Date: 20000410
Dockets: 98-902-UI; 98-904-UI; 98-140-CPP; 98-142-CPP; 98-903-UI; 98-141-CPP; 98-905-UI; 98-143-CPP
BETWEEN:
CHARLES R. CAPELLO, ACE OF HEARTS GAMES AND SOCIAL CLUB, SOUTHSIDE GAMES AND SOCIAL CLUB,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Porter, D.J.T.C.C.
[1] These eight appeals were heard on common evidence by consent of the parties, at Edmonton, Alberta, on June 17, 1999.
[2] The decision in this matter has been delayed pending the outcome of an appeal to the Alberta Court of Appeal by the Appellant, Southside Games & Social Club, of its conviction for "keeping a common gaming house contrary to subsection 201(1) of the Criminal Code." The conviction was a relevant consideration as it would be a bar to the Appellants succeeding in these appeals. On January 25, 2000 the Alberta Court of Appeal allowed the appeal, set aside the conviction and ordered a new trial. Subsequently on Februrary 8, 2000 the Provincial Crown Prosecutor entered a stay of proceedings on behalf of the Attorney General of Alberta, a copy of which was filed in this Court on February 15, 2000. Thus, at this time there is no conviction pursuant to the Criminal Code, nor is it contemplated that any further criminal proceedings will be pursued in this matter.
[3] The appeals before this Court are from the decisions of the Minister of National Revenue (hereinafter called the "Minister") that certain employment of the Appellant, Charles R. Cappello, with each of the clubs in question was neither pensionable nor insurable under the Canada Pension Plan (the "Plan") or the Employment Insurance Act (the "EI Act") respectively. The employment in question was:
(a) With Southside Games & Social Club (“Southside”), for the period December 1, 1996 to February 12, 1997; and
(b) With Ace of Hearts Games & Social Club, for the period April 1, 1997 to September 22, 1997.
The reason given in each case was:
“You [Charles R. Cappello] were not employed under a contract of service and therefore were not an employee.”
The decisions were said to be issued pursuant to paragraph 27(a) of the Plan and section 93 of the EI Act and to be based on paragraphs 6(1)(a) of the Plan and 5(1)(a) of the EI Act, respectively.
[4] The material facts reveal that during the periods in question, the Appellant Charles R. Cappello (“Cappello”) and others organized and operated the two social clubs during the respective periods of time, for the purpose of playing cards and games of skill and chance, in particular the game of poker. Cappello, apart from his involvement in the setting up and general operation of these clubs, worked as a houseman for each club during the periods of time in question for which he was paid $12.00 per hour. It is not disputed by counsel for the Minister that he did the work, nor that he was paid the $12.00 per hour.
[5] The position of the Minister in the original decisions was based on the premise that as it was an illegal activity being carried on in the clubs, Cappello and each of the clubs were not capable of entering into a legally binding contract of service and thus there was no contract of service. For this proposition, counsel for the Minister relied to a great extent upon the decision of the Federal Court of Appeal in Still v. M.N.R. (1998), 221 N.R. 127. The factual base for this proposition was the conviction, which has now been set aside. In addition, at the hearing of these appeals, counsel for the Minister argued that over and above the question of the criminal conviction, the activity was illegal under the Alberta Gaming and Liquor Act, R.S.A. G-05 and that thus, the same considerations apply.
[6] In the Reply to the Notice of Appeal, counsel for the Deputy Attorney General of Canada, acting on behalf of the Minister, took a further position that Cappello and each of the two clubs, Southside and Ace of Hearts respectively, were not dealing with each other at arm’s length. This issue was not raised by the Minister in his original decisions. There were no assumptions of fact which dealt with it. However, counsel argues that as this is an appeal de novo, I should look at all of the evidence and must consider that issue. I agree that I should do so, to the extent that the evidence allows me to do so.
[7] The issues then to be decided are two-fold:
(a) whether the employment contract of Cappello was illegal and therefore void ab initio, or whether, despite its illegality, it fell within the definition of insurable employment; and
(b) whether Cappello was dealing at arm’s length with either or both of the clubs.
The Facts
[8] The facts in the case of the two periods of time with respect to the two social clubs are basically the same. In the case of the appeals relating to the Southside club, the assumptions of fact upon which the Minister was said to have relied are as follows:
"7(a) the Appellant operated a social club during the period December 1, 1996 to February 12, 1997;
(b) Cappello, together with others, organized and operated the social club during the period December 1, 1996 to February 12, 1997;
(c) the social club was a place for playing cards and games of skill and chance;
(d) the social club was a common gaming house within the meaning of section 197 of the Criminal Code R.S.C. 1985 c.C-34;
(e) neither Cappello, the Appellant, nor any others associated with the social club were licensed by the Alberta Gaming Commission to operate a gaming establishment;
(f) the Appellant and Cappello were convicted in the Court of Queen’s Bench for the Province of Alberta of keeping a common gaming house;
(g) the activities carried on at the social club were illegal activities;
(h) Cappello and the Appellant were not parties to a contract of service with respect to any of the illegal activities performed by Cappello and others at the social club."
[9] In the case of the appeals relating to the Ace of Hearts Club, they are as follows:
"7(a) the Appellant operated a social club during the period April 1, 1997 to September 22, 1997;
(b) Cappello, together with others, organized and operated the social club during the period April 1, 1997 to September 22, 1997;
(c) Cappello, together with others, organized and operated a social club called Southside Games and Social Club during the period December 1, 1996 to February 12, 1997;
(d) the same activities were carried on by the Appellant during the period April 1, 1997 to September 22, 1997 and by Southside Games and Social Club during the period December 1, 1996 to February 12, 1997;
(e) the social clubs were a place for playing cards and games of skill and chance;
(f) neither the Appellant, Cappello, nor any others associated with the social club were licensed by the Alberta Gaming Commission to operate a gaming establishment;
(g) the activities carried on by the Appellant at the social club were not legal;
(h) Cappello and the Appellant were not parties to a contract of service with respect to any of the illegal activities performed by Cappello and others at the social club."
[10] Cappello gave evidence on his own behalf and on behalf of the two clubs. With respect to the assumptions in the Southside matter, he agreed with items 7(a), (b), (c), (e), (f) (conviction now overturned), and disagreed with items (d), (g) and (h). He also disagreed with the conclusion set out in paragraph 8 that he and Southside were not dealing with each other at arm’s length.
[11] With respect to the assumptions of fact in the Ace of Hearts matter, he agreed with items 7(a), (b), (c), (d), (e) and (f), but disagreed with item (g) which is a question of mixed fact and law, and (h). Again, he disagreed with the conclusion in paragraph 8 that he and Ace of Hearts Club were not dealing with each other at arm’s length.
[12] The evidence of Cappello was the only viva voce evidence before me. It is now common ground that there is no conviction under the Criminal Code nor likely to be one. That does not mean that the activities were necessarily lawful in the sense of not being contrary to the provisions of the Criminal Code of Canada or the Alberta Gaming and Liquor Act, but simply that such a proposition has not been conclusively established in a criminal court. The Minister based his assumptions of fact upon such a conviction. As that is no longer the case, I must consider whether the conclusion arrived at by the Minister, that the activity was illegal, is sustainable on the evidence before this Court. Without the evidence of the Appellant Cappello, there would be no evidence and the proposition that the activities were not legal would be completely unsustainable. On the other hand, I would have to accept the assumption of fact as it stood. The point I make out of it is that there is now no evidence to contradict that of Cappello.
[13] One of the difficulties facing this Court is that there was only a limited amount of evidence and argument on the subject, both the Court and the parties being of the view that the matter would be decided conclusively in the Provincial Court of Appeal. As it is, this aspect of the matter is now back squarely before this Court.
[14] Cappello was quite firm in his evidence that the original purpose in establishing Southside was to set up a place where he and a number of others could play cards, in particular poker, quite cheaply. He said that there were no charges to play, although there was a relatively minor membership fee. There were up to 400 members at any particular time. The custom was that, when anyone had any winnings, they would make a voluntary contribution to the house of at least $1.00. His evidence was that there was no obligation to do so, and he emphasized that point. However, often a winner would put in more than $1.00. The club was open 24 hours per day and often $30.00 or so per hour would be received by the club in this manner.
[15] The police, along with the Provincial Gaming Commission raided Southside in February 1997 and seized all of the equipment, money and assets. The club was charged and in the end result, prosecuted unsuccessfully.
Legality of the Employment
[16] It is clear that neither the club nor Cappello held any licenses under the Alberta Gaming and Liquor Act. Thus, two questions arise: first, whether the activities were illegal under section 197 of the Criminal Code, and secondly, whether those activities were contrary to the Provincial Statute. It is only upon being satisfied of either event that I should go on to consider whether the legal proposition enunciated in Still v. M.N.R. (above) applies in this case.
[17] I note that, although undoubtedly there was a considerable body of evidence before both the Provincial Court of Alberta at the original trial and the Alberta Court of Appeal at the appeal stage, McFadyen J.A. said this:
"[1] Having given consideration to the argument of counsel in this matter we are convinced that a new trial is necessary on all three counts.
[2] In our view, the misapprehension by the trial judge of the evidence relating to the accumulated profits in the bank account was capable of having coloured his findings on the issue of voluntariness of the donations which was relevant on the other two accounts.
[3] We make no comment at this time on any issue involving the proper interpretation to be given to any of the statutory provisions."
[18] Clearly, from this judgment, the issue of the voluntariness of the donations was critical to the conviction. The Crown has not chosen to pursue the matter. The Court of Appeal obviously had sufficient reservation on this point that it was unable to sustain the conviction. The evidence of Cappello was that the donations were entirely voluntary. I am unable to come to a conclusion in these circumstances that the activity was illegal in the sense of being contrary to the provisions of the Criminal Code. There is nothing before me in such circumstances which could lead me to such a conclusion.
[19] The second question then, is whether the activities offended the provisions of the Alberta Gaming and Liquor Act. Counsel for the Minister has referred me to subsection 36(1) of that Act. These read as follows:
"36(1) No person may conduct or manage a gaming activity unless
(a) the person holds a gaming licence that authorizes the activity, and
(b) the gaming activity takes place in a licensed facility if the board designates in its policies or the gaming licence that the gaming activity may only be conducted in a licensed facility."
“Gaming activity” means, pursuant to paragraph 1(1)(h) of the Act:
"1(1)(h) “gaming activity” means a lottery scheme referred to in section 207(1)(b), (c), (d) or (f) of the Criminal Code (Canada);"
[20] Thus one must return to consider the provisions of section 207 of the Criminal Code. They read in part as follows:
"207(1)
...
(b) for a charitable or religious organization, pursuant to a licence issued by the Lieutenant Governor in Council of a province or by such other person or authority in the province as may be specified by the Lieutenant Governor in Council thereof, to conduct and manage a lottery scheme in that province if the proceeds from the lottery scheme are used for a charitable or religious object or purpose;
(c) for the board of a fair or of an exhibition or an operator of a concession leased by that board, to conduct and manage a lottery scheme in a province where the Lieutenant Governor in Council of the province or such other person or authority in the province as may be specified by the Lieutenant Governor in Council thereof has
(i) designated that fair or exhibition as a fair or exhibition where a lottery scheme may be conducted and managed, and
(ii) issued a licence for the conduct and management of a lottery scheme to that board or operator;
(d) for any person, pursuant to a licence issued by the Lieutenant Governor in Council of a province or by such other person or authority in the province as may be specified by the Lieutenant Governor in Council thereof, to conduct and manage a lottery scheme at a public place of amusement in that province if
(i) the amount or value of each prize awarded does not exceed five hundred dollars, and
(ii) the money or other valuable consideration paid to secure a chance to win a prize does not exceed two dollars;
...
(f) for any person, pursuant to a licence issued by the Lieutenant Governor in Council of a province or such other person or authority in the province as may be designated by the Lieutenant Governor in Council thereof, to conduct and manage in the province a lottery scheme that is authorized to be conducted and managed in one or more other provinces where the authority by which the lottery scheme was first authorized to be conducted and managed consents thereto;
[...]"
[21] The word “lottery scheme” is defined as:
“207(4) In this section, “lottery scheme” means a game or any proposal, scheme, plan, means, device, contrivance or operation described in any of paragraphs 206(1)(a) to (g), whether or not it involves betting, pool selling or a pool system of betting other than ...."
[22] I note that the Provincial Legislation does not proscribe without a license the conduct or management of a “lottery scheme” as defined in section 207 of the Criminal Code per se. If it had sought to do so, it would no doubt have said so explicitly. That would no doubt, again, have been inconsistent with the provisions of the Criminal Code, and may well have been unconstitutional as being beyond the powers of the Provincial Legislature. The legislation simply proscribes the lottery schemes allowed for in paragraphs 207(1)(b), (c), (d) or (f) of the Criminal Code from being conducted or managed without the appropriate license. These are very specific exceptions to the general prohibitions in the Criminal Code relating to “lottery schemes” which can be authorized by the Province.
[23] When looked at in this light, the activities of Southside and Ace of Hearts do not fall within the provisions of paragraphs 207(1)(b), (c), (d) or (f), which relate respectively to activities conducted by (b) a religious or charitable organization, (c) a fair or exhibition, (d) a public place of amusement, or (f) an inter-provincial lottery scheme.
[24] The simple fact is that if it was an illegal operation being conducted under the Criminal Code, it could not be licensed by the Province unless it fell into one of these exceptions. Unless it fell into one of those exceptions, it was not a “gaming activity” under the Provincial Legislation. As it did not in fact fall into one of these exceptions, it was not in law a “gaming activity” and thus would not need to be licensed under the Provincial Legislation. In turn, the activity was not therefore carried out in contravention of the Provincial Legislation.
[25] I have, of course, already held that there was insufficient evidence to hold that the activity was carried out in contravention of the Criminal Code. Thus, the conclusion at which I arrive is that there is no evidence upon which the Court can base a decision that the activity was illegal as stated by the Minister. I come to the same conclusion in this respect in relation to the activities at both Southside and Ace of Hearts.
Law Relating to Arm’s Length
[26] In the scheme established under the EI Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is not included and thus carries no benefits upon termination. Employment arrangements made between persons, who are not dealing with each other at arm's length, are excluded. 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.
[27] Paragraph 5(2)(i) of the EI Act reads as follows:
"5(2)(i) Insurable employment does not include ... employment if the employer and employee are not dealing with each other at arm’s length."
[28] Subsection 5(3)(a) of the EI Act reads as follows:
"a) the question of whether persons are not dealing with each other at arm’s length shall be determined in accordance with the Income Tax Act."
[29] Paragraph 251(1)(b) of the Income Tax Act reads as follows:
"it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length."(emphasis added)
[30] Although the Income Tax Act specifies that it is a question of fact whether persons were at a particular time dealing with each other at arm's length, that factual question must be decided within the cradle of the law and in reality it is a mixed question of fact and law: see Bowman, T.C.J. in RMM Canadian Enterprises et al. v. The Queen, 97 DTC 302.
[31] What is meant by the term "arm's length" has been the subject of much judicial discussion here in Canada, the United States, the United Kingdom and other Commonwealth countries such as Australia where similar wording appears in their taxing statutes. To the extent that the term has been used in trust and estate matters, that jurisprudence has been discounted in Canada when it comes to the interpretation of taxation statutes: see Locke, J. in M.N.R. v. Sheldon's Engineering, Ltd., 55 DTC 1110.
[32] In considering the meaning of the term "arm's length" sight must not be lost of the words in the statute to which I gave emphasis above, "were at a particular time dealing with each other at arm's length". The case law in Canada as Bowman, T.C.J. points out in the RMM case (above) has tended to dwell upon the nature of the relationship rather than upon the nature of the transactions. I am not sure that having regard to the inclusion of these words in the statute, that this approach is necessarily the only one to be taken, for to do so is to ignore these somewhat pertinent words, to which surely some meaning must be given. Perhaps this development has come about as a result of the factual situations in a number of the leading cases in Canada. These have tended to involve one person (either legal or natural) controlling the minds of both parties to the particular transaction. Thus even though the transaction might be similar to an ordinary commercial transaction made at arm's length that itself has not been enough to take the matter out of the "non-arm 's length" category: see for example Swiss Bank et al. v. M.N.R., 72 DTC 6470 (S.C.C.).
[33] In effect what these cases say is that if a person moves money from one of his pockets to the other, even if he does so consistently with a regular commercial transaction, he is still dealing with himself, and the nature of the transaction remains "non-arm's length".
[34] However, simply because these leading cases involved such factual situations, does not mean that people who might ordinarily be in a non-arm's length relationship cannot in fact "deal with each other at a particular time in an 'arm's length' manner", any more than it means that people who are ordinarily at arm's length might not from time to time deal with each other in a non-arm's length manner. These cases are quite simply examples of what is not an arm's length relationship rather than amounting to a definition in positive terms as to what is an arm's length transaction. Thus at the end of the day all of the facts must be considered and all of the relevant criteria or tests enunciated in the case law must be applied.
[35] The expression "at arm's length" was considered by Bonner, T.C.J. in McNichol et al. v. The Queen, 97 DTC 111, where at pages 117 and 118 he discussed the concept as follows:
"Three criteria or tests are commonly used to determine whether the parties to a transaction are dealing at arm's length. They are:
(a) the existence of a common mind which directs the bargaining for both parties to the transaction,
(b) parties to a transaction acting in concert without separate interests, and
(c)"de facto" control.
...
The decision of Cattanach, J. in M.N.R. v. T R Merrit Estate is also helpful. At pages 5165-66 he said:
In my view, the basic premise on which this analysis is based is that, where the "mind" by which the bargaining is directed on behalf of one party to a contract is the same "mind" that directs the bargaining on behalf of the other party, it cannot be said that the parties were dealing at arm's length. In other words where the evidence reveals that the same person was "dictating" the "terms of the bargain" on behalf of both parties, it cannot be said that the parties were dealing at arm's length.
...
Finally, it may be noted that the existence of an arm’s length relationship is excluded when one of the parties to the transaction under review has de facto control of the other. In this regard reference may be made to the decision of the Federal Court of Appeal in Robson Leather Company v. M.N.R., 77 DTC 5106. "
[36] This approach was also adopted by Cullen, J. in the case of Peter Cundill & Associates Ltd. v. The Queen, [1991] 1 C.T.C. 197, where at page 203 he says this:
"Whether the parties in this case were dealing at arm's length is a question to be examined on its own particular facts..."
[37] Many of these cases, as I say, are premised on the relationship existing between the parties which was determined to be all conclusive. There is little direct guidance there, when consideration is being given to the nature of the transaction or dealing itself. This question has, however, been quite succinctly dealt with by the Federal Court of Australia in the case of The Trustee for the Estate of the late AW Furse No 5 Will Trust v. FC of T, 91 ATC 4007/21 ATR 1123. Hill, J. said when dealing with similar legislation in that country :
"There are two issues, relevant to the present problem, to be determined under sec. 102AG(3). The first is whether the parties to the relevant agreement were dealing with each other at arm's length in relation to that agreement. The second is whether the amount of the relevant assessable income is greater than the amount referred to in the subsection as the "arm's length amount".
The first of the two issues is not to be decided solely by asking whether the parties to the relevant agreement were at arm's length to each other. The emphasis in the subsection is rather upon whether those parties, in relation to the agreement, dealt with each other at arm's length. The fact that the parties are themselves not at arm's length does not mean that they may not, in respect of a particular dealing, deal with each other at arm's length. This is not to say that the relationship between the parties is irrelevant to the issue to be determined under the subsection ... " [emphasis added]
[38] Bowman, T.C.J. alluded to this type of situation in the RMM case (above) when he said at page 311 :
"I do not think that in every case the mere fact that a relationship of principal and agent exists between persons means that they are not dealing at arm's length within the meaning of the Income Tax Act. Nor do I think that if one retains the services of someone to perform a particular task, and pays that person a fee for performing the service, it necessarily follows that in every case a non-arm's-length relationship is created. For example, a solicitor who represents a client in a transaction may well be that person's agent yet I should not have thought that it automatically followed that there was a non-arm's-length relationship between them.
The concept of non-arm's length has been evolving ..."
[39] In Scotland, in the case of Inland Revenue Commissioners v. Spencer-Nairn 1991 SLT 594 (ct. of Sessions) the Scottish Law Lords reviewed a case where the parties were in a non-arm's length situation. They commented favourably on the approach taken by Whiteman on Capital Gains Tax (4th ed.), where it was suggested by the author that two matters should be taken into account when considering the words 'arm's length'. These were whether or not there was separate or other professional representation open to each of the parties and secondly, perhaps with more relevance to the situation on hand, whether there was "a presence or absence of bona fide negotiation".
[40] In the United States the term "arm's length" was defined in the case of Campana Corporation v. Harrison (7 Circ; 1940) 114 Fed 400, 25 AFTR 648, as follows:
"... a "sale at arm's length" connotes a sale between parties with adverse economic interests ..."
[41] I dealt with these cases in Campbell and M.N.R. (96-2467(UI) and (96-2468(Ul)) and the principles for which they stand. I adopt all that I said in that case.
[42] At the end of the day it would seem to me that what is intended by the words "dealing at arm's length" can best be described by way of an example. If one were to imagine two traders, strangers, in the market-place negotiating with each other, the one for the best price he could get for his goods or services and the other for the most or best quality goods or service he could obtain, these persons, one would say, would be dealing with each other at arm's length. If, however, these same two persons, strangers, acted with an underlying interest to help one another, or in any manner in which he or she would not deal with a stranger, or if their interests were to put a transaction together which had form but not substance in order to jointly achieve a result, or obtain something from a third party, which could not otherwise be had in the open market-place, then one would say that they were not dealing with each other at arm's length.
[43] If the relationship itself (and here it must again be remembered that the Act does not say "where they are in a non-arm's length relationship" it says "where they are not dealing with each other at arm's length") is such that one party is in a substantial position of control, influence or power with respect to the other or they are in a relationship whereby they live or they conduct their business very closely, for instance if they were friends, relatives or business associates, without clear evidence to the contrary, the Court might well draw the inference that they were not dealing with each other at arm's length. That is not to say, however, that the parties may not rebut that inference. One must however, in my view, distinguish between the relationship and the dealing. Those who are in what might be termed a "non-arm's length relationship" can surely deal with each other at arm's length in the appropriate circumstances just as those who are strangers, may in certain circumstances, collude the one with the other and thus not deal with each other at arm’s length.
[44] Ultimately if there is any doubt as to the interpretation to be given to these words I can only rely on the words of Madam Justice Wilson who in the case of Abrahams v. A/G Canada [1983] 1 S.C.R.2, at p. 10 said this:
"Since the overall purpose of the Act is to make benefits available to the unemployed, I would favour a liberal interpretation of the re-entitlement provisions. I think any doubt arising from the difficulties of the language should be resolved in favour of the claimant."
[45] In the end it comes down to those traders, strangers, in the market-place. The question that should be asked is whether the same kind of independence of thought and purpose, the same kind of adverse economic interest and same kind of bona fide negotiating has permeated the dealings in question, as might be expected to be found in that market-place situation. If on the whole of the evidence that is the type of dealing or transaction that has taken place then the Court can conclude that the dealing was at arm's length. If any of that was missing then the converse would apply.
Facts Relating to Arm’s Length
[46] The facts upon which this aspect of the decision must be made are a combination of the assumptions of fact (set out above) said to be relied upon by the Minister in coming to his decisions, and the evidence of the Appellant Cappello.
[47] Cappello said in evidence that he and a number of others formerly played poker for the most part at the casinos. However, when the latter increased the cost of playing from $3.00 to $5.00, Cappello and his acquaintances got together and organized a not-for-profit society so they could play at a reasonable cost.
[48] There is no dispute that there was a registered society, Southside, incorporated under the laws of Alberta. That society operated for 2 months and 12 days before it was shut down, as I have outlined above. That society appears to have been subsequently struck off the Register of Societies.
[49] After the raid, the group of individuals incorporated a new society which took over the existing operations of a third society and started up again. Cappello said that at both clubs, he was one of the “housemen” and that was his employment. He said his duties included answering the phone, making coffee, cleaning up, selling chips and buying them back and keeping a list of players that wanted to play. Generally, his duties were to run the place for a shift and he was paid $12.00 per hour.
[50] There is no issue that he actually carried out those duties for that amount of pay.
[51] Ace of Hearts had a Board of Directors. Cappello said he did not think that he was on that Board of Directors as a result of the ongoing proceedings against Southside. However, he agreed that he was the secretary/treasurer of the organization and that he kept the books.
[52] He said that he was asked to work there as a houseman by the Board. He was paid by cheque through Comcheque, a subsidiary of the CIBC, and that all regular deductions for tax, Canada Pension Plan and Unemployment Insurance contributions were made.
[53] The club ran for approximately 6 months. There were 8 or 9 employees in total, as it was operating 24 hours per day, 7 days per week.
[54] He said that all the directors, save one, were also employed there to run the club, but that they had other employees who were not directors.
[55] With respect to Southside, he said there were 3 or 4 other employees apart from the people who organized the society.
[56] He said the shifts were organized by the Board of Directors and not by himself.
[57] He agreed that he was the person who completed the forms and brought them in for the incorporation for the societies.
[58] He also said that he lent money to Southside, but not to Ace of Hearts, in the amount of $5,000.00 or $6,000.00. He agreed that he was a Director of Southside and had a vote on how matters were conducted. On reflection, he felt that he may have been President of Southside. He disputed that he was in control of either society and pointed out that the $12.00 per hour he received was the norm in the industry. He had signing authority as one of two signatories on the bank account of Southside, but not Ace of Hearts.
[59] Those, as I have been able to establish them, are the salient facts. I have no reason to doubt what Cappello says. He struck me as being basically honest. He was of the view that he had been maltreated, as he firmly believed that what was taking place was lawful and legitimate. Whilst gambling might sometimes lead one into the murkier waters of society, in this case I found Cappello perfectly credible as a witness. Unfortunately, he was a little vague on who were exactly the officers and directors of the two societies at any particular time. Nevertheless, I am satisfied that he was just one of several and could be easily out-voted.
[60] That he had an adverse economic interest to Southside is clear from the fact that he had lost the $5,000.00 or $6,000.00 he had invested in it, when all the equipment was seized by the Gaming Commission.
[61] It is clear in my mind from the evidence that the work he carried out was quite genuine. Furthermore, he simply received his $12.00 per hour. He had no stake in additional funds generated by the two clubs, except for repayment of his loan from Southside. He had two interests; first, to secure some employment, and secondly to secure a place where he could play poker cheaply with his friends. His economic interests were not intertwined with those of the societies in this respect. He did not control them. It was not a situation furthermore of there being some form of alter ego. He simply had a minority say.
[62] I am satisfied on the whole of the evidence that this was indeed the type of situation of those traders in the market-place. There were separate economic interests and the two societies and Cappello dealt with each other at arm’s length in the sense that they had separate economic interests, and there were separate operating minds in place.
Conclusion
[63] In conclusion, I am satisfied:
(a) that there is no evidence before the Court upon which it could be said that the activities of the two societies were not legal.
(b) that Cappello dealt at arm’s length with each of the societies.
(c) that the employment of the Appellant Cappello for the periods in question with each of the societies respectively was insurable and pensionable employment.
[64] In the result, all the appeals are allowed and the decisions of the Minister vacated.
Signed at Calgary, Alberta, this 10th day of April 2000.
"Michael H. Porter"
D.J.T.C.C.