Date: 20020110
Docket: A-522-00
A-523-00
A-524-00
A-525-00
Neutral citation: 2002 FCA 7
CORAM: STONE J.A.
Docket: A-522-00
BETWEEN:
MICHAEL BELL
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-523-00
BETWEEN:
DAVID H. ARMSTRONG
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-524-00
BETWEEN:
W. RICHARD LOVE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-525-00
BETWEEN:
P. KIMBALL SCALES
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Ottawa, Ontario on January 8, 2002.
Judgment delivered at Ottawa, Ontario on January 10, 2002.
REASONS FOR JUDGMENT BY:
CONCURRED IN BY:
CONCURRING REASONS BY:
CONCURRING REASONS IN RESULT ONLY BY:
DISSENTING REASONS BY:
Date: 20020110
Docket: A-522-00
Neutral citation: 2002 FCA 7
CORAM: STONE J.A.
Docket: A-522-00
BETWEEN:
MICHAEL BELL
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-523-00
BETWEEN:
DAVID H. ARMSTRONG
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-524-00
BETWEEN:
W. RICHARD LOVE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
_____________________________________________
Docket: A-525-00
BETWEEN:
P. KIMBALL SCALES
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
[1] The four appellants challenge the decision of a Tax Court Judge rendered on July 21, 2000, reported as Armstrong v. Canada, 2000 D.T.C. 2347, [2000] 3 C.T.C. 2759 (T.C.C.), dismissing the appellants' claims for business losses in respect of a real estate project.
[2] The appellants were participants in two real estate projects, the Wellington and the Rosemount, that had been promoted by a group of individuals that included Glenn Lucas and Gary Simpson. The Wellington was held directly by the participants as tenants in common. The Rosemount was held through a partnership in which the participants were partners.
[3] It appears that for income tax purposes, the book value of the Rosemount had been written down to its fair market value and the resulting loss allocated to the partners. In filing their 1991 returns (1992 in the case of the appellant Bell), each of the appellants claimed a deduction on income account for their share of the writedown, approximately $22,000 each.
[4] With respect to the Wellington, each of the appellants in filing their 1987 returns had claimed a tax deduction in respect of their expenditures to that date. In their 1991 returns they each claimed their remaining Wellington expenditures as business losses. The amount of the losses claimed by each appellant was approximately $13,000.
[5] The appellants' 1991 income tax returns (and the 1992 return of the appellant Bell) were reassessed to disallow the Rosemount and Wellington losses on the basis that they were capital losses, not business losses. The appellants filed notices of appeal in the Tax Court and argued that the losses were business losses, or alternatively if they were capital losses, they should be "allowable business investment losses" (ABILs).
[6] The Tax Court Judge held that the reassessments were correct in so far as the Wellington losses were treated as capital losses. However, the Rosemount losses were allowed as business losses on the basis of an agreement presented at the commencement of the Tax Court trial. That agreement was motivated in part by the result of another Tax Court appeal: Grant v. Canada, 2000 D.T.C. 1985, [2000] 2 C.T.C. 2587 (T.C.C.). That case is discussed in greater detail below.
[7] Pursuant to the agreement, the appellants abandoned certain issues relating to waivers and their alternative claim that the Wellington losses should be treated as ABILs. The sole issue before the Tax Court Judge was whether the Wellington losses were capital or business losses.
[8] No evidence was adduced in the Tax Court. The appellants relied on the pleadings to establish the legal character of the Wellington transaction, which does not appear to have been seriously disputed. In support of their argument that the appellants held their interests in the Wellington on income account, the appellants relied on three things: an admission by counsel for the Crown as to the speculative intent of the project promoters, the Crown's concession that the Rosemount losses were on income account, and the judicial findings of fact in the Grant case.
[9] The absence of evidence was fatal to the appellants's case. The Tax Court Judge held that the appellants had failed to establish that the Crown was wrong to treat the appellants' interests in the Wellington as capital property. On that basis she concluded that the reassessments must be confirmed in so far as they treated the Wellington losses as capital losses. In my view the Tax Court Judge was correct, for the following reasons.
[10] First, the appellants' argument is based on the premise that whenever a number of persons invest in the same property, the character of the property for income tax purposes is always determined on the basis of the intention of the dominant person in the group. The appellants find support for their premise in the many cases involving property held in partnership, where the intention of the partners and thus the partnership is determined by reference to the dominant partner; see, for example, Lane v. Canada (Minister of National Revenue - M.N.R.), [1964] Ex.C.R. 866, [1964] C.T.C. 81, 64 D.T.C. 5049 (affirmed, sub. nom. Robertson v. Canada (Minister of National Revenue - M.N.R.), [1967] S.C.R. 587, 67 D.T.C. 5283).
[11] The reasoning in Lane cannot be imported automatically to situations where property is not held in partnership. Where property is owned by tenants in common and there is no bar to the separate disposition of the interest of a co-tenant, it is a question of fact whether there is a dominant or directing mind for the group. Where a dominant party is found to exist, it is because there is evidence that some co-owners have expressly or implicitly acquiesced in decisions made by the dominant co-owner with respect to the property.
[12] In this case the appellants held their interests in the Wellington as tenants in common. There was nothing in the pleadings or any of the Crown's admissions to suggest or establish that the co-owners could not or would not deal with their separate interests as they saw fit. Therefore, the Tax Court Judge had no basis for applying the principle in Lane to attribute to the appellants the admitted speculative intent of the promoters.
[13] Second, the Crown's concession that the appellants' Rosemount losses were on income account is not relevant to the question of the tax character of the appellants' Wellington losses. It is trite law that a taxpayer may hold some real estate as capital property while holding other real estate on income account.
[14] Third, the Tax Court Judge correctly disregarded the judicial findings of fact in the Grant case. In doing so she relied on Pompa v. Canada (1994), 175 N.R. 148, [1995] 1 C.T.C. 466, 94 D.T.C. 6630 (F.C.A.). The situation in Pompa was quite unlike the situation in this case. In Pompa, a Tax Court Judge was held to have erred by referring to facts that had come to his attention in another Tax Court proceeding. The legal basis of the error was that his reference to the facts in the other case gave rise to a reasonable apprehension of bias. That is apparent from the following excerpt from the reasons for decision:
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(Original) Il est important de souligner que Côté n'a pas témoigné dans le présent dossier et que personne, lors de l'audience, n'a fait la moindre allusion au dossier Côté. |
(English Translation) It is important to note that Côté did not testify in the case at bar and that at the hearing no one made the slightest reference to the Côté case. |
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S'il est un principe de droit bien établi, c'est celui qui veut qu'un juge ne puisse tenir compte des faits venus directement à sa connaissance dans le cadre d'un autre litige pour décider du sort d'un litige dans lequel ces faits n'ont pas été mis en preuve.__Un juge n'a tout simplement pas connaissance d'office de ce qu'il a appris dans un autre litige (voir Sopinka, Lederman & Bryant, The Law of Evidence in Canada, Butterworths, Toronto, 1992, p. 985) et il manque grandement à son devoir de neutralité s'il se sert de cette connaissance (voir Ducharme, Précis de la preuve, 3 édition, Wilson, Lafleur, Montréal, 1986, p. 17).__Ainsi que le note le professeur Ducharme, "la neutralité du juge est la meilleure garantie de son impartialité". |
If there is one well-settled rule of law it is that a judge cannot take cognizance of facts coming directly to his attention in the course of another proceeding to decide on the fate of a proceeding in which those facts were not entered in evidence.__A judge simply does not have any ex officio knowledge of what he learned in another case (see Sopinka, Lederman & Bryant, The Law of Evidence in Canada, Butterworths, Toronto, 1992, p. 985) and he is failing greatly in his duty of neutrality if he makes use of such knowledge (see Ducharme, Précis de la preuve, 3d ed., Wilson and Lafleur, Montréal, 1986, p. 17).__As Prof. Ducharme observes, "the judge's neutrality is the best guarantee of his impartiality". |
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En l'espèce, non seulement le juge s'est-il permis de faire état de faits qui n'étaient pas en preuve, mais il s'est de plus servi du dossier comme prétexte pour régler avec le requérant et ses procureurs, ex parte, des comptes qu'il avait de toute évidence retenus d'une affaire antérieure. |
In the case at bar not only did the judge undertake to consider facts which were not in evidence, but in addition he used the record as a pretext for an ex parte settlement with the applicant and his counsel of accounts which he had clearly carried over from an earlier case. |
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L'intimé, qui est la victime malheureuse de cette vendetta, nous invite à considérer ces commentaires, dont il ne s'explique pas lui non plus la pertinence, comme un simple obiter dictum et soutient que cet obiter, si regrettable soit-il, ne saurait suffire dans les circonstances à vicier la décision rendue. |
The respondent, who was the unfortunate victim of this vendetta, invited the Court to consider these comments, the relevance of which he could not understand either, simply as an obiter dictum and maintained that, however unfortunate that obiter might be, it could not suffice in the circumstances to vitiate the decision made. |
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Ainsi que le rappelait le juge Dickson (il n'était pas encore juge en chef) dans Kane c. Cons. d'administration de l'U.C.B., [1980]__1 RCS 1105, à la page 1116, "nous ne sommes pas concernés ici par la preuve de l'existence d'un préjudice réel mais plutôt par la possibilité ou la probabililé qu'aux yeux des gens raisonnables, il existe un préjudice". |
As Dickson J. (as he then was) observed in Kane v. Brd. of Governors of U.B.C., [1980] 1 S.C.R. 1105, at 1116, "We are not here concerned with proof of actual prejudice, but rather with the possibility or the likelihood of prejudice in the eyes of reasonable persons". |
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Or, tel qu'il appert de l'extrait plus haut cité, le juge a fondé en partie son appréciation de la crédibilité de l'intimé sur ces faits dont il n'avait pas le droit de prendre connaissance. |
As appears from the passage cited above, the judge based his assessment of the respondent's credibility in part on these facts which he did not have the right to consider. |
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De plus, la nature, la longueur et la véhémence des propos formulés, de même que le caractère tout à fait injuste des accusations proférées, le fussent-ils en obiter, ne peuvent que colorer le processus dans son entier et rendre suspectes aux yeux de l'observateur le moindrement averti aussi bien la démarche du juge que la conclusion à laquelle il en est arrivé. |
Further, the nature, length and vehemence of the statements made, as well as the completely unfair nature of the accusations levelled, whether obiter or not, could only taint the entire proceeding and render both the judge's approach and the conclusion he arrived at suspect to even the most casual observer. |
[15] There is and can be no suggestion in this case of a reasonable apprehension of bias. Nevertheless the judicial findings of fact in Grant are not admissible as evidence in this case. The reason for this is aptly summarized in this excerpt from John Sopinka, Sidney N. Lederman and Alan W. Bryant, The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999) at § 19.145 (page 1118):
A prior judicial decision will have conclusive effect in cases where the party to the proceedings makes out a case of res judicata or issue estoppel. However, as the above discussion shows, the application of these principles is limited by various factors, most important of which is that the issue must have arisen as between the parties and their privies.
[16] In the circumstances of this case, the appellants have no basis for an argument based on res judicata or issue estoppel in relation to the Wellington project. The appellants in this case and the appellants in Grant are not the same, nor is there any privity of interest that precludes the Crown from arguing that the appellants' interests in the Wellington are on capital account. Most importantly, however, there is no judicial finding of fact in the Grant case that anyone who participated in the Wellington project did so on income account.
[17] The appellants in the Grant case were three individuals, Patricia Ann Grant, George Grant and Brian Markell, who had invested in three projects promoted by Mr. Lucas and Mr. Simpson. One was the Wellington. It was in issue in Grant because Mr. Markell had claimed an ABIL with respect to his Wellington expenditures. The Minister denied the ABIL, but allowed a capital loss. The Tax Court Judge held that the evidence did not establish that Mr. Markell had acquired shares or debt that could form the basis of an ABIL.
[18] The other two projects in issue in the Grant case were "Queen Street" and "Studio 2000". The Tax Court Judge in Grant held that the losses of all three appellants with respect to Queen Street and Studio 2000 were business losses. That conclusion was based in part on the sworn testimony of the appellants in Grant that they had the same speculative intent as the promoters. However, that evidence is simply not capable of proving that the appellants in this case, who acquired interests in the Wellington as tenants in common, had the same intention.
[19] For these reasons, these appeals must be dismissed with respect to the substantive issue.
[20] The Tax Court Judge awarded costs to the Crown. The appellants have appealed that aspect of her decision on the basis that she erred in failing to recognize that the appellants had succeeded without a trial in respect of Rosemount. Counsel for the Crown argues that the Tax Court Judge did not err in the award of costs. However, he accepts that the Crown should be limited to only one set of counsel fees for all four appeals, and has undertaken to limit the Crown's claim in that respect.
[21] I am not persuaded that the Tax Court Judge erred in exercising her discretion to award costs to the Crown primarily on the basis of the only issue to proceed to trial, the tax character of the Wellington losses. I agree with counsel for the Crown that only one set of counsel fees should have been awarded, but in light of his undertaking to claim only one set of counsel fees, it seems to me unnecessary to clarify the order of the Tax Court Judge in that respect.
[22] These appeals should be dismissed with costs. The Crown should be limited to one set of counsel fees in this Court for all four appeals.
K. Sharlow
J.A.
" I agree
A. J. Stone J.A. "
" I agree
Marshall Rothatein J.A. "
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-522-00, A-523-00, A-524-00, A-525-00
STYLE OF CAUSE: Michael Bell v. Her Majesty the Queen
David H. Armstrong v. Her Majesty the Queen W. Richard Love v. Her Majesty the Queen P. Kimball Scales v. Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: January 8, 2002
REASONS FOR JUDGMENTBY: Sharlow J.A.
CONCURRED IN BY: Stone J.A. Rothstein J.A.
DATED: January 10, 2002
APPEARANCES:
Ms. Shelley J. Kamin FOR THE APPELLANT
SOLICITORS OF RECORD:
Shelley J. Kamin FOR THE APPELLANT Ottawa, Ontario
Mr. Roger Leclaire FOR THE RESPONDENT Mr. Ifeanyi Nwachukwu
Morris Rosenberg FOR THE RESPONDENT Deputy Attorney General of Canada