Tax Court of Canada Judgments

Citation: 2003TCC667

Date: 20030912

Docket: 2002-580(IT)I 2002-831(IT)I

BETWEEN:

ALBERT DAYAN and JAMES DAYAN,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

For the Appellants: The Appellants themselves

Counsel for the Respondent: Joel Oliphant

____________________________________________________________________

REASONS FOR ORDER

(Delivered orally from the Bench at

Toronto, Ontario on April 7, 2003)

Mogan J.

[1]      The appeals of Albert Dayan with respect to the taxation years 1994, 1995, 1996 and 1997 and of his brother, James Dayan, for taxation years 1993, 1994 and 1995 were set down to be heard at Toronto on Monday, February 10, 2003. When the appeals were called for hearing on that day before Sarchuk J., the Appellants did not appear themselves nor did anyone appear representing them prepared to present their appeals or to ask for an adjournment.

[2]      A person did appear in Court, however, sent by either the Appellants or an accounting firm which was retained by them. That person delivered to the Court two statutory declarations, one signed by Albert and the other signed by James. That person identified himself as a messenger for an accounting firm and he did not hold himself out as being the representative for the Appellants. That messenger stated that he assumed that the firm or the company that he represented probably had the Appellants as clients.

[3]      As a result of the Appellants' failure to attend, counsel for the Respondent moved for dismissal of their appeals. Judge Sarchuk granted the motion and on February 19, 2003, he signed a judgment in the case of Albert dismissing his appeals for 1994, 1995, 1996 and 1997, and a judgment in the case of James dismissing his appeals for 1993, 1994 and 1995.

[4]      On February 28, 2003, each Appellant wrote to the Court asking that his respective judgment be set aside. Those letters were treated as motions to set aside the judgments of Judge Sarchuk under section 18.21 of the Tax Court of Canada Act. Those motions were set down to be heard at Toronto on Monday, April 7, 2003. They were called and came on for hearing today. The following is the letter of February 28, 2003 from Albert addressed to the Court:

This is to acknowledge receipt of a copy of the Judgment in the above noted matter.

I was not able to attend my hearing on February 10, 2003 and hereby make application as per Section 18.21 of the Tax Court of Canada Act to have the order of dismissal set aside and the appeal set down for hearing.

My brother James Docket: 2002-831(IT)I and myself were unable to attend and the Respondent's representative Lorraine Edinboro was actively attempting to serve subpoenas for that date. She was aware that we would not be in Court on that date and in fact my brother and I supplied Statutory Declarations together with an explanation regarding our absence. Accordingly, I request the appeal be set aside for a hearing whereupon I will be in attendance on that date.

A similar letter was sent to the Court by James, also dated February 28, 2003, which letter began in the same way as Albert's, but it contains a different reason as follows:

Not only was I not able to attend the hearing because I was out of the country, I also sent a Statutory Declaration on my behalf and also advised the Respondent's representative Lorraine Edinboro who was actively attempting to serve a subpoena upon me for that same date. She was clearly aware that I was not able to be in attendance and accordingly I therefore request the appeal be set aside for a hearing whereupon I will be in attendance on that date.

[5]      In effect, both Appellants say that counsel for the Respondent, Lorraine Edinboro, was aware that they would not be in attendance at Court on February 10. She denies that in an affidavit filed with the Court which states in part:

7.          Contrary to Mr. A. Dayan's letter dated February 28, 2003, I was not aware that he would be unable to attend on his hearing date.

8.          On February 10, 2003, the date of the scheduled hearing, a messenger appeared before the Court on behalf of Mr. A. Dayan and presented his statutory declaration (Exhibit "B"). The messenger explained to the Court that he did not know the Appellant but assumed that his firm represented them. There was no explanation for Mr.A. Dayan's absence.

19.        Contrary to Mr. J. Dayan's letter of February 28, 2003, I was not aware that he would be unable to attend on his hearing date.

20.        On February 10, 2003, the date of the scheduled hearing, a messenger appeared before the Court on behalf of Mr. J. Dayan and presented his statutory declaration (Exhibit "D"). The messenger explained to the Court that he did not know the Appellant but assumed that this firm represented them. There was no explanation for Mr. J. Dayan's absence.

The two statutory declarations referred to as Exhibits B and D to Ms. Edinboro's affidavit are similarly worded. Exhibit B states:

I, Albert Dayan, of 60 Thornbury Circle, Thornhill, Ontario, do solemnly and sincerely declare that I did not with knowledge or gross negligence file my 1994, 1995, 1996, and 1997 personal Canadian income tax returns reflective of fraudulent charitable donation claims. I did in fact contribute monies by way of cheque or cash and did receive a charitable donation receipt in return. I did not acquiesce or participate in any manner with the charity to knowingly mislead Revenue Canada Taxation and I make this solemn declaration conscientiously believing the same to be true.

At the end of the Declaration, there is the name "Albert Dayan" typed and, directly thereunder, a signature which he acknowledged was his; and it continues with "Declared at Toronto, Ontario on the 22nd day of January 2003". I cannot tell who the person was who took the declaration because I cannot make out the signature. The Statutory Declaration of James (Exhibit D) is similarly worded and it says:

I, James Dayan, of 3636 Bathurst Street, Toronto do solemnly and sincerely declare that I did not with knowledge or gross negligence file my 1993, 1994, and 1995 personal Canadian income tax returns reflective of fraudulent charitable donation claims. I did in fact contribute monies by way of cheque or cash and received a charitable donation receipt in return. I did not acquiesce or participate in any manner with the charity to knowingly mislead Revenue Canada Taxation and I make this solemn declaration conscientiously believing the same to be true.

There is also the name "James Dayan" typed with his signature above it and it also continued with "Declared at Toronto on 21st day of January 2003 before me" with a signature I cannot make out.

[6]      Those declarations, however, do not address the Appellants' failure to attend at the hearing on February 10, 2003. As I read the statutory declarations, they appear to be in answer to what is stated in the Replies to the Notices of Appeal. Looking at the substance of the appeal by Albert, according to the assumptions in that Reply, he is alleged to have attached charitable receipts to his income tax returns for 1994, 1995, 1996, and 1997. Those charitable receipts were not accepted by Revenue Canada and reassessments were issued disallowing any tax credits in respect of those receipts.

[7]      Indeed, in Albert's Notice of Appeal, there is considerable detail as to where the receipts came from and by whom they were issued. According to the Minister, they were issued by a man named Edery who apparently was charged and convicted for issuing fraudulent receipts in a tax evasion scheme involving three purported charities. In the Reply to the Notice of Appeal, there are allegations that the Appellant did not make donations to the named charities; that he did not make the donations as recorded in the fraudulent receipts; and that he made misrepresentations that are attributable to neglect, carelessness of wilful default and that the Appellant knowingly or under circumstances of gross negligence failed to make true statements in his return.

[8]      In the Reply to the Notice of Appeal for James, it is a similar situation. He filed his return showing charitable receipts with respect to certain charities, which receipts were not accepted by Revenue Canada. The receipts were apparently issued by the same man, Edery, and there is a statement that he was charged and convicted for issuing fraudulent receipts in respect of a tax evasion scheme involving three purported charities. There were reassessments issued disallowing the tax credits arising from the receipts. There are further statements that the Appellant did not make the donations that he claims he made as recorded in the fraudulent receipts filed. There is also a statement that, when claiming the non-refundable tax credit with respect to the alleged charitable donations, the Appellant made misrepresentations attributable to neglect, carelessness or willful default. There are allegations that the Appellant knowingly or under circumstances amounting to gross negligence made or participated in the making of false statements in his return which justify the penalties. Therefore, the pleadings raise serious questions and issues in dispute between Revenue Canada and each of the Appellants who happen to be brothers.

[9]      The Appellants appeared today on their own motions and both gave evidence. Albert stated that his mother was not well and had not been well for a long time. He and his wife had gone to take care of her and, on February 9, the night before the hearing of the appeal, he had a very serious mouth infection or a problem with his teeth that required emergency dental work. He went to see a dentist and filed with the Court a letter dated February 10, 2003 from Dr. Ilia Novokolsky (Exhibit A-1) stating:

To whom this may concern:

This letter is to confirm that Albert Dayan was seen in our office this morning for a dental emergency.

If further information is required, please do not hesitate to call our office.

Apparently, Albert did see a dentist on the morning of February 10; and I have no reason not to believe him. He stated that because of his very sore mouth, he had telephoned his brother-in-law (also the brother-in-law of James) and asked him to go to the accountants, a firm called Klayman & Company, to have them send someone to Court saying he would not be there. Albert stated that his brother James did his own (i.e. James') tax returns for the years under appeal and that James had no prior connection with Klayman & Company. In other words, it was not an accounting firm which regularly prepared tax returns for James. Therefore, he did not know anybody at Klayman & Company, and apparently they did not know him.

[10]     Albert also said that he works as a machinist with Crown Cork & Seal and had asked for the day off intending to come to Court. According to him, he would not have asked for a day off on February 10 if he had not intended to come to Court. Unfortunately, on his day off, he had this dental emergency and so did not come to Court. Albert's evidence that he intended to come to Court on February 10 and had asked for the day off from work is in conflict with the letter of February 28 (Exhibit R-1) that he wrote to the Court stating in the second paragraph that the Respondent's representative, Lorraine Edinboro, was actively attempting to serve subpoenas for that date. He states that she was aware that he would not be in Court and, in fact, "my brother and I supplied statutory declarations together with an explanation regarding our absence". They did provide statutory declarations but the declarations had no explanation whatsoever regarding their absence. The substance of the statutory declarations addressed the issue whether they had participated or knowingly known about any fraudulent charitable receipts. The declarations did not address the question of a failure to attend on February 10.

[11]     Further, in cross-examination, he stated that it was only on the morning of February 10 that he knew he could not attend. Again, that statement in cross-examination in response to a question from Mr. Oliphant is in direct conflict with his own letter where he says that Lorraine Edinboro knew that he would not be in Court. He said that he had told her that he and his representative would be in Court on February 10 because he had asked for the time off. However, according to her affidavit, he would not say who his representative was going to be.

[12]     James also testified. He is a free-lance accountant and I guess it is in that capacity that he used to do his brother's tax returns. He stated that his brother Albert was not involved in what he called the legalities of this matter. James was in New York City around February 9, 2003. These two Appellants have a third brother, Joseph Dayan, who died on November 11, 2002, and, following a religious custom within their family, there was a type of memorial service in New York on or about February 9, 2003 which was the third month after Joseph Dayan's death. James had gone to New York City on February 7. He produced a hotel bill showing that he was there from February 7 to February 10. I would have believed him even without the hotel bill, and counsel for the Respondent also acknowledged that producing the hotel bill was not necessary, but he did bring it to Court. James said this was an important family function because his brother Joseph had only one son, and he wanted to be there with him for this event. And so James was out of the country on February 10 but he claimed that he had made arrangements to have someone come to Court to ask for an adjournment.

[13]     The hard fact is that nobody came. Nobody asked for an adjournment. An unnamed messenger showed up at the Court that morning (February 10) and produced two statutory declarations which I have read into the record. These were relatively benign documents insofar as seeking an adjournment is concerned. As I have indicated, the statutory declarations are directed only at the question of whether the payments were made bona fide to the named charities or whether there was any bad faith or misrepresentation or negligence involved in the filing of the returns and claiming these charitable receipts. They are more like a statement of defence than a statutory declaration. They do not offer the Court any reason to grant an adjournment.

[14]     Those are the underlying facts in regard to these applications to set aside the judgments issued by Judge Sarchuk on February 19 with respect to each of these cases. The application comes under section 18.21 of the Tax Court of Canada Act and subsection (1) states:

18.21(1)            Where an Appellant does not appear on the day fixed for the hearing, or obtain an adjournment of the hearing, of an appeal, the Court shall, on application by the respondent and whether or not the Appellant has received notice of the application, order that the appeal be dismissed, unless the Court is of the opinion that circumstances justify that the appeal be set down for hearing at a later date.

Apparently, Judge Sarchuk was not satisfied that there were circumstances justifying a later hearing date because he dismissed the appeals. Subsection 18.21(3) gives the Court jurisdiction to set aside a judgment made for failure to attend:

(3)         The Court may set aside an order of dismissal made under subsection (1) where

(a)         it would have been unreasonable in the circumstances for the Appellants to attend at the hearing; and

(b)         the Appellant applied to have the order of dismissal set aside as soon as circumstances permitted the application to be brought but, in any event, not later than one hundred and eighty days after the day on which the order was mailed to the Appellant.

There is no doubt that the Appellants have both satisfied the second condition, that is the prompt application to the Court to set aside the judgments because they applied on February 28 which was only nine days after Judge Sarchuk had signed his order dismissing the appeals. They promptly applied to the Court. The question is whether the Appellants satisfied the first condition in paragraph (a) having regard to whether it would have been unreasonable in all the circumstance for the Appellants to attend at the hearing.

[15]     Counsel for the Respondent referred me to the decision of Judge Bowman in Diem v. The Queen, [1999] T.C.J. No. 359, where he declined to reopen a hearing because he looked at the substance of the appeal and saw that the taxpayer was hopelessly barred from satisfying a time limit for removing certain properties out of the country within 60 days of their purchase in order to avoid goods and services tax. Judge Bowman stated at paragraph 8: "In considering whether to set aside the dismissal one of the factors that should be taken into account is whether there is any merit in the appeal". He then found that there was no merit in the appeal because he had no discretion to extend the time; and so he declined to open it indicating that the judge who sits on an application under section 18.21 is entitled to look at the substance of the appeal, the real questions that are brought before the Court in the Notice of Appeal and Reply in considering whether to reopen.

[16]     This was also considered by Judge Hershfield in Rochelle Moss v. The Queen, [2001] T.C.J. 592. That case had to do with the extension of time to file a Notice of Objection which is different from an appeal. There had been an Order made dismissing the taxpayer's application to extend time, and the taxpayer was seeking to set aside the Order. Judge Hershfield wrote quite extensive reasons and at paragraph 20 of his decision, he referred to Judge Bowman's decision in Diem, supra, and said: " ... when considering an application under subsection 18.21(2), one of the factors that should be taken into account is the merit of the appeal". He then went on to distinguish that, because he was not dealing with an appeal per se, but with an application to extend time. I conclude that it is appropriate for a judge hearing an application under section 18.21 to consider the merits of the case.

[17]     In one sense, I could look at the appeal of James and say it would have been unreasonable in all the circumstances for the Appellant to attend at the hearing because he was out of the country on a compassionate journey having to do with the recent death of his brother. If I were to take that into account, I could look at his failure to notify counsel for the Respondent that he would not attend as an act of discourtesy. Similarly, his failure to give notice to the Court that he either would not attend or needed an adjournment might be regarded as a discourtesy. While failure to give notice might reflect a lack of courtesy, it may not take away from the fact that it was reasonable for James not to be in Toronto on February 10.

[18]     Similarly with Albert, he had a serious mouth illness the evening before the hearing and made a call to his brother-in-law on the basis that the brother-in-law would go to an accounting firm and ask them to send somebody to seek an adjournment or say that he could not come. He said that he had asked for the day off.

[19]     I am troubled by the fact that both of the Appellants in their letters said that Lorraine Edinboro was aware that they would not be in Court. Albert says that clearly in his letter of February 28 and James makes the same statement in his letter of February 28: "She was clearly aware that I was not able to be in attendance and accordingly, I therefore request the appeal be set aside for a hearing." Although this allegation is not considered in the affidavit of Lorraine Edinboro, in my view, it is a material fact which ought to have been considered. Counsel for the Respondent, Mr. Oliphant, stated that in fact, Ms. Edinboro came to Court on February 10 as is apparent from the certified transcript of the proceedings which was not put in evidence but offered to the Court. Mr. Oliphant stated that Ms. Edinboro had two witnesses with her on February 10, one being Mr. Edery who was the person who issued the receipts and who apparently was charged with and convicted of issuing fraudulent receipts in a tax evasion scheme involving three purported charities. I assume that Mr. Edery's testimony would have been significant because, when an issue like fraud set out in the pleadings, the question would be whether the facts represented in the tax return were in fact a misrepresentation by fraud or gross negligence. The question was a serious one.

[20]     According to Mr. Oliphant, the Crown also had in attendance a second witness identified as Frank Menitti who is a special investigator for Revenue Canada and who, I assume, investigated this whole matter of alleged fraudulent receipts. Upon an application to set aside a judgment under section 18.21 of the Tax Court of Canada Act, does the seriousness of the issue before the Court make it more desirable to reopen a hearing in circumstances like this, or is it less desirable to reopen a hearing because the parties have instituted appeals on a serious matter but have failed to appear on the day fixed for the hearing? One can see arguments on both sides.

[21]     When an Appellant has failed to appear on the day fixed for the hearing of his/her appeal, and when an order has been made dismissing the appeal, I have some doubt as to whether a judge (upon an application under section 18.21 of the Tax Court of Canada Act) should refuse to set aside an Order if the matter is trivial but reopen the hearing if the matter is serious. Conversely, I have some doubt as to whether a judge should refuse to set aside an Order if the matter is serious but reopen the hearing if the matter is trivial.

[22]     In these two appeals, the fact which influences me most and causes me not to set aside the judgments is this. The Respondent was in Court on February 10, 2003 with two witnesses. One of those witnesses was not an employee of Revenue Canada but was the person who had been through the painful experience of being charged with and convicted of an offence related directly to the transactions in issue in these appeals. To bring that person to this Court to testify as a witness for the Crown was a very serious matter. There may have been considerable inconvenience in getting that witness to come to Court on that day.

[23]     The two Appellants failed to take this matter seriously. Their failure to attend on February 10, 2003 was, at first blush, a grave discourtesy both to the opposing counsel, who went to the trouble of bringing two witnesses to Court and coming herself, and to the Court itself. This court is centred in Ottawa and judges are sent from Ottawa to hear cases. A case like this would be regarded as significant, probably consuming the whole day. A judge came from Ottawa to sit on February 10 expecting to adjudicate on this matter. The Appellants did not show up.

[24]     I accept Albert's evidence that he did have a toothache or a mouth infection on the evening before but, what impressed me about that part of the evidence was his scrambling to get somebody here Monday morning. He said he had someone who was going to help him and that he had taken the day off work. If he had arranged for someone to be with him in Court, someone would have shown up. There would have been somebody in Court who could have said that he or she expected to meet Albert Dayan here. It appears that he had not arranged for anyone to assist him in Court.

[25]     The only person who came delivered these two statutory declarations which had absolutely nothing to do with the failure of the two Appellants to attend. The statutory declarations are more like Statements of Defence. They are directed at the merits of the case as to whether the charitable receipts were bona fide or fraudulent. They perhaps should have been attached to the Notices of Appeal. They have nothing to do with the failure to attend.

[26]     As for James who went to New York for the memorial service, he did not consider the matter sufficiently important to make specific arrangements for someone to show up in his absence knowing he would not be here. I accept the affidavit evidence of Lorraine Edinboro. She has no reason not to be truthful. She arranged to bring to Court a witness from Revenue Canada who had investigated the matter and, more importantly, she arranged to bring to Court a witness who had no connection with her client and who would, in a sense, have a contrary interest because Mr. Edery had been through such a painful experience in being charged with and convicted of a serious offence. She came to Court that day ready to litigate. The issues were truly serious. The Replies to the Notices of Appeal contain words like "fraud", "misrepresentation", "phoney receipts" and "knowingly making false statements in returns". These two Appellants had every reason to take their appeals seriously. The two appeals related to the very truthfulness of the charitable receipts which were the subject of the Notices of Appeal, but neither one of the Appellants took any steps to notify the Court that they would not attend on February 10 or to notify counsel for the Respondent, which might have saved her the inconvenience of bringing two witnesses to Court.

[27]     The Appellants treated the Notice of Hearing as a casual matter; and the only person they sent to Court was some unnamed messenger who delivered a couple of statutory declarations which did not address their failure to attend but related only to the merits of the appeals. Having regard to the statements in the two letters of February 28 from the two Appellants that counsel for the Respondent was aware that they would not be in Court on February 10, 2003, I simply do not believe those statements. I accept the evidence in the affidavit of Ms. Edinboro that she did not know they would not attend and, indeed, the statement in her affidavit is corroborated by the fact that she came to Court with two witnesses. A responsible lawyer would not bring witnesses to Court if she had been told in advance that there was not going to be any hearing because the Appellants were not going to show up.

[28]     To the extent that there is a conflict in the statements made in the two letters of February 28 from the Appellants, and the statements made in the affidavit of Ms. Edinboro and the undertaking given by Mr. Oliphant that he was speaking truthfully as a member of the Bar when he said that those witnesses were in attendance in court on February 10, 2003, I accept the statements of Ms. Edinboro and Mr. Oliphant. For me, that is an overpowering reason not to set aside the judgments of Judge Sarchuk. The motions by Albert Dayan and James Dayan are dismissed. The judgments of Judge Sarchuk will stand.

Signed at Ottawa, Canada, this 12th day of September, 2003.

"M.A. Mogan"

CITATION:

2003TCC667

COURT FILE NOS.:

2002-580(IT)I and 2002-831(IT)I

STYLE OF CAUSE:

Albert Dayan and James Dayan and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

April 7, 2003

REASONS FOR JUDGMENT BY:

The Honourable Mr. Justice M.A. Mogan

DATE OF JUDGMENTS:

April 17, 2003

APPEARANCES:

For the Appellants:

The Appellants themselves

Counsel for the Respondent:

Joel Oliphant

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada