Tax Court of Canada Judgments

Date: 19971027

Docket: 88-2117-IT-O

BETWEEN:

JACQUES BIRON,

Applicant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Order

Lamarre Proulx, J.T.C.C.

[1] This is a motion in revocation of a judgment rendered by default on December 6, 1993, dismissing the appeals for the years 1979 to 1983. This motion was made by virtue of the powers conferred on this Court by section 13 of the Tax Court of Canada Act.

[2] As the appeals in question in the instant motion were instituted before January 1, 1991, it is the Rules of Practice and Procedure governing appeals to the Tax Review Board that apply. Those rules make no provision with respect to the revocation procedure. In these circumstances, it is this Court's general administrative power that applies. This power is exercised by drawing from the rules of procedure of other courts such as, for example, those of the province where the applicant resides, as well as on the rules of this Court and those of the Federal Court. As may be seen in those various rules, no motion will be allowed if it is filed more than six months after the applicant learns of the default judgment, and evidence must be adduced that the applicant was unable to act sooner. See, for example, article 484 of the Quebec Code of Civil Procedure,[1] subsection 18.21(3) of the Tax Court of Canada Act and subsection 140(2) of the Tax Court of Canada Rules (General Procedure), in which the time period is 30 days following the pronouncement of the judgment.

[3] The reasons given in the motion are as follows:

[TRANSLATION]

. . .

2 - The appellant, who has previously declared bankruptcy, did not learn that a judgment had been pronounced against him until April 23, 1996, at the hearing respecting his disputed bankruptcy discharge;

3 - The appellant did not appear in this case for the following reasons:

(a) the appellant never received a hearing;

(b) a notice of hearing was sent to counsel for the appellant on September 30, 1993, at the following address:

Marchand & Roiseux avocats

515, St-Georges

Saint-Jérôme, Quebec

J7Z 5B6

(c) the office of the appellant's counsel was situated at the time at 104 de Martigny ouest, St-Jérôme, Province of Quebec, J7Y 2G1;

(d) neither the appellant's lawyer nor the appellant received the said notice of appeal;

(e) in its communications with the appellant, the Department of National Revenue used the following address: B.O. 551, Postal Station K, Montréal, Quebec, H1N 3R3;

(f) the appellant's address on his income tax returns has always been 719, 2^e Rue, Domaine Pagé, St-Sauveur, Quebec, J0R 1R3;

(g) the appellant was domiciled at the address stated in subparagraph (f);

4 - The appellant took the appropriate steps to contact the Department as soon as he learned of the judgment;

5 - The appellant received a copy of the said judgment on or around September 29, 1996;

6 - As the said judgment was not explicit, the appellant filed an application with the Commission d'accès à l'information on September 27, 1996, to obtain a copy of his file;

7 - On October 9, 1996, the appellant contacted the trustee Arthur Andersen through his solicitor to obtain its permission to file a motion in revocation of judgment;

8 - On October 17, 1996, the trustee Arthur Andersen denied the said permission;

9 - The appellant waited to obtain his file from the Department of National Revenue in response to his application to the Commission d'accès à l'information before filing the instant motion;

10 - It was necessary for the appellant to obtain the said file in order to prepare his case;

11 - To date, the appellant has never received an answer from the Commission d'accès à l'information and has never received a copy of the said file from the Department of National Revenue;

12 - The appellant has thus suffered considerable prejudice because he has a good defence to make against the notices of assessment made against him.

[4] Two affidavits were attached to the motion in revocation, one from the applicant's lawyer Mr. Marchand and the other from the applicant himself.

[5] These affidavits read as follows:

[TRANSLATION]

AFFIDAVIT

I the undersigned, Jean Marchand, lawyer, doing business at 90 de Martigny Ouest, Saint-Jérôme, District of Terrebonne, make the following solemn declaration:

1 - I am the appellant's lawyer in this matter and was his lawyer at September 30, 1993;

2 - At September 30, 1993, my law firm was located at 104 de Martigny Ouest, Saint-Jérôme, Province of Quebec;

3 - To date, I have never received a notice of hearing concerning this case;

4 - On October 9, 1996, I asked the trustee Arthur Andersen for permission to file a motion in revocation of judgment in this case;

5 - That permission was denied me on October 17, 1996;

. . .

AFFIDAVIT

I the undersigned, Jacques Biron, domiciled and residing at 285 Place d'Youville, Suite 2, Montréal, District of Montréal, make the following solemn affirmation:

1 - I am the appellant in this case;

2 - To date, I have never received a notice of hearing respecting this case;

3 - I did not learn that a judgment was rendered on December 6, 1993, until April 23, 1996;

4 - It was at a hearing on discharge from my bankruptcy, which is disputed, that I learned this judgment had been rendered;

5 - I examined the content of the said judgment on or around September 29, 1996;

6 - I tried to obtain a copy of my file from the Minister of National Revenue;

7 - I filed an application with the Commission d'accès à l'information on September 27, 1996 to obtain a copy of my file from the Department of National Revenue;

8 - To date, I have not received an answer either from the Department of National Revenue or from the Commission d'accès à l'information;

9 - I have evidence to submit to the Court to dispute the notices of assessment by the Department of National Revenue for 1979, 1980, 1981, 1982 and 1983;

. . .

[6] Counsel for the applicant stated that he had been at 515 St-Georges in Saint-Jérôme for only six months and had not given the Court any notice of his change of address. According to the Court's records, the judgment that is the subject of the instant motion in revocation was sent to the aforementioned address and to 104 de Montigny Ouest. The name of the street on which the office is situated is de Martigny, but the postal code is the same. The copy of the judgment was not returned to the Registry of our Court. Mr. Marchand, who has been counsel for the applicant in the latter's appeals before our Court since 1989 or 1990, stated that he never received it.

[7] Counsel for the respondent proceeded with the out-of-court examination of each of the two witnesses on affidavit. These examinations were filed as follows: Jacques Marchand's affidavit evidence as Exhibit I-2 and Jacques Biron's affidavit evidence as Exhibit I-3. He also filed, as Exhibit I-1, an affidavit from Joe Sansotta dated July 9, 1997, and proof that it was served on counsel for the applicant on July 10, 1997. Mr. Sansotta is an employee of the Department of National Revenue, Collections Branch.

[8] Mr. Biron's bankruptcy occurred on May 9, 1994. On April 24, 1996, the Quebec Superior Court dismissed an application for discharge of the bankrupt and ordered that no application for discharge could be filed for 18 months. An appeal was instituted from that judgment. The applicant is thus still an undischarged bankrupt. This judgment was appended to Mr. Sansotta's affidavit (Exhibit I-1).

[9] The trustee does not wish to resume the case. This fact was mentioned in counsel for the applicant's affidavit. The trustee's reply dated October 17, 1996, appears in the schedule to Exhibit I-2 and reads as follows:

[TRANSLATION]

. . .

We hereby acknowledge receipt of your letter dated October 9, 1996. It is strange to receive such a request from your client, who stated at the time of his bankruptcy in May 1994 and at his first meeting at our offices that he owed considerable amounts at the federal and provincial levels.

Enclosed for your information, please find a copy of the financial statement as required by law signed by Jacques Biron. In the circumstances, we cannot grant your request.

. . .

[10] Neither the applicant nor his counsel sought any remedy under section 37 of the Bankruptcy and Insolvency Act from this decision by the trustee.

[11] The statement of affairs referred to by the trustee which was signed by Mr. Biron on June 23, 1994, indicates a claim by Revenue Canada for $725,000. In his examination, at page 24 of Exhibit I-3, the applicant claimed that, when he had signed the statement of affairs and he asked the trustee to continue his appeals before this Court and that the trustee had answered that he should not concern himself with them.

[12] Paragraphs 6 and 7 of Mr. Sansotta's affidavit read as follows:

6. On June 7, 1994, following my review of the file of the Collection Branch, I phoned Mr. Biron. I then indicated to Mr. Biron that his appeal to the Tax Court had been dismissed. Mr. Biron told me that he was not aware that his appeal had been dismissed, as neither he nor his attorney were ever advised of the court date.

7. I attach hereto as Exhibit R-1 to my affidavit, to form an integral part thereof, a copy of the electronic print-out of the notes I took on June 7, 1994, which state what I did on that day on behalf of the Collection Branch of the Department of National Revenue, in connection with the file of Mr. Biron.

These remarks were recorded in Mr. Sansotta's notes, written on the same day, as may be seen from Exhibit I-1.

[13] During the examination of the applicant, Exhibit I-3, page 17, line 11, counsel for the respondent asked whether he remembered a conversation in 1994 with Mr. Sansotta, who apparently informed him that his appeals had been dismissed. Mr. Biron said he remembered nothing of the kind.

[14] The applicant's version in his examination (Exhibit I-3) and in a letter dated September 27, 1996, to Revenue Canada requesting access to his file (also forming part of Exhibit I-3) is that he learned that his appeals had been dismissed by our Court on April 23, 1996, at the time of his application for discharge from bankruptcy. It should be noted, however, that the instant motion was filed with our Court on April 4, 1997, nearly one year after April 23, 1996.

[15] The respondent's reasons for objecting to the motion in revocation are, first, that Mr. Biron is an undischarged bankrupt and that action should be instituted by the trustee under the Bankruptcy and Insolvency Act and, second, that the applicant did not file the motion as soon as it was possible for him to do so.

[16] At this point, I wish to note a certain concern that I had during the hearing of this motion. In view of section 160 of the Income Tax Act, which provides that the recipient of property transferred from a tax debtor may be assessed an amount equal to the lesser of the transferor's tax liability or the market value of the transferred property, the right to dispute the transferor's tax liability seems important, even if that liability is one of the claims that will be erased by the bankruptcy as regards the transferor. However, according to Thorsteinson v. M.N.R., 80 DTC 1369, the transferee is entitled to dispute the tax liability. Thus, it would appear that for the purposes of section 160, it is not essential that the bankrupt's right to dispute the tax liability be exercised.

[17] Counsel for the respondent referred to the decision by Strayer J. in Bellham v. Strider, etc., C.B.R. (1985), 57 C.B.R. (N.S.) 171, more particularly at page 172:

I am satisfied that the plaintiff has no status to bring this action. It is well established that undischarged bankrupts cannot sue in their own name. Section 50(5) of the Bankruptcy Act, R.S.C. 1970, c. B-3 provides that they cannot deal with their "property", and this term had been held to include causes of action. Only their trustee can do so: see Black & White Sales Consultants Ltd. v. CBS Records Can. Ltd. (1980), 31 O.R. (2d) 46, 36 C.B.R. (N.S.) 125 at 126, 20 C.P.C. 148, 118 D.L.R. (3d) 726 (S.C.); Scott v. Rauf (1975), 10 O.R. (2d) 468, 21 C.B.R. (N.S.) 123, 63 D.L.R. (3d) 580 (C.A.).

[18] He referred to a decision by the Ontario Court of Appeal in McNamara v. Pagecorp Inc. [Ont.], (1989), 76 C.B.R. (N.S.) 97, at page 98:

The scheme of the Bankruptcy Act is that all property of the bankrupt owned at the date of bankruptcy and which is acquired by the bankrupt prior to his discharge vests in the trustee. There is no doubt that an undischarged bankrupt cannot bring action to enforce property claims and we are satisfied that such is the law even where, as here, the property is allegedly sold by the trustee to the bankrupt prior to his discharge.

[19] He also referred to a decision by the Supreme Court of British Columbia in Re McNeill, (1996), 39 C.B.R. (3d) 290, which held as follows:

Under s. 71(2) of the Act, all of the bankrupt's property vests in the trustee. The definition of "property" is broad enough to include an appeal. There was no evidence to indicate that the trustee had acted unreasonably or in a manner contrary to the best interests of the estate in declining to pursue the appeal.

[20] He also referred to section 37 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3:

37. [Appeal to court against trustee]

Where the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.

[21] As regards the application of section 37 of the Bankruptcy and Insolvency Act, counsel for the respondent referred to Liu v. Sung [B.C.], (1989), 72 C.B.R. (N.S.) 224, a decision by the Supreme Court of British Columbia, at page 224:

The petitioners, the majority shareholders in the bankrupt respondent, asked the trustee to commence a derivative action for damages under s. 225 of the British Columbia Company Act against the respondent directors for certain alleged wrongful acts that led to the bankruptcy, resulting in economic loss to the petitioners. The trustee refused, and the petitioners applied for a reversal of his decision under s. 37 of the Bankruptcy Act.

In that case, the petition was granted. In the instant case, no such application was made to the court of competent jurisdiction.

[22] As regards the argument respecting the motion's lateness, counsel for the respondent referred to the decision by the Federal Court of Appeal in Cartier, Inc. v. Doe, [1990] 2 F.C. 234, more particularly at page 238:

The power under Rule 330 to rescind an ex parte order is discretionary. The onus is on the party seeking to rescind to establish it is proper to rescind the order.

[23] He submitted that one of the factors to be assessed was whether due diligence was exercised in asserting one's rights.

[24] Counsel for the applicant suggested that the trustee should have sent notices to counsel to stay the proceedings. He received no such notice and therefore claimed that his mandate was not revoked and that he did not have to request permission from the trustee. He admitted it was true that he had asked the trustee to continue the appeals, but this was done in order to avoid costs for his client. However, as the trustee did not resume the appeals, counsel claimed that his mandate was not suspended. He further contended that the “court” referred to in section 37 of the Bankruptcy and Insolvency Act may mean the court where the case is being heard as it the case before this Court.

[25] Counsel for the respondent argued that a trustee in bankruptcy sends a notice of stay to a creditor who is in the process of collecting his claim. These notices of stay of proceedings are sent in civil cases. In an appeal before this Court, the trustee's role is to take a position on the appeal and to decide whether to continue or discontinue the appeal. The argument concerning the court is inconsistent with the definition of court in section 2 of the Bankruptcy and Insolvency Act.

[26] In my view, the respondent's position is correct in law. The provisions of the Bankruptcy and Insolvency Act do not allow the applicant to continue the appeals instituted from the assessments for the 1979 to 1983 taxation years. Furthermore, the applicant admitted that the instant motion was filed more than one year after he had learned of the judgment. The evidence did not show that the applicant was unable to act as soon as he learned his appeals had been dismissed for failure to appear.

[27] The motion in revocation is dismissed.

"Louise Lamarre Proulx"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

---