Tax Court of Canada Judgments

Docket: 1999-4937(IT)G

BETWEEN:

CONSTANTIN DELLO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Motion heard on July 27, 2004, at Montréal, Quebec.

Before: The Honourable Justice P. Bédard
Appearances:
Counsel for the Appellant:	Christopher R. Mostovac
Counsel for the Respondent:	Bernard Fontaine

ORDER

          Upon motion made by counsel for the Appellant requesting that the Notice of Appeal be amended;

          And upon hearing what was alleged by the parties;

          The motion is granted in accordance with the terms of the attached Reasons for Order.

Signed at Ottawa, Canada, this 1st day of December 2004.

"Paul Bédard"

Bédard, J.

Citation: 2004TCC754

Date: 20041201

Docket: 1999-4937(IT)G

BETWEEN:

CONSTANTIN DELLO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR ORDER

Bédard, J.

[1]      This is a motion by the appellant requesting an order permitting him to amend his Notice of Appeal pursuant to section 54 of the Tax Court of Canada Rules (General Procedure) (the "Tax Court Rules"). In essence, the appellant wants to be able to claim further expenses (the "new expenses") his accountant neglected to claim for the 1991, 1992, 1993 and 1994 taxation years.

Background

[2]      This issue was initially supposed to be heard by my colleague Judge Dussault on March 11, 2003, together with the issue of who, between the appellant and his corporation, can claim the expenses (the "first issue"). However, it was decided not too long before the beginning of that hearing that only the first issue would be heard that day. Judge Dussault eventually held, on June 10, 2003, that it was the appellant who could claim the expenses, and not his corporation (2003 TCC 392).

[3]      During oral argument before me, counsel for the appellant admitted that, had both issues been heard by Judge Dussault as originally scheduled, it would have been a "risky" situation and they might have been "stuck" since the new expenses were not included in the Notice of Appeal (transcript, pp. 40-41). In that case, they would have had to ask Judge Dussault for an adjournment so that the appellant could file a motion to amend the Notice of Appeal in order to include the new expenses. This is not to say, according to counsel, that one or both requests might have been denied by the Court, but that is not relevant to the present proceedings (transcript, pp. 41-42). I agree that it is at least not determinative.

[4]      It was after the first hearing that the appellant apparently started actively looking for further supporting documents with respect to these new expenses. This is how he summarized the events in his affidavit dated April 6, 2004:

6.         Further to this judgment, and in preparation for the second part of the contestation, I discovered that my accountant during the years in litigation, Mr Paul Odiong, had clearly failed to provide the Revenue Canada Auditor with the expenses incurred in respect of the above-mentioned income.

7.         Shortly after the audit, Mr Paul Odiong disappeared and I was not able to trace his whereabouts.

8.         When I was finally able to access Mr Odiong's office, very few of my files were found, mixed in with files of other corporations and individuals.

9.         The largest portion of my files was located in a dumpster situated in the basement of Mr Odiong's office building, where files of other clients were also found. The dumpster was kept for several years due principally to the consideration of the building janitor.

10.       Amongst the files left or thrown-out [sic] by my accountant, I found documentary evidence supporting the fact that the expenses claimed by my accountant should have been higher than what was actually claimed.

11.       Since locating those originals [sic] documents indicating the scope of my expenses, I have spent the last two years obtaining further support for these expenses by contacting Mr Odiong's clients whose files were mixed into my documents and who had some of my own files. I received, even as late as last week, additional cancelled cheques paid to engineers who worked for me and/or my frim [sic].

[5]      While this version of events was confirmed during the examination of the appellant, and was not challenged to any great extent by the respondent, the appellant still provided some clarification regarding his affidavit. He testified that the accountant disappeared, and was possibly killed, while working for the government of the Republic of Sudan. The appellant said it was shortly after that disappearance in 1998 that he entered his accountant's office, with the janitor's permission (transcript, pp. 4-6). It was only after the first hearing, however, that the appellant stepped up his efforts to recuperate the missing documents from the

taxpayers named on documents that he found in his file. The appellant explained the circumstances as follows at p. 7 of the transcript:

A.        . . . Anyway, when I realized that I had to answer personally, I started getting very worried and I dug out all the different company names and private individuals. I telephoned them, I said, "I have some of your files, do you have any of my files?" None of the people I contacted wanted to be involved, they were too worried.

Q.        Why were they worried, Mr. Dello?

A.        Because their files were in the same mess as mine. They worried about being audited naturally. So they, most of them refused to get involved, but mutually was agreed we would send each other our files or whatever we could find without, incognito or how would you say that.

And at p. 19 he stated:

A.        After, of course when it became obvious to me that all this income is going to be charged to me personably [sic] without backup vouchers, of course I started getting very nervous and did a lot of phone calls. Did phone calls which I've done before and called again and told people how serious and how much trouble I was. So some people took their trouble and started looking a bit harder. But most of the documents are coming out of files that are opened by chance and they find some cheques, oh, these are Dello's cheques. But I had agreed to send anything I find to them.

[6]      Following these new attempts, the appellant did receive, and might still be receiving, additional documents supporting, according to him, his claim for the new expenses (transcript, p. 17). The appellant agrees, however, that there needs to be a point at which we cannot wait any longer for these documents to arrive by mail. He therefore determined the cut-off date to be the date he signed his affidavit, namely, April 6, 2004 (transcript, pp. 7-8).

[7]      The appellant did admit during the hearing that a big part of the new expenses consisted of money paid to 12 independent contractors in 1991 with respect to an engineering contract worth $90,000. Most, if not all, of those contractors would have been paid cash since the appellant had a bad reputation for having checks bounce. While the appellant had not yet found the invoices for those payments, he was confident that he would eventually find them. For discussions regarding the contract, see pp. 24, 26, 27, 28, 30, 31, 53, 60, 63, 64 and 66 of the transcript.

Analysis and Decision

[8]      Section 54 of the Tax Court Rules provides that a Tax Court judge may allow an amendment, and in doing so the judge "may impose such terms as are just". Other courts across the country have similar rules. For example, under rule 75(1) of the Federal Court Rules, 1998, "the Court may, on motion, at any time, allow a party to amend a document, on such terms as will protect the rights of all parties". Rule 75(2) provides for basic limitations as to the circumstances in which amendments may be requested during or after the hearing, so as to protect the rights of the opposing party. Under rule 26.01 of the Ontario Rules of Civil Procedure, the court must allow the amendment "on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment". However, under rule 5.04, a judge would still have discretion to deny an amendment: Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 56 O.R. (3d) 768 (Ont. C.A.).

[9]      It therefore follows that the cases concerning these various rules apply similar principles. For an overview of all these cases, it is worth referring to the following: McMechan and Bourgard, Tax Court Practice; Sgayias et al., Federal Court Practice, 2004; and Watson and McGowan, OntarioCivil Practice, 2004. In some instances, courts will even rely on cases dealing with the rules of other courts.[1] Of all the cases that exist in this area, some are particularly worth noting for a better understanding of the general principles.

[10]     In Visx Inc. v. Nidek Co., [1998] F.C.J. No. 1766 (QL) (F.C.A.), the Federal Court of Appeal allowed the amendment of the statement of defence even in the face of what seemed to be a lack of cooperation on the defendant's part:

1 This appeal arises in the course of lengthy interlocutory proceedings in a patent action which was commenced more than four years ago. The appellant appeals from an order refusing the right to amend its statement of defence and counterclaim. It should be noted that the defendant has already amended its statement of defence on at least five different occasions. We believe that the appellant has had ample chance to present its pleading and we deplore the delay which has resulted. Nevertheless we must have regard to Meyer v. Canada (1986), 62 N.R. 70 (F.C.A.), at page 72, in which this Court approved the following statement from Steward v. North Metropolitan Tramways Co. (1886), 16 Q.B.D. 556:

The rule of conduct of the Court in such a case is that, however negligent or careless may have been the first omission, and however late the proposed amendment, the amendment should be allowed, if it can be made without injustice to the other side. There is no injustice if the other side can be compensated by costs; but, if the amendment will put them into such a position that they must be injured, it ought not to be made.

This case was quoted with approval by this Court in Minister of National Revenue v. Canderel Ltd. (1983), 157 N.R. 390 (F.C.A.).

[11]     At trial, counsel for the respondent stressed that since he had not seen the new documents with respect to the new expenses, it was, as a practical matter, impossible for him to know whether the respondent would suffer prejudice. He even asked the following question during his oral argument: "So is the Court going to encourage this litigation with this mushrooming?"(transcript, p. 64). On the other hand, the appellant did eventually try to have the respondent look at these new expenses during a meeting that was held prior to the hearing of the present motion, but the respondent refused to do so unless the appellant amended his Notice of Appeal without prejudice to the respondent (transcript, pp. 33 and 63). The appellant apparently even made an offer to settle during that meeting (transcript, p. 34). Despite all of this, counsel for the respondent asserted that he would oppose any motion to amend filed by the appellant unless the appellant produced letters from all the independent contractors stating that they had in fact received amounts for services rendered to the appellant and indicating whether or not they had included these amounts in their respective tax returns (transcript, pp. 60 and 66).

[12]     Since after hearing the oral arguments I was still struggling with the question of whether the respondent would suffer prejudice, I requested that the parties provide me with written argument on the issue. What struck me first upon reading the respondent's written submissions was the fact that counsel for the respondent continued to deplore the appellant's conduct to a point, it seems to me, that it had started to become personal on his part. In fact, counsel for the respondent expressed his frustration in several different ways in his written submissions. At paragraph 17 he stated:

It transpires from the testimony and the conduct of the Appellant himself that he did not care for the legitimate interest of the Respondent in the administration of the Act or for the rights of the Respondent to procedural safeguards in the present litigation.

Then, at paragraph 21, he said:

. . . the Appellant has displayed patent disregard for the right of the Respondent to be informed in a timely fashion of the allegations which the Appellant intended to make which the Appellant should have made when he discovered them at the very latest when filing his Notice of Appeal.

And at paragraph 24 he added:

The Appellant and his Counsel were so oblivious to the potential prejudice to the Respondent . . .

Finally, at paragraph 29, he asserted:

... Instead, it appears that he deliberately adopted the strategy of keeping all this quiet until March 2003.

[13]     I agree that the appellant and his lawyer clearly could have done a better job by reacting a lot sooner but, as we saw earlier, the fact that the appellant might have been negligent and careless to a high degree is irrelevant (Visx Inc., supra, at par. 1). The proper question is whether the respondent would suffer a non-compensable prejudice. This type of prejudice will occur, for example, when the proposed amendment "requires evidence from witness A, who is no longer available, or document B, which can no longer be found": King's Gate Developments Inc. v. Colangelo (1994), 17 O.R. (3d) 841 at 844 (Ont. C.A.). The court in that case did not find a non-compensable prejudice. However, in Canada(Attorney General) v. Mandel, [1996] F.C.J. No. 252 (QL), the Federal Court of Appeal came to the opposite conclusion, since, after 23 years, none of the representatives of the Crown could be traced to testify. Again, the mere fact that a lot of time has elapsed between the discovery of the "new" facts and the filing of the motion does not mean that we can presume that prejudice will automatically result. See, for example, Camoplast Inc. v. Soucy International Inc., [2003] F.C.J. No. 743 (QL) (F.C.A.).

[14]     In the present case, it is very probable that the appellant's accountant will not be present at trial to testify concerning the new expenses. The same is however true of the other expenses already claimed. In any event, the best evidence would not come from the accountant, but from the independent contractors. In that regard, the respondent is of the view that, in order to succeed, the appellant should have provided affidavits from these persons in which they would admit to having evaded tax, if such was indeed the case. I cannot agree with this view. The real question is whether all or some of these persons would be available to be examined at trial, or perhaps during discovery. There is nothing in the transcript to suggest that they would not be. In the same vein, if the appellant failed to call these persons at trial, he would risk having an adverse inference drawn against him by the Tax Court judge at trial.

[15]     The majority's decision in Merck & Co., Inc. v. Apotex, 2003 FCA 488, does not change the conclusion herein. In that case, the majority did not allow the amendment, even though the opposing party would not have suffered any prejudice. The decision was based rather on the interest of justice and public interest. I believe that we are far removed, in the present case, from the circumstances in Merck. Nor do I find here that there is abuse of process. See, for example, Stacey-Diabo et al. v. The Queen, 2003 DTC 200, at par. 42-44 (T.C.C.). I also find comfort in the cogent discussion of the law relating to abuse of process in Toronto(City) v. C.U.P.E., Local 79, [2003] 3 R.C.S. 77 at par. 35-55.

[16]     I will end with the following remarks by Judge Bowman (as he then was) in Continental Bank Leasing Corporation et al v. The Queen, 93 DTC 298 (T.C.C.), at p. 302:

. . . I prefer to put the matter on a broader basis: whether it is more consonant with the interests of justice that the withdrawal or amendment be permitted or that it be denied. The tests mentioned in cases in other courts are of course helpful but other factors should also be emphasized, including the timeliness of the motion to amend or withdraw, the extent to which the proposed amendments would delay the expeditious trial of the matter, the extent to which a position taken originally by one party has led another party to follow a course of action in the litigation which it would be difficult or impossible to alter and whether the amendments sought will facilitate the court's consideration of the true substance of the dispute on its merits. No single factor predominates nor is its presence or absence necessarily determinative. All must be assigned their proper weight in the context of the particular case. Ultimately it boils down to a consideration of simple fairness, common sense and the interest that the courts have that justice be done.

This passage was adopted by the majority of the Federal Court of Appeal in Merck & Co., supra, at paragraph 30.

[17]     I would first note, having reviewed the three annotated rules mentioned above, that the timeliness of a motion is usually more determinative when the request is made at a late stage of the hearing, and a lot less so when it is made before the hearing, as is the case here. Considerations of simple fairness and common sense and the interest in having justice done also favour the appellant in the present motion.

[18]     In light of the above, I would allow the amendments as set forth in the proposed Amended Notice of Appeal, and impose the following terms:

a.        The respondent shall have the right to further discovery with respect to these amendments.

b.        Since I find that the respondent would suffer prejudice in having to prepare for a second examination for discovery, the appellant shall bear the costs, if any, of such discovery on a party and party basis.

c.        The respondent shall bear the costs of the present motion, all the more so given her counsel's strong language toward the appellant. It is one thing for self-represented litigants to express some emotions in their arguments, but it is quite another to have counsel, especially for the Crown, use such strong words as those reproduced above in these reasons.

d.        The respondent shall have the right to make a demand for particulars. However, the respondent shall bear the costs thereof on a party and party basis if he chooses to proceed with such demand, since particulars were in fact provided during the hearing of the present motion (paragraph 7 above). [2]

Signed at Ottawa, Canada, this 1st day of December 2004.

"Paul Bédard"

Bédard, J.

CITATION:

2004TCC754

COURT FILE NO.:

1999-4937(IT)G

STYLE OF CAUSE:

Constantin Dello and Her Majesty the Queen

PLACE OF HEARING:

Montréal, Quebec

DATE OF HEARING:

July 27, 2004

REASONS FOR ORDER BY:

The Honourable Justice Paul Bédard

DATE OF ORDER:

December 1, 2004

APPEARANCES:

Counsel for the Appellant:

Christopher R. Mostovac

Counsel for the Respondent:

Bernard Fontaine

COUNSEL OF RECORD:

For the Appellant:

Name:

Christopher R. Mostovac

Firm:

Starnino Mostovac Montréal, Quebec

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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