Date: 20001207
Docket: 94-1068-IT-G
BETWEEN:
LESLIE ANN RUTLEDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bell, J.T.C.C.
[1] The Appellant, by document dated April 6, 1999, made written application for an Order setting aside the dismissal of her appeal effected by section 16.2(2) of the Tax Court of Canada Act ("Act") respecting her Counsel's August 29, 1996 letter of abandonment of appeal and September 4, 1996 letter from this Court to her counsel advising, that pursuant to the aforesaid section, the appeal was dismissed.
FACTS:
[2] No viva voce evidence was presented. The following facts are taken from admissions of fact in the pleadings, two affidavits of the Appellant, an affidavit of John Hopwood ("Hopwood"), Canada Customs & Revenue Agency ("Agency"), and unchallenged statements of counsel:
1. The Minister of National Revenue ("Minister") by notice of assessment dated October 10, 1991, assessed the Appellant, pursuant to section 160 of the Income Tax Act ("ITA"), for the sum of $130,000 respecting property transferred to her by her husband, Donald Rutledge ("Donald"), on October 4, 1988.
2. The Minister had previously assessed Donald in respect of his income tax matters in an amount substantially in excess of the sum of $130,000.
3. Examinations for Discovery of the Appellant and an employee of Revenue Canada were conducted in April, 1995.
4. In or about March, 1996, Donald filed with Revenue Canada a proposal to settle all outstanding tax matters.
5. The hearing of the matter was adjourned pending the outcome of the proposal discussions.
6. The Appellant stated in her May 6, 1999 affidavit:
In late August of 1996, I instructed my Solicitor to abandon my Appeal as I have been advised by my Husband, Donald Rutledge, that he and through his accountant had in fact secured a tax settlement with Revenue Canada which wiped out all of my tax liability. I now understand that the settlement was not completely finalized until March of 1997. I did not know that the tax settlement had not been finalized when I instructed my Counsel to abandon the Appeal.
7. Paragraph 10 of that affidavit reads in part:
I was therefore astonished to receive a letter from Revenue Canada on January 26, 1999 after two and half (sic) years after abandoning my Appeal, stating I owed $249,920.81.
8. In a second affidavit the Appellant stated that her solicitor advised her that counsel for the Minister offered to extinguish any liability she may have had upon payment of the sum of $130,000. She instructed her solicitor to accept the settlement offer but did advise that "I need time to pay". She also said that she was advised by her solicitor and verily believed that counsel for the Respondent then withdrew the offer of $130,000 and "takes the position that I do not have a valid appeal".
9. On March 26, 1997 the Minister and Donald agreed that he would pay $1,100,000 on account of his income tax liability by four payments of $275,000, each due on March 31, 1997, September 30, 1997, December 31, 1997 and March 31, 1998, the balance of interest to be waived upon all such payments being made.
10. Donald made two such payments only prior to the hearing of this motion.
APPELLANT'S SUBMISSIONS:
[3] Appellant's counsel referred to the foregoing facts and submitted that the amount of debt on the aforesaid property was equal to the Minister's valuation thereof and "that the value of that property was really a wash", there being no equity at that time. He submitted that the Appellant relied upon information received from her husband about the settlement of his tax matters and that she was mistaken in this belief. He also submitted that there was an argument on the doctrine of laches, the Minister not having contacted the Appellant for approximately two and one-half years after the discontinuance of her appeal. This communication was the Minister's written advice to the effect that at that time she was indebted to Revenue Canada in the sum of approximately $250,000.
RESPONDENT'S SUBMISSIONS:
[4] Respondent's counsel submitted that the value of the consideration given by the Appellant to Donald for the property was $130,000 less than the value of the property and that this Court could offer no relief, the matter being solely one of settlement by the Appellant with the collections branch of the Agency.
[5] During clarification of one matter addressed by Respondent's counsel, Appellant's counsel stated that: "It's correct that I didn't check with Revenue Canada."
[6] Counsel also submitted that once the appeal is discontinued it is simply deemed to be dismissed. She referred to two rules of the General Procedure Rules under which the Court may vary an Order but that they only dealt with varying or amending orders or errors in the Judgment. She then stated that this Court could not re-open a matter where there has been a discontinuance. She referred to Bogie v. M.N.R. [1] in which the Federal Court of Appeal stated:
1 Assuming, without deciding, that the Tax Court of Canada possesses the inherent jurisdiction to set aside a notice of discontinuance or that the requisite jurisdiction arises under s. 172 of the Tax Court of Canada Rules, we are all of the view that this appeal cannot succeed on its merits.
2 In the present case, the taxpayer's solicitors advised the taxpayer to discontinue his appeal from the Minister's notice of assessment on the basis of information received from the taxpayer's accountant. A notice of discontinuance was then duly filed with the Tax Court. Subsequently, however, the taxpayer was advised by his accountant that the earlier advice had been given in error. That error pertains to a question of fact: namely whether a capital cost allowance had been claimed by the taxpayer in a previous taxation year.
3 Against this factual background, it is obvious to us that the taxpayer cannot distance himself from the erroneous advice given by his accountant. In these circumstances, there is no merit in the argument that the taxpayer could not have discovered the true state of affairs through the exercise of due diligence. In the absence of fraud, the conduct of the taxpayer embraces the conduct of his professional advisors. In our view, the facts of the present case do not come within the ambit of the law as stated by Stone, J.A. in Saywack v. Canada (Minister of Employment & Immigration), [1986] 3 S.C. 189 (Fed. C.A.) at 201. For these reasons the appeal must be dismissed with costs.
[7] Counsel said further that the Appellant had withdrawn her appeal before September, 1996 but it was not until March, 1997 that an agreement was reached between Donald and Revenue Canada.
[8] Counsel also submitted that the argument made by Appellant's counsel that the payments by Donald should have been applied first to the $130,000 assessed against the Appellant, was faulty. She stated that section 160 made the transferee liable for an amount equal to the lesser of (i) the excess of value of the property transferred by Donald over the value of the consideration given by the Appellant, and (ii) the amount Donald was liable to pay in respect of the year of transfer or any preceding taxation year.
ANALYSIS AND CONCLUSION:
[9] Section 16.2 reads as follows:
(1) a party who instituted a proceeding in the Court may, at any time, discontinue that proceeding by written notice;
(2) where a proceeding is discontinued under subsection (1), it is deemed to be dismissed as of the day on which the Court receives the written notice.
[10] Section 160 of the General Procedure Rules ("Rules") provides that where the Court has pronounced a Judgment disposing of an appeal a party may move the Court to reconsider the terms of the Judgment on specified limited grounds. Section 172 provides that the Court may amend a Judgment in certain circumstances. Those two sections do not apply here as no Judgment was issued, the appeal having been deemed dismissed.
[11] The Federal Court of Appeal, in Bogie, was dealing with an error pertaining to a question of fact which was easily discernible by a professional, namely whether capital cost allowance had been claimed in a previous taxation year. It appears that the answer to that question was clearly within the knowledge of the Appellant's accountant who had misinformed the Appellant's lawyers, resulting in the notice of discontinuance being filed. The learned justice said that there was no merit in the argument that the taxpayer could not have discovered the true state of affairs through the exercise of due diligence. That case involved a direct assessment of the Appellant, not a secondary liability assessment as in the present case. In this case, the Appellant earnestly believed the information given to her by her husband who obviously believed it to be accurate. It was not a mere matter of easily discernible technical fact. The whole concept of spousal trust[2] demolishes any suggestion that the Appellant should have challenged either her husband or his accountant by pursuing the "exercise of due diligence". She simply accepted, as valid, her husband's information that his tax matters had been resolved and she acted on same. In any event, there was no evidence that the Appellant's counsel was counsel for her husband, Therefore, neither she nor her counsel had any entitlement to receive any information from Revenue Canada.
[12] The Appellant was not the taxpayer whose actions had given rise to an assessment of primary liability for tax. She would have no way of knowing about that taxpayer's affairs other than by receiving information from him. She was assessed for secondary, vicarious liability based on an extremely unusual and far-reaching provision of the Act. Her right to pursue an appeal should not be neutered by due diligence quest which would effectively require her to question the veracity of her own husband.
[13] Section 13 of the Act reads:
The Court has, with respect to the attendance, swearing and examination of witnesses, the production and inspection of documents and other matters necessary or proper for the due exercise of its jurisdiction, all such powers, rights and privileges as are vested in a superior court of record.
[14] This Court has the inherent jurisdiction to set aside a dismissal of an appeal on the basis of erroneous advice, such dismissal not have been created by a Judgment of this Court.
[15] In the circumstances, justice is served by permitting the Appellant to proceed with a case in which, as submitted by her counsel, meritorious arguments can be advanced on her behalf. In this regard, the recent judgment of the Federal court of Appeal in Joanne Gaucher held that, in respect of subsection 160(1):
... a second person must have a full right of defence to challenge the assessment made against her ...
[16] Obviously, the reason for the Appellant not having made application sooner for the relief she now seeks is Revenue Canada's delay of some 2 ½ years after her abandonment of appeal before having any contact with her - that communication being, as above set out, written notice that her indebtedness had reached the sum of approximately $250,000.
[17] I will grant the application and issue an Order setting aside the dismissal.
Signed at Ottawa, Canada this 7th day of December, 2000.
"R.D. Bell"
J.T.C.C.