Date: 20020916
Docket: A-229-02
Neutral citation: 2002 FCA 334
Present: THE HONOURABLE JUSTICE SHARLOW
BETWEEN:
RON S. SOURANI
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Dealt with in writing without appearance of parties.
Order delivered at Ottawa, Ontario on September 16, 2002.
REASONS FOR ORDER BY: SHARLOW J.A.
Date: 20020916
Docket: A-229-02
Neutral citation: 2002 FCA 334
Present: THE HONOURABLE JUSTICE SHARLOW
BETWEEN:
RON S. SOURANI
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR ORDER
[1] This is a motion to settle the contents of the appeal book. The proceedings have taken such an unusual course that I consider it necessary to state the background facts in some detail.
[2] The appellant Ron Sourani, in filing his income tax return for 1983 under the Income Tax Act, R.S.C. 1985 (5th supp.), c. 1, claimed deductions for certain losses. The Crown assessed Mr. Sourani on the basis that the losses were not deductible. In 1991, Mr. Sourani appealed the reassessment to the Tax Court of Canada (Tax Court File 91-2631(IT)G).
[3] Mr. Sourani's Tax Court appeal was one of approximately 300 relating to similar transactions planned by J.K. Maguire & Associates and facilitated at least in part by the brokerage firm of Nesbitt Thomson Bongard Inc. All or substantially all of the appellants, including Mr. Sourani, were represented by one lawyer, Mr. Zaldin.
[4] It appears that the Maguire transactions were of two varieties. One has come to be referred to as the "investment club strategy" and the other as the "convertible hedging strategy". For present purposes it is not necessary to understand the details of these transactions. It is enough to say that their object was to create transactions resulting in offsetting gains and losses. Apparently, it was thought or hoped that this would permit income splitting (the gains would be attributed to a low income taxpayer while the offsetting losses would be attributed to a related high income taxpayer), or would permit the gains to be treated as only partially taxable (as capital gains) while the losses would be fully deductible. Perhaps it was hoped that both results could be achieved.
[5] Of the 300 Tax Court appeals relating to the Maguire transactions, some involved only the "investment club strategy". They came to be known as "investment club appeals". As will be seen from the comments below, Mr. Sourani's appeal apparently falls into that category.
[6] Most of the 300 Tax Court appeals dealt with both the "investment club strategy" and the "convertible hedging strategy". They came to be known as "hybrid appeals".
[7] The appeals of two of the appellants, Lois Schultz and Thomas Schultz, which were "hybrid appeals", were heard in 1993 by Judge Beaubier of the Tax Court. He dismissed the appeals except for one relatively minor point: Schultz v. Canada, [1993] 2 C.T.C. 2409, 93 D.T.C. 953 (T.C.C.).
[8] Schultz involved appeals of income tax assessments for the taxation years 1983 to 1987. For 1983, the income splitting objective was sought by means of the "investment club strategy". Judge Beaubier found that there were no investment clubs, and the appeals for that year were dismissed.
[9] For the remaining years in issue in Schultz, the income splitting objective was sought by means of the "convertible hedging strategy". Lois and Thomas Schultz had been reassessed for those years on the basis that Lois Schultz was the agent of Thomas Schultz. The result was that both the gains and losses from these transactions were attributed to Thomas Schultz for income tax purposes, thus defeating the income splitting objective.
[10] In the Tax Court, the Crown defended the reassessments on the basis of its agency theory, and also argued in the alternative that the gains and losses were derived from a partnership between Lois Schultz and Thomas Schultz. That argument, if successful, would defeat the income splitting objective, because both the gains and losses would be divided between Lois Schultz and Thomas Schultz. Judge Beaubier accepted the Crown's alternative argument. He also held, in favour of Lois Schultz, that the Crown was obliged to recognize a subsection 39(4) election filed by her, so that her share of the gains and losses were treated as capital gains.
[11] One of the legal arguments raised in support of the appeal in Schultz was that the reassessments should be vacated because the Minister had failed to deal with the notices of objection with due dispatch, as required by subsection 165(3) of the Income Tax Act. Judge Beaubier found that the Minister had in fact acted with due dispatch.
[12] Lois Schultz and Thomas Schultz appealed to the Federal Court of Appeal on the basis that Judge Beaubier erred in permitting the Crown to assert an alternative argument in support of the reassessments, in finding that a partnership existed, and in finding that the Minister had dealt with the objections with due dispatch. The Crown cross-appealed on the basis that the subsection 39(4) election filed by Lois Schultz should not be recognized.
[13] The appeals by Lois and Thomas Schultz were dismissed and the Crown's cross-appeal was allowed: Schultz v. Canada, [1996] 1 F.C. 423, (1995), 189 N.R. 284, [1996] 2 C.T.C. 127, 95 D.T.C. 5657 (F.C.A.). Leave to appeal to the Supreme Court of Canada was refused on May 23, 1996 (S.C.C. File 25068; S.C.C. Bulletin, 1996, p. 904).
[14] While the Schultz appeals and cross-appeals were pending in this court, counsel for the Crown and Mr. Zaldin entered into agreements dated April 28, 1995 and May 25, 1995 that were apparently intended to settle many of the issues in the 300 appeals on the basis of the outcome in Schultz. Once the Schultz appeals were finally concluded, the Crown made a motion in the Tax Court, based on the agreements dated April 28, 1995 and May 25, 1995, to dismiss all of the 300 appeals. In an order dated February 4, 1997, Judge Rip allowed the motion in part. All of the "investment club" appeals, including the appeal of Mr. Sourani, were dismissed: Rivers v. Canada, [1997] 2 C.T.C. 2318, 97 D.T.C. 175 (T.C.C.).
[15] Mr. Sourani, this time representing himself, appealed to this court (Court File A-177-97). On June 4, 2001, his appeal was allowed on the basis of a lack of procedural fairness, and the matter was remitted to a different judge of the Tax Court for redetermination: Sourani v. Canada (sub. nom. Rivers v. Canada) (2001), N.R. 226, [2001] 3 C.T.C. 197, 2001 D.T.C. 5393 (F.C.A.). The new proceedings in the Tax Court were to be guided by this passage in the reasons for judgment (paragraphs 3 to 7):
| [3] For the guidance of the Tax Court, I would make the following observations. Mr. Sourani argued before us that the counsel who acted for him in the Tax Court proceedings did so without his authority. He made this argument because of written agreements dated April 28, 1995 and May 25, 1995 between his counsel and counsel for the Minister which deal with a number of appeals including his own, which limited the scope of matters which could be argued in his Tax Court appeal. Mr. Sourani says that his lawyer made these agreements without his authority. |
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[4] In this appeal, Mr. Sourani conceded that he reviewed and authorized the filing of a Notice of Appeal in the Tax Court of Canada on his behalf. A lawyer is a client's authorized agent in all matters that may reasonably be expected to arise for decision in the particular proceeding for which he has been retained. Mr. Sourani authorized the filing of a Notice of Appeal and the lawyer that did so must be taken to have had the authority to make agreements and compromises in the litigation that followed from the filing of the Notice of Appeal. As between Mr. Sourani and his lawyer, there may have been a limitation on the lawyer's authority, but that was not binding on the Tax Court Judge or counsel for the Minister who had no knowledge of any such limitation (Scherer v. Paletta, [1966] 2 O.R. 524, at 526-527 (C.A.)). |
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[5] Had any want of authority been raised before the Tax Court Judge, he could have refused to proceed on the agreements. Indeed, in this case the Tax Court Judge did inquire as to whether Mr. Sourani's lawyer had authority to sign the agreements and was assured by counsel that he did. |
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[6] Mr. Sourani's counsel had the ostensible authority to sign the agreements dated April 28, 1995 and May 25, 1995. Mr. Sourani is accordingly bound by those agreements and the authority of his lawyer to enter into them is not an issue for redetermination by the Tax Court. I make no comment on whether Mr. Sourani may have recourse against his counsel in any other forum. |
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[7] Mr. Sourani's appeal is an 'Investment Club' appeal. Proceedings on redetermination by the Tax Court shall be limited to the matters raised in the Minister's motion for judgment in the Tax Court dated July 5, 1996, as they pertain to Investment Club appeals. |
[16] The matter was assigned to Judge Mogan. He dealt anew with the Crown's motion to dismiss Mr. Sourani's appeal, subject to the "guidance" quoted above. He also had before him a motion by Mr. Sourani for an order requiring the disclosure of certain documents. In a decision dated April 3, 2002, Judge Mogan allowed the Crown's motion, dismissed Mr. Sourani's appeal, and dismissed Mr. Sourani's motion for disclosure: Sourani v. Canada, [2002] 2 C.T.C. 2967, 2002 D.T.C. 1529.
[17] According to Judge Mogan's interpretation of the agreement dated April 28, 1995, the grounds of appeal in the "investment club appeals" (including the appeal of Mr. Sourani) was limited to the question of whether the Minister had acted with due dispatch and if not, the consequences of the Minister having failed to act with due dispatch. According to Judge Mogan's interpretation of the agreement dated May 25, 1995, the appellants in the "investment club appeals" (including Mr. Sourani) had agreed to accept the ultimate decision of this court in Schultz concerning the "due dispatch" issue. Judge Mogan concluded, in light of the decision of this Court in Schultz in relation to the "due dispatch" issue, that Mr. Sourani's appeal could not succeed on that issue. He also concluded that as there were no other issues that could be raised in light of the April 28, 1995 and May 25, 1995 agreements, there was nothing left of Mr. Sourani's appeal.
[18] Mr. Sourani's appeal from the decision of Judge Mogan is the subject of this proceeding. There are several grounds of appeal. I will not attempt to summarize them in detail. It is sufficient for present purposes to say that Mr. Sourani alleges that Judge Mogan erred in characterizing Schultz as a "test case", in interpreting the May 25, 1995 agreement as he did, in concluding that the June 4, 2001 decision of this court required his appeal to be limited to the "due dispatch" issue, and in failing to deal with his motion for production of documents before dealing with the Crown's motion to dismiss.
[19] As indicated above, the parties have not been able to agree on the contents of the appeal book, and it falls to me to settle the question. According to Rule 344(1), the appeal book should contain the following:
| (a) a table of contents describing each document; |
a) une table des matières désignant chaque document; |
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(b) the notice of appeal and any notice of cross-appeal; |
b) l'avis d'appel et, le cas échéant, l'avis d'appel incident; |
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(c) the order appealed from, as signed and entered, and any reasons therefor; |
c) l'ordonnance portée en appel, telle qu'elle a été signée et inscrite et, s'il y a lieu, les motifs de l'ordonnance; |
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(d) the originating document, any other pleadings and any other document in the first instance that defines the issues in the appeal; |
d) l'acte introductif d'instance, les autres actes de procédure et tout autre document déposé dans la première instance qui définit les questions en litige dans l'appel; |
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(e) subject to subsection (2), all documents, exhibits and transcripts agreed on under subsection 343(1) or ordered to be included on a motion under subsection 343(3); |
e) sous réserve du paragraphe (2), les documents, pièces et transcriptions énumérés dans l'entente visée au paragraphe 343(1) ou dans l'ordonnance qui en tient lieu; |
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(f) any order made in respect of the conduct of the appeal; |
f) toute ordonnance relative au déroulement de l'appel; |
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(g) any other document relevant to the appeal; |
g) tout autre document pertinent; |
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(h) an agreement reached under subsection 343(1) as to the contents of the appeal book or an order made under subsection 343(3); and |
h) l'entente visée au paragraphe 343(1) ou l'ordonnance qui en tient lieu; |
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(i) a certificate in Form 344, signed by the appellant's solicitor, stating that the contents of the appeal book are complete and legible. |
i) le certificat établi selon la formule 344, signé par l'avocat de l'appelant et attestant que le contenu du dossier d'appel est complet et lisible. |
[20] This must be read in conjunction with Rule 351, which provides that evidence cannot be presented on an appeal without leave. Without an order under Rule 351, this court cannot consider any evidence that was not before the judge who made the order under appeal, or that is not part of the record of the matter in this court or the court below. Mr. Sourani has made no motion for an order under Rule 351.
[21] It is not disputed that the appeal book should contain the following:
1. Notice of appeal in Court File A-229-02 (Sourani document #1, Crown document #1).
2. Order and reasons for order of The Honourable Judge M.A. Mogan dated April 3, 2002 in Tax Court File No. 91-2631(IT)G (Sourani document #2, Crown document #2).
3. Notice of appeal filed December 19, 1991 in Tax Court File No. 91-2631(IT)G (Sourani document #3, Crown document #3).
4. Reply to notice of appeal filed February 28, 1992 in Tax Court File No. 91-2631(IT)G (Sourani document #4, Crown document #4).
5. Agreement of counsel dated April 28, 1995 (Sourani document #6, Crown document #5).
6. Memorandum of counsel dated May 25, 1995 (Sourani document #7, Crown document #6).
7. Respondent's Notice of Motion dated July 5, 1996 (motion to dismiss) (Sourani document #8, Crown document #7).
8. Affidavit of Nancy Arnold dated July 5, 1996 (Crown document #8).
9. Order and reasons for order of Judge Rip dated February 4, 1997 (Sourani document #9, Crown document #9).
10. Judgment and reasons for judgment of the Federal Court of Appeal dated June 4, 2001 (A-177-97) (Sourani document #13 , Crown document #10).
11. Respondent's Notice of Return of Motion dated December 20, 2001 (Sourani document #27, Crown document #11).
12. Respondent's Memorandum of Fact and Law dated December 20, 2001 (Sourani document #27, Crown document #12).
13. Appellant's Notice of Motion dated February 20, 2002 (production of documents) (Sourani document #14, Crown document #13).
14. Affidavit of Ron Sourani dated February 20, 2002 (Sourani document #14, Crown document #14).
15. Appellant's Response to Respondent's Motion, dated March 8, 2002 (Sourani document #28, Crown document #15).
16. Order of this Court under Rule 343(3) (Crown document #16).
[22] Mr. Sourani wishes to include a number of additional documents which I will refer to as the "disputed documents". The Crown objects on the basis that the disputed documents were not before Judge Mogan when he made the decision under appeal, and are not relevant to the issues under appeal.
[23] Neither party has submitted an affidavit as to which of these documents, if any, were before Judge Mogan, as they should have done. Normally, such an omission would justify dismissing the motion. However, in the interest of moving this matter forward, I propose to simply draw whatever inferences seem appropriate on this point, resolving any doubts in favour of Mr. Sourani so as to minimize the risk of relevant material being incorrectly left out of the appeal book.
[24] Generally, the threshold for relevance in a motion of this kind is low because it is difficult to determine the relevance of material based only on a notice of appeal and the submissions of the parties. Again, I propose to resolve any doubts on this point in favour of Mr. Sourani.
[25] I would also note that this appeal relates, not only to the issue of whether Judge Mogan was correct to dismiss Mr. Sourani's appeal, but also whether he was correct to dismiss Mr. Sourani's motion for production of documents. It must be borne in mind that some of the material that Mr. Sourani wishes to include in the appeal book may be relevant only to the latter.
[26] Finally, I would note that even if every disputed document were included in the appeal book, the result would not be particularly voluminous.
[27] With the foregoing considerations in mind, I will consider each of the disputed documents. It is convenient to group them into four categories: (a) various court orders and reasons, (b) excerpts from transcripts and a submission by Mr. Zaldin to the Tax Court in Rivers, (c) excerpts from transcripts in Schultz, (d) correspondence to or from J.K. Maguire & Associates or Nesbitt Thomson Bongard Inc., and rules of the Dealers/Brokers Association. I will deal with each category in turn.
(a) Various court orders and reasons
[28] Having reviewed carefully Judge Mogan's reasons for decision, the disputed documents in this category probably were before Judge Mogan in some form or another. As they appear to comprise part of the litigation history in this matter, I cannot conclude that they are irrelevant. They may be included in the appeal book:
1. Order of Judge Bonner in Rivers v. Her Majesty the Queen dated August 18, 1994 (Sourani document #5).
2. Order of the Federal Court of Appeal adjourning the hearing in Sourani v. Her Majesty the Queen (A-177-97) (Sourani document #10).
3. Decision of the Federal Court of Appeal in Vasiga v. Her Majesty the Queen (A-185-97) (Sourani document #11).
4. Decision of the Federal Court of Appeal in Zaldin v Her Majesty the Queen (A-162-97) (Sourani document #12).
(b) Excerpts from transcripts and a submission by Mr. Zaldin to the Tax Court in Rivers
[29] The decision of the Tax Court that is referred to as Rivers was in fact a decision relating to all 300 hundred appeals, including the appeal of Mr. Sourani. The evidence and submissions in Rivers may have been before Judge Mogan and in any event are part of the litigation history, and thus may be relevant. On that basis, the following documents may be included in the appeal book:
1. Excerpts from transcript in Jean G. Beale and Claudine Y. Kennedy v. Her Majesty the Queen, June 27, 1994 (this is an appeal included in Rivers) (Sourani document #23).
2. Excerpt from transcript of Status Hearing in Rivers, June 30, 1994 (Sourani document #24).
3. Excerpt from Zaldin submission dated August 15, 1996 (Rivers) (Sourani document #25).
(c) Excerpts from transcripts in Schultz
[30] As explained above, the Schultz case is part of the litigation history of this matter. They may have been before Judge Mogan, and they may be relevant in so far as they refer to documents that might be or might at one time have been in the Crown's possession. They may be included in the appeal book:
1. Excerpt from transcript of cross-examination of Mr. Maguire by Mr. Olsson (Sourani document #17).
2. Excerpt from transcript relating to scheduling of witness Peter McCrodan (Sourani document #18).
3. Excerpt from examination of Peter McCrodan by Mr. Olsson (Sourani document #19).
4. Excerpt from cross-examination of Peter McCrodan by Mr. Zaldin (Sourani document #20).
5. Excerpt from examination of Mr. Salutin by Mr. Olsson (Sourani document #21).
6. Excerpt from cross-examination of Mr. Salutin by Mr. Zaldin (Sourani document #22).
(d) Correspondence to or from J.K. Maguire & Associates or Nesbitt Thomson Bongard Inc., and rules of the Dealers/Brokers Association
[31] Despite giving Mr. Sourani the benefit of every doubt, I cannot conclude that any of these documents were before Judge Mogan as part of the record in Schultz, Rivers or any related appeal, including Mr. Sourani's appeal. These documents should not be included in the appeal book:
1. Letter dated May 27, 1988 from Larry Pringle to Peter McCrodan, John Casey and Alan Snowden (Sourani document #15).
2. Letter dated June 8, 1988 from Peter McCrodan to J.K. Maguire and Associates (Sourani document #16).
3. Cardinal rules and other rules of the Dealers/Brokers Association (Sourani document #26).
[32] The parties will bear their own costs of this motion.
"K. Sharlow"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-229-02
STYLE OF CAUSE: RON S. SOURANI AND HER MAJESTY THE QUEEN
DEALT WITH IN WRITING WITHOUT THE APPEARANCE OF PARTIES
REASONS FOR ORDER BY: The Honourable Justice Sharlow
DATED: September 16, 2002
WRITTEN REPRESENTATIONS BY:
Ron S. Sourani For the Appellant
(On his own behalf)
H. Annette Evans For the Respondent
SOLICITORS OF RECORD:
Ron S. Sourani For the Appellant
Don Mills, Ontario (On his own behalf)
Morris Rosenberg For the Respondent
Deputy Attorney General
Department of Justice