Date: 19990114
Docket: 96-650-UI
BETWEEN:
ANNA BANCHERI,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeal of Rosanna Bancheri 96-2405-UI on April 27 and 28, 1998 at Toronto, Ontario, by the Honourable Deputy Judge Michael H. Porter
Reasons for judgment
Porter, D.J.T.C.C.
[1] This appeal was heard at Toronto, Ontario on April 27 and 28, 1998. It was heard on common evidence, by consent of the parties, with the appeal of Rosanna Bancheri (96-2405(UI)).
[2] The Appellant appeals the determination of the Minister of National Revenue (the "Minister") dated March 11, 1996 that the employment of the Appellant with 928199 Ontario Ltd., o/a Kingsway Paving & Interlock (the "Company"), from June 21, 1993 to October 8, 1993 was not insurable employment under the Unemployment Insurance Act (hereinafter referred to as the "Act"). The reason given for the determination was that:
"You were not employed under a contract of service as there was no employee/employer relationship between yourself and 928199 Ontario Limited, o/a Kingsway Paving & Interlock. Furthermore, if you were considered to have been employed under a contract of service, your employment would have been excepted from insurable employment because you were not dealing at arm's length nor were you deemed to be dealing at arm's length with 928199 Ontario Limited, o/a Kingsway Paving & Interlock."
[3] The established facts reveal that the Appellant is the mother of Angelo Bancheri and Gabriele Bancheri who together with their mother, at the material times, owned all the outstanding shares of the Company. Thus, pursuant to section 3 of the Act and subsection 251(1) of the Income Tax Act, as related persons the Appellant and the Company are in law deemed not to deal with each other at arm's length. Accordingly the employment in question is, subject to the exception contained in subparagraph 3(2)(c)(ii) of the Act, categorized as "excepted employment", that is to say it is not employment which triggers the payment of unemployment insurance benefits upon its termination. The Minister has determined that the employment does not fall within the exception and the Appellant has appealed that decision. Counsel for the Minister conceded the other aspect of the appeal relating to the part of the decision that this was not a contract of service. He has accepted that to the extent that the work was performed by the Appellant it was done by way of a contract of service. Accordingly the sole issue remaining is whether the Minister properly came to his determination under subparagraph 3(2)(c)(ii) of the Act.
The Law
[4] In the scheme established under the Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is "excepted" and thus carrying no benefits upon termination. Employment arrangements made between persons, who are not dealing with each other at arm's length, are categorized as "excepted employment". Spouses, parents and their children, brothers and corporations controlled by them, are deemed not to be dealing with each other at arm's length pursuant to subsection 251(1) of the Income Tax Act, which governs the situation. Quite clearly the purpose of this legislation is to safeguard the system from having to pay out a multitude of benefits based on artificial or fictitious employment arrangements.
[5] The harshness of this situation has however been tempered by subparagraph 3(2)(c)(ii) of the Act, which provides for such employment between related persons to be deemed to be at arm’s length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied having regard to all the circumstances (including those items that are set out) that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm's length. It may be helpful to reframe my understanding of this section. For people related to each other the gate is closed by the Act to any claim for insurance benefits unless the Minister can be satisfied that in effect the employment arrangement is the same as that which unrelated persons, that is persons who are clearly at arm's length, would have made. If it is a substantially similar contract of employment, Parliament has deemed it to be only fair that it should be included in the scheme. However the Minister is the gatekeeper. Unless he is so satisfied the gate remains closed and the employment remains excepted and the employee is not eligible for benefits.
[6] Section 61 of the Act deals with appeals to and determination of questions by the Minister. Subsection 61(6) requires that:
"... the Minister shall, with all due despatch, determine the question raised by the application ...."
[7] Thus the Minister has no discretion whether or not to decide the question, he is required by law to do so. If he is not satisfied, the gate remains closed and the employee is not eligible. If however he is satisfied, without more ado or any action on the part of the Minister (other than notification of the decision) the employee becomes eligible for benefits, provided he is otherwise qualified. It is not a discretionary power in the sense that if the Minister is satisfied he may then deem the employment to be insurable. He must "determine the question" and depending on that determination the law deems the employment to be either at arm's length or not at arm's length. In this sense the Minister has no discretion to exercise in the true sense of the word, for in making his decision he must act quasi-judicially and is not free to chose as he pleases. The various decisions of the Federal Court of Appeal on this issue reveal that the same test applies as to a myriad of other officials making quasi-judicial decisions in many different fields. See Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen and Bayside Drive-in Ltd., (1997) 218 N.R. 150.
[8] The function of this Court then, upon appeal, is to review the decision of the Minister and decide whether it was arrived at lawfully, that is in accordance with the Act and with the principles of natural justice. In the case Her Majesty the Queen v. Bayside et al., supra, the Federal Court of Appeal laid out certain matters which should be considered by this Court when hearing these appeals. These were: (i) whether the Minister acted in bad faith or for an improper purpose or motive, (ii) whether the Minister failed to take into account all of the relevant circumstances as especially required by subparagraph 3(2)(c)(ii) or (iii) whether the Minister took into account an irrelevant factor.
[9] The Court went on to say:
"... It is only if the Minister made one or more of these reviewable errors that it can be said that his discretion was exercised in a manner contrary to law, and ... the Tax Court judge would be justified in conducting his own assessment of the balance of probabilities as to whether the respondents would have entered into substantially similar contracts of service if they had been at arm's length".
[10] It was argued before me that the stated facts upon which the Minister relied were in many cases wrong or misapprehended. Again I remind myself, when reviewing these submissions, that it is not for this Court to substitute its opinion of the evidence for that of the Minister. However, if his or her manner of arriving at the decision was unlawful in the context of the judgments set out above, those affected parts of the stated facts may be disregarded and I must then consider whether that which is left affords justifiable grounds for the decision. If those grounds, standing alone, are sufficient for the Minister to form a decision, albeit that the Court may not agree with it, the decision must stand. If on the other hand there is no basis left upon which the Minister might lawfully make such a decision, from an objective and reasonable point of view, then such decision may be struck down and the Court can consider the evidence before it on appeal and make its own decision. In summary then, if there are sufficient facts before the Minister for his decision, it is his or her determination to make and if he or she is "not satisfied" it is not for this Court to substitute its view of those facts and say he or she should have been satisfied. Similarly, if he or she was satisfied it is not for this Court to substitute its view that he or she should not have been satisfied (an unlikely scenario in any event). Only if the decision is reached in an improper manner and it is unreasonable, from an objective point of view, on the basis of the facts which were properly before the Minister, may the Court interfere.
[11] I am fortified in this approach by a number of decisions of various Courts of Appeal across the country and the Supreme Court of Canada in related decisions concerning the issue of various processes under the Criminal Code, which subsequently came to be reviewed by the Courts and are in my view analogous to the present situation. The standard of review of the validity of a search warrant was set out by Cory, J.A. (as he then was) in Times Square Book Store, Re (1985) 21 C.C.C. (3d) 503 (C.A.), where he said that it was not the role of the reviewing judge to look at or consider the authorization of a search warrant de novo and it was not open to the reviewing judge to substitute his or her own opinion for that of the issuing judge. Rather, on review, the first issue to be decided was whether or not there was evidence upon which a justice of the peace, acting judicially, could determine that a search warrant should be issued.
[12] The Ontario Court of Appeal reiterated and expanded upon this point of view in R. v. Church of Scientology of Toronto and Zaharia (1987) 31 C.C.C. (3d) 449 C.A. leave to appeal refused. In suggesting that the reviewing Court look at the "totality of the circumstances" the Court said at 492:
"Obviously if there is not such evidence to provide a basis for such a belief (that a criminal offence had been committed) it cannot be said that in those circumstances the justice should be satisfied. There will, however, be cases where such evidence (showing reasonable grounds) does exist and the justice could be satisfied but where he or she is not satisfied and does not exercise his or her discretion in favor of issuing a search warrant. In these circumstances, the reviewing judge must not say that the justice should have been satisfied and should have issued the warrant. Similarly, if the justice in such circumstances says that he or she is satisfied and issues the warrant, the reviewing judge must not say that the justice should not have been so satisfied".
[13] The Supreme Court of Canada endorsed this approach in R. v. Garofoli (1990) 2 S.C.R. 1421. The late Mr. Justice Sopinka, when dealing with the review of the issue of an authorization to wiretap, then said:
"..While a judge exercising this relatively new power need not comply with the Wilson criteria, he should not review the authorization de novo. The correct approach is set out in the reasons of Martin J.A. in this appeal. He states...
If the trial judge concludes that, on the material before the authorizing judge, there was no basis upon which he could be satisfied that the pre-conditions for the granting of the authorisation exist, then, it seems to me that the trial judge is required to find that the search or seizure contravened s. 8 of the Charter.
The reviewing judge does not substitute his or her view for that of the authorizing judge. If, based on the record which was before the authorizing judge as amplified on the review, the reviewing judge concludes that the authorizing judge could have granted the authorization, then he or she should not interfere. In this process, the existence of fraud, non-disclosure, misleading evidence and new evidence are all relevant, but, rather than being a prerequisite to review, their sole impact is to determine whether there continues to be any basis for the decision of the authorizing judge."
[14] This approach appears to have been adopted by almost every appellate court in the country. (See R. v. Jackson (1983) 9 C.C.C. (3d) 125 (B.C. C.A.); R. v. Conrad et al. (1989) 99 A.R. 197; 79 Alta. L.R.; (2d) 307; 51 C.C.C. (3d) 311 (C.A.); Hudon v. R. (1989) 74 Sask. R. 204 (C.A.); and R. v. Turcotte (1988) 60 Sask. R. 289; 39 C.C.C. (3d) 193 (C.A.); R. v. Borowski (1990) 66 Man. R. (2d) 49; 57 C.C.C. (3d) 87 (C.A.); Bâtiments Fafard Inc. et autres c. Canada et autres (1991) 41 Q.A.C. 254 (C.A.); Société Radio-Canada v. Nouveau-Brunswick (Procureur général) et autres (1991) 104 N.B.R. (2d) 1; 261 A.P.R. 1; 55 C.C.C. (3d) 133 (C.A.); R. v. Carroll and Barker (1989) 88 N.S.R. (2d) 165; 225 A.P.R. 165; 47 C.C.C. (3d) 263 (C.A.); R. v. MacFarlane (K.R.) (1993) 100 Nfld. & P.E.I.R. 302; 318 A.P.R. 302; 76 C.C.C. (3d) 54 (P.E.I. C.A.). It seems to me most relevant to a review of the Minister's determination, which is itself a quasi-judicial decision.
Analysis of the Minister's decision
[15] I turn now to consider in detail how the Appellant, through her agent, challenges the decision of the Minister. First he asserts that the rules of natural justice were not followed, in that the Appellant had no knowledge of what facts were put before the Minister at time the decision was made, and thus had no opportunity to have input into that decision. It is of course a rather strange procedure that is followed in these appeals. Bowman J. commented upon it in the case of Persaud v. M.N.R. [1998] T.C.J. no. 11:
"It is strange that the first time that an appellant is told what these so-called assumptions are is when the Attorney-General files the reply to the notice of appeal. They are not, as I understand it, normally communicated to the appellant prior to the determination nor is the appellant (at that stage the applicant) given any opportunity to rebut them or to state why the determination unfavourable to him or her should not be made. At the risk of stating what I should have thought was obvious, it is patent that this failure constitutes a fundamental breach of one of the most essential tenets of natural justice. Since we have it on high authority that the act of being or not being satisfied involves the exercise of a ministerial discretion it is imperative that the principle of audi alterem partem be honoured. Moreover, the failure to give reasons at the time the discretion is exercised is in itself a breach of another cardinal rule of natural justice."
[16] In the situation before me however we have a greater insight than is normally the case, as the officials involved in investigating, reviewing and recommending the decision were called as witnesses. This was perhaps a rare event. Nevertheless they came and explained what they had done and why and they produced their written reports. All of this information was not available to the Appellant or her agent, until shortly before the hearing of this appeal when they sought and obtained court ordered disclosure from the Minister. All they had to go on up to that point was the Reply to the Notice of Appeal, which again they only received after they had filed the appeal.
[17] Thus it is argued that there was little information forthcoming upon which they could base any useful input into the decision to be made by the Minister before he made it and there was limited opportunity afforded to them to make any representations to the Minister before that decision was made. In this case however, that claim rings a little hollow, for the Appellant was quite dilatory in responding to the enquiries made of her by officials at Revenue Canada. The Appellant appealed the initial decision, made on August 17, 1995, to the Minister sometime just prior to November 17, 1995 the date upon which the formal acknowledgement of her appeal went out from the Appeals Division of Revenue Canada. She was told in that letter that she could contact a representative at a telephone number if she wished and that she would be contacted shortly to provide information relating to her file. She was then sent a letter on December 20, 1995 by W.S. McCallum for Chief of Appeals, providing her with information concerning the process, enclosing a questionnaire to ensure that they had "full details and facts surrounding the employment" and asking for a reply on or before January 23, 1996. No reply was forthcoming from the Appellant. On January 24, a further letter was sent to her pointing out that no reply had been received to the first letter and again asking for a reply by February 7. She was told in that letter that in the absence of a reply by that date a decision would be made based on the information available. Despite the absence of a reply to that letter she was sent one further letter on February 9 and asked to send in the requested information by February 19. No reply was forthcoming and the decision was made on March 11. Thereafter a completed questionnaire, dated March 23, was returned and received on April 11, 1996.
[18] I have some difficulty coming to a conclusion that the Appellant has been deprived of her rights to natural justice, that is to make representations to the Minister about the decision he was about to make, when she had to be chased to even get her information into the process. If such a challenge was to be sustained by the Court, it seems to me that at the very least the Appellant would have to demonstrate a degree of diligence, which is hardly the case here. Thus I am not of the view that such a challenge to the decision of the Minister can be sustained in this case, if for no other reason than that. In saying that however, it is not to be taken that the Court is supportive of the rather curious procedure followed by Revenue Canada, whereby the facts, which are to be made available to the Minister to enable him to make his decision, are not disclosed to the Appellant so that he or she can also provide the Minister with some representation on those facts. This issue however is probably best left to another more appropriate case.
[19] The facts upon which the Minister was said to rely in coming to his decision are set out in the Reply to the Notice of Appeal, signed by counsel on behalf of the Deputy Attorney General of Canada. They are of course also set out in more detail in the report to the Minister prepared and signed by William McCallum entered into evidence as part of Exhibit A-1. I see no significant difference in these two documents other than that the report sets out a review of the Company's T2 account for the years 1991 to 1994 and its gross revenues for 1991 to 1995 as set out in its GST file. It also contains a summary of the Appellant's T1 file, setting out her income between the years 1987 and 1994. Although this was additional information over and above the information disclosed by Counsel for the Deputy Attorney General in the Reply, and the Court is somewhat concerned that the decision was taken on grounds other than those so disclosed, I am not of the view that in this case the additional information made any difference at all. Apart from that, in the report there were several pages of information relating simply to the question of whether or not this was a case of a contract of service or a contract for services, an issue which the Minister has now conceded.
[20] I do not propose to set out, at length, the facts in the Reply, as I can simply say that to the greatest extent the Appellant agreed with them, as did her son Gabriele who gave evidence on behalf of the Company. She disputed the Minister's assertion that she did not perform services for the Company on a full-time basis. They both said that she went out with the crew every day and that in the morning, whilst the hard labour work was being done, she went round the neighbourhood and delivered flyers promoting the work of the Company. In the afternoon it was said that she would supervise the crew and sweep sand into the cracks between the newly laid bricks. Although she may well have gone out frequently with the crew and delivered some flyers I have the gravest doubts that she did any supervising or that she, on any continuing basis, did any sweeping or other menial labour at the job sites. I gleaned from her evidence that she really just went out for the ride. Substantially speaking however, she agreed with the facts as outlined in the Reply.
[21] I see nowhere in the facts or in the evidence, where it could be said that the decision was made in bad faith or for an improper motive or purpose. I see nowhere where it could be said that irrelevant factors were taken into account nor that there was a failure to take into account all of the relevant circumstances. In fact the investigator went the extra mile to try and get the input from the Appellant. Furthermore it seems to me that all the matters that the Minister was supposed to take into account concerning the circumstances of the employment were considered, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed.
[22] I noted in particular from the evidence that the cheques paid to the Appellant were not deposited on any regular basis. The Appellant said that she went to the bank every Saturday to cash her cheques. However it is clear from the records that sequential cheques were deposited on the same irregular dates. In addition a substantial cheque for the equivalent of three weeks pay was deposited on October 1, 1993 one week prior to the stated end of the employment. This seems to me to be highly inconsistent with the type of relationship that would normally be established between persons dealing with each other at arm's length. This was not done by way of an advance or something of that nature as might be done with a regular employee. I noted too that no records were kept whatsoever of the hours that she was supposed to have worked. She was paid a set amount with respect to each pay period regardless of the number of hours she worked or what work she in fact did. Furthermore, although people might arrange their affairs as they wish, it is perhaps beyond the bounds of coincidence that the exact number of weeks to claim unemployment insurance benefits were established and nobody was hired before or afterwards to replace her.
Conclusion
[23] In my opinion there was sufficient reason for the Minister, from an objective and reasonable point of view, to conclude that the parties would not have entered into a substantially similar employment arrangement, if they had been dealing with each other at arm's length. Taking into account all the evidence presented to me, in my opinion, the Appellant has failed to demonstrate any reviewable error in the decision of the Minister. Accordingly the decision of the Minister is confirmed and the appeal is dismissed.
Signed at Calgary, Alberta, this 14th day of January 1999.
"Michael H. Porter"
D.J.T.C.C.