mr. Tjelta telling him that the rig had not been fully paid for. He
acknowledged that his file did not contain a bill of sale for the rig nor did
it contain a release signed by Empire allowing the rig to be released to CWC.
However, he explained that Empire was given an opportunity to object to the
seizure and the release of property and failed to do so. He noted that Mr.
Tjelta and his father both filed personal objections seeking to have their
rights as alleged secured creditors recognized but that no objections were
filed by Empire.
[22]
Mr. Beatty testified that he spoke to someone
else at Stewart Belland & Assoc. on one other occasion but he cannot recall
either that person’s name or what they discussed.
[23]
Mr. Beatty testified on cross-examination that
he had sent a notification to the landlord advising them that the CRA had
priority over any money the landlord received. Mr. Beatty was somewhat evasive
when asked whether he followed up with the landlord to see if they had actually
received any money. I find that he did not.
[24]
On September 15, 2011, Mr. Beatty issued
requirements to pay to Empire’s bank and to a third party that owed Empire
money.
[25]
On September 16, 2011, Mr. Beatty asked Mr.
Tjelta to provide him with an accounts receivable list for Empire and a list of
its work in progress. Mr. Tjelta provided Mr. Beatty with that information
on September 23 and Mr. Beatty issued further requirements to pay on that
day. One of those requirements to pay was issued to CWC.
[26]
Mr. Beatty testified that the CRA received less
than a few hundred dollars from any of these requirements to pay.
[27]
It is unclear what ultimately happened to the
assets seized by Stewart Belland & Assoc. Mr. Tjelta testified that they
were not returned to him. They certainly did not remain on the property. Mr.
Stewart testified that Stewart Belland & Assoc. never received instructions
from the landlord to sell any assets. He does not know what happened to the
assets. Mr. Stewart explained that, had any assets been sold, his firm would
then have taken steps to determine creditor priorities and to ensure that
creditors had the ability to object to the proposed distribution of proceeds.
Mr. Stewart did not know whether the landlord had sold the assets. Mr. Stewart guessed,
based on his experience, that the landlord may have struck a deal with Empire to
take assets in exchange for the arrears of rent but he has no evidence of that.
[28]
In 2013, Mr. Beatty came to the conclusion that
Empire was not going to pay its debt to the CRA. Accordingly, he decided to
assess Mr. Tjelta. He explained that, in order to satisfy the preconditions in
paragraphs 227.1(2)(a) and 323(2)(a), he believed that he needed to have a bailiff
actually attempt seizure on the CRA’s writ as opposed to on the landlord’s
warrant. Accordingly, the CRA retained a civil enforcement agency named
Consolidated Civil Enforcement Inc. to attempt to seize Empire’s assets. Having
received no proceeds as a result of the previous seizure, the CRA did not
expect to receive anything from the second seizure. They were not disappointed.
The writ was returned nulla bona. It is this second failed seizure that
the Respondent submits satisfies the precondition that the execution be
unsatisfied in whole or in part. The bailiff who executed the seizure was named
Jamie Chitolie. The Respondent called Mr. Chitolie as a witness. I found Mr.
Chitolie to be a credible witness. I find that the execution of the writ was
not satisfied either in whole or in part.
Did the Minister act in good faith?
[29]
As set out above, the Federal Court of Appeal
stated in Barrett that the Minister must act in good faith when
attempting to satisfy a writ. The parties have different views of what that
requirement entails. I will first determine what the Federal Court of Appeal
meant when it stated that the Minister must act in good faith. I will then
determine whether the Minister has met that test in this case.
[30]
The Respondent submits that there is no question
what the Federal Court of Appeal meant in Barrett when the Court
referred to the Minister acting in good faith. The Respondent points out that
the Court specifically stated that it was an “obligation on the part of the Minister to act without any ulterior
or improper motive”. I agree with the Respondent.
[31]
Mr. Tjelta submits that I should use the
definition of good faith adopted by Justice Sommerfeldt in his recent decision
in Ploughman v. The Queen.
In addressing an alternative argument, Justice Sommerfeldt relied upon the
following definition of good faith: “honesty of intention, and freedom from knowledge of circumstances
which ought to put the holder on inquiry”.
[32]
I am not prepared to use the definition from Ploughman.
Ploughman dealt with third party civil penalties under section 163.2 of
the Income Tax Act. More specifically, it dealt with the provisions of
subsection 163.2(6) which provide for a defence to the penalties if a taxpayer
has acted in good faith. As a result, Justice Sommerfeldt was interpreting a
subsection that specifically used the words “good faith”. In the circumstances,
he needed to determine what Parliament meant when it used those words. I am not
in the same position as Justice Sommerfeldt. I am not being called upon to interpret
what Parliament meant when it used the words “good faith”. Parliament did not use
those words in either paragraph 227.1(2)(a) or paragraph 323(2)(a). I am being
called upon to interpret what the Federal Court of Appeal meant when it used
the words in Barrett. Since the Federal Court of Appeal specifically
stated what it meant, I do not feel it is necessary for me look any further
than that statement. Please note that my unwillingness to adopt Justice
Sommerfeldt’s interpretation should in no way be understood to indicate that I
disagree with it.
[33]
Based on all of the foregoing, I conclude that
to satisfy the precondition in paragraphs 227.1(2)(a) and 323(2)(a), the
Respondent must show that the Minister acted without any improper or ulterior
motive. I find that the Respondent has done so.
[34]
Mr. Beatty took the information that Mr. Tjelta
provided to him and acted on it to protect the CRA’s interests. While it is
possible that Mr. Beatty could have done more to ensure that the CRA collected
from Empire, Barrett clearly establishes that my role is not to look at
what the CRA could have done or whether the steps taken by the CRA were
reasonable, but rather to simply look at whether the CRA acted in good faith.
There is no evidence to suggest that they did not. There is no evidence that
Mr. Beatty acted with any improper or ulterior motive. In fact, the evidence
suggests quite the opposite. Mr. Beatty acted promptly to secure the CRA’s
position, took further steps to attempt to collect from Empire’s customers and,
when informed by Mr. Tjelta that assets were being removed, followed up with
Stewart Belland & Assoc. to find out what was happening. Mr. Beatty
put the CRA in a position to ensure that, if Stewart Belland & Assoc. received
any proceeds from the seized property, the CRA would be in a position to be
paid first.
[35]
It appears from Mr. Tjelta’s evidence that Mr.
Beatty was not always available when Mr. Tjelta called him, that Mr. Beatty did
not always return his calls, or did not return them promptly, and that Mr.
Beatty did not respond to his emails. I was, however, left with the distinct
impression that Mr. Tjelta viewed Mr. Beatty as acting for Empire and expected
him to respond to his phone calls and emails and take steps on Empire’s behalf
in the way that a lawyer acting for Empire would have. That expectation was
unrealistic. Mr. Beatty’s job was to protect the CRA’s interests, not Empire’s
or Mr. Tjelta’s interests.
[36]
I note that Mr. Tjelta did not take any steps on
behalf of Empire to formally object to the seizure of the assets in question
nor did he take any steps on behalf of Empire against either the landlord or
CWC. It was as if Mr. Tjelta was expecting the CRA to do these things on
Empire’s behalf.
[37]
I understand Mr. Tjelta’s frustration with what
has occurred. It is clear to me that Empire had assets, including the rig, that
were seized by Stewart Belland & Assoc. and yet were neither sold nor
returned to Empire. Something has happened to those assets. It is possible that
Mr. Tjelta’s estranged father, who was also a director of Empire, may have
struck a deal with the landlord whereby Empire gave the landlord some or all of
the assets in satisfaction of the rent. It is also possible that the landlord
may simply have sold the assets and kept the money without informing Stewart
Belland & Assoc. what it had done. However, whatever happened to the
assets, the CRA acted in good faith based on the information available to them
at the time. When advised by Mr. Tjelta that assets existed, Mr. Beatty made
inquiries of Mr. Stewart and satisfied himself that Stewart Belland &
Assoc. was dealing with the assets appropriately. Any failure on the part of
Mr. Beatty to look behind Mr. Stewart’s advice cannot be attributed to a lack
of good faith. Ultimately, if Mr. Tjelta believes that the landlord has
improperly taken Empire’s assets, he is free to pursue the landlord using the
preference made available to him under subsections 227.1(6) and 323(7).
Similarly, to the extent that he feels his father dealt with the assets
inappropriately, Mr. Tjelta is free to seek indemnification from his father
under subsections 227.1(7) and 323(8).
[38]
In the event that I am wrong and I should have
used the interpretation of good faith from Ploughman, I would still find
that the Minister acted in good faith. The Ploughman interpretation
would have required the Minister to have an honest intention and to be free
from knowledge of circumstances which ought to have put the holder on inquiry.
There was no evidence that would support the position that the Minister’s
intentions were not honest. While there was certainly evidence that Mr. Beatty
was given information which ought to have put him on inquiry, there was also
evidence that clearly indicated that he took steps as a result of being put on
such inquiry to satisfy himself that Stewart Belland & Assoc. was properly
handling the matter. In asking me to consider whether that was enough, Mr.
Tjelta is effectively asking me to consider whether Mr. Beatty acted with due
diligence as opposed to whether he acted in good faith. That is exactly the
type of inquiry that Barrett makes it clear I am not to conduct.
Conclusion
[39]
Based on all of the foregoing, the appeals are
dismissed. One set of costs is awarded to the Respondent in respect of the
income tax appeal. No costs are awarded in respect of the GST appeal as it was
under the informal procedure.
Signed at Ottawa, Canada, this 25th day of September 2017.
“David E. Graham”
Schedule “A” - Assets Owned By Empire
[40]
Had it been necessary for me to determine the ownership
and fair market value of the assets described by Mr. Tjelta, I would have
reached the following conclusions:
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