Date: 20050329
Docket: T-104-05
BETWEEN:
ADDISON & LEYEN LTD., CONCREST CORPORATION LTD., JOHN JOSEPH DIETRICH, JEANNETTE MARIE DIETRICH, ROFAMCO INVESTMENTS LTD., WILFRID DANIEL ROACH AND HELEN ANN ROACH
Applicants
(Responding Parties)
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA AND
THE CANADA CUSTOMS AND REVENUE AGENCY
Respondents
(Moving Parties)
REASONS FOR ORDER
KELEN J.
[1] This is a motion by the respondents, heard during general sittings in Calgary, for an order striking out this application for judicial review of income tax assessments on the basis that the Federal Court has no jurisdiction to grant the relief sought by the applicants. The applicants submit that the assessments ought be set aside for abuse of administrative process and unreasonable delay.
FACTS
[2] In September 1989, the applicants Addison & Leyen Ltd., William Roach and Janet Dietrich sold all of their shareholdings in York Beverages (1968) Ltd. (York Beverages) to a third party. In December 1992, the Minister of National Revenue (Minister) issued a notice of reassessment against York Beverages for its taxation year ending in 1989. The assessment was for $3,247,074.05, including penalty and interest. York Beverages filed a notice of objection to the assessment in March 1993.
[3] In February 2001, the Minister issued assessments under section 160 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (ITA) against the applicants. The Minister claimed that because the transfer of shares in York Beverages was non-arm's length, the applicants were jointly and severally liable for the taxes owed by York Beverages, which by 2001, amounted to $6,664,634.60 (comprising of $1,978,665.98 in taxes, $229,527.82 in penalty and $4,456,440.80 in interest). The applicants filed notices of objection in May 2001. To date, the Minister has not responded to the notices of objection filed by York Beverages or the applicants.
[4] The applicants filed this application for judicial review on February 2, 2005 seeking an order that the section 160 assessments and the proceedings taken in relation to the assessments are unlawful or, alternatively, an order quashing the assessments. They allege that the eight-year delay in issuing the section 160 assessments has caused them significant prejudice and amounts to an abuse of process by the Minister. The respondents submit that the Notice of Application ought be struck because the Tax Court of Canada, and not the Federal Court, has exclusive jurisdiction to invalidate a tax assessment.
RELEVANT LEGISLATIVE PROVISIONS FROM THE INCOME TAX ACT
[5] See Appendix "A".
TEST FOR STRIKING OUT PLEADINGS
[6] The test to be applied for striking out pleadings is whether it is plain and obvious that the notice of application is bereft of any possibility of success. David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588 (C.A.). A notice of application ought be struck if the Court lacks jurisdiction to consider the matter.
ANALYSIS
Jurisdiction of the Federal Court to review the assessments
[7] The jurisdiction of the Federal Court to entertain an application for judicial review stems from sections 18 and 18.1 of the Federal Courts Act, R.S.C 1985, c. F-7. While the jurisdiction conferred by these provisions is broad, it is circumscribed by section 18.5 of the Federal Courts Act which states:
| 18.5 Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to the Federal Court, the Federal Court of Appeal, the Supreme Court of Canada, the Court Martial Appeal Court, the Tax Court of Canada, the Governor in Council or the Treasury Board from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act (emphasis added).
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18.5 Par dérogation aux articles 18 et 18.1, lorsqu'une loi fédérale prévoit expressément qu'il peut être interjeté appel, devant la Cour fédérale, la Cour d'appel fédérale, la Cour suprême du Canada, la Cour d'appel de la cour martiale, la Cour canadienne de l'impôt, le gouverneur en conseil ou le Conseil du Trésor, d'une décision ou d'une ordonnance d'un office fédéral, rendue à tout stade des procédures, cette décision ou cette ordonnance ne peut, dans la mesure où elle est susceptible d'un tel appel, faire l'objet de contrôle, de restriction, de prohibition, d'évocation, d'annulation ni d'aucune autre intervention, sauf en conformité avec cette loi. |
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[8] In AgustaWestland International Limited v. Minister of Public Works and Government Services et al. 2004 FC 1545, I considered whether Agusta's application for judicial review should be struck out because there is an adequate alternative statutory remedy which so clearly applies that it renders the judicial review application bereft of any chance of success. In that decision, I held at paragraphs 39 to 41 as follows:
¶ 39 The issue of whether there is an adequate alternate remedy in this case is determined by reference to a test discussed by Justice Lemieux in Telus Integrated Communications v. Canada (Attorney General), (2000) 192 F.T.R. 248, [2000] F.C.J. No. 1263 (Q.L.) at para. 41:
[...] the issue is whether the adequate alternative remedy doctrine so clearly applies as to render the Telus judicial review application bereft of any chance of success.
¶ 40 Telus uses a two-part test which combines the adequate alternate remedy test from the Supreme Court of Canada in Harelkin v. University of Regina, (1979) 96 D.L.R. (3d) 14 and 18, and C.P. Limited v. Matsqui Indian Band et al., (1995) 122 D.L.R. (4th) 129, with the test from the Federal Court of Appeal in David Bull, supra, for striking out a judicial review application.
¶ 41 The adequate alternate remedy doctrine is that the Federal Court, in exercising its discretion on applications for judicial review under section 18.1 of the Federal Courts Act, should not exercise its jurisdiction if there is an adequate alternate remedy provided by Parliament. The Supreme Court held that this adequate alternate remedy doctrine applies even to questions as to the jurisdiction of the alternative statutory appeal authority. See C.P. Limited, supra, per Lamer C.J.C. (as he then was) at paragraphs 31 to 33, 36 and 37.
[9] In the motion to strike the application at bar, I have concluded that there are adequate alternative remedies in this case both with respect to the validity of the tax assessment and the allegations of abuse of power and unreasonable delay.
Right of appeal regarding the validity of the assessments
[10] Pursuant to paragraph 169(1)(b) of the ITA, a taxpayer who has served a notice of objection to an assessment on the Minister has a right to appeal to the Tax Court to have the assessment vacated or varied. The taxpayer may bring this appeal 90 days after serving the notice of objection, if the Minister has taken no action with respect to the assessment. In Main Rehabilitation Co. Ltd. v. Her Majesty the Queen, 2004 FCA 403, the Court held that the issue on appeal to the Tax Court is the validity of the assessment and not the process by which it is established. As stated at paragraph 8:
...Put another way, the question is not whether the CCRA officials exercised their powers properly, but whether the amounts assessed can be shown to be properly owing under the Act...
[11] The Court also held that taxpayers have recourse to other forums to seek vindication for alleged abuses of their rights, including breach of Charter rights. Based on the foregoing, the Federal Court is precluded, by virtue of section 18.5 of the Federal Courts Act, from entertaining an application for judicial review with respect to the validity of a tax assessment which may be appealed to the Tax Court.
Abuse of power and unreasonable delay
[12] The applicants submit that while this Court may be prevented from considering the validity of the assessments, it nonetheless retains common law jurisdiction to address complaints relating to abuse of power and unreasonable delay. In other words, the Federal Court is the "other forum" contemplated by the Court of Appeal in Main, supra. In support of this position, they refer to the decision of the Supreme Court of Canada in Blencoe v. British Columbia (Human Rights Commission), [2000] 2 S.C.R. 307 which concerned delay in the context of a human rights complaint. Although the majority of the Court disposed of the case by reference to section 7 of the Charter, Justice LeBel, for the minority, restricted his analysis to administrative law principles. He held at 389:
.. The common law system has always abhorred delay. In our system's development of the Court's supervisory role over administrative processes through mandamus, we see a crystalizing potential to compel government officers to do their duty and, in so doing, to avoid delay in administrative processes ...
... In Re Preston ... the House of Lords made clear that there could be judicial review of any delay amounting to an abuse of power or breach of natural justice ... unreasonable delay in administrative processes triggers the ancient rights of individuals who suffer prejudice as a result, and it gives the Courts good reason to intervene against injustice. The modern English position, stated by W. Wade and C. Forsyth, Administrative Law (7th ed. 1994), is clear: "A statutory duty must be performed without unreasonable delay, and this may be enforced by mandamus" (emphasis added by Justice LeBel).
[13] The House of Lords decision relied on by Justice LeBel concerned a tax assessment that had been rendered in an abusive and unfair manner.
[14] The applicants argue that the supervisory role which has developed at common law provides the requisite jurisdiction for this Court to consider their application for judicial review. There are four reasons why I do not accede to this position. First, all of the relief sought by the applicants in this application involves setting aside or nullifying the section 160 assessments. In particular, the applicants seek:
1. a declaration that the section 160 assessments are invalid and unlawful;
2. an order restraining the Minister from enforcing the section 160 assessments;
3. an order quashing the section 160 assessments; and,
4. an order that the section 160 assessments be referred back to the Minister for redetermination.
[15] As discussed earlier, subsection 169(1) of the ITA provides the Tax Court, not the Federal Court, with the power to set aside or vary an assessment on appeal. Moreover, subsection 152(8) of the ITA provides that an assessment is deemed to be valid and binding notwithstanding any "error, defect or omission in the assessment or in any proceedings under this Act relating thereto". The respondents submit that this statutory provision means that the assessments are valid and binding even if the Canada Revenue Agency and/or the Minister have breached principles of fairness, have unreasonably delayed the assessment process and have abused administrative power. Parliament has specifically provided that an assessment cannot be invalidated because the tax department acted improperly in issuing an assessment. The language in subsection 152(8) is broad and includes the alleged unfairness, delay and abuse suffered by the applicants. Accordingly, this Court has no jurisdiction to invalidate the assessments as sought by the applicants in their Notice of Application.
[16] This conclusion is supported by recent Federal Court of Appeal jurisprudence. In Attorney General of Canada v. Webster (2003), 312 N.R. 236, the Court held that a taxpayer cannot challenge an assessment by judicial review in the Federal Court on the basis of flaws in the administrative process leading to the assessment. Madam Justice Sharlow stated at paragraphs 20 and 21:
¶ 20 Counsel for Mr. Webster argued that if the Federal Court is not permitted to consider Mr. Webster's application for judicial review, he will have been deprived of a fair hearing of his objection. It is perhaps more accurate to say that once the objection process was complete, Mr. Webster was deprived of an opportunity to argue in the Federal Court, through a judicial review application, that the Minister has an obligation to conduct the objection process fairly, and that the process followed in his particular case was unfair. However, Parliament has spoken on this matter. Whatever flaws there may have been in the objection process in Mr. Webster's case, it resulted in a decision that can be challenged in only one way, and that is by an appeal to the Tax Court.
¶ 21 I would add that the right to appeal an income tax assessment to the Tax Court is a substantial one. The mandate of the Tax Court is to decide, on the basis of a trial at which both parties will have the opportunity to present documentary and oral evidence, whether the assessments under appeal are correct in law, or not. If the assessments are incorrect as a matter of law, it will not matter whether the objection process was flawed. If they are correct they must stand even if the objection process was flawed. (Emphasis added.)
[17] The Court of Appeal makes clear that a judicial review application in the Federal Court is not the appropriate forum in which to challenge a tax assessment on the basis of procedural fairness, unreasonable delay or abuse of power by the tax authorities.
[18] Second, the applicants can seek redress for abuse of process or unreasonable delay through another right of appeal. Under subsection 220(3.1) of the ITA, the applicants may apply to the Minister to waive or cancel all or any portion of the penalty or interest payable under the Act. The "fairness provisions" of section 220 apply to remedy unfairness encountered by the taxpayer. These provisions are of particular relevance to the applicants as they have been assessed for approximately $4.7 million in interest and penalty. The Minister's decision with respect to the application of these fairness provisions is subject to judicial review by this Court.
[19] Third, the applicants also have a right of action for damages in this Court or a provincial superior court based on negligence or abuse of process by officials of the tax department. In Obonsawyn v. R. 2004 TCC 3, Justice Miller considered the appropriate forum for the taxpayer to obtain vindication for an alleged abuse of his rights. He found that the Ontario Superior Court of Justice may have a remedy for the taxpayer in the private law tort of abuse of process or abuse of power. Justice Miller stated at paragraph 14:
... There is also some control over government conduct in the availability of the tort action of the abuse of power. If the Court with jurisdiction of such a tort action takes the view that the appropriate damages should relate entirely to the correct quantum of tax, wrongfully assessed, then its award can be structured to achieve that result. The practical effect would be similar to a declaration the assessment is null and void.
[20] Justice Miller explained that while the Tax Court has exclusive jurisdiction to hear the substantive tax issues, the Ontario Superior Court of Justice has the jurisdiction to hear the private law claims for damages in tort actions. He held at paragraph 17:
There is no overlap of jurisdiction between the Tax Court of Canada and the Ontario Superior Court of Justice; the issues are separate and distinct in the two Courts.
[21] This Court similarly would have the concurrent jurisdiction to entertain such an action in negligence for damages. However, the application before the Court in this proceeding does not seek damages in tort.
[22] Fourth, the applicants could bring an application in this Court for an order of mandamus requiring the Minister to exercise his statutory duty under subsection 165(3) of the ITA and address the notices of objection with "all due dispatch". This is the type of relief contemplated by Justice LeBel in Blencoe, supra, and the House of Lords in Re Preston, supra. Mandamus is the proper type of judicial review in the circumstances of this case, not an application to set aside the assessments.
Section 7 of the Charter
[23] The applicants submit that their section 7 Charter rights are being infringed by the tax department. Section 7 of the Canadian Charter of Rights and Freedoms provides:
Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.
[24] Here the applicants are not deprived of their right to a fair hearing before the Tax Court with respect to the assessments, a right to a fairness hearing under section 220(3.1) of the ITA and the right to commence an action for damages in the Federal Court or a provincial superior court for negligence or the tort of administrative abuse or abuse of process. The cases relied upon by the applicants involve the liberty of a person and the right of a person not to be deprived of his liberty without a fair hearing. In the case at bar, the applicants have the right to a fair hearing and in fact have the right to an appeal to the Tax Court of Canada which they have failed to exercise.
CONCLUSION
[25] The applicants are not the first taxpayers to complain that the tax department has not treated them fairly, has unreasonably delayed the processing of their tax assessment and has administratively abused them. Parliament is aware of such complaints, and has provided in subsection 152(8) of the ITA that an assessment shall be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding relating to the assessment. Moreover, Parliament has provided in section 18.5 of the Federal Courts Act that there is no judicial review in the Federal Court with respect to the validity of an assessment if there is an adequate alternative remedy. When the tax department acts unfairly, abusively or unreasonably, the taxpayer has the following remedies:
1. an appeal to the Tax Court of Canada from the assessment;
2. an appeal to the Minister that the taxpayer has been unfairly, unreasonably or abusively treated whereupon the Minister has the power to waive all penalties and interest assessed against the taxpayer. There is judicial review to the Federal Court from the Minister's decision on the fairness appeal;
3. an action for damages in this Court or a provincial superior court based on negligence or abuse of process by officials of the tax department; and
4. an application for mandamus in this Court that the Minister act without delay.
[26] For these reasons, this Court does not have the jurisdiction to grant the relief sought by the applicants in this application for judicial review. Accordingly, this application for judicial review is bereft of any chance of success and must be struck.
COSTS
[27] In view of the delay by the respondents (Crown) in issuing the section 160 assessments in this case, and the frustration which prompted the applicants to seek judicial review before this Court, no order of costs against the applicants is appropriate in the circumstances.
"Michael A. Kelen" _______________________________
JUDGE
OTTAWA, Ontario
March 29, 2005
APPENDIX"A"
Relevant Legislation from the Income Tax Act
| 152. (8) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding under this Act relating thereto.
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152. (8) Sous réserve des modifications qui peuvent y être apportées ou de son annulation lors d'une opposition ou d'un appel fait en vertu de la présente partie et sous réserve d'une nouvelle cotisation, une cotisation est réputée être valide et exécutoire malgré toute erreur, tout vice de forme ou toute omission dans cette cotisation ou dans toute procédure s'y rattachant en vertu de la présente loi.
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| 160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to [...] (c) a person with whom the person was not dealing at arm's length, the following rules apply: (d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and (e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of (i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and (ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year, but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act. |
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160. (1) Lorsqu'une personne a, depuis le 1er mai 1951, transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes: [...] c) une personne avec laquelle elle avait un lien de dépendance, les règles suivantes s'appliquent: d) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement d'une partie de l'impôt de l'auteur du transfert en vertu de la présente partie pour chaque année d'imposition égale à l'excédent de l'impôt pour l'année sur ce que cet impôt aurait été sans l'application des articles 74.1 à 75.1 de la présente loi et de l'article 74 de la Loi de l'impôt sur le revenu, chapitre 148 des Statuts revisés du Canada de 1952, à l'égard de tout revenu tiré des biens ainsi transférés ou des biens y substitués ou à l'égard de tout gain tiré de la disposition de tels biens; e) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d'un montant égal au moins élevé des montants suivants: (i) l'excédent éventuel de la juste valeur marchande des biens au moment du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien, (ii) le total des montants dont chacun représente un montant que l'auteur du transfert doit payer en vertu de la présente loi au cours de l'année d'imposition dans laquelle les biens ont été transférés ou d'une année d'imposition antérieure ou pour une de ces années; aucune disposition du présent paragraphe n'est toutefois réputée limiter la responsabilité de l'auteur du transfert en vertu de quelque autre disposition de la présente loi. |
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| 165. (3) On receipt of a notice of objection under this section, the Minister shall, with all due dispatch, reconsider the assessment and vacate, confirm or vary the assessment or reassess, and shall thereupon notify the taxpayer in writing of the Minister's action.
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165. (3) Sur réception de l'avis d'opposition, le ministre, avec diligence, examine de nouveau la cotisation et l'annule, la ratifie ou la modifie ou établit une nouvelle cotisation. Dès lors, il avise le contribuable de sa décision par écrit.
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| 169. (1) Where a taxpayer has served notice of objection to an assessment under section 165, the taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied after either
[...]
(b) 90 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed,
but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been mailed to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed.
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169. (1) Lorsqu'un contribuable a signifié un avis d'opposition à une cotisation, prévu à l'article 165, il peut interjeter appel auprès de la Cour canadienne de l'impôt pour faire annuler ou modifier la cotisation:
[...]
b) après l'expiration des 90 jours qui suivent la signification de l'avis d'opposition sans que le ministre ait notifié au contribuable le fait qu'il a annulé ou ratifié la cotisation ou procédé à une nouvelle cotisation;
toutefois, nul appel prévu au présent article ne peut être interjeté après l'expiration des 90 jours qui suivent la date où avis a été expédié par la poste au contribuable, en vertu de l'article 165, portant que le ministre a ratifié la cotisation ou procédé à une nouvelle cotisation. |
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| 220. (3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or partnership and, notwithstanding subsections 152(4) to 152(5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.
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220. (3.1) Le ministre peut, à tout moment, renoncer à tout ou partie de quelque pénalité ou intérêt payable par ailleurs par un contribuable ou une société de personnes en application de la présente loi, ou l'annuler en tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit les cotisations voulues concernant les intérêts et pénalités payables par le contribuable ou la société de personnes pour tenir compte de pareille annulation. |
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FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-104-05
STYLE OF CAUSE: ADDISON & LEYEN LTD., CONCREST
CORPORATION LTD., JEANNETTE MARIE
DIETRICH, JOHN JOSEPH DIETRICH, HELEN
ANN ROACH, WILFRED DANIEL ROACH,
ROFAMCO INVESTMENTS LTD. v. HER
MAJESTY THE QUEEN IN RIGHT OF CANADA
AND THE CANADA CUSTOMS AND REVENUE
AGENCY.
PLACE OF HEARING: CALGARY, ALBERTA
DATE OF HEARING: March 10, 2005
REASONS FOR ORDER: THE HONOURABLE MR. JUSTICE KELEN
APPEARANCES:
Mr. C.D. O'Brien, Q.C./Mr. Curtis Stewart FOR APPLICANTS
Mr. William L. Softley/Ms. Marta Burns FOR RESPONDENT
SOLICITORS OF RECORD:
Bennett Jones LLP
Calgary, Alberta FOR APPLICANTS
John H. Simms, Q.C.
Deputy Attorney General of Canada
Edmonton Regional Office FOR RESPONDENT
FEDERAL COURT
Date: 20050329
Docket: T-104-05
BETWEEN:
ADDISON & LEYEN LTD., CONCREST CORPORATION LTD., JOHN JOSEPH DIETRICH, JEANNETTE MARIE DIETRICH, ROFAMCO INVESTMENTS LTD., WILFRID DANIEL ROACH AND HELEN ANN ROACH
Applicants
(Responding Parties)
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA AND THE CANADA CUSTOMS AND REVENUE AGENCY
Respondents
(Moving Parties)
REASONS FOR ORDER