Date: 19990216
Docket: 97-753-UI
BETWEEN:
CARYL NEGRI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
DIAMOND AUTO COLLISION INC.,
Intervenor.
Reasons for judgment
Porter, D.J.T.C.C.
[1] This appeal was heard at Toronto, Ontario, on October 22, 1998.
[2] The Appellant appeals the determination of the Minister of National Revenue (the "Minister") dated February 6, 1997 that her employment with Diamond Auto Collision Inc. (the "Company") from August 1, 1995 to January 12, 1996 was not insurable employment under the Unemployment Insurance Act (hereinafter referred to as the "Act"). The reason given for the determination was that:
"... your employment was excepted from insurable employment because you were not dealing at arm's length nor were you deemed to be dealing at arm's length with Diamond Auto Collision Inc."
[3] The established facts reveal that the Appellant is the sister–in-law of Gregorio Pannia who at the material times owned all the outstanding shares of the Company. Thus, pursuant to section 3 of the Act and subsection 251(1) of the Income Tax Act, as related persons they are in law deemed not to deal with each other at arm's length. Accordingly the employment in question is, subject to the exception contained in subparagraph 3(2)(c)(ii) of the Act, categorized as "excepted employment", that is to say it is not employment which triggers the payment of unemployment insurance benefits upon its termination. The Minister has determined that the employment does not fall within the exception and the Appellant has appealed that decision.
The Law
[4] In the scheme established under the Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is "excepted" and thus carrying no benefits upon termination. Employment arrangements made between persons, who are not dealing with each other at arm's length, are categorized as "excepted employment". Brothers and sisters-in-law are deemed not to be dealing with each other at arm's length pursuant to subsection 251(1) of the Income Tax Act, which governs the situation. Quite clearly the purpose of this legislation is to safeguard the system from having to pay out a multitude of benefits based on artificial or fictitious employment arrangements.
[5] The harshness of this situation has however been tempered by subparagraph 3(2)(c)(ii) of the Act, which provides for such employment between related persons to be deemed to be at arm's length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied having regard to all the circumstances (including those items that are set out) that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm's length. It may be helpful to reframe my understanding of this section. For people related to each other the gate is closed by the Act to any claim for insurance benefits unless the Minister can be satisfied that in effect the employment arrangement is the same as that which unrelated persons, that is persons who are clearly at arm's length, would have made. If it is a substantially similar contract of employment, Parliament has deemed it to be only fair that it should be included in the scheme. However the Minister is the gatekeeper. Unless he is so satisfied the gate remains closed and the employment remains excepted and the employee is not eligible for benefits.
[6] Section 61 of the Act deals with appeals to and determination of questions by the Minister. Subsection 61(6) requires that:
"... the Minister shall, with all due despatch, determine the question raised by the application ..."
[7] Thus the Minister has no discretion whether or not to decide the question. He is required by law to do so. If he is not satisfied, the gate remains closed and the employee is not eligible. If however he is satisfied, without more ado or any action on the part of the Minister (other than notification of the decision) the employee becomes eligible for benefits, provided he is otherwise qualified. It is not a discretionary power in the sense that if the Minister is satisfied he may then deem the employment to be insurable. He must "determine the question" and depending on that determination the law deems the employment to be either at arm's length or not at arm's length. In this sense the Minister has no discretion to exercise in the true sense of the word, for in making his decision he must act quasi-judicially and is not free to chose as he pleases. The various decisions of the Federal Court of Appeal on this issue reveal that the same test applies as to a myriad of other officials making quasi-judicial decisions in many different fields. See Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen and Bayside Drive-in Ltd., (1997) 218 N.R. 150.
[8] The function of this Court then, upon appeal, is to review the decision of the Minister and decide whether it was arrived at lawfully that is in accordance with the Act and with the principles of natural justice. In the case Her Majesty the Queen v Bayside et al., supra, the Federal Court of Appeal laid out certain matters which should be considered by this Court when hearing these appeals. These were: (i) whether the Minister acted in bad faith or for an improper purpose or motive, (ii) whether the Minister failed to take into account all of the relevant circumstances as especially required by subparagraph 3(2)(c)(ii) or (iii) whether the Minister took into account an irrelevant factor.
[9] The Court went on to say:
"It is only if the Minister made one or more of these reviewable errors that it can be said that his discretion was exercised in a manner contrary to law and ... the Tax Court judge would be justified in conducting his own assessment on the balance of probabilities as to whether the respondents would have entered into substantially similar contracts of service, if they had been at arm's length"
[10] It was argued that the stated facts upon which the Minister relied were in many cases wrong or misapprehended and that he did not have all the facts at hand. Again I remind myself, when reviewing these submissions, that it is not for this Court to substitute its opinion of the evidence for that of the Minister. However, if his or her manner of arriving at the decision was unlawful in the context of the judgments set out above, those affected parts of the stated facts may be disregarded and I must then consider whether that which is left affords justifiable grounds for the decision. If those grounds, standing alone, are sufficient for the Minister to form a decision, albeit that the Court may not agree with it, the decision must stand. If on the other hand there is no basis left upon which the Minister might lawfully make such a decision, from an objective and reasonable point of view, then such decision may be struck down and the Court can consider the evidence before it on appeal and make its own decision. Similarly if the Minister failed to take into account relevant facts that he should have taken into account and the decision is not sustainable from a reasonable and objective point of view in light of those facts, the Court may again interfere.
[11] In summary then, if there are sufficient facts before the Minister for his decision, it is his or her determination to make and if he or she is "not satisfied" it is not for this Court to substitute its view of those facts and say he or she should have been satisfied. Similarly, if he or she was satisfied it is not for this Court to substitute its view that he or she should not have been satisfied (an unlikely scenario in any event). Only if the decision is reached in an improper manner and it is unreasonable, from an objective point of view, on the basis of the facts which were properly or should properly have been before the Minister, may the Court interfere.
[12] I am fortified in this approach by a number of decisions of various Courts of Appeal across the country and the Supreme Court of Canada in related decisions concerning the issue of various processes under the Criminal Code, which subsequently came to be reviewed by the Courts and are in my view analogous to the present situation. The standard of review of the validity of a search warrant was set out by Cory, J.A. (as he then was) in Times Square Book Store, Re (1985) 21 C.C.C. (3d) 503 (C.A.), where he said that it was not the role of the reviewing judge to look at or consider the authorization of a search warrant de novo and it was not open to the reviewing judge to substitute his or her own opinion for that of the issuing judge. Rather, on review, the first issue to be decided was whether or not there was evidence upon which a justice of the peace, acting judicially, could determine that a search warrant should be issued.
[13] The Ontario Court of Appeal reiterated and expanded upon this point of view in R. v. Church of Scientology of Toronto and Zaharia (1987) 31 C.C.C. (3d) 449 C.A. leave to appeal refused. In suggesting that the reviewing Court look at the "totality of the circumstances" the Court said at 492:
"Obviously if there is not such evidence to provide a basis for such a belief (that a criminal offence had been committed) it cannot be said that in those circumstances the justice should be satisfied. There will, however, be cases where such evidence (showing reasonable grounds) does exist and the justice could be satisfied but where he or she is not satisfied and does not exercise his or her discretion in favor of issuing a search warrant. In these circumstances, the reviewing judge must not say that the justice should have been satisfied and should have issued the warrant. Similarly, if the justice in such circumstances says that he or she is satisfied and issues the warrant, the reviewing judge must not say that the justice should not have been so satisfied."
[14] The Supreme Court of Canada endorsed this approach in R. v. Garofoli (1990) 2 S.C.R. 1421. The late Mr. Justice Sopinka, when dealing with the review of the issue of an authorization to wiretap, then said:
"..While a judge exercising this relatively new power need not comply with the Wilson criteria, he should not review the authorization de novo. The correct approach is set out in the reasons of Martin J.A. in this appeal. He states...
If the trial judge concludes that, on the material before the authorizing judge, there was no basis upon which he could be satisfied that the pre-conditions for the granting of the authorisation exist, then, it seems to me that the trial judge is required to find that the search or seizure contravened s. 8 of the Charter.
The reviewing judge does not substitute his or her view for that of the authorizing judge. If, based on the record which was before the authorizing judge as amplified on the review, the reviewing judge concludes that the authorizing judge could have granted the authorization, then he or she should not interfere. In this process, the existence of fraud, non-disclosure, misleading evidence and new evidence are all relevant, but, rather than being a prerequisite to review, their sole impact is to determine whether there continues to be any basis for the decision of the authorizing judge."
[15] This approach appears to have been adopted by almost every appellate court in the country. (See R. v. Jackson (1983) 9 C.C.C. (3d) 125 (B.C. C.A.); R. v. Conrad et al. (1989) 99 A.R. 197; 79 Alta. L.R.; (2d) 307; 51 C.C.C. (3d) 311 (C.A.); Hudon v. R. (1989) 74 Sask. R. 204 (C.A.); and R. v. Turcotte (1988) 60 Sask. R. 289; 39 C.C.C. (3d) 193 (C.A.); R. v. Borowski (1990) 66 Man. R. (2d) 49; 57 C.C.C. (3d) 87 (C.A.); Bâtiments Fafard Inc. et autres c. Canada et autres (1991) 41 Q.A.C. 254 (C.A.); Société Radio-Canada v. Nouveau-Brunswick (Procureur général) et autres (1991) 104 N.B.R. (2d) 1; 261 A.P.R. 1; 55 C.C.C. (3d) 133 (C.A.); R. v. Carroll and Barker (1989) 88 N.S.R. (2d) 165; 225 A.P.R. 165; 47 C.C.C. (3d) 263 (C.A.); R. v. MacFarlane (K.R.) (1993) 100 Nfld. & P.E.I.R. 302; 318 A.P.R. 302; 76 C.C.C. (3d) 54 (P.E.I. C.A.). It seems to me most relevant to a review of the Minister's determination, which is itself a quasi-judicial decision.
Stage 1 - Analysis of the Minister's decision
[16] I turn now to consider in detail how the Appellant challenges the decision of the Minister. The facts upon which the Minister was said to rely are set out in the Reply to the Notice of Appeal. They read as follows:
"(a) the Payor incorporated on March 6, 1987;
(b) the Payor's business is an automobile repair shop and towing operations;
(c) the Payor's sole shareholder is Gregorio (Greg) Pannia;
(d) the Appellant is the shareholder's sister-in-law;
(e) the Appellant was hired as an assistant to the office administrator, Lori Pannia, the Appellant's sister;
(f) the Appellant's duties were the collection of tow call run sheets from drivers and matching them with tow calls requested by the different associations, private tow calls and accident tow calls and the performance of various office work;
(g) the Appellant's rate of pay was established at $650.00 per week regardless the hours worked;
(h) the Appellant worked 28 to 30 hours a week;
(i) the approximate wage rate of $22.00 an hour is excessive for this type of work;
(j) the excessive salary is inconsistent with an arm's length contract of employment;
(k) the Appellant gave birth to a child in April 1995, went to work for the Payor in August 1995 and applied for parental leave after completing her 21 weeks required to qualify for employment insurance benefits;
(l) no other worker was hired by the Payor to perform the Appellant's duties before and after the period;
(m) the purported engagement of the Appellant for the exact number of weeks required to qualify for unemployment insurance benefits when no one needed to be hired to perform the alleged services before and after the period in question is inconsistent with an arm's length contract of employment;
(n) the Appellant is related to the Payor within the meaning of the Income Tax Act;
..."
[17] The Appellant agrees with items 4(a), 4(b), 4(c), and 4(d). She disagrees with the remainder completely or in part.
[18] The Appellant was the sole witness at the hearing of the appeal. She explained that she had considerable work experience in the administration of small business offices and produced glowing references as a testament to this. She had given birth to her second child in April 1996 after some four years absence from the workforce. Her brother-in-law owned and operated a tow truck and body repair business. He suggested to her some four months after the birth of her second child that she come and work for him in his business. At around this time her husband had suffered injuries from an accident and that was causing economic problems for them. Although her sister worked in the business for her husband, as it was described in evidence, it was in a state of total chaos. Whilst her brother-in-law was a good truck driver and body-man, he was hopeless in organizing his business affairs. His wife, the sister of the Appellant, was too involved in the day-to-day things going on such as dispatching trucks, to keep up properly with the administrative work. Thus in many cases there were many tow truck trips not billed out and in other cases drivers had double or triple charged the business. Thus there were boxes and boxes of things to be sorted out and dealt with.
[19] In a sense items 4(e) and (f) were accurate but they totally understated the breadth and immensity of the work which the Appellant was required to undertake, and to which she brought to bear her extensive administrative and secretarial skills.
[20] Similarly the Appellant agreed to an extent with items 4(g), 4(h) and 4(i). However she again pointed out that it failed in stating "regardless of the hours worked" and "... $22.00 an hour is excessive ..." to take into account the immensity of the work she was undertaking, her level of skill, the value of her work to the business, the fact that her sister was paid a comparable wage, that she had been paid that amount four years previously in her former office work, and that she frequently took work home to do over and above the four days that she worked regularly at the office premises. She also pointed out that as she was on salary she did not expect to keep track of hours.
[21] With regard to item 4(l) she said that the chaos had piled up before she arrived because her brother-in-law kept thinking that he would get to it, but never did. She left in January 1996 because her baby was having a bad time with ear infections and whilst trying to cope with her husband's injuries, things had piled up on her. She had not anticipated taking leave when she started, but felt that she needed to do that in January. She did not anticipate taking much time off, and talked to her brother-in-law frequently about going back to work in the near future. Thus he did not find anyone to replace her. Then she started to suffer from depression for which she was on medication and from which it took her some time to recover. She did however go back to work the following August and remained with the business for a whole year.
[22] She took great exception to the implied suggestion in items 4(k) and 4(m) in the Reply to the Notice of Appeal that she had deliberately set out to work simply for a period time to obtain her maternity leave benefits.
[23] It seems to me that what is missing from the Minister's consideration of the facts is the immensity of the work undertaken, the skill which she brought to the job, the true reasons why she left when she did and why she did not come back right away as expected, the value of the work to the business and the quite simply put genuine nature of this Appellant which clearly did not come out in the formalised facts. In point of fact the investigator who prepared the facts for the Minister took quite a jaundiced view of those facts and left the clear and prejudicial impression on paper that this whole thing was some kind of ploy to obtain maternity benefits, whereas in fact it was nothing of the sort.
[24] I am firmly of the view that if the Minister had had before him all these facts, along with an awareness of the truly genuine nature of the Appellant he could not have lawfully come to the decision which he did from an objective and reasonable point of view. These facts were all relevant facts and they were not before him. Furthermore there was an element of bias in the facts presented to the Minister, and in the language used. The decision of the Minister has surely to be based on straightforward facts without the editorial of the fact finders being included either overtly or impliedly from the language used. The decision of the Minister is accordingly not sustainable in law and I must now advance to the second stage of the appeal process and decide whether on all of the evidence the parties, had they been at arm's length, would have entered into a substantially similar contract of employment, taking into account all of the circumstances including those specifically set out in paragraph 3(2)(c) of the Act.
Stage 2 - Review of the Evidence
[25] I was most impressed by the evidence of the Appellant. She struck me as a very honest and genuine person and I do not have the slightest difficulty in accepting her evidence in its entirety. She explained fully and completely what had happened. She was challenged by counsel for the Minister about the deposit of certain of her pay cheques and the delays which had occurred. Her explanations seemed quite normal and reasonable to me. There were no excessive or long delays in these deposits. She explained in clear terms what her duties and responsibilities were, why they were worth the amount that she was paid and how relative to what she had earned four years previously in an office position it could not be considered excessive. She explained why she left and why she did not come back for a while. She claimed her maternity benefits as she was in my view entitled to do, and there is not a hint that this was some kind of ploy other than that the dates were consistent with her working the minimum amount of time before she stopped work and claimed benefits. There is nothing in the law which says she cannot arrange her affairs accordingly, as long as the arrangement is a genuine contract of employment, which I am quite satisfied it was. The question then becomes on of whether taking into account all the circumstances outlined in the Act they would have entered into substantially the same arrangements if they had been at arm's length. I have no hesitation in saying they would have. The Appellant was clearly an asset to the business and well worth the money paid to her. It was consistent with what her sister was being paid and consistent with what she had earned in comparable office circumstances some time previously. She left for health and family reasons. She intended to return quite shortly but again for health reasons her return was delayed. It was for this reason that nobody was hired to replace her. Eventually she did return and stayed for a one-year period which is evidence in itself of the validity of her work.
Conclusion
[26] After considering all of the evidence, both oral and written and the exhibits entered before me, I am well satisfied on the balance of probabilities that indeed the arrangement was genuine and one which, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude they would have entered into had they been at arm's length, or at least a substantially similar one.
[27] The appeal is accordingly allowed and the decision of the Minister is vacated.
Signed at Calgary, Alberta, this 16th day of February 1999.
"Michael H. Porter"
D.J.T.C.C.