2000-3366(EI)
BETWEEN:
TSS - TECHNICAL SERVICE SOLUTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KENNETH ZDEBIAK,
Intervenor.
Appeal heard together with appeal No. 2000-3367(CPP)
on January 29, 30 and 31, 2002 at Calgary, Alberta, by
the Honourable Judge Gordon Teskey
Appearances
Counsel for the Appellant: Jehad Haymour
Denny Kwan
Counsel for the Respondent: Gwen Mah
Mark Heseltine
For the Intervenor: The Intervenor himself
JUDGMENT
The appeal is allowed and the determination by the Minister of National Revenue is reversed, in accordance with the attached Reasons for Judgment.
Signed at Toronto, Ontario, this 26th day of February, 2002.
|
"Gordon Teskey" |
J.T.C.C.
2000-3367(CPP)
BETWEEN:
TSS - TECHNICAL SERVICE SOLUTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KENNETH ZDEBIAK,
Intervenor.
Appeal heard together with appeal No. 2000-3366(EI)
on January 29, 30 and 31, 2002 at Calgary, Alberta, by
the Honourable Judge Gordon Teskey
Appearances
Counsel for the Appellant: Jehad Haymour
Denny Kwan
Counsel for the Respondent: Gwen Mah
Mark Heseltine
For the Intervenor: The Intervenor himself
JUDGMENT
The appeal is allowed and the determination by the Minister of National Revenue is reversed, in accordance with the attached Reasons for Judgment.
Signed at Toronto, Ontario, this 26th day of February, 2002.
|
"Gordon Teskey" |
J.T.C.C.
Date: 20020226
Dockets: 2000-3366(EI)
2000-3367(CPP)
BETWEEN:
TSS - TECHNICAL SERVICE SOLUTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KENNETH ZDEBIAK,
Intervenor.
REASONS FOR JUDGMENT
Teskey, J.
[1] The Appellant TSS-Technical Service Solutions Inc. ("TSS") appeals the decisions of the Minister of National Revenue (the "Minister"), both dated May 2, 2000, wherein he determined that Kenneth Zdebiak ("Ken") was employed by TSS in insurable employment within the provisions of the Employment Insurance Act (the "Act") and its regulations and in pensionable employment within the provisions of the Canada Pension Plan ("CPP") and its regulations for the period of September 7, 1999 to October 20, 1999.
[2] As a result of the above rulings, the Canada Custom and Revenue Agency ("CCRA") conducted an audit of TSS and has assessed it a total of approximately $161,000 for employment insurance premiums and pension payments for the years 1999 and 2000.
[3] Because of the large assessment of tax, examinations for discovery were held. For the many reasons following herein, I cannot understand why the Attorney General of Canada through the Department of Justice did not simply say to the CCRA, after discoveries, you have no factual basis for your determinations and assessment and a business such as TSS ought not to be put to the expense it has obviously occurred to defend itself. The Respondent's position herein is built on fantasy and someone's imagination.
[4] TSS has completely destroyed any purported factual basis for the ruling and the subsequent assessment and the Appellant has shown that on the case law as it now stands, there was no basis for the Respondent's position.
[5] TSS called as witnesses Christopher Robert Arthur ("Chris"), the president and managing director of TSS, Michelle Cherie Lynn Nicholson ("Michelle"), a Girl Friday employed by TSS and three technicians, namely Michael Stephen John Dolan ("Michael"), Russell Kurt Ashe ("Russell") and Stephen John Hall ("Stephen") and filed, on consent, a summary of facts established on the discoveries.
[6] The Respondent called Ken and Thomas Steven Kovacs ("Tom"); both technicians performed services for TSS and both had their relationships with TSS terminated by TSS.
[7] When I refer to technicians, I include Ken and Tom therein unless I specifically exempt one or the other.
[8] Chris established the TSS commercial operation in December of 1998, providing technical service to various customers with computer problems, installing computer networks in offices, hooking up internet connections and cabling.
[9] June 30 was the fiscal year end of TSS. Thus, the figures for June 30, 1999 reflect only the first seven months TSS was in business and the figures for June 30, 2000 are for a complete year.
[10] During 1999, a representative of Shaw Cable ("Shaw"), a large TV cable corporation in Alberta contacted Chris and suggested that they could do business together.
[11] It was agreed between TSS and Shaw that TSS would provide services to Shaw on a unit price for these services.
[12] These services consisted of wiring houses for cable TV or internet service, hooking up computers in houses with cable TV that now wanted internet access using cable as opposed to telephone lines.
[13] Homeowners would contact Shaw and request the service that they desired. Shaw would then arrange a time that the installation of the necessary supplies would be performed in order to provide the desired service.
[14] Shaw had five firms that installed the Shaw supplies of which TSS was only one such firm.
[15] TSS decided that the best way to provide these services to Shaw would be to arrange with a number of technicians on an independent contractor basis to perform the services requested by Shaw.
[16] TSS on October 13, 1999 had 33 such technicians and on October 26 had 37 technicians.
[17] Although the issue herein is the characterization of the contract between Ken and TSS, is it employee/employer or independent contractor, the evidence from Michael, Russell and Stephen was tendered to corroborate the testimony of Chris.
[18] I accept all the testimony tendered on behalf of the Appellant and where there is a conflict between the evidence adduced by the Respondent as to relevant facts, I accept that tendered by the Appellant's witnesses.
[19] TSS provided to Shaw a list of technicians and the hours each was available to perform the installations. Shaw then would use this list to schedule with its customers when the installations would take place. Shaw would provide TSS on a daily basis with what was described as a "run sheet" for the next day. TSS still had control over who went where and could assign various jobs to which technician they picked. Also, if a technician was not available for whatever reasons the job would be assigned to another technician.
[20] The run sheet provided the date and time that a technician who was identified by a code should attend at a specific customer's home and what installation was to be performed. This is all subject to my comments in the previous paragraphs.
[21] There were basically three periods each day, that is morning, afternoon and evening. Most technicians would be available for the morning and afternoon periods or the afternoon and evening periods. Those that took the morning period were required to attend at TSS's office before 8:00 a.m. to pick up their run sheet with accompanying work orders. If a technician did not show by 8:00 a.m., the work orders were given to other technicians. Those that were taking the afternoon and evening periods were required to attend before 11:30 a.m. and the procedure was the same as for the preceding period.
[22] The technician, on receiving the assigned run sheet, would attend at Shaw's warehouse and pick up all necessary supplies that had to be installed such as cable wire, boxes, connections, computer modems and cards. Then he or she would call the first customer and proceed to the required site.
[23] Michelle was hired by TSS to perform a multitude of tasks. These she took on willingly and put her whole heart and soul into the operation. She obviously realized that her employer, TSS, would be more financially successful the more installations were successfully completed. The same applied to the technicians. She now works for Calgary Honda and her testimony is accepted without reservation.
[24] At the end of the day's work, the technicians would return to TSS with their completed work orders. This allowed TSS to invoice Shaw and be used to double check all invoices submitted by the various technicians to TSS.
[25] When each potential technician was originally interviewed, Chris would advise them the set rate that TSS was offering. This was subject to negotiation if the technician had experience and was smart enough to negotiate a higher rate. The technicians were all advised that they would be independent contractors running their own business and that they needed a GST number and that the unit prices to be charged to TSS contained GST. They were all told how to invoice TSS for their installations.
[26] Ken signed a written contract with TSS on September 14, 1999. He was given it in the morning so that he could review its content. He signed it at the end of the day and it was signed on behalf of TSS that same day.
[27] The contract was obviously prepared by a lay person, it sets out that the technician is to be an independent contractor, and that income tax, GST, CPP and employment insurance premiums was the technician's responsibility as well it contained a very restrictive non-competition clause and several clauses under the option "Training".
[28] When a new technician came on the scene, Michelle would arrange with the new technician to team up with an existing technician to acquire what portion of the skill was lacking if any. The new technician was not paid for this one to two week period when they trailed around an existing technician performing the installations.
[29] This is what happened with Ken, who was a computer expert but had no training or knowledge of the cabling part of the required installation. He started going with another technician on Tuesday, September 7, 1999 and was with two different technicians until September 17, 1999. This way he was learning how to install cable in customer's houses. His computer skills made him a valuable technician to TSS.
[30] During September of 1999, Ken and Tom got together and with the concurrence of TSS, they operated as a team. Tom did the cable work while learning the required computer skills and Ken did the computer work while continuing his learning of the cable portion. It was agreed between TSS and Ken that only one set of fees was to be paid by TSS for their joint installations.
[31] Ken and Tom agreed that Ken would split equally the remuneration earned by the two of them. Tom had a van capable of holding a ladder and all the required safety equipment. Ken had none of this nor the funds to acquire the same. He was in the process of declaring bankruptcy.
[32] Between the two of them, they supplied all the necessary tools to perform the various services, including all safety equipment and a van that would hold a ladder suitable for climbing telephone poles. Ken was given a cell phone and an expensive meter to test the signal strength of cable. These were the only items supplied by TSS and Ken was not charged rent for these two items. Usually, the technicians had their own cell phones or pagers and made individual different agreements concerning the meter. Ken, in this regard, was not the usual recruit and I conclude it was because of his extraordinary computer skills that TSS took this into consideration.
[33] Specialized tools were purchased from TSS by Ken with the agreement that he would pay for them in four equal instalments. These were never paid for, but were returned to TSS after he was advised he was no longer required by TSS.
[34] The team of Ken and Tom performed installations on September 29 and 30, 1999. Ken delivered what he considered as his bill to TSS (Exhibit R-9) and received a cheque from TSS dated October 14, 1999 for $355.92, which stated that the invoice period was September 20, 1999 to September 30, 1999.
[35] The Ken and Tom team completed installations during the first 14 days of October 1999. Ken submitted his invoice to TSS (Exhibit R-10) outlining all services provided and received a cheque from TSS dated October 29, 1999 of $1,218.95 for the said services which stated that the invoice period was October 1, 1999 to October 31, 1999.
[36] Both cheques were split by Ken equally with Tom.
[37] Although Ken claimed he did a little computer service after October 15, 1999 but did not bother to bill TSS for this, I reject this allegation outright and find that October 14, 1999 was the last day any work was performed.
[38] Tom claimed that he was given a blank copy of a sub-contract agreement dated September 27, 1999 and that after reviewing it, he signed it and returned the contract to Michelle. This agreement was never executed by TSS. I find that Michelle by mistake prepared the agreement and the same was not signed by TSS as the agreement with Ken was in force and as far as TSS was concerned, they at that time were only dealing with Ken. Subsequently, when Tom started performing his services directly for TSS, the execution of the contract was overlooked.
[39] Michelle, on behalf of TSS, sent numerous e-mails to the technicians trying to get them to be reachable at all times and to attend meetings that were held for the purposes of discussing changes in procedures and Shaw's requirements and advice from technical Shaw employees. The technicians were not paid to attend these meetings, and many simply ignored these directives. Ken attended all meetings.
[40] Ken, approximately one year before working with TSS, had registered a sole proprietorship under the name of "Blue Anchor Systems". He used this trade name in attempting to be a computer technician. He was upset that his first cheque from TSS was not made out to Blue Anchor Systems.
[41] On October 6, Revenue Canada confirmed to Blue Anchor Systems Kenneth Robert Zdebiak that the application for Goods and Services registration was accepted and a GST number was assigned.
[42] Ken knew that all the unit fees paid to him included GST. After all relations ended with TSS, he attended on Human Resources Canada to enquire how to calculate the GST he had collected and to report and pay the same. At the same time, he enquired as to possible programs he could take advantage of.
[43] Someone at Human Resources took it upon him or herself to prepare a record of employment for Ken dated May 26, 2000 and sent it to Ken. Obviously, there is no statutory provision for this and this was done quite improperly. Attached to this record of employment are what is purportedly two invoices from Kenneth Zdebiak dated October 1, 1999 and October 16, 1999 for $355.95 and $1,218.95 respectively. These may very well have been typed up by Michelle on behalf of Ken from his summary of work performed that he submitted (Exhibits R-9 and R-10). Nothing really hinges on this as all it would do is tidy up TSS's bookkeeping.
[44] I reject Ken's allegation that a two-week rotation schedule was posted at TSS's office, particularly when his work record was as follows:
|
October 1 October 3 October 4 October 5 October 7 October 10 October 12 October 14 |
2:00 p.m. to 8:45 a.m. to 10:00 a.m. to 8:45 a.m. to 9:45 a.m. to 8:45 a.m. to 10:00 a.m. to 1:00 p.m. to |
7:00 p.m. 6:30 p.m. 5:30 p.m. 10:45 a.m. 2:30 p.m. 2:30 p.m. 8:00 p.m. 8:30 a.m.
|
[45] Ken was free to work when and at what times he wanted. He could take off anytime he wanted, like during the day or the whole day. From the above schedule, it is easy to see that he did not abide by TSS's wishes and his start times were irregular.
[46] Although TSS desired their technicians to start at agreed times, the ultimate goal was to complete the requested Shaw installations in a timely, professional manner and as many as possible in any given day. This policy worked to the benefit of both TSS and the technicians.
[47] Shaw had a high volume of business sufficient to keep all of TSS's technicians going full-time. They all were computer literate and were free to do computer solving problems with individuals on their own. TSS did not want the technicians working for competitors. TSS knew it could keep the technicians as busy as any individual technician desired and at the same time TSS wanted the technicians to be available to perform the installations and not jumping around with competitors driving up the unit prices. In law, I believe the restrictive covenant in the contract with Ken is completely unenforceable and void.
[48] Where Ken's testimony conflicts with that submitted on behalf of the Appellant, I reject the allegations of fact by Ken.
[49] Shaw was a large customer of TSS, who wanted to keep Shaw happy. The best way was to have the installations done expertly and timely.
[50] I reject that the Appellant was required to buy shirts from TSS and to wear the same and find that the only dress code was that of Shaw that the technicians present themselves in a neat and tidy fashion. Their clothes was just another part of each technician's expense.
[51] I find that each technician was responsible for sloppy and improper work and was responsible for all damages.
[52] Each technician was advised that his vehicle might be inspected at any time to make sure all necessary safety equipment was available for use.
[53] I find that the installations were not inspected by either TSS or Shaw during the process of installation or after. However, if a customer complained either to TSS or Shaw, an inspection would occur and if the installation was not up to standard, the technician would have to re-attend and fix whatever discrepancy that was causing the problem at his or her own expense. If that technician did not do so, another would attend and rectify the work and the original technician would be charged for this.
[54] Each technician was paid only for actual work performed and was responsible for all expenses, errors and any damages that might occur.
[55] Both Ken and Tom, in evidence, and the three technicians who gave evidence on behalf of TSS, stated that they were operating as independent contractors operating their own business and with the exception of a few minor areas, confirmed the evidence adduced on behalf of TSS.
[56] Ken filed a Notice of Intervention. He did not intend to be a party to these appeals. His concern was that in his opinion, some of the alleged facts were not right and that he may be responsible to TSS for legal costs. To this day, he believes he was an independent contractor and not an employee.
Analysis
Employment by Virtue of the Regulations
[57] The alternate position taken by the Minister is that the Intervenor was employed by virtue of the application of the regulations under both statutes. These regulations specifically provide that employment will be insurable employment where it is "employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency".
[58] If no employment exists wherein the individual is put under the direction or control of some party, then neither regulation applies.
[59] My colleague Bell J., in Sara Consulting & Promotions Inc. v. Canada (Minister of National Revenue), [2001] T.C.J. No. 773 (Q.L.), said at paragraph 94:
94. I shall deal quickly with Respondent's submission that the Appellant, within the meaning of Regulation 6(g) was a placement agency. It is recalled that the Respondent's Reply states that if the workers "were not employed under contracts of service with the Appellant", then the workers were engaged in insurable employment pursuant to Regulation 6(g). Using counsel's premise that the workers "were not employed" how could they possibly be "placed in ... employment" by anyone? The Appellant was, and is, not a placement or employment agency. That submission is rejected.
[60] I agree that a pre-requisite to apply these regulations is that I must find that the technician (i.e. Ken) was employed and under the control of Shaw, which is obviously not the case. This provision would apply if Ken was placed within the direct control of Shaw. This was not so. Shaw's only concern was that the technician present a neat tidy appearance and do the tasks in a professional manner. This is not control to the extent to put Ken into an employment relationship with Shaw.
[61] Paragraph 6(g) of the Employment Insurance Regulations and section 34 of the Canada Pension Plan Regulations provide the Minister no assistance in this case as the Intervenor was not employed by nor under the direction and control of Shaw Communications or any other client of the Appellant.
Employment v. Independent Contractor
[62] The last word on this is the recent decision of the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59. Therein, the Court was dealing with vicarious liability, however it had to deal with employee vs. independent contractor distinction. The Court referred to the Federal Court of Appeal's decision of Wiebe Door and stated at paragraphs 47 and 48:
47. Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks.
48. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.
[63] It was the late Justice MacGuigan J.A., of the Federal Court of Appeal, who said in Wiebe Door Services Ltd v. M.N.R., 87 DTC 5025 that there was a four-in-one test and summarized as follow:
The Control Test
The control test looks at the level of control that one party to the relationship exercises over the other. If there is a significant level of control, the controlled individual will be an employee. If, however, little or no control is exercised and the individual is reasonably free to determine when and how the work is performed, he will generally be considered to be an independent contractor.
The Ownership of Tools Test
The ownership of tools analysis identifies the owner of the implements that are used to perform the work. If these implements are owned by the hirer, an employment relationship may exist. If however, an individual supplies his own tools, he is likely to be an independent contractor.
The Risk of Loss / Chance of Profit Test
Under the chance of profit/risk of loss analysis, one examines what the parties have at stake as a result of the relationship. If an individual stands to lose from the relationship, he will generally be considered to be an independent contractor. If however, there is no risk of loss, he will generally be an employee. While this test can also be applied in reverse with respect to profit, such an analysis is probably less helpful since both an employment and contractor relationship can provide profit, yet only a contractor relationship allows for a potential loss.
The Extent of Integration Test
When examining the extent of integration, one considers if the work performed by one party to the relationship is integral, or merely ancillary, to the business of the other. If the work is integral, an employment relationship will generally exist. If however, the work is ancillary to the business, the individual will generally be considered to be an independent contractor.
[64] The Federal Court of Appeal in Moose Jaw Kinsman Flying Fins v. The Minister of National Revenue, 88 DTC 6099, shortly after the Wiebe Door decision, confirmed the preferable and proper approach in deciding this issue that one or more of the tests may have little or no applicability, and that the overall evidence must be considered when taking into account the tests which may be applicable, and giving to all the evidence the weight which the circumstances may dictate.
[65] I point out that the Respondent stressed to this Court what I consider to be neutral facts that do not lead to a conclusion one way or another.
Control
[66] Neither Shaw nor TSS controlled the technicians. They were free to come and go and start when they wanted. They could take holidays, days off and time off during a working day without permission.
[67] Shaw set a schedule for installations upon receiving a request for Shaw services from a customer. Shaw's only concerns were that the technicians would not inconvenience its customers unnecessarily and would present themselves in a presentable appearance and do a professional job.
[68] Neither Shaw nor TSS inspected the work unless there was a complaint. It was to both Shaw and TSS's advantage that the customers were satisfied.
[69] The fact that Shaw was concerned about the quality of the service performed is not the same as controlling the performance of the service by the technicians. Herein, Shaw was concerned with quality but no attempt was made by Shaw or TSS in controlling the actual installation.
[70] It cannot be said that either Shaw or TSS controlled Ken or for that matter any of the technicians in the sense of control for this test.
Ownership of Tools
[71] Although a current meter is relatively expensive, approximately $1,800, it and the cell phone are of small value compared to all the other tools and the motor vehicle required for the performance of the installations. Shaw maintained a help line which its customers and the technicians could use and TSS assisted Ken only with the meter and cell phone.
[72] The cell phone was as much to Ken's benefit as TSS. He was the only technician who did not have his own cell phone or pager.
Risk of Loss / Chance of Profit
[73] These items fell on the technicians equally to TSS. Although the motor vehicle would be the single biggest expense, the choosing of what vehicle to use, to own or to lease, what insurance coverage to place thereon could make a huge difference if a profit occurred. The technician's own ability to perform the services efficiently and properly would have a great deal to do with the loss or a good profit. Damage to a residence could bankrupt the technician.
Integration Test
[74] As the courts have repeatedly said, in the eyes of the worker "Whose business is this?" In Ken's eyes as well as those technicians who gave evidence, including that of Tom, they were in business for themselves. They were not part of TSS or Shaw.
[75] Shaw is in the business of providing multiple TV programs and internet service to customers. In order to deliver this, the customer's residence has to have a cable installed and other equipment in their residence or place of business. The installations performed herein were only a prelude to Shaw to supplying what the customer ordered, that is cable TV or cable internet service.
Other Factors
[76] The fact that Shaw provided all the supplies is a neutral factor. Of course, it wants its cable, connections, junction boxes, modems out in its customers homes so that if a problem occurs, service providers are always dealing with the same cable and equipment.
[77] The fact that these technicians were asked to attend meetings is also a neutral factor. It was to everyone's advantage to attend and have these meetings. Even if they were in fact mandatory, it is not an indication of employment. The technicians attend on their own time and without pay. Usually, an employee would attend on the employer's time and be paid for the attendance by way of salary.
Non Competition Clause
[78] In the present case, this also is a neutral factor. The quid pro quo of this was that TSS was prepared to give as much service work to a technician as he or she desired and for this TSS did not want its technicians jumping ship or working for a competitor.
[79] The Respondent argues that the fact TSS gave a new technician a rate sheet and said this is what the deal is, is not indicia of controlling work. The evidence was that this was negotiated. Ken just accepted the rate as final and he was prepared to accept it.
[80] The fact that these technicians left Shaw and/or TSS pamphlets at the customer premises, advising the customer who to phone if they had complaints and who the technician was, was not an indication of integration.
[81] Thus, based on the historical test, I am satisfied that Ken was an independent contractor. However, I feel that I must also look at what can be described as the modern approach to taxing statutes.
[82] The Supreme Court of Canada has ruled in express and clear words that a valid arrangement between arm's length parties should not be denied a tax or other advantage unless it is either a sham or the target of clear and unequivocal statutory language.
[83] In Shell Canada Ltd. v. The Queen, 99 DTC 5669, McLachlin J. (as she then was) speaking for a unanimous Court, said at page 5676, paragraph 39:
39. This Court has repeatedly held that courts must be sensitive to the economic realities of a particular transaction, rather than being bound to what first appears to be its legal form: Bronfman Trust, supra, at pp. 52-53, per Dickson, C.J.; Tennant, supra, at para. 26, per Iacobucci, J. But there are at least two caveats to this rule. First, this Court has never held that the economic realities of a situation can be used to recharacterize a taxpayer's bona fide legal relationships. To the contrary, we have held that, absent a specific provision of the Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases. Recharacterization is only permissible if the label attached by the taxpayer to the particular transaction does not properly reflect its actual legal effect: Continental Bank Leasing Corp. v. Canada [98 DTC 6505], [1998] 2 S.C.R. 298, at para. 21, per Bastarache, J.
[84] My colleague Bell J., in the Sara decision, referred to above, said on pages 24 and 25:
... I accept the direction as expressed in Shell, that the recharacterization of legal relationships is only permissible if the label attached by the taxpayer to the transaction does not properly reflect its actual legal effect. Admittedly, this statement by the Supreme Court of Canada was in respect of tax cases. However, in the absence of clear and credible evidence that the description of a relationship is other than as agreed between arm's length parties, the description agreed upon by those parties must stand. There is no such clear and credible evidence in this case.
[85] On the basis of this law, I believe the moment Ken took the stand and indicated: "I dealt with TSS at arm's length, I entered into a working relationship with TSS as an independent contractor operating my own business Blue Anchor and I intended to do so and today I believe I was not an employee and I never intended to be an employee". In light of all the evidence TSS has adduced, the hearing should have ceased right then as the Respondent's position was demolished by its own witnesses.
[86] The Respondent did not plead that the agreement between Ken and TSS was a sham and Ken's evidence in no way challenged or suggested that his relationship with TSS was other than what the parties desired or intended.
[87] The Replies to the Notice of Appeal herein contain a paragraph that says:
In deciding as he did, the Minister relied on the following assumptions of fact.
Thereafter, are 42 subparagraphs of facts. It was agreed that five of those subparagraphs were not relied upon by the Minister. That is approximately 12 percent. The Reply purports to be filed by Morris A. Rosenberg, Deputy Attorney General of Canada, Solicitor for the Respondent, then it is signed by a "B. Aylesworth", as Agent for the Respondent.
[88] Counsel for the Respondent knew about this at the latest in time during the discovery process. I believe that counsel should have at that date amended the Reply. I also believe that it is the first duty of counsel, on having a case assigned to him or her, to check and make sure only facts have been assumed and that they are correct and were in fact part of the Minister determination or assessment which ever is the issue.
[89] In these appeals, why didn't counsel amend the reply? Could it be to purposely mislead the Court or anyone of the general public reading it, or was it just indifference? In argument, counsel for the Respondent did not allude to this in anyway let alone offer an apology for this unacceptable pleadings.
[90] My colleague Bowie J., in the Cline-Schmidt v. The Queen decision, delivered orally from the bench in London, Ontario on September 20, 2001, said:
... The jurisprudence has given a special status to assumptions made by the Minister in assessing: see Hickman Motors and the cases there cited. It is important therefore, that the pleading of assumptions said to have been made by the Minister in assessing be done with care, both to ensure that what is pleaded is confined to facts, and to ensure that what is pleaded to have been assumed by the Minister really was assumed, and is not a creation of the drafter. Pleadings such as the one before me tend to raise doubts as to the reliability of the Replies filed by the Deputy Attorney General.
[91] Associate Chief Judge Bowman in Shaughnessy v. the Queen, 2000-178(IT)G, signed on January 9th, 2002, said at page 4, thereof when dealing with assumptions.
13. ... The pleading of assumptions involves a serious obligation on the part of the Crown to set out honestly and fully the actual assumptions upon which the Minister acted in making the assessment, whether they support the assessment or not. Pleading that the Minister assumed facts that he could not have assumed is not a fulfilment of the obligation. The court and the appellant should be entitled to rely upon the accuracy and completeness of the assumptions pleaded. Sadly, this is becoming increasingly difficult. The entire system developed in our courts relating to assumptions and onus of proof is in jeopardy if the respondent does not set out the actual assumptions on which the assessment is based with the complete candour, fairness and honesty.
[92] I conclude that the five assumed facts were the creation of the drafter's imagination. This practice must stop. Surely the Deputy Attorney General and his counsel from Justice do not intend to mislead taxpayer-appellants and the judges of the Tax Court of Canada. This portion of the pleadings is extremely important and must not mislead. The counsel at trial is responsible for the Reply. It is not good enough to simply say "I did not draft it". If it contains facts not actually relied upon or is in improper form it must be amended forthwith.
[93] If I had the jurisdiction I would have awarded Solicitor and client costs to the Appellant for all work after the examinations for discovery were completed and the undertaking to amend the Reply was not immediately forthcoming.
[94] The Attorney General of Canada is responsible for all litigation which involves the Government of Canada. It must fall on his plate to make sure that a system is in place so that this problem is corrected. Perhaps the assumed facts relied upon by the Minister should accompany a reassessment of tax or on a determination under the Act.
[95] For all these reasons, these appeals are allowed and the Minister's determinations are reversed.
Signed at Toronto, Ontario, this 26th day of February, 2002.
|
"Gordon Teskey" |
J.T.C.C.
COURT FILES NOS.: 2000-3366(EI) and 2000-3367(CPP)
STYLE OF CAUSE: TSS Technical Service Solutions Inc. and
The Minister of National Revenue and
Kenneth Zdebiak
PLACE OF HEARING: Calgary, Alberta
DATES OF HEARING: January 29, 30 and 31, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Gordon Teskey
DATE OF JUDGMENT: February 26th, 2002
APPEARANCES:
Counsel for the Appellant: Jehad Haymour
Denny Kwan
Counsel for the Respondent: Gwen Mah
Mark Heseltine
COUNSEL OF RECORD:
For the Appellant:
Name: Jehad Haymout
Firm: Fraser Milner Casgrain
Calgary, Alberta
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada