http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143873/index.do
Davies v. The Queen (April 27, 2016 – 2016 TCC 104, Bocock J.).
Précis: This is a highly unusual case. Mr. Davies was a lawyer with Osler, Hoskin and Harcourt LLP (“Litigation Counsel”) who represented him and several other appellants in appeals before the Tax Court. Mr. Davies left that firm did not hear from Litigation Counsel for a period of three years and was then advised by them that his appeal had been settled. He advised Litigation Counsel that the settlement was made without his authority and that it should be withdrawn. Litigation Counsel contacted the Crown who refused to rescind the settlement. The new counsel for Mr. Davies moved to set aside the Notice of Discontinuance in the original appeal and also filed a fresh appeal (one assumes out of an abundance of caution). Mr. Davies was unsuccessful in his motion to set aside the Notice of Discontinuance since the Court found that the Crown acted in good faith and in accordance with the minutes of settlement in filing the Notice of Discontinuance. The Court ordered substantial indemnity costs against Mr. Davies since his counsel (after being warned) unsuccessfully alleged fraud on the part of the Crown (subject to a right to make further submissions within 30 days).
Decision: The facts of this case are odd and somewhat convoluted:
[3] The initial appeal was part of a group of appeals involving approximately 25 to 30 taxpayers. All Appellants until settlement were represented by Osler, Hoskin and Harcourt LLP (“Litigation Counsel”). The initial appeal concerned the Appellant’s 2005, 2006 and 2007 taxation years and involved the deductibility of certain capital cost allowance in respect of a purchased software licence. The Appellant was a lawyer at Litigation Counsel until mid-2007, when he left the firm. He was abroad until late 2010 when he returned to Canada and joined another law firm.
[4] The Appellant was reassessed in 2009. His claimed capital cost allowance was disallowed. He and certain other investors retained Litigation Counsel to file appeals before this Court.
[5] Shortly after the appeals were filed, a meeting was held between Litigation Counsel and the group of Appellants. The Appellant attended that conference call. General parameters of settlement were discussed. Authority appears to have been given to resolve the appeals within the range of 20-40% of deductibility of the capital cost. Litigation Counsel was to pursue resolution, the usual litigation steps and report periodically to the clients. From early December 2010 until September 23, 2013, the Appellant had no communication with Litigation Counsel (the “Silent Period”).
[6] Despite no communication with the Appellant during the Silent Period, much otherwise occurred. In summary, such communications, negotiations, exchanges and deliveries between Litigation Counsel and Respondent’s counsel are described below:
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Date
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Nature of Activity
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Consequence
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January 25, 2012
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Litigation Counsel writes the Respondent and proposes basis for resolution of all appeals in the group.
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Respondent’s counsel receives and considers the proposal.
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January 18, 2013
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Letter in which Respondent’s counsel proposes a counter-offer for resolution of all appeals in group.
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Litigation Counsel receives counter-offer.
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April 30, 2013
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Letter in which Respondent’s counsel requests confirmation of Litigation Counsel’s continued retainer for individual appellants in group to act.
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Litigation Counsel receives request.
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May 30, 2013
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Letter from Litigation Counsel confirming continued retainer and full capacity as counsel for the appellants including the Appellant.
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The letter clarifies the basis of resolving the appeals prior to subsequent litigation steps.
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June 18, 2013
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Respondent’s counsel forwards draft Minutes of Settlement and Notices of Discontinuance.
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Litigation Counsel receives documents and proceeds to collate and execute.
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July 8, 2013
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Litigation Counsel executes the Minutes of Settlement and Notices of Discontinuance as counsel.
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After execution the documents are forwarded to Respondent’s counsel.
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July 31, 2013
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Respondent’s counsel completes execution of Minutes of Settlement and Notices of Discontinuance.
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The Minutes of Settlement provide for 10% capital cost deductibility and provides executed discontinuances are to be filed after conforming Notices of Reassessments are issued by the Minister.
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September 13, 2013
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The Minister issues Notices of Reassessments and forwards same to each Appellant, including the Appellant, by regular mail.
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This completes the Minister’s obligations under the Minutes of Settlement.
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[7] The Silent Period ends on September 23, 2013 when the Appellant receives an email from Litigation Counsel advising the initial appeal had been settled. Thereafter, the Appellant and Litigation Counsel seek to set aside the Minutes of Settlement and prevent the filing of the Notice of Discontinuance. A summary of these actions during this period (the “Rescission Period”) may be described below:
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Date
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Nature of Activity
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September 23, 2013
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In response to Litigation Counsel’s email, the Appellant by telephone asks why, on what basis and with what authority the initial appeal was settled and reassessments undertaken. The Appellant is advised of the executed Minutes of Settlement and Notice of Discontinuance.
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September 25, 2013
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Further to the telephone conversation above, the Appellant emails Litigation Counsel to advise of his surprise at the absence of communication, to confirm he was not in agreement with the settlement and requests to speak about arrangements to continue the initial appeal quickly to prevent prejudice to the Respondent.
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September 25, 2013
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Litigation Counsel telephones Respondent’s counsel to and leaves a message of a “follow-up issue” to settlement.
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September 26, 2013
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Litigation Counsel and Respondent’s counsel speak by telephone. Litigation Counsel confirms of the alleged absence of the Appellant’s approval of the Minutes of Settlement and requests that the original disallowance reassessment, giving rise to the initial appeal, be re-issued by the Minister. Litigation Counsel confirms that the September 13, 2013 Notices of Reassessment are in accordance with the Minutes of Settlement.
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September 26, 2013
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By email the same day, Litigation Counsel characterizes reassessment pursuant to the minutes of settlement as being in error, suggests reversal of the reassessment and requests that the Notice of Discontinuance not be filed.
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October 2, 2013
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(i) The Notice of Discontinuance is filed by Respondent’s counsel.
(ii) Respondent’s counsel advises Litigation Counsel by letter (received that day) that it was not possible to reverse the reassessments of the Appellant and the Notices of Discontinuance would be filed given fulfilment of the settlement.
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October 9, 2013
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The Appellant faxes Respondent’s counsel directly advising of an absence of authority on the part of Litigation Counsel in executing the Minutes of Settlement and the Notices of Discontinuance and disavowing both documents.
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[8] As a result of the Notice of Discontinuance being filed on October 2, 2013 and receipt of advice by the Court the appeal was discontinued, the Appellant filed the supplementary appeal.
The Court specifically warned counsel for Mr. Davies that if he unsuccessfully alleged fraud on the part of the Crown he was at risk for costs:
[10] The Court does have authority to set aside a notice of Discontinuance where it or the judgment it represents was obtained, instigated or consequential to some fraud on the Court[1]. The Discontinuance is dispositive and ends a matter in the absence of fraud or other authority for the Court to rescind it. During this argument, the Court cautioned Appellant’s motion counsel of alleging fraud and the possible cost consequences should fraud not be established.
[Footnote omitted]
The Court flatly rejected the allegation of fraud:
[15] The Discontinuance was dated as of a date certain: the last of which was July 31, 2013. The Discontinuance was not to be filed, pursuant to the Minutes of Settlement until certain conditions subsequent were fulfilled. The Respondent relied upon the strength of the escrowed Discontinuance. The Respondent issued the notices of reassessment (“Notices of Reassessment”) on the strength of the Minutes of Settlement and escrowed Discontinuance. Respondent’s counsel confirmed the Notices of Reassessment conformed to the Minutes of Settlement. At that point, all conditions subsequent were fulfilled and the agreement was fully performed. No party or person knew of any lack of authority, never mind fraud. The release and filing of the Discontinuance completed an outstanding litigation process, then moot among the parties.
[Footnote omitted]
The Court also rejected the argument that an undisclosed lack of authority was itself sufficient to set aside the settlement:
[21] Appellant’s motion counsel argues that an inquiry into the Minutes reveals there was no authority granted by the Appellant to Litigation Counsel to settle the appeal and enter into the Minutes. Therefore, the Court should not allow itself to give form and effect to a compromise the parties themselves would never have concluded.
[22] Factually and legally the Court cannot abide this argument. No one was aware of the lack of authority (even admittedly Litigation Counsel through its own omission) until after the execution of Minutes and, most importantly, the consequential issuance of the Notices of Reassessment to 25 to 30 appellants. The Court uses the plural form advisedly since the Minister consistently assessed all appellants in the group on the same basis. Respondent counsel’s receipt of Litigation Counsel’s reaffirmation of representation and authority buttresses and strengthens this reliance. It bears repeating that only subsequently to this confirmation were the draft settlement documents prepared, reviewed, signed first by Litigation Counsel and then forwarded to Respondent’s counsel. Respondent’s counsel executed the Minutes and instructed his client to act upon them. The Respondent did just that. Respondent’s counsel only became aware of the absence of authority, which initially was reported to him by Litigation Counsel as only “alleged” on the part of the Appellant, after all foregoing steps were complete and all agreed to limitations for filing the Discontinuance were removed. Until that time, the Respondent or her counsel knew of no limitation of authority (in fact full authority had been reaffirmed) and concordant, consequential reassessments had issued thereby nullifying former reassessments and their related rights of appeal.
[Footnotes omitted]
As a consequence the appeal was dismissed:
[26] Given the unproven allegations of fraud against Respondent’s counsel by the Appellant, substantial indemnity costs shall be awarded to the Respondent, subject to either party’s right to make written submissions otherwise within 30 days of this Order.
http://ruetersllp.com/portfolio_page/william-i-innes/
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TAGS: Income Tax Act, Tax Litigation, Minutes of Settlement
CATEGORIES: Tax Cases, Federal Tax, PerEWP