MacKay,
J.:—
This
is
an
action
for
declaratory
relief,
sought
in
one
or
more
forms,
the
effect
of
which
would
be
to
declare
that
the
plaintiff
is
not
liable
for
payment
of
income
taxes
and
interest
arising
from
reassessments,
made
in
1983
b
the
decision
of
the
Minister
of
National
Revenue,
in
relation
to
Royalty
Mall
Ltd.
("Royalty")
for
its
1978
and
1979
taxation
years.
In
the
alternative,
by
an
amended
statement
of
claim
filed
March
12,
1991,
damages
are
claimed
against
the
defendant
in
an
amount
equal
to
the
amounts
reassessed
or
any
amount
the
plaintiff
may
be
required
to
pay
as
a
result
of
the
reassessments.
The
plaintiff
is
the
successor
to
Regional
Properties
Inc.
which
purchased
all
outstanding
shares
in
Royalty
Mall
Ltd.
from
Dale
Corporation
("Dale")
by
agreement
dated
January
31,
1979.
Under
that
agreement
Dale
undertook
to
pay
all
income
taxes
outstanding
in
the
name
of
Royalty
up
to
December
31,
1978,
and
to
indemnify
Royalty
for
all
taxes
payable
by
it
up
to
that
date.
The
reassessments
giving
rise
to
this
action,
both
dated
November
10,
1983,
included
a
claim
for
income
taxes
and
interest
in
the
amount
of
$1,052.23
for
1978,
and
a
claim
for
taxes
and
interest
in
the
amount
of
$125,681.40
for
1979.
There
is
no
dispute
that
the
latter
claim,
for
1979,
arises
from
adjustments
to
prior
years'
income
and
taxes
and,
under
the
agreement
with
the
plaintiff,
Dale
was
responsible
for
payment
of
any
taxes
outstanding
as
a
result
of
the
reassessments.
When
he
learned
of
the
notices
of
reassessment
addressed
to
Royalty,
Mr.
Paton,
the
president
of
the
plaintiff
company
advised,
by
telephone,
the
officer
of
Revenue
Canada
who
was
responsible
for
the
collection
of
the
account,
of
the
arrangement
made
with
Dale
and
that
as
between
Royalty
and
Dale
the
latter
was
responsible
for
taxes
relating
to
Royalty
up
to
the
end
of
1978.
At
Mr.
Paton’s
request
the
officer
of
Revenue
Canada,
Mr.
Shackell,
then
wrote
a
letter
on
December
6,
1983
to
Royalty
demanding
payment
of
the
taxes
outstanding.
Counsel
for
the
plaintiff,
who
had
earlier
written
to
Dale
on
behalf
of
Royalty,
wrote
to
Dale
a
second
time
to
advise
of
Revenue
Canada’s
demand
for
payment
of
the
outstanding
taxes,
and
asked
that
Dale
immediately
advise
of
its
intentions.
That
letter
also
stated
that
any
concern
of
Dale
about
its
ability
to
contest
the
assessment
in
the
name
of
Royalty
was
clearly
dealt
with
by
the
agreement
of
January
31,
1979,
but
if
confirmation
of
that
should
be
required
Royalty
would
provide
it.
In
December
1983
Royalty
commenced
an
action
against
Dale
in
the
Supreme
Court
of
Prince
Edward
Island,
claiming
damages
in
the
amount
of
taxes
and
interest
assessed,
but
this
action
was
not
pursued
when
the
plaintiff
was
advised
of
arrangements
made
by
Dale
to
assume
responsibility
for
payment
of
the
taxes
outstanding
in
Royalty’s
name.
Those
arrangements,
including
reference
to
a
bank
guarantee
to
Revenue
Canada
to
assure
payment
of
the
taxes,
were
included
by
Dale
in
a
defence
filed
in
that
action.
Notices
of
objection
to
the
reassessments
were
filed,
signed
by
an
officer
of
Dale
as
"Agent
for
Royalty
Mall
Ltd.”
and
indicating
a
firm
of
chartered
accountants
as
the
authorized
agent
to
deal
with
the
matter.
Arrangements
were
also
made
by
Dale’s
bank
to
post
two
guarantees
with
Revenue
Canada,
as
security
for
payment
of
taxes
“in
regards
to
the
Dale
Corporation
and
its
formerly
wholly
owned
subsidiary
Royalty
Mall
Ltd.”,
i.e.,
one
guarantee
related
to
Dale’s
own
tax
account,
the
other
related
to
the
tax
account
of
Royalty.
The
chartered
accountant
retained
by
Dale,
Mr.
O’Brien,
was
previously
the
accountant
for
Royalty,
and
by
happenstance,
the
accountant
for
the
plaintiff,
but
he
apparently
acted
throughout
the
negotiations
in
relation
to
Royalty's
tax
accounts,
on
instructions
from
and
on
behalf
of
Dale
and
without
an
advice
from
or
communication
to
the
plaintiff.
Negotiations
by
O'Brien
wit
Revenue
Canada
resulted
by
January
1985
in
significant
reductions
in
the
amounts
claimed
for
outstanding
taxes
and
interest,
and
notices
of
reassessment
indicating
outstanding
taxes
and
interest
as
nil
for
1978
and,
as
subsequently
restated,
in
the
amount
of
$52,029.60
for
1979
were
issued,
dated
January
29,
1985,
to
Royalty
Mall
Ltd.
These
reassessments
were
apparently
not
sent
to
the
plaintiff
as
the
original
reassessments
of
November
1983
had
been.
They
were
apparently
sent
to
Mr.
O’Brien,
the
accountant
retained
by
Dale,
who
had
negotiated
with
Revenue
Canada
in
relation
to
the
tax
accounts
of
both
Dale
and
Royalty.
O'Brien's
evidence
was
that
in
early
February
1985,
Dale
directed
its
bank
to
pay
the
tax
accounts,
as
he
too
had
suggested
to
the
bank,
but
at
that
time
the
bank
declined
to
do
so.
After
receipt
of
the
original
reassessment
notices
and
the
demand
letter
for
payment
in
December
1983,
and
until
February
or
March
20,
1985,
the
plaintiff
had
heard
nothing
further
from
Revenue
Canada.
Throughout
the
period
of
ongoing
negotiations
between
O'Brien
and
Revenue
Canada,
in
relation
to
the
tax
claims
against
Royalty,
and
apparently
simultaneously
in
relation
to
other
tax
claims
against
Dale,
Revenue
Canada
had
accepted
in
lieu
of
immediate
payment
of
the
taxes
and
interest
claimed,
bank
guarantees
arranged
by
the
banker
for
Dale,
including
one
particularly
related
to
the
tax
liability
of
Royalty.
The
bank
guarantee,
originally
provided
in
March
1984,
was
renewed
or
extended
in
June
1984,
and
when
Revenue
Canada
demanded
payment
under
the
guarantee
on
the
final
day
of
its
term
in
September
1984,
the
guarantee
was
again
renewed,
and
accepted
by
Revenue
Canada,
for
a
term
from
September
13,
1984
to
March
12,
1985.
Dale
was
ordered
into
receivership
by
the
Supreme
Court
of
Prince
Edward
Island
on
February
13,
1985
and
all
of
its
known
creditors
were
advised.
At
that
time
the
position
of
Revenue
Canada
was
apparently
protected
under
the
bank
guarantee
it
held
to
secure
payment
of
the
taxes
and
interest
still
outstanding
in
the
name
of
Royalty.
However,
because
of
error
by
Mr.
Shackell,
the
responsible
officer
of
Revenue
Canada,
in
noting
and
checking
the
expiry
date
of
that
guarantee
as
March
15,
1985,
it
was
not
acted
upon
before
it
expired
on
March
12.
When
the
guarantee
was
checked
by
Shackell
on
March
13
he
found
that
it
terminated
the
previous
day.
The
bank
thereafter
refused
to
extend
the
guarantee.
Mr.
Shackell
then
wrote
to
Royalty,
on
behalf
of
Revenue
Canada,
on
March
20,
1985,
demanding
payment
of
the
taxes
and
interest
outstanding,
as
reassessed
in
January
1985.
The
plaintiff
disputed
the
liability
of
Royalty
for
payment
of
the
outstanding
tax
claim.
In
June
1985,
O'Brien
wrote
to
Revenue
Canada
in
support
of
the
plaintiff’s
position,
indicating
that
when
the
January
1985
reassessments
were
issued
he
had
advised
the
bank
that
he
did
not
believe
the
tax
account
could
be
further
reduced
and
had
suggested
the
bank
pay
the
amount
owing,
which
advice
he
stated
was
made
known
to
officials
of
Revenue
Canada,
Royalty
and
Dale.
Thereafter
the
plaintiff
instituted
this
action
to
contest
the
defendant's
claim
to
recover
against
it
the
outstanding
taxes
and
interest
assessed
in
the
name
of
Royalty.
In
January
1986,
by
agreement
with
Revenue
Canada,
a
bank
guarantee
arranged
by
Royalty
was
accepted
as
security
for
payment
of
the
taxes
by
Royalty
pending
the
outcome
of
the
plaintiff's
court
action.
This
matter
came
before
my
colleague
Mr.
Justice
Cullen
in
December
1989,
when
the
only
relief
claimed
was
declaratory
relief.
The
defendant
raised
as
a
preliminary
issue
the
question
of
this
Court's
jurisdiction.
Cullen,
J.
determined
[[1990]
1
C.T.C.
71,
90
D.T.C.
6080
(F.C.T.D.)]
that
the
Court
lacked
jurisdiction
to
award
declaratory
relief
in
the
circumstances
of
the
case,
pursuant
to
section
29
of
the
Federal
Court
Act,
R.S.C.
1985,
c.
F-7,
since
the
reassessments
by
the
Minister
were
subject
to
challenge
and
appeal
under
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
and
in
substance
the
relief
claimed
was
available
through
that
appeal
process.
That
decision
was
appealed
by
the
plaintiff
to
the
Court
of
Appeal
where
Mahoney,
J.A.
for
the
Court
allowed
the
appeal.
The
relief
sought
was
considered
to
include
declarations
that
in
law
the
debt
affirmed
by
the
reassessments
had
been
extinguished,
a
form
of
relief
not
within
the
scope
of
an
appeal
against
under
the
Income
Tax
Act.
The
matter
was
referred
back
to
this
Court
for
a
new
trial
([1991]
1
C.T.C.
143,
91
D.T.C.
5083
(F.C.A.)).
Following
the
decision
of
the
Court
of
Appeal,
the
statement
of
claim
was
amended,
without
objection
by
the
Crown,
to
incorporate
the
alternative
claim
for
damages,
in
the
following
terms.
29.
In
the
alternative,
the
plaintiff
requests
an
award
of
damages
against
the
defendant
equal
to
the
reassessment
amount
or
the
amount
claimed
with
interest
or
any
amount
which
it
may
be
required
to
pay
the
defendant
as
a
result
of
the
reassessments,
which
damages
arise
from
one
or
more
of
the
following:
(a)
Revenue
Canada
(by
its
Mr.
Douglas
Shackell
or
its
Mr.
Gerry
Muzika)
was
trustee
of
the
bank
guarantee
for
the
benefit
of
the
plaintiff
and
failed
to
exercise
its
trusteeship
in
the
manner
of
a
reasonable
and
prudent
trustee
for
the
plaintiff's
benefit;
(b)
Revenue
Canada
(by
its
Mr.
Douglas
Shackell
or
its
Mr.
Gerry
Muzika)
had
an
equitable
obligation
as
a
fiduciary
to
handle
the
bank
guarantee
in
a
manner
beneficial
to
the
plaintiff
which
obligation
it
breached
to
the
plaintiff's
detriment;
(c)
Revenue
Canada
(by
its
Mr.
Douglas
Shackell
or
its
Mr.
Gerry
Muzika)
owed
a
duty
of
care
to
the
plaintiff
in
the
handling
of
the
bank
guarantee,
which
duty
it
breached
to
the
plaintiff's
detriment;
or
(d)
Having
undertaken
to
collect
from
the
Dale
Corporation
of
the
Bank
of
Montreal
any
income
taxes
that
might
be
owing
Revenue
Canada,
(by
its
Mr.
Douglas
Shackell
or
its
Mr.
Gerry
Muzika)
owed
a
duty
the
plaintiff
to
do
so
and
to
do
so
carefully,
which
duty
or
duties
it
breached
to
the
plaintiff's
detriment.
30.
The
plaintiff
pleads
and
relies
upon
the
Crown
Liability
Act.
R.S.C.,
c.
C-38,
section
3.
In
addition
to
the
claim
for
damages,
a
variety
of
declaratory
orders
are
claimed,
as
in
an
amended
statement
of
claim
No.
2,
filed
in
November
1989.
These
include
some
15
in
all,
and
it
was
urged
in
argument
at
trial
that
one
or
more
of
these
should
be
awarded
to
the
plaintiff.
The
several
forms
urged
for
declaratory
relief
each
concern
particular
facts
and
legal
consequences.
They
are
in
the
following
terms.
(1)
The
receipt
by
the
defendant's
agents,
servants,
employees
or
officials
of
the
bank
guarantee
payable
on
demand
was
tantamount
to
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(2)
The
making
of
the
demand
for
payment
upon
the
Bank
of
Montreal
on
September
13,
1984
pursuant
to
the
bank
guarantee
and
Revenue
Canada's
decision
not
to
accept
payment,
as
between
the
plaintiff
and
the
defendant,
constituted
payment
of
the
reassessment
amount
or
the
amount
claimed;
(3)
By
making
a
demand
for
payment
pursuant
to
the
bank
guarantee
on
September
13,
1984
and
choosing
not
to
accept
payment
or
cash
but
rather
a
renewal
of
the
guarantee,
the
defendant
by
Her
agents,
servants,
employees
or
officials
accepted
all
risks
for
so
doing
and
effectively
waived
any
recourse
it
may
have
had
against
the
plaintiff
and/or
released
or
discharged
the
plaintiff
from
any
liability
for
or
the
payment
of
the
reassessment
amount
or
the
amount
claimed;
(4)
The
receipt
by
the
defendant’s
agents,
servants,
employees
or
officials
of
the
bank
guarantee
was
tantamount
to
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,1985
subject
to
a
condition,
namely
demand,
over
which
the
defendant,
Her
agents,
servants,
employees
or
officials
had
the
entire
control,
which
demand
the
defendant
through
the
default
of
Her
agents,
servants,
employees
or
officials
failed
to
make
prior
to
the
expiry
of
the
bank
guarantee
as
a
result
of
which
the
plaintiff
is
relieved
from
paying
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(5)
The
defendant
by
Her
agents,
servants,
employees
or
officials
recognized
the
Dale
Corporation
as
the
person
responsible
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985
and
did
thereby
waive
any
recourse
it
may
have
had
against
the
plaintiff
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(6)
The
defendant
by
her
agents,
servants,
employees
or
officials
recognized
the
Dale
Corporation
as
the
person
responsible
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985
and
did
thereby
release
the
plaintiff
from
any
liability
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(7)
The
defendant
by
Her
agents,
servants,
employees
or
officials
recognized
the
Dale
Corporation
as
the
person
responsible
for
the
payment
of
the
income
tax
balances
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985
and
entered
negotiations
and
arrangements
with
the
Dale
Corporation
to
the
exclusion
of
the
plaintiff
and
did
thereby
waive
any
recourse
it
may
have
had
against
the
plaintiff
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(8)
The
defendant
recognized
the
Dale
Corporation
as
the
person
responsible
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985
and
entered
negotiations
and
arrangements
with
the
Dale
Corporation
to
the
exclusion
of
the
plaintiff
and
did
thereby
release
the
plaintiff
from
any
liability
for
the
payment
of
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(9)
The
defendant
by
Her
agents,
servants,
employees
or
officials
knew
or
ought
to
have
known
that
the
plaintiff
would
rely
upon
the
conduct
of
the
defendant's
agents,
servants,
employees
or
officials
and
based
thereon
would
not
pursue
the
court
action
which
it
had
commenced
against
the
Dale
Corporation
to
the
plaintiff's
detriment,
and
accordingly,
the
defendant,
Her
agents,
servants,
employees
or
officials
are
estopped
from
acting
upon
the
notice
of
reassessment
dated
November
10,
1983
and
the
notice
of
reassessment
dated
January
29,
1985
to
the
plaintiff's
prejudice;
(10)
The
defendant
by
Her
agents,
servants,
employees
or
officials
knew
or
ought
to
have
known
that
the
plaintiff
would
rely
upon
the
conduct
of
the
defendant's
agents,
servants,
employees
or
officials
and
based
thereon
would
not
pursue
the
court
action
which
it
had
commenced
against
the
Dale
Corporation
to
the
plaintiff's
detriment,
and
accordingly,
the
plaintiff
is
relieved
from
paying
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(11)
The
defendant
by
Her
agents,
servants,
employees
or
officials
was
trustee
of
the
bank
guarantee
for
the
plaintiff’s
benefit
and
failed
to
exercise
that
trusteeship
in
the
manner
of
a
reasonable
and
prudent
trustee,
and
accordingly,
the
defendant,
Her
agents,
servants,
employees
or
officials
are
estopped
from
acting
upon
the
notice
of
reassessment
dated
November
10,
1983
and
the
notice
of
reassessment
dated
January
29,
1985
to
the
plaintiff's
prejudice;
(12)
The
defendant
by
Her
agents,
servants,
employees
or
officials
was
trustee
of
the
bank
guarantee
for
the
plaintiff’s
benefit
and
failed
to
exercise
that
trusteeship
in
the
manner
of
a
reasonable
and
prudent
trustee,
and
accordingly,
the
plaintiff
is
relieved
from
paying
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(13)
Revenue
Canada
had
an
equitable
obligation
as
a
fiduciary
to
handle
the
bank
guarantee
in
a
manner
beneficial
to
the
plaintiff
which
obligation
it
breached,
and
accordingly,
the
plaintiff
is
relieved
from
paying
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
(14)
The
defendant
by
Her
agents,
servants,
employees
or
officials,
owed
a
duty
to
the
plaintiff
to
carefully
handle
the
bank
guarantee,
which
duty,
to
the
plaintiff’s
detriment,
they
failed
to
perform,
and
accordingly,
the
plaintiff
is
relieved
from
paying
the
income
tax
balances
reflected
in
the
notice
of
reassessment
dated
November
10,
1983
and
in
the
notice
of
reassessment
dated
January
29,
1985;
or
(15)
For
the
reasons
stated
in
paragraphs
(1)
to
(8)
and
paragraphs
(13)
and
(14)
above,
the
defendant,
Her
agents,
servants,
employees
or
officials
are
estopped
from
acting
upon
the
notice
of
reassessment
dated
November
10,
1983
and
the
notice
of
reassessment
dated
January
29,1985
to
the
plaintiff's
prejudice.
The
essence
of
the
claims
included
in
the
plaintiff's
amended
pleading
is,
as
described
in
the
defendant's
supplementary
pre-trial
brief,
that
the
plaintiff
is
not
required
to
pay
the
taxes
and
interest
assessed
by
notice
of
January
29,
1985,
or
in
the
alternative,
if
required
to
pay
the
tax
the
plaintiff
is
entitled
to
damages
in
the
same
amount
for
loss
caused
by
negligence
of
those
acting
for
the
defendant.
Counsel
for
the
plaintiff
urges
that
its
case
is
really
quite
simple,
that
is,
in
the
circumstances
here
it
is
unfair
to
the
plaintiff
for
the
defendant's
representative
to
now
claim
payment
of
the
taxes,
outstanding
in
the
name
of
Royalty,
against
the
plaintiff.
After
the
November
1983
reassessments,
the
plaintiff
did
all
that
it
could
to
ensure
payment
by
Dale
in
accord
with
the
latter’s
obligations.
The
arrangements
made
by
Dale
were
known
and
understood
by
Revenue
Canada
which
accepted
them
as
satisfactory
to
ensure
payment
of
the
taxes.
By
its
own
neglect
to
act
in
relation
to
the
bank
guarantee
on
or
before
March
12,
1985,
Revenue
Canada
lost
the
opportunity
to
recover
the
taxes
against
the
credit
of
Dale.
The
plaintiff,
which
had
been
ignored
by
Revenue
Canada
after
the
letter
of
December
6,
1983,
demanding
payment
of
the
taxes
outstanding,
until
the
department's
failure
to
realize
on
the
bank
guarantee
in
March,
1985,
ought
not
to
be
required
now
to
meet
the
taxes
outstanding.
The
plaintiff's
claims
to
relief
are
supported
by
numerous
submissions.
I
propose
to
deal
with
these
and
with
the
defendant's
responses
under
the
following
general
topics:
—
the
effects
of
acceptance
by
Revenue
Canada
of
the
bank’s
guarantee,
—
the
recognition
by
Revenue
Canada
of
the
role
of
Dale
in
regard
to
payment
of
taxes
for
Royalty,
—
the
effects
of
plaintiff's
abandonment
of
its
action
against
Dale
in
reliance
upon
discharge
of
their
responsibilities
by
officers
of
Revenue
Canada,
—
the
responsibility
of
Revenue
Canada
as
trustee,
or
as
owing
other
fiduciary
duty
for
the
plaintiff’s
benefit,
and
—
the
plaintiff’s
claim
for
damages
caused
by
negligence
of
the
defendant's
officers.
Effects
of
acceptance
by
Revenue
Canada
of
the
bank's
guarantee
The
plaintiff
submits
that
the
letter
of
guarantee
was
itself
payment,
or
that
Revenue
Canada
accepted
that
letter
as
payment,
waiving
payment
by
any
other
method,
and
is
estopped
by
its
conduct
from
arguing
that
the
letter
was
not
accepted
as
payment
of
Royalty's
account.
The
letter
of
guarantee
was
arranged
in
the
following
way.
After
notices
of
objection
to
the
November
1983
reassessments
were
filed,
Mr.
O’Brien,
the
chartered
accountant
acting
for
Dale,
in
relation
to
Dale’s
own
tax
account
and
also
to
the
tax
account
of
Royalty,
informed
Shackell
of
Revenue
Canada
that
Dale
was
responsible
for
both
accounts
and
would
arrange
bank
guarantees
as
security
pending
negotiation
of
its
objections.
He
received
advice
from
Revenue
Canada
about
the
form
of
an
acceptable
bank
letter
of
guarantee
as
security
for
payment
of
the
taxes
claimed,
to
be
held
by
Revenue
Canada
pending
negotiations
in
relation
to
the
amount
of
taxes
claimed.
Acting
upon
that
advice,
Dale
arranged
with
its
bank
to
have
letters
of
guarantee
issued,
and
Dale’s
bank
wrote
in
February
1984
to
Revenue
Canada
advising
that
guarantees
were
being
prepared
"in
regards
to
the
Dale
Corporation
and
its
formerly
wholly
owned
subsidiary
Royalty
Mall
Ltd.".
The
letter
of
guarantee
in
relation
to
taxes
claimed
against
Royalty
was
subsequently
issued
March
6,
1984.
By
its
terms
the
letter
provided
in
part:
WHEREAS
Royalty-Mall
Ltd.,
a
formerly
wholly
owned
subsidiary
of
the
Dale
Corporation,
(hereinafter
called
"the
taxpayer")
is
indebted
to
Her
Majesty
for
Income
Tax,
penalties
and
interest
assessed
in
respect
of
the
taxation
years
1978
and
1979
in
the
amount
of
$127,584.67.
NOW,
THEREFORE,
in
consideration
of
these
presents,
we
the
Bank
of
Montreal,
covenant,
promise
and
agree
as
follows:
1.
We
hereby
unconditionally
and
irrevocably
guarantee
that
the
taxpayer
will
pay
on
account
of
the
said
indebtedness
to
the
Receiver
General
for
Canada
the
sum
of
dollars
($127,584.67)
plus
interest
at
the
rate
per
annum
as
from
time
to
time
prescribed
.
.
.
(such
former
sum
plus
such
interest
being
hereinafter
called
the
"guaranteed
amount”).
2.
We
undertake
to
pay
the
guaranteed
amount
or
such
portion
thereof
as
may
be
demanded
from
time
to
time
forthwith
after
receipt
by
us,
before
the
expiration
of
the
period
referred
to
in
paragraph
4,
of
a
written
demand
therefor
signed
by
.
.
.
[designated
officials
of
Revenue
Canada,
or
a
person
purporting
to
act
on
behalf
of
such
an
official]
and
certifying
that
the
guaranteed
amount
or
such
portion
has
not
been
paid.
4.
This
guarantee
expires
on
June
15,1984,.
.
.
8.
Our
total
liability
hereunder
shall
not
exceed
the
sum
of
$131,951
and
any
demand
under
this
guarantee
must
be
received
by
or
before
the
close
of
business
on
the
day
this
guarantee
expires.
.
.
.
On
June
14,
1984,
Dale
wrote
to
the
bank
requesting
that
the
guarantee
dated
March
6
be
extended
on
its
behalf
until
September
13,
1984,
for
payment
of
arrears
of
income
tax,
penalties
and
interest
claimed
against
Royalty.
On
June
15,
1984
the
bank
wrote
to
Revenue
Canada
in
relation
to
"Royalty
Mall
Ltd.
(wholly
owned
subsidiary
of
the
Dale
Corporation),
Guarantee
$131,951,
Dated
March
6,
1984”,
confirming
that
"the
guarantee
in
favour
of
the
Receiver
General
of
Canada
on
behalf
of
Royalty
Mall
Ltd.
is
extended
to
September
13,
1984”.
When,
on
September
13,
1984
the
guarantee
had
not
been
renewed
by
the
bank,
the
A/Director-Taxation
of
Revenue
Canada
wrote
to
the
manager
of
the
bank
certifying
that
$134,251.27
was
payable
and
Royalty
had
failed
to
pay
that
amount,
and
that
payment
was
demanded
forthwith
upon
receipt
of
the
letter,
pursuant
to
the
terms
of
the
letter
of
guarantee
given
by
the
bank
in
respect
of
the
guaranteed
amount
payable
by
Royalty.
That
demand
for
payment
was
initiated
by
Shackell
who
was
aware
that
was
the
last
day
of
the
extended
period
for
the
guarantee
and
who
was
concerned
not
to
lose
the
guarantee
or
the
opportunity
to
recover
under
it.
Shackell
testified
that
he
had
contacted
O'Brien
before
September
13
but
when
the
guarantee
was
not
extended
by
that
date
the
demand
letter
was
written
and
delivered.
When
the
demand
was
presented
to
the
bank
they
did
not
refuse
to
pay,
but,
instead
of
paying,
arrangements
were
made,
acceptable
to
Revenue
Canada,
for
the
letter
of
guarantee
to
be
extended
for
a
further
six
months.
Dale
wrote
again
to
the
bank
on
September
13
requesting
the
extension
and
the
bank
in
turn
wrote
to
Revenue
Canada
that
same
day,
as
it
had
done
in
mid-June,
to
confirm
that
the
guarantee
dated
March
6,
1984
on
behalf
of
Royalty,
referred
to
again
as
a
"wholly
owned
subsidiary
of
the
Dale
Corporation",
was
extended
to
March
12,
1985.
None
of
the
correspondence
between
Dale
and
its
bank
or
between
the
bank
and
Revenue
Canada
was
sent
to
the
plaintiff
for
its
information,
and
though
O'Brien
was
acting
in
relation
to
the
Royalty
tax
account
he
was
not
in
communication
about
the
matter
to
the
plaintiff
but
only
to
Dale.
He
played
an
active
role,
with
Dale,
in
making
arrangements
for
the
bank
guarantee
when
it
was
originally
issued
and
on
the
occasion
of
each
of
the
subsequent
extensions
of
time
for
the
guarantee.
There
was
one
curious
difference
in
testimony
by
O'Brien
and
by
Shackell
in
relation
to
the
original
arrangements
for
the
bank
guarantee.
It
was
O'Brien's
clear
recollection
that
Shackell
had
been
present
at
a
meeting
at
Dale's
bank
in
February
1984
concerning
the
arrangements
for
the
original
guarantee.
Shackell’s
testimony
was
that
he
had
not
attended
such
a
meeting,
there
was
no
need
for
him
to
do
so,
and
he
did
not
attend
such
meetings;
moreover,
if
he
had
done
so
he
would
certainly
have
left
a
record
of
so
doing
and
there
was
no
such
record.
The
differences
on
this
matter
are
not
significant
for
purposes
of
this
trial,
for
even
if
O'Brien's
evidence
were
to
be
accepted
it
does
no
more
than
confirm
that
Shackell
knew
and
understood
what
and
why
the
arrangements
for
the
guarantee
were
made
by
Dale.
There
is
no
doubt,
in
my
view,
from
the
oral
advice
to
Shackell
by
the
president
of
the
plaintiff
early
in
1984,
which
Shackell
acknowledged
in
testimony,
and
from
the
correspondence
from
the
bank,
that
Dale
was
acknowledging
its
status
and
responsibility
for
payment
of
any
tax
claim
against
Royalty.
Nor
do
I
have
any
doubt
that
the
situation
was
fully
understood
by
Shackell,
the
responsible
officer
of
Revenue
Canada,
even
if
he
did
not
at
any
time
formally
advise
Royalty
that
it
was
no
longer
considered
the
party
responsible
for
payment
of
the
tax
arrears,
and
even
if
he
had
no
direct
dealings
with
Dale
about
this
matter.
His
own
notes
on
the
file
folder
for
the
collection
of
the
account
confirm
his
understanding
of
the
role
of
Dale
in
acknowledging
its
responsibility
for
Royalty's
taxes
and
in
arranging
the
bank
guarantee.
I
do
not
conclude
that
the
delivery
of
the
letter
of
guarantee
to
Revenue
Canada
constituted
payment
of
the
taxes
claimed
against
Royalty.
The
appeal
on
Royalty’s
tax
account
was
still
unsettled
and
Revenue
Canada’s
demand
on
the
bank
for
payment
was
intended
primarily
to
precipitate
issue
of
a
further
letter
of
guarantee
continuing
the
arrangements
in
place
pending
the
outcome
of
the
appeal.
No
action
was
taken
to
advise
Royalty
otherwise,
and
Royalty
itself
was
unaware
of
any
of
these
arrangements
at
the
time.
Thus
the
basis
for
the
first
of
the
declarations,
listed
as
number
1
earlier,
sought
by
the
plaintiff
is
not
established.
In
my
view,
the
letter
of
guarantee,
when
first
delivered
and
on
each
of
the
subsequent
extensions,
cannot
be
deemed
to
be
more
that
the
document
itself
provides,
that
is,
a
guarantee
that
payment
will
be
made
in
future
by
the
taxpayer,
Royalty,
or
upon
demand
to
the
bank
guarantor
during
the
term
specified,
in
an
amount
not
exceeding
the
maximum
stipulated.
It
was
provided
on
behalf
of
Dale,
and
accepted
by
Revenue
Canada,
as
a
guarantee
of
future
payment
to
be
held
during
the
course
of
negotiations
about
the
amount
of
taxes
to
be
paid.
The
plaintiff
urges
that
the
guarantee
was
put
up
for
payment
of
the
taxes
and
in
the
final
analysis
that
is
how
the
taxes
would
be
paid,
but
I
conclude
that
is
contrary
to
the
intent
of
the
parties
to
the
guarantee.
Dale,
the
bank
and
Revenue
Canada,
all
expected,
when
the
guarantee
was
provided
and
when
it
was
extended,
that
when
the
amount
of
tax
outstanding
was
finally
determined,
after
consideration
of
the
objections
to
the
assessments,
the
taxes
would
be
paid
by
or
on
behalf
of
the
taxpayer
by
Dale.
The
letter
of
guarantee
was
no
more
than
it
provided
on
its
face,
an
assurance
that
if
the
taxes
were
not
paid
the
amount
of
the
taxes
could
be
demanded
from
and
would
be
paid
by
the
bank.
In
support
of
the
plaintiff’s
position
that
the
letter
of
guarantee
delivered:
to
Revenue
Canada
constituted
payment,
counsel
referred
to
a
number
of
cases
where
a
party
who
accepted
a
bill
of
exchange
as
payment
of
a
debt
was
precluded
from
subsequently
claiming
from
the
debtor
when
the
bill
of
exchange
was
not
negotiated
promptly
and
then
proved
not
to
be
negotiable
for
the
amount
of
the
debt
outstanding.
Those
cases
are
not
persuasive
in
the
circumstances
here
for
the
letter
of
guarantee
was
not
a
bill
of
exchange
or
negotiable
instrument,
as
counsel
conceded.
While
it
could
be
relied
upon
by
Revenue
Canada
for
payment,
it
was
intended
and
accepted
as
security
for
payment
of
Royalty's
tax
account
if
a
demand
was
made
upon
the
guarantor
bank
within
the
time
limited
for
its
guarantee.
The
plaintiff
also
urges
that
Revenue
Canada
accepted
the
letter
of
guarantee
as
the
method
of
payment
on
behalf
of
Royalty
and
that
it
waived
payment
by
any
other
method,
or
that
it
is
estopped
from
arguing
that
the
guarantee
was
not
accepted
as
payment.
I
have
already
indicated
that
I
am
not
persuaded
that
as
a
matter
of
fact,
or
inference,
the
letter
of
guarantee
was
intended
by
anyone
as
the
method
of
payment,
and
I
find
that
it
was
not
accepted
by
Revenue
Canada
as
payment.
There
was
no
evidence
adduced
that
Revenue
Canada
at
any
time
released
Royalty
as
the
debtor
on
the
outstanding
tax
account.
Shackell
testified
he
had
not
at
any
time
indicated
that
anyone
other
than
Royalty
was
responsible
for
the
unpaid
taxes
and
that
evidence
was
not
contradicted.
So
far
as
Revenue
Canada
knew,
the
questioning
of
the
assessments
by
notices
of
objection,
and
the
negotiations
with
O’Brien,
were
initiated
by
representatives
of
Royalty
for
in
that
capacity
the
review
of
the
reassessments
was
initiated
by
Dale
and
by
O’Brien.
Moreover,
the
letter
of
guarantee
would
itself
have
been
of
no
effect
if
the
primary
debtor
had
been
released
from
liability.
The
plaintiff
urges
that
its
view
is
supported
by
the
actions
of
Revenue
Canada
in
September
1984,
when,
without
any
demand
to
Royalty
for
payment,
the
Department
acted
on
the
bank
guarantee
when
it
was
due
to
expire
on
September
13,
presenting
a
demand
for
payment
to
the
bank,
but
then
accepting
that
same
day,
in
lieu
of
payment,
extension
of
the
term
of
the
bank's
guarantee.
It
is
urged
by
the
plaintiff
that
extension
of
the
term
of
the
guarantee
was
an
acknowledgement
that
the
letter
of
guarantee
constituted
the
form
of
payment
on
behalf
of
Royalty.
I
am
not
persuaded
that
any
party
involved
in
the
arrangements
to
extend
the
term
of
the
guarantee
considered
it
or
intended
it
as
anything
more
than
it
purports
to
be,
a
guarantee
that
the
claim
outstanding
will
be
met
by
Royalty
and
if
not,
that
payment
may
be
demanded
from
the
guarantor.
There
is
yet
another
perspective
of
the
facts
urged
by
the
plaintiff
in
support
of
its
submissions.
Essentially
it
is
that
by
its
conduct
Revenue
Canada
accepted
that
the
taxes
would
be
paid
by
Dale
or
from
the
bank
guarantee
and
thus
it
waived
any
claim
to
recover
from
Royalty
or
it
is
estopped
from
claiming
now
against
Royalty.
After
writing
to
Royalty
to
demand
payment
of
the
taxes
outstanding
on
December
6,
1983,
at
the
request
of
the
president
of
the
plaintiff,
Revenue
Canada
did
not
then
follow
up
on
that
demand,
as
it
could
have
done
under
the
statute.
Rather,
it
is
said
that
it
then
ignored
Royalty
and
had
no
further
communication
with
the
plaintiff
until
March
20,
1985,
after
Dale
had
failed
and
the
bank
guarantee
earlier
accepted
by
the
Department
had
expired.
Moreover,
from
discovery
evidence
of
Shackell
that
he
anticipated
looking
to
Dale
to
pay
the
taxes
outstanding
in
Royalty's
name,
or
to
the
bank
as
guarantor
for
payment,
it
is
said
that
Revenue
Canada
accepted
that
Royalty
was
no
longer
a
source
for
payment
of
the
tax
and
that
the
Department
waived
its
right
to
subsequently
claim
from
Royalty
or
that
it
was
estopped
from
claiming
against
Royalty.
On
the
other
hand,
I
find
the
evidence
is
clear
on
the
following
matters.
Revenue
Canada
did
not
at
any
time
formally
release
or
waive
its
claim
against
Royalty.
Shackell
did
not
indicate
to
the
plaintiff
or
to
anyone
else
at
any
time
in
the
course
of
dealing
with
the
matter
that
Royalty
was
no
longer
considered
the
taxpayer,
or
that
he
or
Revenue
Canada
accepted
that
Dale
was
to
act
in
lieu
of
the
taxpayer.
On
Royalty’s
tax
account
Revenue
Canada
had
no
claim
against
Dale.
It
dealt
with
O’Brien,
on
the
basis
of
the
objections
filed
to
the
reassessments,
as
agent
for
Royalty,
which
it
appears
in
retrospect
clearly
falls
within
the
authority
for
Dale
to
act
for
Royalty
in
relation
to
the
tax
account
that
counsel
for
the
plaintiff
had
acknowledged
by
letter
to
Dale
in
December
1983.
Finally,
the
plaintiff
was
not
kept
advised
of
arrangements
made
on
Dale’s
behalf
by
the
bank,
or
by
O’Brien,
in
dealing
with
Revenue
Canada,
except
that
it
knew
in
December
1983
that
Dale
recognized
and
was
acting
to
meet
its
obligations
to
satisfy
any
outstanding
tax
claim
against
Royalty
and
was
so
advised
by
the
defence
filed
by
Dale
to
the
action
commenced
and
later
discontinued
by
the
plaintiff
against
Dale.
It
is
perhaps
worth
noting
that
the
plaintiff
was
unaware
of
the
terms
of
the
bank
letter
of
guarantee,
or
of
its
renewals
in
June
and
September
of
1984,
or
of
its
expiry
date
in
March
1985,
and
had
not
apparently
asked
for
information
about
arrangements
made
by
Dale,
or
O’Brien,
as
agents
formally
for
Royalty,
with
Revenue
Canada.
In
my
view,
the
circumstances
established
do
not
support
a
finding
that
the
plaintiff
was
relying
after
December
1983
upon
any
release
or
waiver,
or
conduct
constituting
waiver
by
Revenue
Canada
of
its
right
to
claim
against
Royalty.
Nor
was
there
any
promise
made
to
the
plaintiff,
or
any
conduct
undertaken
by
Shackell
or
anyone
else
for
Revenue
Canada,
that
would
provide
a
basis
for
the
plaintiff's
claim
to
estoppel
against
any
claim
by
Revenue
Canada
to
recover
taxes
unpaid,
in
the
name
of
Royalty,
from
Royalty
itself.
Any
reliance
of
the
plaintiff
upon
Dale
or
its
bank
meeting
the
tax
liability
arose
from
the
plaintiff's
dealings
with
Dale.
For
these
reasons
I
am
satisfied
that
the
evidence
does
not
support
finding
facts
upon
which
the
plaintiff's
claims
to
declarations
in
the
nature
of
those
earlier
listed
as
numbers
2,
3,
4.
Revenue
Canada's
recognition
of
the
role
of
Dale
in
regard
to
payment
of
Royalty's
taxes
It
is
the
plaintiff's
claim
that
Revenue
Canada,
by
its
conduct,
accepted
Dale
or
the
guarantor
bank
as
its
new
debtor.
Four
of
the
declarations
it
seeks
as
alterna-
tives,
numbers
5,
6,
7
and
8
as
earlier
set
out,
are
all
based
on
finding
that
circumstance
to
be
a
fact.
The
plaintiff's
claims,
based
on
inference
drawn
from
the
conduct
of
Revenue
Canada,
are
that
the
Department
waived
any
recourse
it
may
have
had
against
the
plaintiff,
or
released
the
plaintiff
from
liability
for
payment
of
outstanding
taxes.
The
basic
claim,
that
Dale
or
the
bank
was
accepted
as
the
new
debtor,
is
said
to
be
based
upon
the
following
circumstances.
1.
After
the
demand
for
payment
of
December
6,
1983
Revenue
Canada
had
no
further
communication
or
contact
with
Royalty
until
March
20,
1985,
after
the
letter
of
guarantee
expired.
In
the
interim
the
Department
is
said
to
have
dealt
strictly
with
Dale
or
the
bank
and
it
took
no
action
to
insist
on
payment
from
Royalty.
The
evidence
at
trial
supports
this
in
part,
but
the
evidence
also
establishes
that
after
December
6,
1983
Revenue
Canada
responded
to
the
notices
of
objection
filed
by
Mr.
Dale,
describing
himself
as
agent
for
Royalty
Mall,
an
agency
relationship
that
was
acknowledged
in
correspondence
by
counsel
for
plaintiffs
to
Dale
in
relation
to
the
claim
for
taxes,
and
Revenue
Canada
dealt
with
O'Brien
as
representative
of
Royalty,
as
designated
in
the
notices
of
objection
in
relation
to
this
tax
account.
There
is
also
a
letter
of
June
1985
from
O'Brien
to
Revenue
Canada
indicating
he
had
suggested
to
the
guarantor
bank
in
early
February
1985,
following
the
reassessments
in
January,
that
the
taxes
be
paid
and
had
so
informed
Royalty
and
Dale.
At
least
on
that
one
occasion
he
appears
to
have
acknowledged
by
his
report
of
his
conduct,
some
relationship
to
Royalty.
2.
Revenue
Canada
officials
knew,
as
the
evidence
made
clear,
that
as
between
Royalty
and
Dale,
the
latter
was
responsible
for
payment
of
the
taxes.
The
Department
accepted
a
uarantee
of
payment
by
the
taxpayer,
Royalty,
formerly
a
wholly
owned
subsidiary
of
Dale,
and
Shackell
admitted
on
discovery
that
he
intended
to
look
to
Dale
for
payment
and
then
to
act
on
the
guarantee
if
Dale
did
not
pay.
The
guarantee
was
provided
on
the
basis
of
a
form
sent
by
Shackell
to
the
bank
at
the
request
of
O’Brien.
The
evidence
at
trial
also
indicates
however,
that
Shackell
did
not
indicate
to
Royalty
that
it
was
released
from
any
obligation
to
pay,
or
to
Dale
that
it
was
accepted
as
a
new
debtor
in
place
of
Royalty.
Indeed,
Shackell
was
clear
in
his
evidence
at
trial
that
the
Department
legally
nad
no
claim
for
these
taxes
against
Dale.
3.
In
September
1984,
without
any
prior
demand
for
payment
upon
Royalty,
and
without
the
knowledge
of
Royalty,
Revenue
Canada
presented
a
demand
for
payment
to
the
bank
under
the
guarantee,
then
instead
of
insisting
on
payment
as
he
might
have
done,
Shackell
accepted
an
extension
of
the
term
for
the
guarantee.
That
is
established
by
the
evidence
but
in
itself
it
does
not
lead
to
the
inference
that
Revenue
Canada
thereby
released
Royalty
from
any
liability
for
tax
or
waived
its
right
to
recover
against
Royalty.
The
steps
taken
in
September
1984
were
intended
to
insure
that
the
bank
guarantee
be
renewed,
continuing
the
arrangement
for
security
for
payment
during
the
course
of
on-going
negotiations
with
O'Brien
to
resolve
the
amount
of
tax
outstanding.
Moreover,
the
letter
of
guarantee
did
not
require
prior
demand
for
payment
upon
Royalty,
the
taxpayer
designated
by
that
letter,
before
presentation
of
a
demand
for
payment
against
the
bank.
Having
made
a
demand
for
payment
on
the
bank,
Revenue
Canada
accepted
instead
an
extension
of
the
term
of
the
guarantee
for
which
the
principal
obligation
in
the
name
of
Royalty
remained
outstanding.
There
can
be
no
doubt
of
the
discretionary
authority
of
the
Minister
or
his
representatives
to
accept
security
for
payment
of
taxes
under
subsection
220(4)
of
the
Income
Tax
Act,
a
discretion
exercisable
to
make
suitable
collections
arrangements
(See
Optical
Recording
Corp.
v.
Canada,
[1990]
2
C.T.C.
524,
90
D.T.C.
6647
(F.C.A.)).
The
arrangements
here
made
served
the
interests
of
all
parties
until
Dale’s
insolvency
and
the
subsequent
expiry
of
the
term
of
the
bank
guarantee.
The
factual
basis
of
those
arrangements
is
the
issue
raised
by
the
plaintiff.
The
plaintiff
urges
that
the
doctrine
of
novation
applies
to
free
it
from
liability
but
even
the
authority
relied
upon,
Canada
Permanent
Mortgage
Corp.
v.
Halet
Enterprises
Ltd.
(1983),
48
B.C.L.R.
207,
23
B.L.R.
173
(B.C.S.C.),
makes
clear
that
this
doctrine
applies
where
the
obligation
sought
to
be
enforced
arises
under
a
contract
which
in
fact
has
been
displaced
by
a
new
agreement
under
which,
inter
alia,
the
creditor
accepts
the
new
debtor
as
the
principal
debtor
and
the
new
agreement
in
full
satisfaction
and
in
substitution
for
the
original
contract.
The
principle
of
novation
simply
has
no
application
in
the
circumstances
of
this
case.
I
do
not
find
on
the
evidence
that
the
basis
for
the
plaintiff’s
claim
is
established.
There
is
no
evidence
that
Revenue
Canada
took
any
step
to
formally
release
Royalty
or
to
waive
any
possible
claim
against
Royalty.
Its
dealings
wit
O'Brien,
introduced
by
the
notice
of
objection
as
agent
of
Royalty,
were
not
known
to
the
plaintiff,
nor
were
its
dealings
with
Dale
on
Dale’s
own
tax
account
or
with
the
guarantor
bank.
The
plaintiff
was
not
privy
to
the
letter
of
guarantee,
did
not
know
of
its
terms
or
that
it
was
extended,
or
by
what
means,
on
two
occasions.
It
only
knew
from
Dale,
that
Dale
was
negotiating
with
Revenue
Canada
about
the
amount
of
taxes
outstanding
in
Royalty's
name
and
that
Dale
had
arranged
a
bank
guarantee
as
security
that
those
taxes
would
be
paid.
As
I
have
earlier
noted,
the
plaintiff
did
not
rely
on
any
undertaking
or
promise
by,
or
conduct
of
Revenue
Canada,
known
to
the
plaintiff
during
the
period
between
December
6,
1983
and
March
20,
1985,
which
could
be
considered
to
constitute
a
waiver
of
the
claim
for
taxes
against
Royalty
or
a
release
of
any
claim
against
Royalty.
Any
assurance,
promise,
or
undertaking
relied
upon
by
the
plaintiff
was
made
to
it
by
Dale,
not
by
Revenue
Canada.
For
these
reasons
the
claims
to
declarations
in
the
forms
set
out
as
numbered
5,
or
6,
or
7,
or
8
will
not
be
awarded.
Effects
of
the
plaintiff's
discontinuance
of
its
action
against
Dale
in
reliance
upon
discharge
of
their
responsibilities
by
officers
of
Revenue
Canada
In
its
amended
statement
of
claim
the
plaintiff
states
27.
The
plaintiff,
in
the
alternative,
states
that
Revenue
Canada
knew
or
ought
to
have
known
that
Royalty
would
rely
upon
Revenue
Canada’s
conduct,
and
based
thereon,
would
not
pursue,
to
its
detriment,
the
said
court
action
which
it
had
commenced
against
the
Dale
Corporation,
and
accordingly
the
plaintiff
states
that
the
defendant
is
estopped
from
acting
upon
the
reassessments.
Two
of
the
declarations
claimed
by
the
plaintiff,
numbers
9
and
10
set
out
above,
would
be
based
upon
facts
so
alleged.
Yet
no
evidence
was
adduced
that
officers
of
Revenue
Canada
were
informed,
or
had
any
knowledge,
of
the
action
initiated
and
subsequently
discontinued
by
the
plaintiff
against
Dale.
The
only
inference
I
can
draw
is
that
the
plaintiff's
action
and
its
discontinuance
were
matters
of
the
interrelations
between
the
plaintiff
and
Dale
under
their
agreement
for
the
purchase
and
sale
of
the
shares
of
Royalty.
No
argument
was
addressed
at
trial
to
this
aspect
of
the
plaintiff's
claims.
Whatever
may
have
been
the
reasons
for
the
plaintiff's
discontinuance
of
its
action
against
Dale,
the
allegation
that
Revenue
Canada
knew
or
ought
to
have
known
the
plaintiff
would
rely
upon
the
defendant's
agents
and
acted
to
its
detriment
because
of
that
reliance,
is
not
supported
by
the
evidence.
Thus,
there
is
no
basis
to
consider
declarations
9
and
10
sought
by
the
plaintiff.
The
responsibility
of
Revenue
Canada
as
a
trustee
or
as
owing
a
fiduciary
duty
for
the
plaintiff's
benefit
The
plaintiff's
other
claims
to
declaratory
relief
are
dependent
upon
finding
that
in
the
circumstances
of
this
case
Revenue
Canada
became
a
trustee
holding
the
bank
guarantee
for
the
benefit
of
Royalty,
or
that
it
owed
a
fiduciary
duty
to
act
for
the
plaintiff's
benefit.
Clearly
there
was
no
express
trust.
Nor
does
the
evidence
support
the
conclusion
that
a
constructive
trust
or
resulting
trust
relationship
should
here
be
deemed
to
exist
in
equity.
The
relationship
between
Revenue
Canada
and
Royalty
was
simply
that
of
creditor
and
debtor.
The
letter
of
guarantee
was
not
in
itself
property.
It
was
merely
a
guarantee
for
payment
of
the
debt
owed
as
taxes,
a
contractual
arrangement
between
the
bank
and
Revenue
Canada.
No
trust
arose
from
its
receipt
by
Revenue
Canada.
I
do
not
find
that
the
facts
established
create
any
duty
that
could
be
considered
a
fiduciary
duty
owed
by
Revenue
Canada
to
Royalty
or
to
the
plaintiff.
It
is
true
that
in
Guerin
v.
The
Queen,
[1984]
2
S.C.R.
335,
13
D.L.R.
(4th)
321,
the
Supreme
Court
recognized
that
the
category
of
circumstances
giving
rise
to
a
fiduciary
duty
is
not
closed,
but
Guerin
itself
is
not
authority
for
more
than
the
possibility
of
fiduciary
duties
owed
by
the
Crown
to
aboriginal
peoples.
It
does
not
imply
that
fiduciary
duties
will
be
implied
in
relation
to
actions
by
public
servants
within
statutory
authority,
even
where
those
actions
concern
management
of
pension
funds
for
the
benefit
of
pensioners
(See
Callie
v.
Canada,
[1991]
2
F.C.
379,
41
F.T.R.
59
(F.C.T.D.)).
Whatever
the
responsibilities
were
between
the
plaintiff
and
Dale
in
respect
to
the
payment
of
the
taxes,
the
arrangements
made
by
Dale
and
its
bank
guarantor
to
provide
security
for
payment
by
the
taxpayer,
Royalty,
created
no
fiduciary
duty
owed
by
Revenue
Canada
to
Royalty,
or
to
the
plaintiff.
Thus
the
evidence
does
not
establish
facts
to
support
any
of
the
alternative
declarations
sought
by
the
plaintiff
numbered
as
11,
12,
13,
14,
15
set
out
earlier
in
these
Reasons.
The
plaintiff's
claim
for
damages
for
loss
caused
by
negligence
of
the
defendant's
officers
By
its
amended
statement
of
claim
No.
3,
the
plaintiff
claims
damages
against
the
defendant
equal
to
the
amount
claimed
for
taxes
and
interest
or
any
amount
it
may
be
required
to
pay
to
the
defendant.
I
have
already
determined
there
was
no
trust
relationship
and
no
fiduciary
duty
owed
by
Revenue
Canada
to
the
plaintiff.
Thus,
damages
said
to
arise
from
failure
of
Revenue
Canada,
through
its
officers,
to
exercise
a
duty
owed,
as
trustee
or
as
fiduciary,
to
the
plaintiff
are
not
considered
further.
In
the
alternative,
it
is
urged
that
Revenue
Canada
owed
a
duty
of
care
to
the
plaintiff
in
handling
the
bank
guarantee,
or,
having
undertaken
to
collect
from
Dale
or
the
bank
any
taxes
that
were
owing,
the
Department
owed
a
duty
to
the
plaintiff
which
duty
it
breached
causing
foreseeable
loss
to
the
plaintiff.
By
amended
statement
of
defence
No.
2,
it
is
pleaded
that
the
defendant
had
no
legal
duty
to
exercise
rights
under
the
letter
of
guarantee
and
retained
the
right
to
demand
payment
from
the
plaintiff
as
its
principal
debtor.
Further,
any
loss
to
the
plaintiff
resulting
from
the
defendant
not
demanding
payment
under
the
bank
guarantee
is
said
not
to
be
reasonably
foreseeable,
for
the
defendant
was
unaware
of
the
terms
of
any
indemnity
agreement
between
Royalty
and
Dale
and
the
effects
upon
this
of
the
insolvency
of
Dale.
Finally,
if
the
defendant
be
found
negligent
it
is
urged
that
the
plaintiff
was
contributor!ly
negligent.
Key
facts
upon
which
negligence
is
alleged,
all
established
by
evidence,
include
the
knowledge
of
Shackell,
as
the
responsible
officer
of
Revenue
Canada,
from
conversations
in
December
1983
with
the
president
of
the
plaintiff,
and
with
O’Brien,
that
Royalty’s
tax
liability
for
the
years
in
question
was,
by
agreement
with
Dale,
Dale’s
responsibility,
that
Dale
undertook
to
look
after
the
matter
subject
to
appeal
concerning
the
reassessments,
and
that
Dale
arranged
the
bank
guarantee
which
was
accepted
by
Revenue
Canada.
Soon
after
Dale
went
into
receivership
on
February
13,
1985,
Shackell
was
aware
of
that
situation
and
he
wrote
to
the
Department
of
Justice
for
advice
concerning
any
adverse
effect
of
Dale’s
receivership
upon
Revenue
Canada’s
position
under
the
bank
guarantee.
Further,
he
was
aware
in
the
latter
part
of
February
1985
that
revised
reassessments
were
issued
in
the
name
of
Royalty
Mall
in
January
1985.
Awareness
of
the
reassessments
did
not
trigger
action
to
collect
the
taxes
then
due,
apparently
because
the
office
within
Revenue
Canada
for
appeals
did
not
provide
formal
advice
that
the
account
was
then
considered
finally
settled
as
a
result
of
the
negotiations
with
O’Brien.
Nor
did
the
reassessments
or
the
move
of
Dale
into
receivership
trigger
any
review
of
the
security
held
to
ensure
payment
of
the
taxes,
i.e.
the
letter
of
guarantee
from
the
bank.
There
can
be
no
doubt
that
it
was
Shackell’s
error
that
led
to
expiry
of
the
guarantee
without
any
action
taken
upon
it
before
its
expiry
date,
March
12,
1985.
He
acknowledged
that
the
error
was
his,
in
recording
in
error
its
expiry
date
as
March
15,
1985
upon
the
records
he
initiated
and
maintained.
Thus,
that
wrong
date
appears
on
the
exterior
of
the
file
form
retained
for
collection
of
the
account
of
Royalty
Mall.
It
apparently
was
also
recorded
in
error
on
Shackell’s
personal
diary
record
designed
to
remind
him
of
dates
when
certain
actions
were
to
be
undertaken.
That
record
was
not
in
evidence;
apparently
it
was
destroyed,
as
was
also
the
envelope
in
which
the
letter
of
guarantee
was
retained
within
the
vault
of
the
Department
in
Charlottetown.
Shackell’s
practice
was
to
note
in
his
diary
file
two
days
in
advance
of
expiry
of
any
guarantee
a
reminder
to
check
the
status
of
the
account
and
the
continuing
validity
of
the
guarantee,
in
order
that
if
arrangements
for
extension
of
the
guarantee,
or
its
replacement,
had
to
be
made,
the
taxpayer
could
be
contacted.
He
recalled
having
done
just
that
in
September,
speaking
with
O'Brien
in
advance
of
the
expiry
of
the
guarantee
then
existing
until
September
13,
and
only
after
that,
when
no
extension
had
been
provided,
arranging
for
the
demand
for
payment
to
be
delivered
to
the
bank.
Later,
it
was
only
on
March
13,
when
acting
on
the
reminder
from
his
diary,
that
he
discovered
the
last
of
the
guarantees
had
in
fact
expired
the
previous
day,
March
12,
and
that
he
had
erroneously
recorded
its
expiry
date
in
his
records
and
those
of
the
Department.
Counsel
for
the
defendant
urged
that
on
the
basis
of
evidence
adduced,
the
Department
had
an
effective
established
policy
and
practice
for
checking
on
the
continuing
validity
of
security
arrangements,
and
there
seems
no
doubt
that
the
bank
guarantee,
held
in
the
Department's
vault,
was
checked
on
as
many
as
three
occasions,
the
last
being
early
in
January.
But
whatever
system
was
followed
it
was
ineffective
in
checking
the
records
maintained
by
Shackell
in
relation
to
the
account,
including
his
diary
record
for
action
to
be
taken.
The
system
used
did
not
detect
the
error
made
in
recording
the
expiry
date
and
alerting
Shackell
to
take
action
while
the
guarantee
was
still
in
force.
In
the
circumstances,
can
it
be
said
that
Shackell’s
error
constituted
negligence?
Was
there
a
duty
owed
by
Shackell,
on
behalf
of
Revenue
Canada,
to
Royalty,
the
breach
of
which
resulted
in
loss
to
the
plaintiff
that
was
reasonably
foreseeable?
If
so,
the
principle
of
Donoghue
v.
Stevenson,
[1932]
A.C.
562,
48
T.L.R.
494
(H.L.)
applies,
and
the
defendant,
on
whose
behalf
Shackell
was
acting,
is
responsible
in
damages
for
the
loss.
In
support
of
submissions
on
negligence
counsel
for
the
plaintiff
relied
upon
the
general
principle
of
Donoghue,
supra,
as
elaborated
in
Anns
v.
Merton
London
Borough
Council,
[1978]
A.C.
728,
[1977]
2
W.L.R.
1024,
per
Lord
Wilberforce
at
pages
751-52
(W.L.R.
1032),
and
upon
Howarth
v.
The
Queen
(1984),
29
C.C.L.T.
157,
13
Admin.
L.R.
161
(F.C.T.D.)
[aff'd
(1985),
13
Admin.
L.R.
189
(F.C.A.)].
The
last
case,
not
unlike
the
decision
in
Anns,
supra,
was
concerned
with
a
preliminary
motion
to
strike
pursuant
to
Rule
419(a),
and
aside
from
recognition
of
general
principles
it
is
not
authority
for
the
application
of
those
principles
in
this
case.
In
argument
plaintiff
also
relied
upon
Baxter
&
Co.
v.
Jones
(1903),
6
O.L.R.
360
(C.A.)
and
Myers
v.
Thompson,
[1967]
2
O.R.
335,
63
D.L.R.
(2d)
476
(Co.Ct.),
[aff'd
[1967]
2
OR.
335n.,
63
D.L.R.
(2d)
476n.
(Ont.
C.A.)],
but
both
those
cases
involved
negligence
in
meeting
gratuitous
undertakings
by
insurance
agents
which
caused
loss
to
an
insured.
Both,
in
my
view,
reflect
the
particular
situation
of
economic
loss
arising
from
negligent
misrepresentation
recognized
by
the
House
of
Lords
in
Hedley
Byrne
&
Co.
v.
Heller
&
Partners
Ltd.,
[1963]
3
W.L.R.
101,
[1963]
2
All
E.R.
575,
and
are
distinguishable
from
the
case
at
bar
for
here
there
was
no
representation
by
Revenue
Canada
officers
to
Royalty,
or
even
to
O’Brien,
whom
the
Department
considered
as
Royalty's
representative,
that
it
would
rely
upon
the
bank
guarantee,
or
upon
Dale,
for
payment
of
the
tax
account
in
Royalty's
name.
I
am
not
persuaded
that
these
circumstances
are
such
that
traditional
judicial
restraint
should
be
relaxed
in
recognizing
negligence
as
a
basis
for
action,
in
tort,
where
mere
economic
loss
results,
without
personal
injury
or
property
loss,
from
breach
of
an
alleged
duty
of
care.
The
difficulty
I
have
with
the
plaintiff's
submissions
concerning
negligence
on
the
part
of
Revenue
Canada
officials,
in
failing
to
demand
payment
of
the
taxes
outstanding
from
the
bank
on
or
before
March
12
under
the
letter
of
guarantee
if
the
guarantee
was
not
to
be
extended,
is
that
it
would
introduce
into
the
relationship
of
debtor
and
creditor
under
the
Income
Tax
Act,
the
tort
of
negligence
on
the
part
of
taxation
officials
as
a
defence
to
an
action
to
recover
taxes
or
as
a
basis
for
an
action
for
damages
on
the
part
of
the
taxpayer.
I
have
found
no
authority
for
that
and
none
has
been
suggested.
Counsel
for
the
defendant
referred
to
China
and
South
Sea
Bank
Ltd.
v.
Tan
(1989),
105
N.R.
29
(P.C.),
where
the
Privy
Council,
reversing
the
Hong
Kong
Court
of
Appeal,
allowed
a
claim
against
a
guarantor,
where,
the
debtor
having
defaulted,
the
creditor
had
not
acted
to
realize
assets
pledged
as
security
before
those
deteriorated.
The
Court
of
Appeal
had
found
that
negligence
on
the
part
of
the
creditor
precluded
a
claim
under
the
guarantee,
despite
its
express
terms.
The
case
is
not
directly
relevant,
but
the
principle
upon
which
the
Privy
Council
based
its
decision
is
of
interest
here.
Lord
Templeman
there
said
(at
page
31):
The
Court
of
Appeal
sought
to
find
such
a
duty
[to
realize
on
assets
pledged
as
security]
in
the
tort
of
negligence
but
the
tort
of
negligence
has
not
yet
subsumed
all
torts
and
does
not
supplant
the
principles
of
equity
or
contradict
contractual
promises
or
complement
the
remedy
of
judicial
review
or
supplement
statutory
rights.
In
my
opinion
this
is
not
a
case
where
the
creditor-debtor
relationship
of
the
parties
should
be
modified
by
principles
of
the
law
of
negligence
in
tort.
In
form
and
in
substance
the
relationship
between
the
defendant
and
the
plaintiff
following
the
reassessments
in
1983
was
that
of
creditor
and
debtor
by
reason
of
section
222
of
the
Income
Tax
Act
which
provides:
222.
All
taxes,
interest,
penalties,
costs
and
other
amounts
payable
under
this
Act
are
debts
due
to
Her
Majesty
and
recoverable
as
such
in
the
Federal
Court
of
Canada
or
any
other
court
of
competent
jurisdiction
or
in
any
other
manner
provided
by
this
Act.
Throughout
the
negotiations
with
O’Brien,
acting
as
representative
of
Royalty,
as
designated
by
the
notices
of
objection,
and
named
by
Dale
within
the
authority
acknowledged
on
behalf
of
Royalty
for
Dale
to
negotiate
with
Revenue
Canada
in
appeal
of
the
reassessments,
from
its
perspective
the
Department
continued
to
deal
with
Royalty.
Shackell
knew
of
the
arrangements
made
by
Dale
and
that
the
letter
of
guarantee
was
arranged
by
Dale.
In
my
view
he
was
at
fault
in
performance
of
his
duties
in
relation
to
the
letter
of
guarantee
by
letting
it
lapse.
But
carelessness
in
performance
of
his
duty
in
ensuring
protection
of
the
Crown's
interest
does
not
constitute
negligence
at
common
law
for
he
owed
no
duty
to
Royalty
to
call
for
payment
under
the
bank
guarantee.
Royalty
was
a
debtor
and
as
a
debtor
its
interests
remained
unaffected
by
Shackell's
failure,
even
though
its
interests
vis-a-vis
obligations
of
Dale
to
Royalty
may
have
resulted
in
a
loss
to
Royalty
in
the
circumstances
of
this
case
by
failure
of
Dale,
and
the
subsequent
expiry
of
the
letter
of
guarantee
without
recovery
under
it
by
Revenue
Canada.
There
is
no
basis
for
finding
negligence
at
common
law
that
would
support
an
award
of
damages
to
the
plaintiff.
Finally,
it
is
urged
for
the
plaintiff
that
but
for
the
fault
or
neglect
of
Revenue
Canada
officials,
had
they
acted
on
the
guarantee
prior
to
its
expiry
no
taxes
would
be
owing
by
Royalty.
It
is
urged
that
justice
and
good
conscience
should
not
allow
the
defendant
to
rely
on
the
fault
of
Revenue
Canada
officers
to
insist
that
the
taxes
are
still
owing
or
were
not
paid.
The
principle
said
to
be
applicable
is
that
in
Follis
v.
Albemarle
(Township),
[1941]
O.R.
1,
[1941]
1
D.L.R.
178
(C.A.),
at
page
9
(D.L.R.
186),
and
illustrated
in
Rich
v.
North
American
Lumber
Co.
(1913),
18
B.C.R.
543,
17
D.L.R.
25,
to
the
effect
that
"No
one
can
take
advantage
of
a
state
of
things
produced
by
some
unwarrantable
act
or
default
on
his
own
part".
In
my
view,
both
cases
are
distinguishable
on
their
facts.
Follis,
supra,
deals
with
a
case
of
evidence
admissible
to
negate
a
situation
of
a
constructive
trust,
and
Rich,
supra,
deals
with
precluding
the
defendant's
negligence
as
a
defence
in
a
contract
action.
Neither
is
authority
for
modifying
the
relationship
of
the
parties
in
this
case
as
it
was
under
the
Income
Tax
Act.
The
"fault"
of
Shackell,
acting
for
Revenue
Canada,
does
not
constitute
negligence
in
relation
to
the
plaintiff.
Conclusion
I
have
considerable
sympathy
for
the
plaintiff's
position.
Nevertheless,
I
can
find
no
basis
in
law,
on
the
evidence
adduced,
for
any
of
the
declaratory
relief
it
seeks,
or
for
a
finding
of
negligence
as
a
ground
for
awarding
damages
to
the
plaintiff
in
an
amount
equivalent
to
the
taxes,
interest
and
any
other
costs
to
which
it
is
liable
as
successor
in
name
to
Royalty,
a
debtor
under
the
Income
Tax
Act.
In
the
result,
the
plaintiff’s
action
is
dismissed.
The
defendant
requests
costs.
While
the
plaintiff
has
not
succeeded
in
the
action,
the
action
itself
arose
essentially
because
the
plaintiff
was
exposed
to
a
renewed
demand
for
payment
as
a
result
of
failure
of
Revenue
Canada,
through
Shackell,
to
seek
payment
or
renewal
of
a
guarantee
while
the
guarantee
arranged
by
Dale
was
still
valid.
In
these
circumstances,
it
seems
to
me
appropriate
that
costs
not
be
awarded.
While
this
is
not
a
case
of
judicial
review,
where
that
process
seeks
review
of
a
questionable
decision
of
a
federal
official
or
agency,
no
costs
are
awarded
in
the
usual
case.
This
action
arises
from
the
questionable
action
of
a
Revenue
Canada
official,
and
in
the
particular
circumstances
it
seems
to
me
just
that
the
defendant,
though
successful,
should
bear
her
own
costs.
Thus,
the
order
dismissing
the
plaintiff's
action
goes
with
an
order
that
each
party
will
bear
its
own
costs.
Action
dismissed.
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