Date: 20050715
Docket: T-1799-00
Citation: 2005 FC 991
BETWEEN:
PETER J. WORKUM
Plaintiff
- and -
CANADA CUSTOMS AND REVENUE AGENCY
Defendant
[1] This is a tax accounting case. It turns on whether the taxpayer, Peter Workum, received and cashed a refund cheque in 1992. As this action was only instituted in the year 2000, and as it only came to trial in 2005, it is not surprising that the evidence is not all it could have been.
[2] Mr. Workum's annual income tax returns were a bone of contention with Canada Customs and Revenue Agency ("CCRA") - now known as Canada Revenue Agency - for many years. Not every return, but from the late 1980s to the late 1990s not a day went by when one or more tax years were not subject to re-filing, audit, notice of assessment, notice of objection or litigation before the Tax Court.
[3] The prime source of contention was deductions claimed with respect to Mr. Workum's many businesses.
[4] Finally, they resolved their differences. Their settlement took the form of a consent judgment before Judge Rip of the Tax Court in May 1999. Certain deductions for interest expenses were allowed as was a capital loss. Certain profit was held to be on capital account and other profit on income account. Expenses in relation to one property were dismissed.
[5] As is the norm in such matters, the judgment did not strike an actual balance of account between the parties. They were to take the allowances and disallowances, calculate interest and work out who, at the end of the day, was in debit and who was in credit.
[6] Following the judgment, certain entries were reversed, tax deductions were applied and Mr. Workum made payments.
[7] There were still some differences which Mr. Workum's accountant and CCRA were not able to reconcile. CCRA considered Mr. Workum in debit, while his accountant considered him to be in credit.
[8] Prior to the consent judgment there had been desultory efforts to ascertain exactly how much had been in dispute. For instance, Theodor Hennig, Mr. Workum's accountant, wrote to CCRA in October 1997, to dispute the amount then in issue. It was only in March 2000 when the CCRA sent Mr. Hennig copy of its internal statement of account which showed that Mr. Workum had been issued a refund cheque on 1 December 1992, in the total amount of $30,221.72, that the source of the problem finally came into focus. Mr. Workum denies that he received that money, and has taken an action in this Court for a declaration to that effect and to have CCRA collection efforts in the form of service of a requirement to pay in the hands of the third party and a creditor's statement of debtor's land filed at the Alberta Land Titles Office, set aside.
[9] The prime piece of evidence is missing in that CCRA alleges it destroyed the cancelled cheque in the normal course of business in 1999.
ISSUES
[10] I consider the issues to break down as follows:
1. Did CCRA issue a refund cheque payable to Mr. Workum?
2. Did Mr. Workum receive the cheque?
3. If Mr. Workum received the cheque, did he cash it?
4. If he did not receive the cheque, is he deemed to have received it?
5. Is it too late for him to claim he did not receive the cheque?
[11] In addition, CCRA submits that the Federal Court is without jurisdiction. It characterizes Mr. Workum's action as relating to an assessment, a matter to be dealt with by the Tax Court. Mr. Workum says that he accepts the assessments, and that this is simply a collection issue in which relief is claimed against the Crown. Such a claim falls within the Federal Court's jurisdiction in virtue of section 17 of the Federal Courts Act. As the factual issues listed above not only go to the merits of the claim, but also to jurisdiction, I will deal with this point last.
ORIGIN OF THE REFUND
[12] Mr. Workum's tax return for the 1990 tax year showed a negative income of $91,150. He requested that losses be carried back to the 1987 through 1989 tax years. He was reassessed and according to CCRA on 1 December 1992 was issued a cheque in the amount of $30,221.72, which included $2,075.77 of refund interest.
[13] Mr. Workum was under an obligation to report that interest as part of his 1992 income. He did not do so.
[14] In 1995, he was reassessed for the 1987 through 1992 tax years. The non-capital losses carried back from 1990 were disallowed. In the "explanation of changes" column CCRA said: "interest shown includes a recovery for refund interest previously given on a refund which is now considered as unwarranted. This amount may be deducted in computing your taxable income for the current year". There is no evidence that Mr. Workum made such a deduction for the 1995 taxation year. Mr. Workum filed a notice of objection and then a notice of appeal in 1997 to the Tax Court of Canada.
WAS A REFUND CHEQUE ISSUED?
[15] Although the evidence is far from satisfactory, I find on the balance of probabilities that a refund cheque payable to Mr. Workum was issued. Mike Ell, a collection enforcement officer with CCRA, had produced on discovery a computer-generated document which was untitled but dealt with a "manual refund - with interest" which shows the amounts in question. This record appears to have been made in the usual and ordinary course of business and is receivable in evidence in virtue of section 30(1) of the Canada Evidence Act.
[16] CCRA's documents, at least the ones which were not destroyed, are consistent with a cheque having been issued. I refer to the assessments issued contemporaneously with the cheque, and the notice of reassessment in 1995. Taken as a whole, there is a reasonable inference that a cheque was issued. In Grant v. Australian Knitting Mills, Ltd., [1935] ALL E.R. Rep. 209 (JCPC), Lord Wright stated at pages 213 - 214:
...This, however, does not do justice either to the process of reasoning by way of probable inference which has to do so much in human affairs or to the nature of circumstantial evidence in law courts. Mathematical, or strict logical, demonstration is generally impossible: juries are in practice told that they must act on such reasonable balance of probabilities as would suffice to determine a reasonable man to take a decision in the grave affairs of life. Pieces of evidence, each by itself insufficient, may together constitute a significant whole, and justify by their combined effect a conclusion....
DID MR. WORKUM RECEIVE THE CHEQUE?
[17] I find on the balance of probabilities that Mr. Workum did not receive the refund cheque. He has no recollection of either having picked it up at the Tax office or receiving it by mail. All his banking records were produced as part of the audit. They do not show that a cheque in that amount was deposited. It is possible, of course, that he cashed it, endorsed it or dealt with it in some other way. However, since he was already under audit, I find it improbable that he not only would have cashed the cheque but would have failed to declare the refund interest of $2,075.77 in his next return.
[18] For its part, CCRA points out that Mr. Workum was being dealt with by the Problem Resolution Program. CCRA called as a witness Karinjeet Kaur Sandhu, a supervisor in that program. Although she joined Canada Revenue in 1984, she only joined the Problem Resolution Program in 1999. She had some peripheral knowledge of the system as it was in 1992 because the Tax Centre in which she then worked did some of the processing that came through that program. She explained the "manual refund - with interest" exhibit. A manual refund is a single cheque as opposed to a system refund which would comprise a whole series of cheque requests sent to Public Works on a "tape". An individual cheque would be cut by Public Works and then sent back to the Problem Resolution people, who were the only ones who could ask for a "manual refund". The taxpayer would be telephoned and advised that the cheque was available to be picked up or to be mailed. If mailed, the current address would be verified beforehand.
[19] CCRA's position is that the cheque was mailed to Mr. Workum at unit 4 - 934 Memorial Drive, N.W., Calgary, as shown on the above exhibit. It had initially taken the position that the cheque had been picked up by Mr. Workum. That was because Mr. Ell, who had been assisting in the preparation of the original statement of defence, was relying on the current procedure in the Problem Resolution Program, rather than the one in force in 1992.
[20] It is far from clear that the cheque was actually mailed. However, assuming it was, I find that Mr. Workum did not receive it. On 1 December 1992 he did not live at 4 - 934 Memorial Drive N.W., Calgary. Rather, he lived at 938 Memorial Drive.
[21] CCRA is unable to produce a cancelled cheque, or even to say where or when it was cashed. It produced a document which Mr. Ell states indicates that the cancelled cheque was returned to Public Works at Matane, Quebec, on 3 January 1993. The document he produced was not self-explanatory. For instance, it is based on an 868-day year. There were two "readers" or scanners. The number 500 was added to identify one of the scanners. Therefore, the 868th day of the year becomes the 368th day. Since the year only has 365 days, that means the cheque was returned to Matane in the 3rd day of the next year, i.e. 3 January 1993.
[22] Under section 30(4) of the Canada Evidence Act, if the record is in a form that requires explanation, that explanation is to be given by a qualified person, usually by way of affidavit, but may also be given in open court. Mr. Ell readily admits that he had no personal knowledge whatsoever of the way in which cancelled cheques were recorded.
[23] Likewise, Mr. Ell also produced records indicating that the cheque was destroyed in January 1999. He was not qualified to explain either the return of the cancelled cheque or its destruction, and Mr. Workum was quite right in objecting.
[24] Although I give no weight to these records for that reason, it is not necessary to rule them inadmissible.
[25] The Destruction of Paid Instruments Regulations, 1996, provides at section 6 that if a paid instrument is required for the purposes of any litigation, claim, inquiry, investigation or other examination, the appropriate Minister shall delay destruction of the instrument until it is no longer required. It was destroyed when the very tax years in question were still subject to litigation in the Tax Court. I do not accept CCRA's explanation that it had no reason to know that the receipt of the refund cheque was in dispute. It also destroyed the Problem Resolution Program notes. It had no adequate safeguard system in place to prevent the destruction of documents which might be required in litigation.
[26] Furthermore, the burden fell upon CCRA to establish on the balance of probabilities that it made payment. As a general rule, he who asserts has the burden of proof (Wakelin v. London and South Western Railway Co. (1886), 12 App. Cas. 41 at page 45; Joseph Constantine Steamship Line, Ltd. v. Imperial Smelting Corporation, Ltd., [1942] A.C. 154 at pp. 174-175; and Cadillac Fairview Corporation, Ltd. v. The Queen (1996), 97 D.T.C. 405 (aff'd 99 D.T.C. 5121)). In Cadillac Fairview, supra, Bowman T.C.C.J. as he then was, said at page 407:
The 'burden of proof' is the duty which lies on a party to establish his case. It will lie on A, whenever A must either call some evidence or have judgment given against him. As a rule (but not invariably) it lies upon the party who has in his pleading maintained the affirmative of the issue; for a negative is in general incapable of proof. Ei incumbit probatio qui dicit, non qui negat. The affirmative is generally, but not necessarily, maintained by the party who first raises the issue. Thus, the onus lies, as a rule, on the plaintiff to establish every fact which he has asserted in the statement of claim, and on the defendant to prove all facts which he has pleaded by way of confession and avoidance, such as fraud, performance, release, rescission, etc.
[27] CCRA is pleading performance, but has failed to prove it.
DID MR. WORKUM CASH THE CHEQUE?
[28] Since I have found that Mr. Workum did not receive the cheque, it follows that he did not cash it.
IS MR. WORKUM DEEMED TO HAVE RECEIVED THE CHEQUE?
[29] This defence unravelled on the eve of trial. Sections of the Income Tax Act provide that a notice of assessment is deemed to have been received if mailed to the taxpayer's last known address. The Court would have been invited to infer that the cheque and the notices of assessment were in the same envelope.
[30] During his examination for discovery, Mr. Workum undertook to advise as to the last address he had given the Agency. Relying on his accountant, Theodor Hennig, he later provided 4 - 934 Memorial Drive, N.W., as his answer. During trial preparation, his solicitor realized that this was an error, that the last address given to CCRA was 938 Memorial Drive. He immediately informed opposing counsel. This led to CCRA seeking a postponement of the trial in order to track down the occupant of 4-934 Memorial Drive. Although the postponement was not granted, the trial was kept open for a month in order to allow CCRA to locate and, if appropriate, call the occupant of 4 - 934 Memorial Drive. No evidence was called.
[31] Mr. Hennig was in error, and cannot give a satisfactory explanation. However, the 938 Memorial Drive address is not a recent fabrication on Mr. Workum's part. Not only was it the address on bank statements which CCRA has had for many years, it was the address he gave when he filed his 1991 returns in early 1992. He enclosed a $5,000 cheque with that return, which was cashed. Consequently, I can only conclude that CCRA was slow in updating its records.
[32] The best evidence was not available because CCRA has destroyed the original tax return. However, there is no reason to think that Mr. Workum's copy is false. CCRA ought to take more care in maintaining its records.
[33] The Bills of Exchange Act has no application, and I see no merit in the argument that Mr. Workum not only had to prove he did not cash the cheque, but also had to prove who the fraudster was. Mr. Workum simply states that he did not receive the cheque. That is all that had to be proved and, as I say, the burden was on CCRA, not him.
IS IT TOO LATE FOR MR. WORKUM?
[34] As a general proposition, limitation in a federal Crown tax collection matter is six years (Markevich v. Canada, [2003] 1 S.C.R. 94). CCRA submits that the time began to run in late 1992 or early 1993, so that the claim was timebarred when action was instituted in the year 2000. Mr. Workum says he could only have discovered the alleged payment (actually a non-payment) in the year 2000 when CCRA sent a consolidated statement of account to Mr. Hennig.
[35] CCRA points out that Mr. Workum, and Mr. Hennig, should have been on alert from the moment the 1990 returns were filed. They knew, or should have known, that notices of assessment would be issued as well as, if appropriate, a refund cheque. Mr. Hennig counters that since the years were already under audit, they had no reason to expect a refund cheque until matters were finalized. That does not satisfactorily explain why they were not on the lookout for notices of assessment, copies of which were apparently only given to them years later.
[36] I have difficulty with the proposition that time had begun to run by early 1993. Returns were subject to assessment, and so it was not an objective fact that CCRA was indebted to Mr. Workum. Even if the 1987 - 89 assessments could possibly be construed as "admissions", they were conditional and were withdrawn by notice of reassessment in 1995. Had Mr. Workum sued in 1996 for the $30,221.72, he would have been met with the successful defence that his action was premature. Time had not begun to run, and only began to run with Judge Rip's decision in 1999.
[37] If I am wrong in that holding, then time only began to run in 1995 when he "discovered" that CCRA was taking the position in its reassessment that he could deduct an interest credit the following year, interest which he says he never got.
[38] CCRA argued, in the alternative, that there is a three-year timebar on the basis that what is at issue is in fact an overpayment by the taxpayer. Under section 164(1) of the Income Tax Act at relevant times, the taxpayer had to seek a refund within three years (Hughes v. R. (1991), 46 F.T.R. 17; 91 D.T.C. 5490 (FCC)). I find no merit in this position. CCRA has consistently taken the position, right through trial, that Mr. Workum has underpaid, not overpaid.
[39] The last point on the timeliness issue is laches. According to CCRA, there was an unreasonable delay on Mr. Workum's part in pursuing such claim as he had. This delay or negligence prejudiced it in that it destroyed the documents which would have proved its case. If Mr. Workum was not dilatory or negligent in late 1992 or early 1993, he certainly was come 1995 when he must be taken to have known that CCRA was taking the position that it had made him a refund, with interest thereon. I agree that Mr. Workum must be deemed to have known the situation by 1995, but the principle of laches does not apply.
[40] CCRA apparently had no mechanism in place to realize that he had not paid taxes in 1992 on the interest it had purported to pay him in 1991. Furthermore, the notices of reassessment in 1995 were limited to his loss carrybacks. It was only by way of explanation that reference was made to interest paid. The payment of interest was not part of Mr. Workum's notices of objection and was not before the Tax Court. There was no unreasonable delay on Mr. Workum's part which led CCRA to destroy its records. It destroyed its records because it failed to follow its own regulations.
FEDERAL COURT JURISDICTION
[41] It follows from what I have said that I am of the view that this is a collection case, not an assessment case. The Federal Court has jurisdiction in virtue of section 17 of the Federal Courts Act, and is empowered to make declarations. I am satisfied that the validity of assessments is not under challenge (City Centre Properties Inc. v. Canada (1991), 120 N.R. 397 (FCA); 91 D.T.C. 5083).
HOW MUCH IS OWING?
[42] CCRA adds that, in any event, the amount in issue is not the amount of the original $30,221.72 cheque, but rather can be no more than $954. The refund was on alleged non-capital losses of $90,150.00 as filed in the 1990 tax return. Upon reassessment after Judge Rip's decision, the non-capital loss was reduced to $954.00. CCRA is confusing tax returns with actual cash. In its consolidated statements of account, one of which was produced at tab 2 of exhibit P-1, it claimed that as of 12 October 2000 Mr. Workum was in debit in the amount of $25,304.21. That was based on 215 entries. The $30,221.72 comprises three "refund issued" entries covering the 1987, 1988 and 1989 reassessments. Those entries were never reversed to take into account that Mr. Workum did not receive the refund cheque. If the entries had been reversed, and I hold they should have been, instead of Mr. Workum being indebted to CCRA in the amount of $25,304.21, he would have been entitled to a refund of $4,917.51, with an interest adjustment.
CONCLUSION
[43] Mr. Workum sought a declaration that he was not indebted to CCRA for income tax. As one's liability may vary at different points in time, I am not prepared to make that declaration. However, I have found and do declare that he did not receive a refund of $30,221.72 on or about 1 December 1992, or at any other time. It follows that his statement of account should be adjusted accordingly, and due account taken of interest provided for in the Income Tax Act and Regulations. If the parties cannot reach an agreement, they may come to me for further directions.
[44] I will issue an order setting aside the requirement to pay served upon Proprietary Industries Inc.
[45] I will also issue an order setting aside the Creditor's Statement of Debtor's Land created by CCRA and filed as writ no. 001049491 at the Land Titles Office for the South Alberta Land Registration District.
[46] Costs should follow the event. Mr. Workum seeks costs on a solicitor-client basis. Although he considers himself ill done-by, particularly in the settling of accounts following Judge Rip's judgment, the defendant's behaviour was not such that it should be punished by such an award. Mr. Workum gave an incorrect answer to an undertaking. Had that answer been correct, one can well understand why CCRA was prepared to bring the matter to trial.
[47] Had this been a pure money action, not coupled with declaratory relief, it would have been a simplified action subject to Rules 292 and following. I am prepared to award costs in accordance with the default column, the mid-range of Column III of Table 2. The parties did not reserve the right to speak to costs. If there are cost issues, either party may request, pursuant to Rule 403, that directions be given to the Assessment Officer.
"Sean Harrington"
Judge
Ottawa, Ontario
July 15, 2005
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1799-00
STYLE OF CAUSE: PETER J. WORKUM
AND
CANADA CUSTOMS REVENUE AGENCY
PLACE OF HEARING: CALGARY, ALBERTA; EDMONTON, ALBERTA; OTTAWA, ONTARIO
DATE OF HEARING: JUNE 6 & 7, JULY 8, 2005
REASONS FOR JUDGMENT : HARRINGTON J.
DATED: JULY 15, 2005
APPEARANCES:
Andrew Robertson FOR PLAINTIFF
George Christidis FOR DEFENDANT
SOLICITORS OF RECORD:
Macleod Dixon FOR PLAINTIFF
Calgary, Alberta
John H. Sims, Q.C. FOR DEFENDANT
Deputy Attorney General of Canada