Aurelia Vojic v. The Attorney-General of Canada in Respect of the Claim Against Her Majesty the Queen as Represented Oy the Minister of National Revenue, [1988] 1 CTC 207

Reed, J.:—The defendant brings a motion to strike out the plaintiff's statement of claim because the plaintiff has not provided proper discovery of documents before proceeding to trial. Under Rules 447 and 458 of the Federal Court Rules parties are required to disclose to the other side all documents in their possession which relate to the matter which is before the Court. This includes giving the other side an opportunity to see and make copies of all such documents. And, it includes giving access to documents which support the plaintiff's case and those which are of a contrary nature. Rule 460 authorizes the Court to make an order striking out a party's claim (or defence, as the case might be) if this is not done. The defendant is proceeding under Rule 460 in this application.

The plaintiff has filed a cross-motion which seeks a number of remedies, among them the dismissal of the defendant's motion and the return of money seized from joint accounts and from tenants of an apartment building, which property was held jointly by the plaintiff and her husband. The object of the plaintiff's statement of claim is also to obtain the return of those same moneys, i.e., those seized from the joint bank accounts and that seized from the tenants of the apartment building. The apartment building is registered as being jointly owned by the plaintiff and her husband. Some of the leases with the tenants are in both her husband's and her name; others are in the plaintiff's name only. The statement of claim also seeks interest on the moneys seized and damages arising out of the alleged wrongful seizures.

The seizures were precipitated by tax assessments levied against the plantiff's husband, Lucijan Vojic, which Revenue Canada claimed remained unpaid at the date of the seizures. (I will hereafter refer to Revenue Canada as the tax department). The plaintiff is representing herself. Therefore, I will, in these reasons, deal in a somewhat expansive fashion with the issues raised in her motion even though many of them are not in a legal sense strictly relevant to the proceedings at this stage of the litigation.

One of the plaintiff's allegations, before me, was that: her husband did not owe the taxes in question; there was no judgment against him; he was not a debtor. I believe it is important to set out an explanation of how the tax assessment and collection system operates because one of the plaintiff's reasons for asserting that her husband is not a debtor is that there has never been a trial proving his tax indebtedness.

Under the Income Tax Act [1] , every taxpayer must file an income tax return (subsection 150(1)) and calculate the amount he or she owes (section 151) and pay that amount when they file their income tax return. (Sometimes instalments are paid by the taxpayer during the year (section 156) or, if the individual is an employee, amounts are withheld from his or her pay (section 153) so that the final payment need only be the last part of the amount owing.) After the return has been filed, the tax department must send each taxpayer a notice of assessment (section 152), and that notice states whether the tax department agrees or disagrees with the taxpayer's assessment of the amount of taxes owed. If the tax department determines, for example, that a taxpayer has claimed expenses as deductions from his or her income, which the Income Tax Act does not allow, then the tax department will recalculate the tax payable on that basis and inform the taxpayer of the amount the department states is owing. If the tax department has reason to believe the taxpayer has received income which has not been mentioned in the tax return then it will recalculate the tax payable on that basis and inform the taxpayer of the amount it says is owing.

Under the law as it existed in 1982 and 1983, the relevant years for the plaintiff and her husband, if the tax department had said in the notice of assessment that the taxpayer still owed money, then the taxpayer had 30 days to pay the amount which the department said was owed (subsection 158(1)). If the taxpayer disagreed with what the tax department said was owed, then he or she could object to the tax department's assessment by filing a notice of objection. However, even if the taxpayer objected to the assessment, he still had to pay the amount assessed within the 30-day period (subsection 158(1)).

As noted above, if the taxpayer disagreed with what the department said was owing, he or she had to file a notice of objection. This had to be done within 90 days of the day on which the notice of assessment was mailed to the taxpayer (section 165). Once the tax department received a notice of objection, it would send a reply to the taxpayer saying whether it has decided to maintain or to change its original decision. If, after receiving the department's reply (i.e. notice of reassessment) to the notice of objection, the taxpayer still disagreed with the amount the tax department said was owing, he or she could appeal the department's decision to the Tax Review Board, or to the Federal Court of Canada. This had to be done within 90 days of the date the reassessment was mailed. If a taxpayer did not object to the assessment within the time limits provided, or did not appeal the department's decision to the appropriate Court within the time limits prescribed by the legislation, then he or she would be treated as having agreed with the tax department that he owed the money which the department said was owed.

I note that the burden is on the taxpayer to prove that he does not owe the amount which the department says he owes. This is the reverse situation to that existing in most areas of the law. The rationale for this reversal of the normal rules is that all the information concerning a taxpayer's business affairs is in the hands of the taxpayer, not the tax department. It is the taxpayer who has possession of or access to, the business records and documentation to prove his tax liability, not the department. Therefore Parliament enacted legislation which places the burden on the taxpayer to disprove the department's assessment, if the taxpayer disagrees with it.

Regardless of whether a taxpayer had objected or not to the department's assessment or filed an appeal with respect to that assessment, any amount which the taxpayer had not paid within 30 days and which the department said was owing, could be “certified” by the Minister of National Revenue under subsection 223(1) of the Income Tax Act. In other words, the Minister or his employees would write out a certificate saying that a certain taxpayer has not paid such and such an amount which he owes in income tax. Subsection 223(2) provides that when this certificate is taken to the Federal Court, and registered with the Court, it has the same effect as a judgment of the Federal Court. The tax department could then collect the debt owed under that certificate, just as if it had gone through a trial in the Federal Court. The burden is then on the taxpayer, as noted above, to start an action to get the money back if he or she disagrees with the tax department [2] .

A taxpayer, thus, may have a judgment against him without there ever having been a trial. I would add that a judgment without a trial, can occur and often does, in other types of litigation as well, where one party or the other does not contest the claim being made, or neglects to file the appropriate documentation within the time limits set out by the law. Also, it should be noted that not only are there time limits within which a taxpayer must file objections to the department's assessment or he will be deemed to be agreeing with the department's position, but there are, equally, time limits binding on the tax department which must be met or it will be deemed to be agreeing with the taxpayer's position.

I do not know the course of events which took place in the plaintiff's husband's case which led to a certificate being issued against him. Those facts are not before me on this file, but it is not an unusual procedure for a judgment to be obtained against a taxpayer by the filing of a certificate. I would note that while I have set out at some length a description of the procedure by which a judgment is obtained, by filing a certificate, the tax indebtedness of the plaintiff's husband is not an issue in this case. The validity of the judgment against her husband is something he must pursue in his own action in the courts; she cannot do so because the tax liability is his, not hers.

I note also that because there is a judgment against the plaintiff's husband, those cases to which I was referred by reference to newspaper clippings (the Tadich case decided by Mr. Justice Joyal and that relating to a Mr. Gombosh, decided by the Supreme Court) are not relevant in so far as the husband's tax liability is concerned. Those cases held that there could not be a seizure of assets before judgment. But a judgment, by certificate, against the husband has been obtained in this case.

Once a judgment has been obtained, the tax department has various means at its disposal for collecting the taxes owed. One way of collecting the debt is through garnishment proceedings under the Income Tax Act. This allows the tax department to collect the debt, by collecting money from other people who owe money to the taxpayer. Under section 224 of the Income Tax Act, the tax department can send a registered letter to someone who holds money which belongs to the taxpayer, or who is about to pay money to the taxpayer, requiring that person to pay the money instead to the tax department. While the unpaid taxes (debts) may be collected by seizing amounts from third parties (in this case, banks and tenants), which are owed to the defaulting taxpayer, it is trite law that such cannot be seized if the amounts are owed to someone else and not to the defaulting taxpayer.

The plaintiff argues that the tax department is not entitled to seize money in a joint account to satisfy the liability of one of the holders of that account (a report of a case in a newspaper and a copy of an opinion by a lawyer was tendered to support this position). The plaintiff argues that, in any event, the apartment building in question is owned 98 per cent by her; therefore, the rents should not be treated as being owed to her husband.

The approach which is being taken by the plaintiff and her husband in the written pleadings and in making oral argument before this Court involves the use of highly abusive language and intemperate invective. This is not helpful. If the plaintiff has a just legal position, it is not improved by the use of abusive language in its presentation. Indeed, that type of language, and invective can camouflage a valid legal position because one tends to assume that such language is resorted to because one does not have a good case.

In any event, I would say to the plaintiff that if the money in the joint accounts and the money spent to purchase the apartment building was in part, or largely hers, then she should pursue her claim for the return of the money that has been seized. But, if the source of those funds was her husband, if the whole scheme of putting money in joint accounts and of purchasing the apartment building jointly was designed to attempt to shelter her husband from tax liability, then her claim has little merit and is not likely to succeed. The law will not allow the mere formal existence of legal joint ownership to operate so as to preclude an investigation into the true beneficial ownership of those funds. In such a case, the non-contributing joint account holder is likely to be treated, in law, as mere trustee for the other joint account holder who will be considered the sole owner of the funds.

That having been said, it is clear that the plaintiff’s case is one which needs further examination. There is considerable doubt about exactly what the fact situation is in this case and there is some jurisprudence which indicates that the normal rule is that moneys in joint accounts cannot be seized to satisfy the liabilities of one account holder: see, Banff Park Savings & Credit Union Ltd. v. Rose; Bank of Nova Scotia, Garnishee (1982), 139 D.L.R. (3d) 764 (Alta. C.A.); Hoon v. Maloff et al.; Jarvis Construction Co. Ltd. et al., Garnishees (1964), 42 D.L.R. (2d) 770 (B.C.S.C.); Provincial Bank of Canada v. B.F.J. Food Service Ltd., Myles and Myles and Bank of Nova Scotia, Garnishee (1979), 26 N.B.R. (2d) 420 (N.B.C.A.); McDonald v. Van Gastel et al.; McDonald et al., Third Parties; Y & R (Central) Lands Ltd., Garnishee (1982), 140 D.L.R. (3d) 119 (Ont. High Ct.). But a modified view was taken in Brampton Brick Ltd. v. Vi ran Construction Ltd. et al.; Vacca v. Brampton Brick Ltd. et al. (1981), 21 C.P.C. 212 (Ont. Co. Ct.). In that case, Hawkins, Co. Ct. J. held:

I am satisfied that in all cases where a joint debt is sought to be attached an enquiry should be made by the Court into the respective rights of the joint creditors (owners) of that joint debt and that so much of that debt as is found to belong to the judgment debtor should be applied against the judgment debt.

None of these cases are tax cases and I have not been able to find any jurisprudence which expressly deals with the rules applicable to joint ownership in the context of the Income Tax Act. The above-noted jurisprudence was not raised on the motion. Counsel for the defendant merely justified the seizures by saying that section 224 of the Income Tax Act allows for such. In the absence of any thorough argument, by both sides, on the issue of the applicable legal rules, the issue is not one that can appropriately be decided by me. It is definitely one which should be addressed at trial.

The tax department has proceeded on the ground that it is entitled to seize funds in joint accounts to satisfy liabilities of one of the joint account holders. It seems to have proceeded on the basis that it is entitled to assume, in the absence of evidence to the contrary, a 50-50 per cent ownership (in this case, the department allegedly paid back to the plaintiff 50 per cent of the moneys seized from the joint accounts and from the tenants of the apartment building). [3] Also, it is clear that the procedure adopted by the tax department is such that the position it is taking, forces on the plaintiff the burden of proving that she owned more than 50 per cent of the moneys, or held more than a 50 per cent interest in the apartment building, (i.e., the moneys in question have been seized and the plaintiff has been forced to commence an action).

In light of the above, it is clearly not appropriate to strike out the plaintiff's statement of claim. With respect to the defendant's request for disclosure of documents which are in the plaintiff’s possession, the plaintiff will be given 30 days from the date of the order to which these reasons relate to produce to the defendant the agreement referred to in paragraph 3 of the statement of claim and all other relevant documentary evidence in her possession, as well as providing a list of all such documents of which she has knowledge, even though they may not be in her possession. Any such documents in support of the plaintiff's position which are not produced within this 30-day period shall not be admitted as evidence at trial, subject of course, to the trial judge’s discretion to determine otherwise.

Three additional points will be dealt with. On the motion before me the plaintiff asked if she could be represented by her husband. I refused that request because Rule 300 of the Federal Court Rules provides:

(1) Subject to paragraph (2), any person who is not under disability, whether or not he sues as a trustee or personal representative or in any other fiduciary capacity, may begin and carry on a proceeding in the Court by an attorney or solicitor or in person.

(2) Except as expressly provided by or under any enactment, a body corporate may not begin or carry on such a proceeding otherwise than by an attorney or solicitor.

[Emphasis added.]

The plaintiff's husband is not a solicitor or attorney.

On the motion the plaintiff, at one point, asked whether I would hear witnesses concerning part of her application. I declined to do so, indicating that it was not usual to hear oral testimony on motions. I think I should explain to the plaintiff that motions are preliminary proceedings, and therefore lack many of the characteristics of a trial. In a trial, oral evidence is often taken from witnesses, therefore court reporters are present to take down a verbatim transcript of that evidence proceedings. On motions, witnesses are not usually heard unless permission is sought and given beforehand for the adducing of such oral evidence; the Court is simply not prepared to receive such — there is often no court reporter in attendance. Also, as I indicated to the plaintiff, it is not the usual practice to hear witnesses at this stage of the proceedings. If it is necessary to bring evidence to the Court for the purpose of deciding a motion, this is usually done by way of written documentation, that is, by way of affidavit.

The last point to be dealt with is the plaintiff’s request that her money be returned to her because she cannot hire a lawyer to pursue her case. She argues that she is caught in a dilemma of not being able to pursue her case without the assistance of a lawyer, yet not being able to hire a lawyer because she has no money. The return of the funds is the very point in issue in the case and to order its return now would be to decide that issue without having a trial. I would indicate to the plaintiff that if she is really without financial resources, she might approach legal aid to see if such is available in her case. An order will issue in accordance with these reasons.

Order accordingly.