Date: 19991206
Dockets: 95-209-IT-G; 95-1938-IT-G
BETWEEN:
ALAMEDA HOLDINGS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
P.R. Dussault, J.T.C.C.
[1] The appellant is a bankrupt company. 125978 Canada Inc. was authorized to proceed with the appeals under section 38 of the Bankruptcy and Insolvency Act by a decision dated February 26, 1999 of the Superior Court of Quebec in the District of Montréal.
[2] The appeal in docket 95-209(IT)G concerns an assessment made on April 28, 1993 for the appellant's 1974 taxation year. The appeals in docket 95-1938(IT)G concern assessments made on March 18, 1994 for the appellant's 1982 and 1983 taxation years.
Points at Issue
[3] The assessment made on April 28, 1993 for the appellant's 1974 taxation year was pursuant to a judgment by this Court of March 8, 1993 on a consent to judgment produced by the parties. The notice of assessment indicates an amount of tax of $138,762.05, arrears interest of $340,121.14, a dividend refund ("DR") of $5,333.00, a credit of $70,270.75 in the refundable dividend tax on hand ("RDTOH") account and an unpaid balance of $441,314.19 (exhibit R-1, tab 3). Only the amount of the interest is in issue.
[4] The assessment for the appellant's 1974 taxation year, which was the subject of an appeal and the aforementioned consent to judgment, was made on March 7, 1984. During its 1974 taxation year, the appellant disposed of two immovable properties and treated each transaction as giving rise to a capital gain. The effect of this treatment by the appellant was to bring about an increase in its RDTOH account. In the assessment of March 7, 1984, the Minister of National Revenue (the "Minister") determined that the two transactions had produced not a capital gain, but rather business income. Tax was thus assessed at $260,158.80, the interest at $193,593.17, the DR at $446.00, the RDTOH at nil and the balance payable at $421,069.97 (exhibit R-1, tab 2). The settlement reached between the parties, which was the subject of the consent to judgment and of the judgment of March 8, 1993, was that one of the transactions had resulted in the realization of a capital gain and the other in business income.
[5] The appellant disputes only the amount of interest in the assessment made on April 28, 1993 pursuant to the judgment, claiming that the amount of the previous assessment made on March 7, 1984 was paid following receipt of the notice of assessment and that the Minister may not assess an amount of interest where he himself has made the representation, in his correspondence with the appellant between the date of the assessment and that of the consent judgment, that there was no unpaid balance and that the appellant would receive a refund. On this point, the appellant argued that the doctrine of estoppel or that of fin de non-recevoir applied.
[6] Furthermore, the assessments of March 18, 1994 for the appellant's 1982 and 1983 taxation years were made following the assessment of April 28, 1993 for the appellant's 1974 taxation year. This last assessment had resulted in an increase in the appellant's RDTOH account balance for that year relative to the previous assessment of March 7, 1984, since it was admitted that one of the two transactions had given rise to a capital gain and not business income. However, in view of the DRs which the appellant had received in previous years, the balance of its RDTOH account at the end of each of its 1982 and 1983 taxation years was reduced to nil and the DRs previously granted for those years were disallowed. The problem here stems from the fact that no reassessment was made at the time reducing the balance of the account to nil for the 1982 and 1983 taxation years as a result of the reassessment of March 7, 1984 for the appellant's 1974 taxation year. The reason was apparently that this last assessment was never posted in Revenue Canada's computer system dealing with corporations ("CORPAC") and thus no reassessment was made for each of the subsequent taxation years, more particularly for 1982 and 1983.
[7] In making the assessments of March 18, 1994 for the appellant's 1982 and 1983 taxation years, the Minister relied on the provisions of subsection 152(4.3) of the Income Tax Act (the "Act") which authorizes consequential assessments on certain conditions. However, the appellant contends that these years are statute-barred and that the provision invoked by the Minister is not applicable in this case.
Summary of Evidence
[8] Mark Schwartz testified first for the appellant. It was he who founded the corporation for his daughters' benefit in 1970 or 1971. The purpose of the corporation was to hold immovable property. At the time, Mr. Schwartz was very active in residential construction in the western part of Montréal Island and on the South Shore. Some 500 houses a year were built by a number of corporations which he controlled, one of the main ones being Saratoga Construction Inc.
[9] In 1975, the group of companies was the subject of an investigation conducted by Revenue Canada's special investigations unit. The investigation lasted a number of years and documents were seized, in particular from the offices of lawyers, notaries and accountants and at Mr. Schwartz's home. According to Mr. Schwartz, not all the documents seized were returned and the others were "in disorder". Mr. Schwartz also described the great confusion that reigned during those years. He said that Revenue Canada's collections unit, which had a list of all the companies and the lands which they owned, began demanding guarantees from each one of them, to the point where everything was mixed up and he now cannot say who owed what and who paid what.
[10] On March 7, 1984, the appellant was assessed a substantial sum for its 1974 taxation year. The appellant objected to the assessment and instituted an appeal. According to Mr. Schwartz, a settlement was reached during the hearing in 1993 as a result of a suggestion to that effect by Judge Garon of this Court. Although he said he was not very happy with this outcome, Mr. Schwartz indicated that he accepted the settlement on condition that he be given an immediate refund. He was told at the time that this would not take more than 30 days. However, the appellant never received a refund. On the contrary, the assessment, made on April 28, 1993 following the settlement reached at the hearing and the judgment giving effect to that settlement, showed arrears interest of $340,121.14 since Revenue Canada, reversing its previous position, now assumed that the amount of the assessment made on March 7, 1984, which had been the subject of the appeal, had never been paid (exhibit A-9).
[11] Mr. Schwartz filed in evidence a number of Revenue Canada documents, including notices of assessment, statements of account and a refund cheque, all bearing dates between 1985 and 1993 and showing that the appellant had no balance payable during that period and that it was even entitled to a refund for certain years (exhibits A-1 to A-5 and A-7).
[12] Mr. Schwartz stated that, as far as he could remember, the amount of the assessment of March 7, 1984 was paid, although he did not recall that amount having been remitted in a single payment. He said that the amounts of the assessments were generally paid in a number of instalments on a continuing basis.
[13] Mr. Schwartz asserted that no amount was owed to the government since all outstanding amounts had to be paid in 1984 and 1985 because it would otherwise have been impossible to carry on with operations.
[14] Mr. Schwartz did not file in evidence any documents of the appellant or of any other company in the group that could show that the amount of the assessment of March 7, 1984 had in fact been paid.
[15] Furthermore, note 2 to the appellant's financial statements dated November 30, 1987 (exhibit R-1, tab 5) states the following under the heading "Contingent Liability":
In March 1984, Revenue Canada Taxation had issued Notices of Reassessments for the period 1974 to 1981, amounting to approximately $367,000 including interest to date of the reassessment.
The company has filed Notices of Objection relating to these reassessments and has not made a provision for income taxes relative thereto, since the amount payable cannot be determined with sufficient precision. The effect of any settlement would be corrected to retained earnings.
(Emphasis added.)
[16] When asked to comment on this note in relation to another note accompanying the appellant's financial statements to November 30, 1993 in which it is not stated that the amount of the assessment represented a contingent liability, Mr. Schwartz simply answered that the accountant had told him this was standard procedure.
[17] Daniel Benson, a chartered accountant with Friedman & Friedman, the firm handling the accounting for the group of corporations in which Mr. Schwartz had an interest, including the two Saratoga corporations ("the Saratoga group"), also testified.
[18] Mr. Benson, who started working for the Saratoga group in 1979, began by emphasizing that, prior to 1982, he was a member of the auditing team responsible for preparing the financial statements and that he was with the tax group from 1982 to 1988. In his testimony, Mr. Benson pointed out the problems that arose as a result of the investigation and the assessments, some of which dated back to 1977. He stated that the files of all the companies were so to speak "frozen" at Revenue Canada, that the payments were made every month and that some companies might have made payments for others. According to him, the companies' internal controller, Pierre Turcotte, had handled the payments.
[19] Mr. Benson said he remembered the notice of assessment of March 7, 1984, which was handed over to the law firm Phillips & Vineberg for the purpose of filing an objection and instituting an appeal. He maintained that the amount of the assessment had been paid by the appellant itself or by other companies. He reiterated that the controller was the one responsible for negotiating and making the payments and that he himself had no direct personal knowledge that the liability had in fact been discharged.
[20] In 1993, at the request of the lawyers representing the appellant, Mr. Benson went to Revenue Canada's offices to check the correspondence and documents relating to the payments. As Revenue Canada officials only had the computerized statements, Mr. Benson was unable, he said, to take his audit of the statements any further. Mr. Benson stated that since the appellant had not retained any documents either, he was unable to validate Revenue Canada's computerized statements and informed the lawyers of this. The lawyers then apparently obtained a number of documents under the Access to Information Act, but none pertained to collections.
[21] While asserting that, as a result of the assessments, some of which dated back to 1977, and of the draft assessments known of since 1977 or 1978, some of the companies were entitled to tax reductions or credits by virtue of loss carry-overs, Mr. Benson admitted that he personally had no knowledge of any payment made for the appellant by one of those corporations between 1982 and 1988. He stated, however, that, prior to 1982, such payments were made by the operating companies and by Mr. Schwartz with respect to tax payable by companies in the group.
[22] Mr. Benson also stated that all the payments made were entered in the accounts and that there was therefore no reason to add to the financial statements a note on that subject. Thus, according to Mr. Benson, the note added to the financial statements of November 30, 1987 (exhibit R-1, tab 5) had nothing to do with the payment itself. And yet, as counsel for the respondent pointed out, the note added to the financial statements of November 30, 1993 (exhibit R-2, page 7, note 7.b)), indicates that, as a result of the consent judgment, the appellant "anticipated a substantial tax refund including interest of approximately $550,000," not an assessment of $414,314.69, since Revenue Canada "had consistently issued statements of account indicating that no prior year balances were due by the company." Consequently, in counsel's opinion, these notes could in practice relate just as much to payments as to refunds. Mr. Benson's answer was simply that the notes were different. That explanation is vague to say the least.
[23] Mr. Benson also stated in his testimony that he had read a report on objection which stated in paragraph 3 that there were no collection problems to report and that the tax had been paid (exhibit A-10, page 2).
[24] For the moment, my only commentary is once again that no direct evidence was adduced to show that any payment of the amount assessed on March 7, 1984 was made either by the appellant itself or by other corporations for the appellant.
[25] Pierre Turcotte, the Saratoga group's internal controller from 1977 to 1984, also testified for the appellant. Mr. Turcotte left his position for personal reasons in the summer of 1984, but apparently remained in touch with Mr. Schwartz until the fall of that year.
[26] Mr. Turcotte stated that he remembered the assessment of March 7, 1984 and that the notice of assessment had been handed over to the external auditors, Friedman & Friedman. He said that the government had many guarantees and that the decision was made to proceed with the payment of the amount of the assessment. He noted that he did not remember the details of the arrangement made for this purpose since it was the auditors who had handled it. He stated that there was a request for payment and that the amount of the assessment was paid by the Saratoga corporations. Drawing on his experience, Mr. Turcotte said that payment arrangements had always been made involving the issuing of "postdated" cheques over a period of six to 12 or 15 months, generally for equal amounts, particularly in the case of large assessments. He added that when there were amounts receivable by certain companies in the group, these credits were applied to reduce the amounts owed by other companies. According to Mr. Turcotte, the reconciliation would have been entered in the books of the Saratoga company because it issued the cheques for the group of companies. The amounts paid would appear as "advances" made to the appellant. Mr. Turcotte admitted that he did not check to see whether the cheques had been cashed. He also admitted that he did not do the bank reconciliation and concluded his testimony by saying that the payments in the case of this assessment were spread over a period of a year to a year and a half.
[27] A number of Revenue Canada officials were also called as witnesses by counsel for the appellant. They were Carl Deslongchamps, Pierre Brodeur, Hélène Chaîné, Monique Déry and Normand Durocher.
[28] Mr. Deslongchamps read the appellant's file in February 1993, a short time before the appeal from the assessment of March 7, 1984 was heard. Mr. Deslongchamps was with the Appeals Division at that time. While convinced at first that Revenue Canada's position was valid on the merits, he was led to change his mind at the hearing and to take part in a proposed settlement by agreeing that one of the transactions at issue would be considered as giving rise to a capital gain rather than to business income. The proposal was accepted by the appellant on the condition that the file be processed quickly and the refund cheque issued as soon as possible. According to the information that Mr. Deslongchamps had at the time, that is the CORPAC system information relevant to the appellant, there was no balance payable, so he assumed that the amount of the assessment at issue had been paid and he undertook to have everything done quickly. Once the appellant's file was returned to him, Mr. Deslongchamps himself handed it over to a certain Jean-Guy Francoeur in the Objections Division for processing. The file was subsequently returned to him and he then forwarded it to Ms. Blais-Chénard in the Problem Resolution Program section.
[29] Approximately one week later, Ms. Blais-Chénard called him back to inform him that the assessment of March 7, 1984 had never been entered in the CORPAC system and that an error had thus been made in updating the computer system.
[30] As the appellant's representatives claimed that the amount of the account had been paid, said Mr. Deslongchamps, a search was then undertaken with respect to all the companies in the group, but that no one was able to trace any payment whatever by any one of those companies. Nor was any payment shown in the CORPAC central system.
[31] New discussions were subsequently held with counsel for the appellant, who was informed of this result. Counsel was asked at that time to provide evidence since the taxpayer claimed it had made payments. Counsel had none. However, he provided a list of all the companies that might have been concerned since there would have existed at that point an overpayment of approximately $400,000 belonging to the appellant. Further checks in the CORPAC system, in which both assessments and payments are posted, yielded no results. Nor did the collection files contain any information to the effect that payments had been made by other companies. Mr. Deslongchamps stated that Ms. Blais-Chénard even sent him a reconstruction of the accounts of all the corporations concerned prepared by Ms. Déry. As no one was able to trace any proof of payment whatever, the decision was made not to issue a refund cheque and to refer the case to the Objections Section so that a reassessment could be issued.
[32] Pierre Brodeur, an auditor with Revenue Canada, worked in the Collections Section from 1984 to 1988. At first he stated that the name Alameda was unknown to him, although he was familiar with the names Saratoga and Habitations Montvillage Inc. (a corporation in the group) and that of Mark Schwartz. Despite searches conducted in Montréal on the very morning these appeals were heard, no one was able to trace any collection file concerning the appellant dating back to the period from 1984 to 1988. According to Mr. Brodeur, a collection file would only exist if an outstanding balance had remained unpaid. Although he admitted that certain guarantees had been given by some companies for others, and in particular by the appellant according to a letter to him dated March 10, 1985 (exhibit A-12), Mr. Brodeur did not remember what specific guarantees had been given by which companies or for which companies they had been given. Nor did he recall any specific collection action with respect to the companies in the group for which he had been given responsibility since, he said, guarantees had already been provided. He also did not remember whether the assessment of March 7, 1984 had given rise to collection action. Lastly, as to the question of payment, Mr. Brodeur testified that all payments are posted in the CORPAC system and that there is only one system for cash receipts. As for the collection files, they generally contain information pertaining to the taxpayer as well as guarantees, correspondence and agreements.
[33] Hélène Chaîné is an assessment officer and, more precisely, handles problems in files. In her testimony, she explained in particular that all payments by cheque are the object of a double entry in the computerized systems, and that a payment made by a corporation is posted in the CORPAC system. She also explained that it is possible for corporations with credits to transfer them to other corporations, which generally occurs following an assessment. With the aid of the statements of account and the CORPAC statements for the appellant, Saratoga Construction Ltd. and Saratoga Construction Inc., she found three cheques dated December 5, 1976, December 26, 1976 and January 28, 1977 for $21,190.83 each, which had initially been credited by mistake to Saratoga Construction Ltd.'s account whereas they should have been credited to that of the appellant. The error was subsequently corrected and the amounts were credited to the appellant as of those same dates. According to Ms. Chaîné, what happened was that the cheques had been entered in the wrong account; it was not a case of credits being transferred from one company to another. Based on her analysis of the statements of account and the CORPAC statements since 1976, Ms. Chaîné stated that the assessment of March 7, 1984 was not posted in the CORPAC system prior to March 1993 as a result of what was stated to be a system error, which was recorded for the first time on March 15, 1984, and that no payment was made by or for the appellant in respect of that assessment.
[34] Ms. Chaîné also testified concerning the assessments made on March 18, 1994 for the appellant's 1982 and 1983 taxation years. She explained in detail how the $70,270.75 credit to the RDTOH account resulting from the assessment made on April 28, 1993 pursuant to the consent judgment had been applied to the taxation years after 1974 and 1975. According to Ms. Chaîné, based on the refunds previously obtained by the appellant for those subsequent years, there remained no balance for 1982 or 1983, hence the assessments of March 18, 1994 to cancel the refunds previously received by the appellant, to which it was not entitled.
[35] Monique Déry is a corporate services officer at Revenue Canada. In 1993, she received from Ms. Blais-Chénard a request, which had come to the latter from Mr. Deslongchamps, to produce the detailed statements of account for certain corporations in the group, including Habitations Montvillage Inc., Saratoga Holdings, Saratoga Construction and the appellant, Alameda Holdings. Ms. Déry also retranscribed the memos (T2020) appearing in the appellant's file (exhibit R-3). She pointed out that there was definitely a problem in the computer system, although she was unable to explain what it was or its cause. It should be noted that the very first memo in the file is dated January 1985 and reads as follows:
[TRANSLATION]
Assessment is getting the T2s. Appeals does not want notices of reassessment issued.
[36] The second is dated March 1985 and reads:
[TRANSLATION]
T867 rejected for 1974-1975.
Assessment needs T2s. TX9 for 1973 to 1979 in
Objections. First contact with Alain Ducharme.
Call back in 1½ months.
[37] Another memo, dated December 9, 1985, reads as follows:
[TRANSLATION]
Rejection T867 – 1974, 1975, 1978. Reason R.D.T.O.H. T867 to be redone according to Correction of Errors. After contact with Ottawa, reason for rejection, that the 78 T867 RPT does not change the reduction. (Error on T867). Hélène Chaîné called Appeals, the files are at the Department of Justice. F/UP February 28, 1986 to process message + T867.
[38] These memos, which note the rejection, nevertheless do not explain why no reassessments for the subsequent years, including 1982 and 1983, were made at that time.
[39] According to Ms. Déry, no automatic interception of the tax refunds to the appellant was put in the computer system prior to an interception on September 11, 1995. An interception designated as IBM interception was put in on July 21, 1986 so that, according to Ms. Déry, any new information could be checked by the person who had put in that type of interception.
[40] Ms. Déry also explained that an automatic refund interception does not prevent tax payments or tax transfers from being entered in the system.
[41] In examining Saratoga Construction Ltd.'s statement of account (exhibit R-6), Ms. Déry was unable to trace any payment or transfer for the appellant's benefit, apart from the three cheques for $21,190.83 initially credited by mistake to Saratoga Construction Ltd. rather than to the appellant on December 5 and 26, 1976 and January 28, 1977. As stated above, the error was corrected and the payments were credited to the appellant (exhibit R-4).
[42] The statement of account for Saratoga Construction Inc. (exhibit R-7) does not show that transfers were made for the appellant's benefit either. It reveals only a series of six payments of $4,920 made from September 1988 to February 1989 for a total of $29,520.
[43] In short, Ms. Déry said it was impossible to trace a series of payments spread over a period of six to 14 or 15 months, which were made for the appellant's benefit and totalled $421,069.
[44] Counsel for the appellant also called Normand Durocher, a collection agent with Revenue Canada, as a witness. According to Mr. Durocher, the proof of claim dated June 19, 1998 pertaining to the appellant's bankruptcy was based on the reassessment made in 1993 for the appellant's 1974 taxation year and on subsequent assessments for 1982, 1983 and 1990, not on the assessment made in 1984 for the 1974 taxation year, which moreover appears nowhere in the CORPAC system or in the appellant's collection file. Mr. Durocher stated that this collection file was not opened until June 1993, approximately one month after the assessment. He said he checked the previous years back to 1980 and even before that to determine whether the appellant was indebted and whether payments had been made. He said that if payments had been made following the assessment made in 1984, the relevant information would have been posted in the system. According to him, absolutely nothing had happened and no payments had been made since 1980. The fact that the assessment made in 1984 was not posted in the system would not have prevented payments from being credited if any had been made. Mr. Durocher also asserted that, if amounts had been retained in another company's account rather than being transferred to the appellant's account, the company concerned would have been notified that it had excess credits and the amounts would have been remitted after a certain period of time.
[45] In short, once again there is no evidence to establish that any payment was made by the appellant itself or by another corporation for the appellant's benefit or that any transfer was made from another corporation's account in respect of the assessment made in 1984 for the appellant's 1974 taxation year.
1. Assessment of April 28, 1993 for the appellant's 1974 taxation year (docket 95-209(IT)G)
(a) Appellant's Position
[46] Counsel for the appellant disputes the interest component in the assessment made in 1993 for the appellant's 1974 taxation year, arguing first that there is ample evidence that the assessment made in 1984 for that same year was paid. Next, pleading the doctrine of estoppel, he contended that the Minister could not be allowed to claim that no payment had been made when he had clearly suggested the contrary over a number of years and the appellant suffered prejudice as a result by instituting an appeal from this assessment and agreeing to a settlement in 1993 in the belief that it would then obtain a refund.
[47] On the question of payment, counsel for the appellant moreover admitted a number of points that would indicate that payment was not made. Ms. Chaîné's testimony suggests this since the historical analysis of the documents traced indicates not only that no payments were made, but also that the assessment made in 1984 was never posted in the computer system. Counsel for the appellant also admitted that the note to the financial statements for the taxation year ended November 30, 1987 likewise suggests that the appellant did not pay the amount of the assessment.
[48] Despite this evidence, counsel for the appellant noted other evidence which he thought favoured the argument that payment had been made. Thus, he said, it had been demonstrated that the Saratoga group could not continue its operations without making payments and providing guarantees. The testimony of Mr. Deslongchamps of Revenue Canada also establishes that the documents consulted showed that all payments had been made, which is confirmed by the outside auditor who stated that the appellant had no unpaid debt.
[49] The statements of account and a cheque from the Department of Revenue filed in evidence (exhibits A-1 to A-5 and A-7) also show either a nil balance or a refund. In addition, counsel for the appellant pointed out that, at the time, in 1984, a taxpayer who disputed an assessment nevertheless had an obligation to pay and that section 225.1 of the Act was added only for the years following 1985. Revenue Canada thus had the right to proceed with collection of the debt despite the objection and the appeal. Counsel also pointed out that the IBM interception in the computer system was cancelled in the early 1990s since certain amounts were refunded to the appellant at that time. Lastly, counsel for the appellant reminded the Court that the evidence showed there had indeed been some errors respecting payments by one corporation for another and that errors could thus also have occurred respecting payment of the assessment made in 1984.
[50] Counsel for the appellant further contended that a taxpayer can adequately defend himself only to the extent that Revenue Canada's documents are complete, which is not the case here since the collection files could not be traced. Counsel also noted the absence of Mr. Ducharme, whose testimony could have provided some clarification. He felt that Revenue Canada must accept responsibility for the fact that everyone assumed that the assessment had been paid right up until the settlement was reached in 1993.
[51] Counsel for the appellant argued next that the only reason why the appellant instituted an appeal from the assessment, proceeded with that appeal and finally accepted a settlement was that it would be able to obtain a tax refund, which everyone had moreover confirmed at the time. Mr. Schwartz, the principal, was thus misled by this presentation of the facts by Revenue Canada employees which induced him to act against the appellant's interests, hence the reliance on the doctrine of estoppel or that of fin de non-recevoir in order to have the assessment vacated with respect to interest.
[52] In his written comments submitted after the hearing, counsel for the appellant set out quite a theory on the application of the doctrine of estoppel or of fin de non-recevoir, according to which theory the respondent would be prevented from arguing that the appellant did not pay the 1984 assessment and the 1993 assessment would thus not be valid in respect of the interest assessed.
[53] Counsel for the appellant thus argued that the doctrine of estoppel occurs in civil law, albeit under another name, that of fin de non-recevoir, which shares its characteristics and conditions of application with those found in the common law equivalent. Noting however that there are differences between the two concepts, differences on which he did not feel it necessary to elaborate, counsel for the appellant nevertheless asserted that the ultimate purpose behind these notions is arguably the same and that their application leads in practice to the same conclusions. Thus counsel for the appellant contended that, in essence, Revenue Canada cannot consistently maintain and confirm a payment of a debt and subsequently deny the existence of the same payment when the alleged debtor incurred substantial expenses in attempting to retrieve the sums Revenue Canada had clearly acknowledged were paid. Finally, and in light of the case law on the applicability of the doctrine of estoppel in common law jurisdictions across Canada, it would be a travesty to suggest that Revenue Canada, through the actions of its representatives, could be held accountable in all provinces and territories throughout Canada but not in the province of Quebec. The consequences of Revenue Canada's adopted, verified and confirmed position in respect of the payment of Alameda's debt, cannot differ in scope and result solely based on the fact that the actions giving rise to the appellant's request took place within a civil law jurisdiction. In support of his arguments, counsel for the appellant referred to the following cases:
- Sinyor Spinners of Canada Ltd. c. Leesona Corp., [1976] C.A. 395 (C.A.Q.);
- National Bank of Canada v. Soucisse et al., [1981] 2 S.C.R. 339 (S.C.C.);
- Québec (Procureur général) c. le Tribunal d'arbitrage de la fonction publique, [1998] R.J.Q. 2771 (decision of the Superior Court of Quebec, currently under in appeal);
- Gabias v. Mainville, [1922] R.J.Q. 32 (vol. 33) (C.Q.B.) ;
- Rawleigh v. Dumoulin, [1926] S.C.R. 551 (S.C.C.).
(b) Respondent's Position
[54] Relying on the analysis of estoppel by Beetz J. of the Supreme Court of Canada in Soucisse, supra, and on doctrine, counsel for the respondent stated that a defence of estoppel may not be used to extinguish a right but only to prevent its enforcement. According to counsel, as we are not dealing here with a tax debt collection procedure, but rather with an appeal from an assessment, the only way for the appellant to have the amount of assessed interest changed is to prove that the debt was extinguished.
[55] In the alternative, counsel for the respondent argued that, in any event, the appellant did not establish the elements necessary in order to avail itself of a fin de non-recevoir and invoked no specific rule of law on which it would be based. He says that fins de non-recevoir must be distinguished from the doctrine of estoppel, which is not part of Quebec law. On this point, counsel for the respondent referred to remarks by Mignault J. of the Supreme Court of Canada in Grace and Company v. Perras, [1921] 62 S.C.R. 166, at page 172, cited by Beetz J. in Soucisse, supra, at pages 360 and 361. Furthermore, in Rawleigh v. Dumoulin, supra, Mignault J. of the Supreme Court of Canada wrote as follows at page 556:
[TRANSLATION]
Generally speaking, it may be said that no fin de non-recevoir is allowed in the absence of a rule of law which permits it.
[56] Counsel for the respondent further emphasized that the basis for a fin de non-recevoir relied upon in Soucisse, supra, was the wrongful conduct of the party against whom the fin de non-recevoir was raised and that its source was article 1053 of the Civil Code of Lower Canada (now article 1457 of the Civil Code of Quebec). Thus, according to counsel for the respondent, to present this "defence", the appellant had to prove the Minister's fault, the damage caused and the nexus between the fault and the damage. In his view, no such proof was forthcoming. An error was certainly committed by the Minister's agents, who told the appellant that its debt was paid and that it would be receiving a refund. According to counsel for the respondent, this error was committed only on the day of the trial and was corrected as soon as it was discovered. It was an honest mistake, not the result of carelessness.
[57] This error, counsel for the respondent continued, must be considered in the light of the fact that the Minister never represented the debt as having been forgiven or erased. In view of the size of the debt and given the note to the financial statements of 1987, counsel for the respondent argued that the appellant knew that the debt had not been paid. Furthermore, it was unable to provide at the hearing any details as to when or how the alleged payment or payments had been made. Lastly, counsel for the respondent argued that the appellant's insistence on obtaining an immediate refund is also consistent with the argument that it was aware of the error made by the Minister and that it chose not to correct it, hoping to thus receive an amount to which it was not entitled. That being the case, counsel for the respondent felt that it was the appellant that thereby acted wrongfully and that it cannot plead its own turpitude.
[58] Counsel for the respondent submitted that the appellant's allegation that it suffered damage by signing a consent to judgment that it would not have signed but for the promise of a refund is questionable, self-serving and unsupported by the evidence adduced. The appellant, he said, made no attempt either to institute proceedings before the Tax Court of Canada to have the judgment varied on the basis that new information had been discovered after it had been rendered, or to institute an appeal before the Federal Court—Trial Division or the Federal Court of Appeal. Counsel for the respondent asserted that the inference one may draw from this failure to act is that the fact that the debt was or was not paid was not a significant consideration in signing the consent to judgment or that the appellant was less concerned by the consent to judgment than by the possibility of benefiting from the Minister's error. Thus, on either hypothesis, the appellant suffered no damage in signing the consent to judgment.
[59] Lastly, counsel for the respondent argued that even if the Court came to the conclusion that the Minister is at fault and that the appellant suffered damage in signing the consent to judgment, no nexus was established between this fault and the damage since the damage resulted more from the appellant's failure to act after the error was discovered. Furthermore, as it was alleged that the appellant's proceeding with the appeal from the assessment was essentially based on the fact that it expected a refund, it is its own misunderstanding and not the false statement of the Minister's agent that is the cause of the damage.
[60] Counsel for the respondent also pleaded the fin de non-recevoir based on the rule of nemo auditur turpitudinem suam allegans referred to in Soucisse, supra, and submitted that no unlawful or immoral conduct by the Minister has been demonstrated in the instant case.
(c) Analysis
[61] Subsection 161(1) of the Act provides that a taxpayer shall pay interest at the prescribed rate on any amount by which the total tax payable for a year exceeds the total tax paid "for the period during which that excess is outstanding". In assessing the appellant in 1993 for its 1974 taxation year, the Minister assumed as a fact that the amount of the previous assessment for the same taxation year, that is, the assessment of March 7, 1984, had not been paid and he therefore assessed interest accordingly. The onus was therefore on the appellant to show on the balance of probabilities that the amount of that assessment was paid. It might be added that the amount of the assessment represents a civil debt and that it is incumbent upon the debtor, in accordance with the principle stated in article 2803 of the Civil Code of Quebec, to provide proof of payment of that debt. As Jean Pineau, Danielle Burman and Serge Gaudet emphasize in Théorie des Obligations, 3e éd., Montréal, Les Éditions Thémis, 1996, at page 489, no. 324:
[TRANSLATION]
In accordance with the principle established by article 2803 C.C.Q., the creditor is required to prove the existence of the obligation and the debtor the fulfilment of that obligation.
[62] The appellant did not provide such proof of payment. Apart from mere statements, assumptions, suggestions and insinuations, there is absolutely nothing in the evidence that might tend to show that any payment was made in respect of the amount of the assessment made in 1984. On the contrary.
[63] Although the collection files of the corporations in the Saratoga group, of which the appellant was a member, could not be traced, Revenue Canada's statements of account for the corporations concerned do not contain the slightest indication that any payment or transfer might have been made by or for the appellant. The suggestion that transfers were made by the various corporations of the Saratoga group for the appellant is in no way supported by the documents filed in evidence. The same is true of the suggestion that the amount of $421,069.97 was paid by 6 to 14 or 15 cheques spread over a period of a year to a year and a half.
[64] It is curious to note that the appellant was able to produce Revenue Canada documents from the relevant period—documents such as statements of account, copies of refund cheques and notices of assessment indicating a nil balance—but unable to file any of its own internal or other documents which could have provided some indication, no matter how slight, of payment of the amount of the assessment made in 1984.
[65] Moreover, in my view, the note to the 1987 financial statements, which were filed by the respondent (exhibit R-1, tab 5), is revealing as to the true state of affairs and merely confirms that no payment was ever made. I reproduce that note again for ease of reference:
2: CONTINGENT LIABILITY
In March 1984, Revenue Canada Taxation had issued Notices of Reassessments for the period 1974 to 1981, amounting to approximately $367,000 including interest to date of the reassessment.
The company has filed Notices of Objection relating to these reassessments and has not made a provision for income taxes relative thereto, since the amount payable cannot be determined with sufficient precision. The effect of any settlement would be corrected to retained earnings.
(Emphasis added.)
[66] An error was of course made by Revenue Canada officials. That fact was clearly established. The initial error resulted from the impossibility of entering the elements of the assessment of March 7, 1984 in the computer system. The balances and refunds generated by the system were therefore so generated without the information pertaining to that assessment. The undertaking to provide a quick refund, given at the time of the settlement reached with respect to that assessment in 1993, was here again merely the consequence of this initial error. Nor is it surprising to note that no collection action was taken against the appellant in the absence of any information in the system respecting the assessment made.
[67] The appellant contends that the doctrine of estoppel or that of fin de non-recevoir should have applied to prevent the Minister from assessing interest since he had always suggested and indicated through his officials that the amount of the assessment had been paid so that the appellant acted to its own detriment by instituting an appeal from that assessment, by proceeding with the appeal and by signing a consent to judgment.
[68] I shall begin by saying that the appellant's position is ambivalent to say the least. Counsel for the appellant attempted by all possible means to convince me that the appellant had indeed paid the assessment of March 7, 1984 and that the appeal should be allowed on the basis of the evidence adduced on this point. Counsel for the appellant then argued that the appellant had been misled by Revenue Canada officials who stated both in writing and orally that there was no balance outstanding, and that this presentation of the facts induced the appellant to act to its detriment by instituting an appeal, proceeding with that appeal and signing the consent to judgment. If the appellant was convinced that it had paid, as counsel attempted to show, one wonders how it can claim that it was misled by Revenue Canada and that the presentation of the facts by Revenue Canada officials formed the basis of its position as to whether it should institute and proceed with the appeal and sign the settlement. Counsel for the respondent's suggestion that the appellant knew it had not paid and that it tried to take advantage of the error committed is not a completely hare-brained theory and the facts adduced in evidence can very certainly support such an inference.
[69] In his Droit administratif, vol. 1, 4e éd., Les Éditions Yvon Blais Inc., 1996, at pages 48 et seq., Patrice Garant does an historical analysis of the application of the Civil Code to the Crown since the Privy Council's decision in Exchange Bank of Canada v. The Queen (1886), 11 A.C. 157. At page 53 Patrice Garant writes in particular:
[TRANSLATION]
More recently, the Court of Appeal and Superior Court have unhesitatingly reaffirmed that, while the Crown is subject to the common law, it is so subject "in Quebec, generally speaking, as codified in the Civil Code . . . and the Code of Civil Procedure".156 This principle also applies to the federal Crown.157
In the broad field of contracts and civil liability in particular, it has thus almost always been admitted in case law that, in the absence of an express overriding provision in statute law or by virtue of the prerogative, the Civil Code of Quebec and the Code of Civil Procedure must be applied to both the federal and provincial Crown just as the common law is applied in the other provinces.158
In 1989, the Supreme Court confirmed that "the Quebec Act established the preeminence of the civil law in matters relating to property and civil rights".159 The court held that public bodies are governed by public law and the common law in all matters pertaining to their status and powers; in other matters, if there are reasons to turn to the droit commun, it is the Civil Code that applies: "In Quebec, the 'droit commun'—that is, the common law of the land—is the civil law."160 Whether in contracts or in torts, a public body, which in our view includes the Crown, is, "within the operational sphere of its discretionary powers . . . subject" to civil law standards of conduct.161
_________________________________
156. Société des Alcools du Québec c. Steinberg, supra, note 139, p. 2705.
157. Société du crédit agricole du Canada c. Smyth, [1994] R.J.Q. 1107, 1110, [TRANSLATION] "It is clear from doctrine and case law that, in Quebec, the federal Crown is subject solely to the Civil Code and Code of Civil Procedure."
158. See on these points, infra, Chapters VII and XIX.
159. Laurentide Motels v. Beauport (City), [1989] 1 S.C.R. 705, 722 (Beetz J.) 737, (L'Heureux-Dubé J.).
160. Ibid., p. 724; P.A. CÔTÉ, "La détermination du domaine du droit civil en matière de responsabilité civile de l'Administration québécoise", Mélanges Jean Beetz, Éd. Thémis, 1995, pp. 395-404.
161. Ibid., p. 725; for the other provinces, these standards are those of private common law: Just v. British Columbia, [1989] 2 S.C.R. 1228.
[70] Counsel for the appellant pleaded the doctrine of estoppel and that of fins de non-recevoir. According to counsel, the characteristics and conditions of application of these two institutions are similar, and so should be their effects. This is an over-simplification in my view. I believe that the doctrine of estoppel cannot be pleaded in the instant case and that it is the Civil Code of Quebec that applies. In Soucisse, supra, Beetz J. of the Supreme Court of Canada distinguishes between the two concepts, while recognizing that there has often been confusion between the two and that both terms are used. He refers in particular to Mignault J.'s opinion in Grace and Company, supra, that the concept of estoppel, as applied in the English system, is unknown to the civil law. However, he expressly acknowledges the existence of fins de non-recevoir in civil law and recognizes that one possible legal basis for a fin de non-recevoir might be the wrongful conduct of a party under articles 1053 et seq. of the Civil Code of Lower Canada (articles 1457 et seq. of the Civil Code of Quebec).
[71] As counsel for the appellant referred to no particular rule in the Civil Code of Quebec in support of the fin de non-recevoir pleaded, it is impossible to determine precisely what conditions should have been met in order to succeed on that basis. However, if one assumes, as did counsel for the respondent, that a fin de non-recevoir might be based on articles 1457 et seq. of the Civil Code of Quebec, it would still have been necessary to prove the fault, the damage and the causal relationship between the two. And Mr. Schwartz's assertions notwithstanding, the Court can only observe that no real damage was proven, nor was it demonstrated that the appellant was induced to act to its own detriment. One really wonders how a taxpayer can claim that instituting an appeal from an assessment of $421,069.97, proceeding with that appeal and ultimately settling the dispute partly to its advantage can be actions which it takes to its detriment, regardless of whether the tax was paid or not, unless of course the appeal is utterly frivolous. I do not accept Mr. Schwartz's testimony that the appeal was instituted, prosecuted and ultimately settled in order to recover amounts previously paid, as though establishing the appellant's tax liability would have been of no consequence if the tax had not already been paid. On the one hand, if the appellant's officers were convinced that the amount of the assessment had been paid, it is hard to see how it can now be stated that the decision to institute an appeal, the decision to proceed with that appeal and the decision to settle were induced by the statements of Revenue Canada employees. On the other hand, if those officers knew or ought to have known that the amount of the assessment had not been paid, the Minister cannot be held responsible for inducing the appellant's course of action in seeking to secure an unjustified benefit, since it knew that the facts as presented by Revenue Canada's officials were incorrect. In such a case, the only conclusion can be that the appellant is responsible for its own misfortune.
[72] As stated above, I believe the doctrine of estoppel is not applicable in the instant case. I will nevertheless venture a few remarks in view of the position adopted by counsel for the appellant on this question.
[73] In Canadian Superior Oil v. Hambly, [1970] S.C.R. 932, Martland J. of the Supreme Court of Canada summarized the essential elements of "estoppel by representation" as follows, at pages 939 and 940:
The essential factors giving rise to an estoppel are I think:
(1) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.
(2) An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made.
(3) Detriment to such person as a consequence of the act or omission.
[74] As may be seen, the intention to induce a course of conduct constitutes an essential element of the doctrine of "estoppel by representation". On this point, in The Law Relating to Estoppel by Representation, 3rd ed. (London: Butterworth, 1977), Bower and Turner emphasize the essential nature of this factor as follows, at page 93:
It is clear that for the purposes of estoppel, no less than for those of an action for misrepresentation, inducement in fact is established by proof that the representation was made both with the object, and with the result, of inducing the representee to alter his position. Neither element suffices without the other. To prove the representor's intention to produce the effect comes to nothing, unless the effect itself be proved; and it is equally idle to establish the result, unless it be also shown that the representor, actually or presumptively, intended to bring it about.
[75] In the instant case, not only was this intent not proved, it was never even alleged. Nor could it have been given the absurd position in which the Minister would have placed himself by having such an intent. There was an error and the incorrect presentation of the facts was merely the result of that error, nothing more. It could not be claimed that this incorrect presentation by Revenue Canada officials was made with any intention to induce one course of conduct or another on the appellant's part. To suggest such a thing would have been ridiculous.
[76] Considering this single fundamental element of "estoppel by representation", a defence based on this doctrine would in any case have had no chance of succeeding.
[77] In conclusion, I find that the appellant has not shown on the balance of probabilities that the amount of the assessment made on March 7, 1984 for its 1974 taxation year had been paid and thus that the assessment made on April 28, 1993 was incorrect with respect to the interest assessed.
[78] Furthermore, the appellant had not shown that the Minister was not entitled to make the assessment of April 28, 1993 as he did. I therefore find that the assessment is valid. The appeal from that assessment is accordingly dismissed.
(2) Assessments of March 18, 1994 for the appellant's 1982 and 1983 taxation years (docket 95-1938(IT)G).
(a) Appellant's Position
[79] As stated above, these assessments were made in order to reduce the appellant's RDTOH account to nil and cancel the refunds of $17,500 and $3,436.01 previously received for the 1982 and 1983 taxation years respectively. Counsel for the appellant contended that these assessments are not valid since they were made after the normal assessment period. He also submitted that the Minister could not rely on the provisions of subsection 152(4.3) of the Act respecting consequential assessments since the reassessment made on April 28, 1993 for the appellant's 1974 taxation year as a result of the consent judgment had the effect of increasing, not reducing, the appellant's RDTOH account for its 1974 taxation year. The reassessments were thus intended to compensate for the fact that no adjustments were made to the balance of this account for the years after 1974, in particular for 1982 and 1983, following the assessment of March 7, 1984 for the appellant's 1974 taxation year, since it was as a result of this assessment that the balance of the account should have been reduced.
(b) Respondent's Position
[80] Counsel for the respondent argued that the assessments are valid based on subsection 152(4.3) of the Act. In his view, the assessments take into account the balance of the RDTOH account as established by the assessment of April 28, 1993 for the appellant's 1974 taxation year as well as the refunds received in subsequent years, so that no amount was refundable for 1982 and 1983 since the total refundable amount had been received for the years following 1974 but prior to 1982 and 1983, as explained by Ms. Chaîné of Revenue Canada.
(c) Analysis
[81] Subsection 152(4.3) provides as follows:
Notwithstanding subsections (4), (4.1) and (5), where the result of an assessment or a decision on an appeal is to change a particular balance of a taxpayer for a particular taxation year, the Minister may, or where the taxpayer so requests in writing, shall, before the later of the expiration of the normal reassessment period in respect of a subsequent taxation year and the end of the day that is one year after the day on which all rights of objection and appeal expire or are determined in respect of the particular year, reassess the tax, interest or penalties payable, or redetermine an amount deemed to have been paid or to have been an overpayment, under this Part by the taxpayer in respect of the subsequent taxation year, but only to the extent that the reassessment or redetermination can reasonably be considered to relate to the change in the particular balance of the taxpayer for the particular year.
[82] This provision was added by S.C. 1993, c. 24, subsection 90(2) and amended by S.C. 1994, c. 21, subsection 76(2). It is applicable to reassessments and redeterminations in respect of taxation years made after June 10, 1993 that relate to changes in balances for other taxation years made as a result of assessments made, or decisions on appeals rendered, after December 20, 1991 except that, where the day referred to in subsection 152(4.3) of the Act as "the day on which all rights of objection and appeal expire or are determined in respect of the particular year" occurred before June 10, 1993, that subsection of the Act shall be read as if that reference were to June 10, 1993.
[83] This transitional rule covers the situation herein and renders subsection 152(4.3) of the Act theoretically applicable since the reassessments for the 1982 and 1983 taxation years were made on March 18, 1994, that is in the year following June 10, 1993, the date on which the appellant's right of appeal for the 1974 taxation year is deemed to have been determined since the judgment was rendered on March 8, 1993.
[84] In the assessment of March 7, 1984 for the appellant's 1974 taxation year, the balance of the RDTOH account was set at nil. In the assessment of April 28, 1993 following the consent judgment, it was set at $70,270.75. The balance was thus increased, not decreased. The reassessments for 1982 and 1983 reducing the balance of the RDTOH account to nil and cancelling the refunds of $17,500 and $3,436.01 previously received for those years thus do not logically result from the change in the account balance determined by the assessment of April 28, 1993 since that balance was increased at that time.
[85] In fact, the Minister should actually have made reassessments and cancelled the refunds given for the years after 1974, including 1982 and 1983, following the assessment of March 7, 1984 for the appellant's 1974 taxation year by which the balance of the RDTOH account was reduced to nil. If such assessments had been made at the appropriate time, consequential reassessments for the years after 1974 could have been made pursuant to the consent judgment on the basis of subsection 152(4.3) of the Act so as to reflect the increase in the balance of the account resulting from the judgment and reflected in the assessment made on April 28, 1993.
[86] As the Minister did not make reassessments for the years after 1974, more particularly for the 1982 and 1983 taxation years, following the reassessment made on March 7, 1984, he could not rely on subsection 152(4.3) of the Act in order to do so on March 18, 1994 since these reassessments cannot reasonably be considered to relate to the change in the balance of the RDTOH account resulting from the assessment made on April 28, 1993 as a result of the consent judgment. As noted above, the change in the balance for 1974 consisted in an increase, not a decrease, of that balance.
[87] Nothing is changed by asserting that the result for the 1982 and 1983 taxation years is in any event the same as it would have been if the Minister had made assessments for those years at the appropriate time following the assessment of March 7, 1984 for the 1974 taxation year. The Minister cannot do indirectly what the Act does not allow him to do directly.
[88] The appeals from the assessments made on March 18, 1994 for the appellant's 1982 and 1983 taxation years are thus allowed and the assessments are vacated.
[89] To summarize, the appeal from the assessment made on April 28, 1993 for the appellant's 1974 taxation year is dismissed and the appeals from the assessments made on March 18, 1994 for the appellant's 1982 and 1983 taxation years are allowed and the assessments are vacated, the whole with costs to the respondent.
Signed at Ottawa, Canada, this 6th day of December 1999.
"P.R. Dussault"
J.T.C.C.