Tax Court of Canada Judgments

Date: 19971231

Dockets: 95-2546-UI; 95-2547-UI

BETWEEN:

ALISA DAVIES, SUE McDOWELL,

Appellants,

AND

THE MINISTER OF NATIONAL REVENUE,

Respondent,

Reasons for Judgment

Bowie, J.T.C.C.

[1] These two appeals are brought from determinations made by the Minister of National Revenue (the Minister) on September 12, 1995, pursuant to paragraph 61(3)(a) of the Unemployment Insurance Act[1] (the Act), as it was at that time. The two Appellants are sisters. They both worked for Sleep Cheap Inns of Canada Inc. (Sleep Cheap), which operated a motel known as Inn by the Falls, in Niagara Falls, Ontario. Alisa Davies was employed there from November 18, 1990 to October 11, 1991, and Sue McDowell was employed from November 18, 1990 to October 10, 1991.[2] Following their lay offs, they both applied for benefits under the Act, and both were denied, on the basis that their employment by Sleep Cheap was not insurable employment, because they were related to the employer. They each requested a determination pursuant to paragraph 61(3)(a) of the Act. The relevant part of the Minister’s determination in each case reads as follows:

It has been decided that this employment was not insurable for the following reasons: you were not dealing at arm’s length, nor were you deemed to be dealing at arm’s length, with Sleep Cheap Inns of Canada Inc. o/a Inn by the Falls.

...

The decision in this letter is issued pursuant to paragraph 61(3)(a) of the Unemployment Insurance Act and is based on paragraph 3(2)(c) of the Unemployment Insurance Act.

[2] It is from these decisions that the Appellants bring these appeals. The issues in the two appeals are identical. The Appellants assert by their Notices of Appeal that the shares of Sleep Cheap were, at the relevant time, owned by one James Courville, to whom they are not related. The Respondent’s position is that all of the outstanding voting shares of Sleep Cheap were, at the relevant time, controlled by Sam Mingle, who is the father of the Appellants. The Appellants raised no issue concerning the Minister’s exercise of his discretion under subparagraph 3(2)(c)(ii) of the Act. Both Appellants, and the Respondent, agreed at the opening of the hearing that the appeal of Sue McDowell would proceed, and that the outcome of the appeal of Alisa Davies would be determined by the result in the McDowell appeal. Sue McDowell gave evidence; Alisa Davies did not.

[3] It is not disputed that Sam Mingle is the father of the two Appellants, and that the two Appellants would therefore be related to Sleep Cheap if he controlled that corporation.[3] Sue McDowell, in her evidence, said that during the period of employment the motel was managed by James Courville, and a lease was introduced into evidence whereby the motel premises were leased by the owner, 335381 Ontario Ltd., to Sleep Cheap Inns of Canada Inc., for a three-year period beginning January 1, 1990, and ending December 31, 1992. Sue McDowell identified the signature on behalf of the lessor as being that of her father, and on behalf of the lessee as being that of James Courville. Counsel for the Respondent challenged the validity of this document, unsuccessfully. She also suggested in cross-examination that James Courville was a fiction invented to further what could only be described as a fraud by the Appellants against the unemployment insurance fund.

[4] I was not impressed by the evidence of Ms. McDowell. She was all too willing to give self-serving evidence as to matters that were not within her personal knowledge whenever the opportunity arose. She also had considerable lapses of memory as to relevant matters which I would expect her to remember, notwithstanding that some six years had passed since the end of the period of employment. Much of her evidence as to contested matters was given in response to leading questions. I did not find her evidence to be at all satisfactory, and I would not rely on it. That said, a careful examination of her evidence reveals that she did not at any point give evidence which, if believed, would lead to the conclusion that James Courville owned the shares of Sleep Cheap, or that her father did not own them. Her evidence-in-chief was directed to describing how James Courville lived at the motel and supervised the staff, herself included. As to his relationship with Sleep Cheap, she said in cross-examination:

Q. And what was his relationship with Sleep Cheap Inns?

A. He leased it or he owned Sleep Cheap. He leased the motel.

Q. How do you know he owned Sleep Cheap?

A. It’s on this document. I wasn’t there.

Q. Well, with respect, it’s not on that document. I want to know how you know. Is that all you are basing your knowledge on is that document?

A. Are you asking me did he prove to me that he owned that company. I didn’t ask for proof of that.

Q. What I am asking for you is what you are basing your evidence on that Mr. Courville owned Sleep Cheap Inn?

A. By him saying it.

Q. He told you that, did he?

A. By him representing it. I can’t say that I had a specific conversation with him about it but I didn’t know him to misrepresent himself.

Q. How did he represent to you that he owned the company?

A. I don’t know. I don’t know. I don’t remember. It’s seven years. I don’t remember a specific conversation or I just knew him to be that. I don’t have a recollection of all those details.

Q. Well, you have a pretty good recollection of what he did.

A. Well, he was around all the time. He acted in a normal supervisory capacity just like any normal supervisory capacity would act.

Q. How do you know he wasn’t a paid general manager?

A. I don’t know. That wasn’t my job to know that.

Q. So you don’t really know whether Mr. Courville owned the company?

A. Did he provide me personally with documentation saying he owned it, no, but he was under no obligation to do that.

Q. Well, let’s go back then. On what basis did you conclude that he owned the company?

A. I don’t know. I don’t know.

Q. You don’t know?

A. It’s seven years ago. I don’t recall that.

Q. So you saw no documents that would suggest that to you?

A. Well, the lease.

[Transcript pages 27-29]

[5] However, the signature of Mr. Courville on the lease does not speak at all to the question of share ownership. As she admitted, her evidence was consistent with him being simply a paid manager, rather than an owner. Later in her cross-examination, it became clear that she had no knowledge at all as to the ownership of the shares of Sleep Cheap:

Q. Do you know whether your father ever owned Sleep Cheap Inns?

A. Not to my knowledge. I have no idea.

Q. Do you know who incorporated the company?

A. No.

Q. Do you know when it was incorporated?

A. No.

Q. Do you know who the shareholders are?

A. No.

Q. Do you know anything about that company other than you say that was your employer during the period that’s under appeal here?

A. No.

Q. So you don’t know who the directors were?

A. No.

Q. Your father never indicated to you that he was the president of that company?

A. No.

Q. Or the secretary?

A. No.

Q. Treasurer?

A. No.

Q. The only director?

A. No. I don’t find that an interesting dinner conversation. It’s not something that was discussed.

[Transcript pages 63-64]

[6] The Appellants have totally failed to rebut the Minister’s assumption, set out in subparagraph 4(b) of the Reply to the Notice of Appeal in each appeal, which reads:

4. In making his decision the Respondent relied on the following facts:

...

(b) during the period in question the Appellant’s father, Sam Mingle, controlled all of the Payor’s [Sleep Cheap] outstanding voting shares;

[7] Two witnesses were called by the Respondent, neither of whom was able to offer any admissible evidence going to the issue of the ownership of the shares of Sleep Cheap. I was told that Mr. Mingle was out of the country on the day of the hearing, but that he was expected back the following day. I expressed willingness to allow the Appellants to re-open their case to call him, if they wished. The Appellants did not avail themselves of this offer. Mr. Courville did not testify, and Ms. McDowell stated in her evidence that she believed him to be deceased.

[8] In argument Mr. Ungaro took the position that the Respondent had the onus of proof with respect to the issue of ownership of the controlling interest in Sleep Cheap. Neither party was in a position to cite authority for or against the proposition that the decision of the Supreme Court of Canada in Johnston v. M.N.R.,[4] which deals with the onus of proof in income tax cases, applies with equal force in appeals arising under the Act. I therefore directed that written argument be filed on that point, and that has now been done.

[9] Mr. Ungaro, for the Appellants, takes the position that the judgment in Johnston, so far as it deals with the question of the onus of proof, depends entirely on the specific wording of section 58 of the Income War Tax Act.[5] Subsequent judgments make it clear that this is not so, and that the burden of disproving the assumptions which underlie an assessment is borne by the taxpayer under the present Income Tax Act.[6]

[10] Mr. Ungaro went on to argue that:

c) The Federal Government does not have the requisite authority to effect the civil rights of a person in Ontario and therefore cannot change the rules of civil procedure in Ontario, even if the wording in any federal act can be interpreted as giving the Federal Government the right to make factual statements binding on the court.

Constitution Act 1867 (Also known as the BNA Act 1949) Section 92(13) “property and civil rights in the province”, (compare this to section 91 (27) which gives the power of criminal law to the Federal Government and includes specifically the procedure in criminal matters)

[11] If this submission is intended to mean that the rules of procedure and the law of evidence before this Court must necessarily conform to that which pertains in the courts of the province where the proceedings take place, then there are two short answers to it. The first is that the rules governing the onus of proof in matters relating to income tax, are not the product of legislation, primary or delegated, but of the decisions of the Supreme Court of Canada over most of this century, beginning with Anderson Logging Company v. The King[7] and ending with Hickman Motors. The second answer, of course, is that Parliament has exclusive jurisdiction over the subject matter, by reason of the Constitution Act, 1867, section 91, head 3, and section 101. Similarly, it has jurisdiction over unemployment insurance by reason of section 91 head 2A.

[12] There remains the question whether the rule in Johnston applies with equal force to proceedings by way of appeal under the Act. This question was addressed by Archambault, J. of this Court in Lemieux v. Canada.[8] At paragraphs 20-21 he said:

The principles stated by the Supreme Court in Johnston, supra, apply, in my view, in the contesting of a decision on the insurability of an employment for the purposes of the Act. In carrying out the duty which the Act imposes on him, the respondent must determine whether or not an appellant holds insurable employment during a given period. Before rendering his decision, the respondent, pursuant to subsection 61(4) of the Act, must notify the appellant, his employer and the Canada Employment and Immigration Commission in order to afford them the opportunity to provide information and to present observations in order to protect their interests. Once the decision has been communicated, the appellant has the right to institute an appeal before this Court. As may be seen, this procedure is similar to that followed by a taxpayer who disputes an income tax assessment made by the respondent. I therefore see no reason not to apply the reasoning and principles stated by the Supreme Court of Canada in Johnston, supra, to an attack before this Court of a decision by the respondent on the insurability of an employment.

An appellant may successfully contest the respondent’s decision if he shows that the facts on which the respondent relied in order to make his decision were incorrect or that his interpretation of the Act was without foundation. For an appellant to be able to discharge this burden of proof, it is important that he know precisely the facts on which the respondent relied in order to make his decision. It is for this reason that the respondent must state them in his Reply to the Notice of Appeal.

[13] I agree with and adopt that reasoning. I note also that the same principle has been found to apply in at least three cases before this Court,[9] and in at least three appeals before the Federal Court of Appeal,[10] although in none of them was the point given more than cursory consideration. I find myself, therefore, in the position that there is no satisfactory evidence, indeed no evidence at all, before me to rebut the Minister’s assumption as to the only issue in these cases, and I am therefore bound[11] to dismiss the appeals.

Signed at Ottawa, Canada, this 31st day of December, 1997.

"E.A Bowie"

J.T.C.C.

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