Date: 19991027
Docket: 97-1814-UI; 98-955-UI; 97-1815-UI; 98-956-UI; 97-1816-UI
BETWEEN:
LUISA SPANO, ANTHONY SPANO, DIEGO SPANO,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
MacLatchy, D.J.T.C.C.
[1] These appeals were all heard at Toronto, Ontario, on July 6 and 7, 1999, on common evidence by agreement of the parties.
The appeals of Luisa Spano
[2] This Appellant appeals the ruling of the Respondent that her engagement with the Payor, TBS Paving & Construction Inc., from May 6, 1996 to January 10, 1997, was not insurable within the meaning of paragraph 3(2)(c) of the Unemployment Insurance Act (the "Act") and paragraph 5(2)(i) the Employment Insurance Act (the "Amended Act") as the employment was excepted employment since she and the Payor were not dealing with each other at arm's length. The Respondent exercised his discretion under subparagraph 3(2)(c)(ii) of the Act and paragraph 5(3)(b) of the Amended Act and decided that the contract of employment would not be deemed to be at arm's length. Similarly, the Appellant appealed the ruling of the Respondent that she was not employed in insurable employment while engaged by the same Payor for the period from May 5, 1997 to January 9, 1998 within the meaning of the Amended Act. The ruling was confirmed by the Respondent and once again he exercised his discretion and determined that the contract of employment between the parties would not be deemed to be at arm's length.
[3] Evidence was provided by the Appellant, her husband Salvatore Spano (the sole shareholder of the Payor), two employees of the Payor and the Appellant's two sons Anthony and Diego Spano. It became clear as the tale was told that Salvatore Spano ran the business of the Payor making the day-to-day decisions and plotting the future of the endeavour. Everyone who worked for the company were employees including Luisa, his wife, and their two sons. Each was engaged by the Payor pursuant to contracts of service. The Payor is solely owned by Salvatore Spano.
[4] Pursuant to the provisions of both the Act and the Amended Act and the provisions of subsection 251(1) of the Income Tax Act, the Appellant and the Payor are in law deemed not to deal with each other at arm's length and are categorized as "excepted employment" and thus no benefits flow if the employment is terminated. Even though related persons are so deemed to be at non-arm's length, the Minister of National Revenue (the "Minister") has a discretion to determine that having regard to all the circumstances included in subparagraph 3(2)(c)(ii) of the Act it is reasonable to conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing at arm's length.
[5] The law appears clear from the judgments of the Federal Court of Appeal in Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Attorney General of Canada v. Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen v. Bayside Drive-In Ltd., (1997) 218 N.R. 150, that the determination of the Minister can only be interfered with by the Tax Court of Canada if the Minister (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances as expressly required by subparagraph 3(2)(c)(ii) of the Act and paragraph 5(3)(b) of the Amended Act; or (iii) took into account an irrelevant factor. Even then, if the Tax Court found the Minister acted unlawfully, it would not be justified in interfering with the Minister's determination until it was satisfied that there was not sufficient evidence remaining to support the determination made.
[6] The evidence advanced by the Appellant, in most respects, supported the facts on which the Respondent relied as indicated in the Replies to the Notices of Appeal. The Appellant worked for the Payor in the home owned by she and her husband and no compensation was paid to her for such use. There was no record kept of her hours of employment. She worked from early in the morning, each day, till she was no longer needed to answer the telephone or do other work of the Payor, but the work performed would not occupy her whole day, day after day. The business of the Payor was not of that volume to warrant the hiring of a full-time office person at the salary level at which she was paid. Her weekly pay cheque was deposited to a joint account owned by she and her husband. These cheques, however, were held by her husband for as long a period of time as he might determine before they were deposited. Many weeks elapsed before these cheques were negotiated and then a group would be deposited. The business of the Payor was seasonal, running from May to October each year and yet the Appellant was kept on the payroll until January the following year. The Payor employed an outside bookkeeping firm to issue the cheques for payroll, accounts payable and year-end statements.
[7] A further significant factor was raised that Luisa Spano's pay dropped from one year to another without any explanation being given; this was accepted by Luisa without discussion. This is not a decision that would go unanswered by any ordinary employee indicating she would do with whatever her husband wished. Her hours were not recorded and yet she was paid the same each week and her testimony was that her hours were far in excess of the 45 hours of weekly work that she was supposedly to input.
[8] The above facts clearly support the conclusion that the arrangement between the Payor and the Appellant, Luisa Spano, is not one that would have been tolerated by an ordinary employee nor agreed to by the usual employer. It was a good arrangement as far as these parties were concerned but it would not be the type of contract that persons dealing with each other at arm's length would have entered into having regard to the facts as they came before this Court.
[9] This Court could not find that the Minister exercised his discretion unlawfully. Even though some minor facts upon which the Minister relied were proven incorrect, there was still sufficient evidence to support the determinations made. This Court may not interfere with the determinations made by the Minister and the appeals of Luisa Spano are dismissed.
The appeals of Anthony Spano
[10] This Appellant appeals the rulings of the Minister that he was not in insurable employment while engaged by TBS Paving & Construction Inc., the Payor, for the periods from May 13, 1996 to December 27, 1996 and from April 28, 1997 to January 9, 1998, within the meaning of the Act and the Amended Act.
[11] The Respondent confirmed the rulings that the Appellant's engagements with the Payor during the periods in question were not insurable employment for the reason that the Appellant's employments were excepted employments as he and the Payor were not dealing with each other at arm's length within the meaning of paragraph 3(2)(c) of the Act and paragraph 5(2)(i) of the Amended Act.
[12] The Respondent relied on the facts specified in paragraph 5 of each Reply to the Notice of Appeal. Evidence given by the Appellant supported most of the facts that the Respondent relied on to make the rulings. There were exceptions, however, especially dealing with the deposit of his weekly employment cheques. These were deposited to his credit in a bank account on which he and his father were named as owners and neither could remove money from this account without the signature of the other. It was alleged by the Appellant that his father was concerned about how he (his son) would spend his money if allowed to have sole control over the account. No other unrelated employee would be subject to such control. Further, his cheques for each week were not deposited regularly but were negotiated, in some cases, three and four weeks after they were received. An explanation was given that he did not like to line up at a bank each week so would not cash them for several weeks, but the withholding of the cashing of these cheques could also be consistent with assisting the cash flow of the Payor to ensure that it had sufficient funds to cover these cheques. This would not be countenanced by an unrelated employee.
[13] The formation of the Payor corporation was most unusual. Apparently it was commenced by Salvatore Spano and his two sons, Anthony and Diego, each receiving an equal number of shares. The evidence indicated that Anthony had $7,000 removed from his account while his brother Diego purchased his shares for $10,000. It was not clear what was put in by Salvatore Spano but notwithstanding the disparate contributions, each owned one-third of the Payor. Shortly after (within days), the two sons received their father's shares leaving the two brothers as the sole owners of the Payor. Three months later all of the shares were transferred to their father and he became the sole shareholder of the Payor. The explanation for these peculiar dealings was that the boys did not want the responsibility of running the Payor company. Their respective investments in the Payor could not be repaid in cash and in lieu thereof the Payor gave them each a private vehicle at no charge and with unlimited gas, maintenance and insurance costs being paid for by the Payor. The two boys would have to pay a rental fee for these vehicles in the future as determined by Salvatore Spano who operated the Payor. It became clear that Salvatore Spano made all the decisions for not only the Payor but for his whole family.
[14] The business of the Payor was seasonal in that it could do no business before the frost was out of the ground in late April or early May. In a like fashion, the business generally shut down in late September or early October. The regular employees were rehired or dismissed during those periods. However, Anthony Salvatore was kept on the payroll of the Payor till late December or early January in the next year. The explanation given in evidence was that Anthony had mechanical skills he used to winterize the machinery of the Payor. The Payor was not that large a company with so much machinery that would have needed that much repair or maintenance time as was allocated to Anthony. This Court found many of the explanations given by the parties for the unusual dealings as vague and self-serving and in most cases not creditable.
[15] This Court could not find that the Minister exercised his discretion unlawfully. Even though there were some minor changes relative to the facts upon which the Minister relied, they were not significant and the remaining facts unchanged were sufficient to warrant the Minister's determinations. In this instance, the parties were not dealing with each other at arm's length and if they were at arm's length they would not have entered into the arrangement they had having regard to all the circumstances of the employments as described in the relevant paragraphs of each of the Act and the Amended Act. The appeals of Anthony Spano are dismissed.
The appeal of Diego Spano
[16] This Appellant appealed to the Respondent from the ruling that he was not employed in insurable employment while engaged by TBS Paving & Construction Inc., the Payor, for the period from April 7 to December 27, 1996, within the meaning of the Act and the Amended Act. The Respondent confirmed the ruling that the Appellant's engagement with the Payor during the period in question was not insurable employment for the reason that his employment was excepted employment as he and the Payor were not dealing with each other at arm's length within the meaning of paragraph 3(2)(c) of the Act and paragraph 5(2)(i) of the Amended Act. The Respondent exercised his discretion under subparagraph 3(2)(c)(ii) of the Act and paragraph 5(2)(i) of the Amended Act and decided that the contract of employment would not be deemed to be at arm's length.
[17] The facts relied on by the Respondent were set forth in paragraph 5 of the Reply to the Notice of Appeal, most of which facts were supported by the evidence given before this Court in most respects. The differences were not relevant to the final determination made.
[18] Diego Spano had been injured during the 1995 season when he worked as a labourer for his father and the Payor. On returning to his previous employment he found he was unable to perform the same work so the Payor hired him as a salesperson to estimate jobs and to seek out new leads for further business. In a similar fashion, as with his brother Anthony, the same arguments were put forth about his financial involvements with the Payor corporation. His investment in the Payor could not be paid in cash for the transfer of his shares to his father, Salvatore Spano, and in lieu thereof he received a car owned by the Payor at no charge or rental and with unlimited gas, insurance, maintenance costs to be paid by the Payor. At some future time to be determined by Salvatore Spano, Diego would be required to pay a rental charge, the exact timing of which was never made clear to this Court. Once again it was made abundantly clear that Salvatore Spano ran the Payor company and also the lives of each of his two sons.
[19] The same arguments given for Anthony's appeals apply to Diego's appeal relative to such issues as his employment beyond the season of the operation of the business, the method of payment for work with no record of hours involved.
[20] The findings made in paragraph 15 above all apply to this appeal by Diego Spano and that appeal is dismissed accordingly.
[21] It was argued by the Agent for the Appellants in all appeals that they had been denied natural justice because of the manner in which the investigation was carried out by the Respondent. The parties, although notified of the decisions of the Respondent as required by the legislation, were not given disclosure at that stage of the process and for that reason could not determine on what specific facts the determinations were made. The process would appear to be a somewhat complicated system to reply to the Minister's enquiries but he is bound by the contents of the various acts within which he is to operate. The legislation passed did not intend to provide for another whole layer of proceedings to take place prior to the appeal to this Court – it would be an endless and expensive bureaucratic trial for everyone involved to double the process. The Act provides for the Minister to notify the Appellants of his determination and previously provided them with the ability to submit any document or information they wished to attempt to assist the Minister to make his decision in their favour. Once the decision is made the Act provides for appeal to this Court which includes full disclosure and all other protections that would be included in a what is termed "natural justice".
[22] As stated by the late Chief Justice Christie in Italiano v. Canada (M.N.R.) [1998] T.C.J. No. 669:
"The concept of natural justice embodies flexibility and adjustment to particular circumstances related to the making of a decision that is subject to judicial review. The phrase “fair play” has been equated to natural justice. In cases like those at hand whether there is entitlement to benefits depends upon what existed between the alleged employer and employee pertaining to the services rendered. And who is better placed to know about that than they?
In Re Tandy Electronics and United Steel Workers of America et al. (1980), 26 O.R. (2d) 68 Mr. Justice Cory, who delivered the judgment of the Divisional Court of the High Court of Justice, said at page 74:
“The concept of natural justice is an elastic one, that can and should defy precise definition. The application of the principle must vary with the circumstances. How much or how little is encompassed by the term will depend on many factors; to name a few, the nature of the hearing, the nature of the tribunal presiding, the scope and effect of the ruling made.
In some instances the denial of a right to cross-examine may well, in itself, constitute a denial of natural justice. In other situations a restricting or limiting of cross-examination on some aspect or topic could never offend the innate considerations of fairness which comprise the ‘natural justice’ concept.”
[23] In these appeals, all Appellants were duly requested to provide any further documentation or make any inquiries they wished by contacting the Appeals Division of Revenue Canada. These letters of that Department were entered in evidence before this Court and included many references of the Appellants not replying to previous correspondence on as many as three separate occasions. If there was lack of initiative it would appear to come from the Appellants themselves. The Appellants were fully aware of the process and were given guidance by their Agent who knows what is generally required in these types of proceedings. They were given full opportunity to make full disclosure for the Respondent's consideration and they were informed of their rights of appeal. It appeared to have been a fair method of processing the claims and did not show a denial of natural justice.
[24] The final argument put forth by the Agent for the Appellants concerned the authority of the person who actually made the decisions. This subject was raised before Judge Porter of this Court in Bancheri and M.N.R. (96-2405(UI)), dated January 14, 1999 and Bowie J. of this Court in the matter of Janette Lord and M.N.R. and C.D. Lord & Son Ltd. (97-1426(UI)) dated February 11, 1999. I have examined each of these cases at length and have reached the conclusion that Judge Bowie's decision should be followed. Subsection 103(13) of the Act allows for the decisions of the Minister to include decisions by those who are authorized on his behalf to issue documents appearing to be a decision in the course of administration. If they are over the name of the Minister or an officer authorized to exercise the powers or duties of the Minister, then they are deemed to be a decision of the Minister and can only be called into question by the Minister or by a person acting for the Minister. This subsection was intended to ensure that the Act be fairly and expeditiously administered. Every part of the administration process cannot be precisely covered in written legislation – it would be too painstaking and time consuming and would render the process intolerable and interminable and grossly unfair to claimants under the Act.
[25] For these reasons the appeals are dismissed and the Minister's decisions are confirmed.
Signed at Toronto, Ontario, this 27th day of October 1999.
"W.E. MacLatchy"
D.J.T.C.C.