[1995] 1 F.C. 260
T-1557-92
Imperial Cabinet (1980) Co. Ltd. (Plaintiff)
v.
Her Majesty the Queen in Right of Canada (Defendant)
94-T-30
Elgin Cabinet Incorporated (Applicant)
v.
Her Majesty the Queen in Right of Canada, the former Minister of National Revenue, Otto Jelinek, the former Minister of National Revenue, Garth Turner, the Minister of National Revenue, David Anderson, John Allen Sitka, Merv Sitka, Augie Haugen, and John Doe (Respondents)
Indexed as: Imperial Cabinet (1980) Co. Ltd. v. Canada (T.D.)
Trial Division, Hargrave P.—Winnipeg, July 13; Vancouver, August 3, 1994.
Practice — Limitation of actions — Applications for leave to extend limitation period to file statement of claim — Applicants, Manitoba cabinet makers, subject to federal sales tax under Excise Tax Act — Unaware of one-third tax deduction as memorandum of ruling was sent to Manitoba but destroyed by Revenue Canada officials upon being read — Seeking extension of time under Manitoba Limitation of Actions Act to begin statute-barred action — Memorandum material fact under Act, s. 20(2) — Cause of action based on destruction of message, arising when material facts discovered — Reasonable chance of success — Reasonable diligence exercised — Extension granted.
Practice — Pleadings — Amendments — Plaintiffs seeking time extension to amend statements of claim — Existing actions appeals of decision of Canadian International Trade Tribunal under Excise Tax Act, s. 81.24 — S. 81.28(3)(a) bar to adding new parties, causes of action.
Crown — Torts — Negligence — Applicants seeking extension of limitation period to file statement of claim against Crown, individuals for negligent misrepresentation — MNR cannot be sued in representative capacity — Individual employees of Revenue Canada cannot be sued in Federal Court as cause of action based on provincial law — Cause of action, resulting from destruction of message, on continuum between operational negligence and malfeasance — Applicants suffering loss as denied tax calculation method used in rest of Canada — Reasonable foreseeability test applied.
Twelve motions were brought herein, four of them seeking an extension of time to amend statements of claim and the other eight seeking to extend the limitation period to file a statement of claim against the Crown and various individuals. Between 1985 and 1990, the plaintiffs and applicants, cabinet-making businesses operating in Manitoba, paid federal sales tax calculated on the basis of a sale price method under subsection 50(1) of the Excise Tax Act. At the end of 1986, Revenue Canada forwarded to all its offices in Canada, by an internal network system (INET), a decision allowing cabinet makers to calculate their sales tax so as to receive a one-third tax deduction. Kitchen cabinet manufacturers throughout Canada took advantage of a determined value, discount or deduction method of tax calculation, with the exception of those in Manitoba, due to the fact the INET message was received by Revenue Canada there but was immediately destroyed upon being read. It was only during the past year that the plaintiffs and applicants learned of the destruction of the INET message when a tax consultant made an application under the Access to Information Act. They sought an extension of time under subsection 14(1) of the Manitoba Limitation of Actions Act (which allows a court to grant leave to a party to begin or continue an otherwise statute-barred action so long as no more than twelve months have elapsed between the date on which the applicant knew or ought to have known of all material facts of a decisive character upon which the action is based and the date upon which the application for leave is made to the court). The main issues to be determined were: 1) whether section 81 of the Excise Tax Act is a complete bar in the case of the four motions to amend and whether the cabinet makers showed a reasonable cause of action against individual defendants; 2) the knowledge of matters constituting the cause of action and 3) the establishment of a cause of action.
Held, the applications for an extension of time to amend statements of claim to add parties and a cause of action should be dismissed; the applications for an extension of time to file a statement of claim against the Crown and various individuals should be allowed.
1) The existing statements of claim began as appeals against the decision of the Canadian International Trade Tribunal under section 81.24 of the Excise Tax Act. Paragraph 81.28(3)(a) of that Act is a bar to amending the existing statements of claim to add new parties and new issues. A Cabinet Minister, or former Cabinet Minister, as a servant of the Crown, is not vicariously liable for the tort of a subordinate. The Federal Court has no jurisdiction over the two former Cabinet Ministers or the individual employees of the Crown for the proposed causes of action were based on provincial law, not federal law. The Minister of National Revenue could not be sued in a representative capacity. If relief is to be granted under the Manitoba Limitation of Actions Act, it must be with regard to the Crown only as a defendant.
2) The destruction of the INET message was critical and constituted a material fact as defined in subsection 20(2) of the Manitoba Act. In a tort action, a cause of action arises not when, unknown to the plaintiff, all the elements of the tort are present, but when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff exercising reasonable diligence. There was nothing in the Canadian International Trade Tribunal’s decisions in Imperial Cabinet, Seine River and Artec Design to indicate that the Tribunal was aware of the destruction of the INET message. The actions which the applicants would like to bring rely on the wrongful destruction of the INET message; they could not reasonably, given their background and experience, have become aware of the destruction of the message any earlier than they did. That destruction was a material fact of a decisive character, which fact was unknown to the applicant when the limitation period expired, but when discovered it was acted upon within the twelve-month grace period, with no unexplained, unreasonable delay. Subject to the applicants establishing a cause of action, they were entitled to a time extension under the Manitoba Act, for reasonable diligence would not have turned up the fact that a pertinent message had been received, read and destroyed by Revenue Canada.
3) The requirement in subsection 15(2) of the Manitoba Act that the applicant must establish the cause of action on which the proceeding is to be founded goes beyond establishing a prima facie case. The applicant must prove by evidence that he has a cause of action which, subject to any defence that may be raised, has a reasonable chance of success. It must be shown that there is something to the case so that, if sent on to trial, there is some realistic prospect that the action will succeed. Evidence in support of an allegation will stand unless it is displaced. There would be a cause of action herein in that a topical and pertinent message was read and destroyed and the respondents might be held liable assuming that the applicants could prove the case outlined in their material. The elements needed to establish a cause of action in negligence must be looked at to determine whether the action has a reasonable chance of success. First, there must be a recognized duty to measure up to a standard of conduct to protect others against unreasonable risks, and a breach of that duty, that is the negligence. Revenue Canada officials in Manitoba admitted receiving the INET message and destroying it. It is the destruction which gave a cause of action somewhere on a continuum between a bad decision of an operational negligence sort and something that borders on abuse or malfeasance. The applicants would have a reasonable prospect of success, should the matter go to trial. Second, a material injury must result to the applicants’interests. It was clear from the evidence that the applicants have suffered a loss by being denied a tax calculation method which was used in the rest of Canada. Third, a reasonable connection or proximity must exist between the conduct of the defendant and the injury. The reasonable foreseeability test should be applied herein. Revenue Canada in Manitoba could easily foresee that destruction of the INET message would necessitate Manitoba cabinet makers calculating their tax at a higher rate. It was easily foreseeable that not informing the applicants of a legitimate tax relief would result in harm to cabinet makers paying tax during the relevant time.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Access to Information Act, R.S.C., 1985, c. A-1.
Excise Tax Act, R.S.C., 1985, c. E-15, s. 50(1) (as am. by R.S.C., 1985 (2nd Supp.), c. 1, s. 190; c. 42, s. 4), 81 (as am. idem, c. 7, s. 38), 81.24 (as enacted idem; as am. by (4th Supp.), c. 47, s. 52), 81.28(3)(a) (as enacted by (2nd Supp.), c. 7, s. 38).
Limitation of Actions Act, R.S.M. 1987, c. L150, ss. 14, 15(2), 20(1),(2),(3),(4).
CASES JUDICIALLY CONSIDERED
APPLIED:
Einarsson v. Tamar Mail Order Inc., [1992] 2 W.W.R. 84; sub nom. Einarsson et al. v. Adi’s Video Shop et al. (1992), 76 Man. R. (2d) 218 (Man. C.A.); Hoeppner v. Horstman Contracting Ltd., [1992] 3 W.W.R. 335; (1992), 79 Man. R. (2d) 257; 50 C.L.R. 220 (Q.B.); J. (A.) v. Cairnie Estate, [1993] 6 W.W.R. 305 (Man. C.A.).
REFERRED TO:
Imperial Cabinet (1980) Co. Ltd. v. M.N.R. (1992), 5 TCT 1127 (C.I.T.T.); Seine River Cabinets Ltd. v. M.N.R. (1992), 5 TCT 1122 (C.I.T.T.); Artec Design Inc. v. M.N.R. (1992), 5 TCT 1124 (C.I.T.T.); Conseil des Ports Nationaux v. Langelier et al., [1969] S.C.R. 60; (1968), 2 D.L.R. (3d) 81; Kealey v. Canada (Attorney General), [1992] 1 F.C. 195; (1991), 1 Admin. L.R. (2d) 138; 46 F.T.R. 107 (T.D.); Hanson (J.M.) v. Canada, [1991] 1 C.T.C. 32; (1990), 90 DTC 6670; 38 F.T.R. 34 (F.C.T.D.); Stephens v. R. (1982), 26 C.P.C. 1; [1982] CTC 138; 82 DTC 6132; 40 N.R. 620 (F.C.A.); Pacific Western Airlines Ltd. v. R., [1979] 2 F.C. 476; (1979), 105 D.L.R. (3d) 44; 13 C.P.C. 299 (T.D.); Tribro Investments Ltd. v. Embassy Suites, Inc. (1992), 40 C.P.R. (3d) 193; 51 F.T.R. 241 (F.C.T.D.); Manning v. Nassar, [1991] 1 W.W.R. 37; (1990), 70 Man. R. (2d) 310; 43 C.P.C. (2d) 209 (C.A.); H. (I.) v. Isaac, [1994] 6 W.W.R. 381 (Man. C.A.); Weselak v. Beausejour District Hospital No. 29 (1987), 34 D.L.R. (4th) 478; [1987] 2 W.W.R. 360; 49 Man. R. (2d) 86 (C.A.); Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; (1986), 75 N.S.R. (2d) 109; 31 D.L.R. (4th) 481; 186 A.P.R. 109; 34 B.L.R. 187; 37 C.C.L.T. 117; 42 R.P.C. 161; Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2; (1984), 10 D.L.R. (4th) 641; [1984] 5 W.W.R. 1; 29 C.C.L.T. 97; Kozak et ux. v. Dominion Insur. Corpn. et al., [1972] 6 W.W.R. 741 (Man. Q.B.).
AUTHORS CITED
Black’s Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990, “Prima facie case”.
Klar, Lewis N. Tort Law. Carswell, 1991.
APPLICATIONS for an extension of time to amend statements of claim to add parties and a cause of action, and for leave to extend the limitation period to file a statement of claim against the Crown and various individuals. Applications allowed in part.
COUNSEL:
Martin J. Pollock for plaintiffs/applicants.
Rick Woyiwada for defendants/respondents.
SOLICITORS:
Pollock & Company, Winnipeg, for plaintiffs/ applicants.
Deputy Attorney General of Canada for defendants/respondents.
The following are the reasons for order rendered in English by
Hargrave P.: These reasons arise out of twelve motions, brought on by the plaintiffs and the applicants, four of which are for an extension of time within which to amend the statements of claim to add parties in addition to the Crown and a cause of action and eight for leave to extend the limitation period to file a statement of claim against the Crown and various individuals alleging, among other things, neglect and negligent misrepresentation.
The Imperial Cabinet (1980) Co. Ltd. action, together with Artec Design Inc. v. The Queen, T-1556-92, Kliewer’s Cabinets Ltd. v. The Queen, T-1331-91 and Seine River Cabinets Ltd. v. The Queen, T-1555-92 are the actions in which an existing statement of claim is sought to be amended. However the plaintiffs also ask that if I find there is any bar to amendment to add parties and causes of action, I am to consider their alternative motions, as applicants, to start new actions, to which I now turn.
The Elgin Cabinet Incorporated action, together with Kildonan Custom Cabinet Ltd. v. The Queen, 94-T-38, Sacco Cabinets Ltd. v. The Queen, 94-T-40, Gateway Cabinets Ltd. v. The Queen, 94-T-42, Artec Design Inc. v. The Queen, 94-T-44, Imperial Cabinet (1980) Co. Ltd. v. The Queen, 94-T-43, Kliewer’s Cabinets Ltd. v. The Queen, 94-T-45 and Seine River Cabinets Ltd. v. The Queen, 94-T-46 are all cases in which the applicant seeks an order for leave to extend the limitation period to file a statement of claim. As noted above, the applicants in four of these motions are also the plaintiffs in the above four motions.
BACKGROUND
By way of background the plaintiffs and the applicants are cabinet-making concerns operating in Manitoba. During time periods, running from between 1985 and 1987 through until various dates early in 1990, the cabinet makers paid federal sales tax pursuant to the Excise Tax Act, R.S.C., 1985, c. E-15 (the Act) calculating the sales tax on the basis of a sale price method in accordance with subsection 50(1) [as am. by R.S.C., 1985 (2nd Supp.), c. 1, s. 190; c. 42, s. 4] of the Act.
In about December of 1975 the Minister of National Revenue issued a memorandum ET-202 which provided for two alternative methods of tax computation for specified goods, conditional upon compliance with the requirements of that memorandum and of the memorandum or letter authorizing such alternative methods for specific goods.
In January of 1985 the Minister issued a ruling card 3700/107, under Excise Memorandum ET-202, authorizing the use of a determined value, discount or deduction method of tax calculation for kitchen cabinet manufacturers selling to individual users who are unable to establish their own value for tax, based upon various pertinent facts. Subsequently, in about April of 1985 the Minister issued a further ruling card, 3700/107-1 clarifying the January 1985 ruling card. Neither of these ruling cards were approved by Revenue Canada in Manitoba.
On October 15, 1986 John Sitka, the manager of the valuation unit in Ottawa, sent a memorandum to regional directors advising that the discount method would no longer be available to manufacturers of kitchen cabinets. However, on November 5, 1986, John Sitka reversed his decision so that cabinet makers might use the discount method. He forwarded that decision to all Revenue Canada offices in Canada by means of an internal network system (INET). The effect of the decision was that the Canadian kitchen cabinet industry calculate their sales tax so as to receive a one-third tax deduction.
Kitchen cabinet manufacturers throughout Canada, with the exception of those in Manitoba, took advantage of the determined value method. Had the plaintiffs and applicants so calculated their tax the saving would have been about $500,000.
The Manitoba cabinet makers did not receive word of the November 1986 decision, for it appears that while the INET message was received by Revenue Canada in Manitoba, it was immediately destroyed upon being read. The destruction of the INET message was not discovered until 1991 when a tax consultant and former Revenue Canada consultant, Edward Reid, of Winnipeg, made an application under the Access to Information Act [R.S.C., 1985, c. A-1].
The plaintiffs and applicants say they learned of the destruction of the INET message within the past year, in the case of Imperial, on September 29, 1993 and in the case of Elgin on November 24, 1993. Other applicants and plaintiffs learned of the destruction of the INET message as recently as June of 1994. The plaintiffs and the applicants now seek an extension of time under Part II of the Manitoba Limitation of Actions Act, R.S.M. 1987, c. L150, which allows a court to grant leave to a party to begin or continue an otherwise statute-barred action so long as no more than twelve months have elapsed, between the date on which the applicant knew or ought to have known of all material facts of a decisive character upon which the action is based and the date upon which the application for leave is made to the court.
From the point of view of the defendant/ respondents, the application for relief under the Limitation Act is late. They point, among other things, to appeals to the Canadian International Trade Tribunal, by Imperial Cabinet (1980) Co. Ltd. [Imperial Cabinet (1980) Co. Ltd. v. M.N.R. (1992), 5 TCT 1127], Seine River Cabinets Ltd. [Seine River Cabinets Ltd. v. M.N.R. (1992), 5 TCT 1122] and Artec Design Inc. [Artec Design Inc. v. M.N.R. (1992), 5 TCT 1124], in the fall of 1991, with decisions rendered in March of 1992, dismissing the appeals of those cabinet makers who had paid extra sales tax by error, having used a sale price method of tax calculation instead of the determined value method. The Trade Tribunal dismissed those claims on the basis that it had no jurisdiction to determine if the cabinet manufacturers were qualified to pay sales tax according to the determined value method. The defendant/ respondents say that the operative date is earlier, or at least tied to the Trade Tribunal hearings.
In contrast, the plaintiffs/applicants say that the operative date is when they learned of the destruction of the INET message.
There is nothing in the three sets of reasons for the decisions of the Trade Tribunal to indicate that the Trade Tribunal was aware that the INET message had been destroyed and indeed, there is strong implication that they did not know of the destruction, for the Trade Tribunal commented that the INET message system was ineffective so far as the Winnipeg region was concerned.
The defendant provided no affidavit evidence, although there were several unanswered points raised by counsel including, and this seems a little far-fetched, the suggestion by counsel for the respondents that INET messages might have routinely been destroyed by Revenue Canada, which points one would think were within the knowledge of the defendants/respondents.
The principal question to be determined is whether the plaintiffs/applicants come within the terms for granting relief under the Limitation of Actions Act. However there are two preliminary points, being whether section 81 [as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 38] of the Excise Tax Act is a complete bar in the case of the four motions to amend and second, whether the cabinet makers satisfy the onus under the Limitation of Actions Act of showing that they have a reasonable cause of action against individual proposed defendants.
MOTIONS TO AMEND AND SECTION 81 OF THE EXCISE TAX ACT
The Imperial Cabinet action, together with the actions of the other three plaintiffs, were commenced in 1991 and 1992. These plaintiffs seek to extend time to amend their existing statements of claim, which began as appeals of the decision of the Canadian International Trade Tribunal, pursuant to section 81.24 [as enacted idem; R.S.C., 1985 (4th Supp.), c. 47, s. 52] of the Act.
Counsel for the defendant takes the point that paragraph 81.28(3)(a) [as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38] is a complete bar to amending the existing statements of claim to add new parties and new issues. Paragraph 81.28(3)(a) reads as follows:
81.28 …
(3) An appeal to the Federal Court—Trial Division under this Part shall be deemed to be an action in the Federal Court to which the Federal Court Act and the rules made pursuant thereto applicable to an ordinary action apply, except as varied by special rules made in respect of such appeals and except that
(a) the rules concerning joinder of parties and causes of action do not apply except to permit the joinder of appeals under this Part;
The existing actions are appeals. Paragraph 81.28(3)(a) is a bar to adding new parties and new causes of action. I now turn to the applications to extend the time within which to file statements of claim, beginning with the preliminary point concerning the parties to those intended actions.
CAUSE OF ACTION AGAINST INDIVIDUAL DEFENDANTS
Section 14 of the Limitation of Actions Act deals with extensions of time. Various conditions are placed on the time extension including in subsection 15(2):
15(2) Where an application is made under section 14 to begin or to continue an action, the court shall not grant leave in respect of the action unless, on evidence adduced by or on behalf of the claimant, it appears to the court that, if the action were brought forthwith or were continued, that evidence would, in the absence of any evidence to the contrary, be sufficient to establish the cause of action on which the action is to be or was founded apart from any defence based on a provision of this Act or of any other Act of the Legislature limiting the time for beginning the action.
In Einarsson v. Tamar Mail Order Inc., [1992] 2 W.W.R. 84, at page 87, the Manitoba Court of Appeal condensed subsection 15(2) of the Limitation of Actions Act:
To paraphrase that provision loosely, the applicant must prove by evidence that he has a cause of action which, subject to any defence that may be raised, has a reasonable chance of success.
Counsel for the defendants submits both that Ministers of the Crown cannot be vicariously liable and that no action can be brought in the Federal Court against individual employees of the Crown, for in the latter case that is a provincial jurisdiction.
Counsel for the plaintiffs submits that concurrent Manitoba Queen’s Bench proceedings, against individuals, would be a senseless duplication of proceedings.
The statements of claim which the applicants would like to file allege that two former Ministers of National Revenue and the present Minister of National Revenue are vicariously liable for the negligence of various individuals employed by Revenue Canada.
A Cabinet Minister, or former Cabinet Minister, as a servant of the Crown, is not vicariously liable for the tort of a subordinate: Conseil des Ports Nationaux v. Langelier et al., [1969] S.C.R. 60, at pages 70-73. In addition to the case of the two former Cabinet Ministers, intended defendants, the Federal Court lacks jurisdiction: see for example Kealey v. Canada (Attorney General), [1992] 1 F.C. 195 (T.D.), at pages 208-209.
Turning now to individual employees of the Crown, in this case John Sitka, Merv Sitka, Augie Haugen and the unknown Crown employee, John Doe, the Federal Court has no jurisdiction over them for the proposed causes of action are based on provincial law and not on federal law: see for example Hanson (J.M.) v. Canada, [1991] 1 C.T.C. 32 (F.C.T.D.), at page 39; Stephens v. R. (1982), 26 C.P.C. 1 (F.C.A.), at pages 9-10 and, generally, Pacific Western Airlines Ltd. v. R., [1979] 2 F.C. 476 (T.D.).
In summary, the Minister of National Revenue cannot be sued in a representative capacity. The former Ministers of National Revenue cannot be sued in the Federal Court. The individual employees of the Department of National Revenue might be sued in a provincial court system, but not in the Federal Court. As a result the plaintiffs have no chance of success against those parties. If relief is to be granted, under the Limitation of Actions Act, it must be with regard to the Crown only as a defendant.
RELIEF UNDER THE LIMITATION OF ACTIONS ACT
There are two issues bearing on relief under the Limitation of Actions Act. First, when was the cause of action relied upon by the applicants discovered; and second, is there in fact a cause of action with a reasonable chance of success?
Counsel raised other points, which I have considered, but which I do not intend to write on at length, other than to say:
1. The applicants have not sat idly on their claims but, where there has been delay, have diligently pursued other remedies, largely political in nature;
2. Not all portions of the affidavits are proper, but in most instances this is a matter of weight;
3. The affidavits, on due consideration, when trimmed, contain enough meat to satisfy the requirement of the Limitation of Actions Act;
4. Having considered Tribro Investments Ltd. v. Embassy Suites, Inc. (1992), 40 C.P.R. (3d) 193 (F.C.T.D.), the motion is interlocutory and thus affidavits on information and belief are permitted;
5. That hearsay evidence, or even compounded hearsay evidence, can be set out in an affidavit and that can be allowed for in assessing the weight and probative value of the evidence, which in some instances can be fairly minimal;
6. Improper affidavit evidence is not rendered acceptable merely because there has been no cross-examination on the affidavit;
7. If time is extended there would be no clear prejudice to the Crown as defendant; and
8. That on the basis of Manning v. Nassar, [1991] 1 W.R. 37 (Man. C.A.), at page 41 and H. (I.) v. Isaac, [1994] 6 W.W.R. 381 (Man. C.A.), the issue of an extension of time should be dealt with at this point.
In short, these are interesting points, but there are really only two issues remaining.
I. The Limitation of Actions Act
The pertinent provisions of the Limitation of Actions Act, so far as beginning a new action is concerned, are as follows:
Extension of time in certain cases.
14(1) Notwithstanding any provision of this Act of any other Act of the Legislature limiting the time for beginning an action, the court, on application, may grant leave to the applicant to begin or continue an action if it is satisfied on evidence adduced by or on behalf of the applicant that not more than 12 months have elapsed between
(a) the date on which the applicant first knew, or, in all the circumstances of the case, ought to have known, of all material facts of a decisive character upon which the action is based; and
(b)the date on which the application was made to the court for leave.
…
Evidence required on application.
15(2) Where an application is made under section 14 to begin or to continue an action, the court shall not grant leave in respect of the action unless, on evidence adduced by or on behalf of the claimant, it appears to the court that, if the action were brought forthwith or were continued, that evidence would, in the absence of any evidence to the contrary, be sufficient to establish the cause of action on which the action is to be or was founded apart from any defence based on a provision of this Act or of any other Act of the Legislature limiting the time for beginning the action.
…
Definitions.
20(1) In this Part
“appropriate advice” in relation to any fact or circumstance means the advice of competent persons qualified, in their respective spheres, to advise on the professional or technical aspects of that fact or that circumstance, as the case may be:
…
Reference to material facts.
20(2) In this Part any reference to a material fact relating to a cause of action is a reference to any one or more of the following, that is to say:
(a) The fact that injuries or damages resulted from an act or omission.
(b) The nature or extent of any injuries or damages resulting from an act or omission.
(c) The fact that injuries or damages so resulting are attributable to an act or omission or the extent to which the injuries or damages were attributable to the act or omission.
(d) The identity of a person performing an act or omitting to perform any act, duty, function or obligation.
(e) The fact that a person performed an act or omitted to perform an act, duty, function or obligation as a result of which a person suffered injury or damage or a right accrued to a person.
Nature of material facts.
20(3) For the purposes of this Part, any of the material facts relating to a cause of action shall be taken, at any particular time, to have been facts of a decisive character if they were facts which a person of his intelligence, education and experience, knowing those facts and having obtained appropriate advice in respect of them, would have regarded at that time as determining, in relation to that cause of action, that, apart from any defence based on a provision of this Act or any other Act of the Legislature limiting the time for bringing an action, an action would have a reasonable prospect of succeeding and resulting in an award of damages or remedy sufficient to justify the bringing of the actions.
Where facts deemed to be outside knowledge.
20(4) Subject to subsection (5), for the purposes of this Part, a fact shall, at any time, be taken not to have been known by a person, actually or constructively if
(a)he did not then know that fact;
(b)in so far as that fact was capable of being ascertained by him, he had taken all actions that a person of his intelligence, education and experience would reasonably have taken before that time for the purpose of ascertaining the fact; and
(c)in so far as there existed, and were known to him, circumstances from which, with appropriate advice, the fact might have been ascertained or inferred, he had taken all actions that a person of his intelligence, education and experience would reasonably have taken before that time for the purpose of obtaining appropriate advice with respect to the circumstances.
II. Knowledge of Matters Constituting the Cause of Action
Counsel for the applicants submits that a new cause of action arose when the applicants became aware that Revenue Canada in Manitoba had destroyed the INET message which could have allowed Manitoba cabinet makers a substantial tax reduction in that the cabinet makers could have used a determined value, discount or deduction method as a proper and less costly method of calculating tax.
The applicants say that the relevant material facts did not become known to them until they were advised, some in the fall of 1993 and others in the spring of 1994, by their lawyer, of an earlier application by a tax consultant which turned up the fact of the destruction of the INET message.
Counsel for the respondents says that all the facts were known more than twelve months ago and indeed are in the Canadian International Trade Tribunal decisions of 1992 and that the applicants did not have to wait until they happened on second-hand knowledge of material obtained by an unrelated tax consultant in 1991 under the Access to Information Act.
In order to determine the importance of the destruction of the INET message, as a material fact defined in subsection 20(3) and as referred to in subsections 14(1) and 20(2) of the Limitation of Actions Act, I have looked carefully at the statements of claim which the applicants wish to file. In essence, the applicants say that tax was paid in error by reason of a mistake attributable to the recklessness, carelessness and negligence, including negligent misrepresentation, of employees of Revenue Canada who destroyed the INET message approving the alternate tax calculation method.
On this basis the INET message is critical and comes within the definition of a material fact in subsection 20(2) of the Limitation of Actions Act, subject of course to whether there is any cause of action at all, which I will deal with later and whether time ran from the destruction of the message, or from when the applicants say they learned of the destruction, or at some time in between.
To begin, counsel for the respondents urges that time begins to run, in a tort action, once all the elements of the tort are present, being the duty of care, a breach of that duty and damages arising from the breach, as set out in Weselak v. Beausejour District Hospital No. 29 (1987), 34 D.L.R. (4th) 478 (Man. C.A.).
The applicants’ position is that time does not begin to run until the material facts on which the action is based are discovered. In this regard counsel has referred me to Hoeppner v. Horstman Contracting Ltd., [1992] 3 W.W.R. 335 (Man. Q.B.), in which the judge declined to follow the Weselak decision and instead relied on Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 and Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2, both decisions of the Supreme Court of Canada, for the proposition that in Canada a cause of action arises not when, unknown to the plaintiff, all of the elements are present, but rather when the material facts are discovered and in this regard referred to the judgment of Mr. Justice Le Dain in the Central Trust case [at page 224]:
I am thus of the view that the judgment of the majority in Kamloops laid down a general rule that a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence.
In the Hoeppner case Mr. Justice Lockwood went on to say, at page 349:
Whilst I appreciate the carefully reasoned decision of my brother Hanssen, J. in Weselak, it does appear that the Supreme Court of Canada in Kamloops, and particularly in Central Trust Co., established a general rule which is binding on all the courts in Canada, notwithstanding any particular limitation provisions such as those cited above in this jurisdiction.
In the result Mr. Justice Lockwood found that there was a general discovery rule applicable to an extension of time under the Limitation of Actions Act, with time running from when the plaintiff discovered or ought to have discovered the material facts exercising reasonable diligence.
There is nothing in the Canadian International Trade Tribunal’s decisions in Imperial Cabinet, Seine River and Artec Design to indicate that the Board was aware of the destruction of the INET message, even though Mr. Reid, the tax consultant, might have received that information, under the Access to Information Act, at about the same time as the hearings took place. One would think that the Tribunal would have noted such an interesting event. However, leaving that aside, we have the affidavit evidence of Zvi Gitter, president of Imperial Cabinet, Gerald Petit, a director of Seine River and Hubert Bildes, president of Artec Design, whose companies were parties in the Canadian International Trade Tribunal hearings, that they did not learn of the destruction of the INET message until the fall of 1993 in the case of Mr. Gitter and the spring of 1994 in the case of Messrs. Petit and Bildes.
I have also considered whether persons of the intelligence, education and experience of the applicants, whom I take to be companies run by small businessmen, or indeed anyone, other than a tax consultant, who had been a former Revenue Canada employee, would think to make an application under the Access to Information Act on spec for a directive that had been destroyed: without some prior information it would be akin to look in a dark room for a black cat of speculative existence.
In summary, the actions which the applicants would like to bring rely on wrongful destruction of the INET message; the applicants could not reasonably, given their background and experience, become aware of the destruction of the INET message any earlier than they did; and this destruction was of material constituting material facts of a decisive character, which material was unknown to the applicant when the limitation period expired, but when discovered the material facts were acted upon within the twelve-month grace period, with no unexplained, unreasonable delay.
This summary applies to all of the eight applicants.
Subject to the applicants establishing a cause of action, they are entitled to a time extension under the Limitation of Actions Act, for reasonable diligence would not have turned up the fact that a pertinent message had been received, read and destroyed by Revenue Canada.
III. Establishment of a Cause of Action
The requirement in subsection 15(2) of the Limitation of Actions Act that the applicant must establish the cause of action on which the proceeding is to be founded goes beyond establishing a prima facie case.
However, as it will appear below, I am not completely abandoning the prima facie case test referred to in Kozak et ux. v. Dominion Insur. Corpn. et al., [1972] 6 W.W.R. 741 (Man. Q.B.), at page 743.
I referred earlier to the Einarsson case and the Court of Appeal’s paraphrasing, at page 87 of the requirement that:
… the applicant must prove by evidence that he has a cause of action which, subject to any defence that may be raised, has a reasonable chance of success.
This concept was built upon by the Manitoba Court of Appeal in J. (A.) v. Cairnie Estate, [1993] 6 W.W.R. 305, at page 317:
The motions court judge was quite correct in concluding that the evidence presented failed to demonstrate a reasonable prospect of success as against the government staff psychiatrists. In this context, a “reasonable chance of success” means more than simply disclosing a cause of action sufficient to successfully resist an application to strike out the statement of claim. The applicant must, in an application under Pt.II of the Act, “establish the cause of action in which the action is to be or was founded apart from any defence based on a provision of this Act” [s. 15(2)]. It must be shown that there is something to the case so that if sent on to trial there is some realistic prospect that the action will succeed: …
More recently the Manitoba Court of Appeal acknowledged the test as set out in Einarsson, that the claim must be “based upon a cause of action with a reasonable chance of success.”: H. (I.) v. Isaac, supra, at page 383.
The Einarsson and H. (I.) cases and the Cairnie Estate case, with its realistic prospect test, put a heavy evidentiary burden on the applicant. However one must not lose sight of the prima facie case test which does have some relevance in this present instance. The sixth edition of Black’s Law Dictionary notes that [at page 1190]:
… courts use “prima facie” to mean not only that plaintiff’s evidence would reasonably allow conclusion plaintiff seeks, but also that plaintiff’s evidence compels such a conclusion if the defendant produces no evidence to rebut it.
This is an elaboration on the proposition that evidence in support of an allegation will stand unless it is displaced. In the present instance the respondents have produced no evidence and therefore, to the extent that the applicants’ evidence is admissible, I may accept it.
To begin, counsel for the respondents says that the Crown had no duty to inform the applicants and thus there is no cause of action.
It may be, notwithstanding the “Declaration of Taxpayer Rights”, which appears in the applicant’s affidavit material and which appears to be a Revenue Canada Taxation hand-out, that the common law imposes no duty on Revenue Canada officials and employees to bind up the wounds of a bleeding taxpayer. However the vulnerability of public officials has increased over the years.
At one end of the scale is a good faith approach to tort liability of government. As Lewis Klar, on Tort Law, puts it, at page 198:
The Anns and Kamloops judgments have produced the following approach. If there is a relationship of proximity between a public authority defendant and a plaintiff, there will be a duty of care with respect to negligent acts or decisions which do not involve the legitimate exercise of political discretion. Clearly, carelessness in implementing policy will arouse the duty of care. Legitimate policy decisions will not, however, as long as they are exercised in good faith. Although this has not been clearly defined, there will come a point where, because of corruption, bad faith, or extreme lack of care, a private duty of care will be imposed.
At the other end of the scale from operational negligence are abuses of power and malfeasance. Somewhere on this scale could well lie Revenue Canada in this instance: had an official in the Manitoba office merely posted or filed the INET message, said nothing, but answered questions on point, I might be inclined to agree with the respondents submissions. However, having read and destroyed a message, which was topical and pertinent, there would be a cause of action and the respondents might be held liable assuming that the applicants can prove the case they outline in their material.
Counsel have different views whether, on the material presented by the applicants, the action has a reasonable chance of success. I must therefore look to the elements needed for a cause of action in negligence:
1. A recognized duty to measure up to a standard of conduct to protect others against unreasonable risks;
2. A breach of the duty, that is the negligence;
3. Injury resulting to the interests of the applicants; and
4. A reasonable connection or proximity between the conduct of the defendant and the injury.
I have no evidence, on the part of the respondents, that the applicants brought their misfortune on themselves and therefore do not have to consider the usual final element of contribution or voluntary assumption of risk.
A. Duty and Breach of Duty
As set out above there is a duty on public officials in certain circumstances.
If Revenue Canada in Manitoba had received the INET message and had done nothing, even knowing, as they must have, that it was of interest both to Manitoba cabinet makers specifically and to the Manitoba economy generally, that would have been deplorable, but it might have been safe. However, by their own admission, those officials destroyed the message.
It is the destruction which gives a cause of action somewhere on a continuum between a bad decision of an operational negligence sort, where actions were apparently taken without due care and something that was actively done and which it might be argued borders on abuse or malfeasance.
This is not to say that the respondents have been negligent, but certainly the applicants have a reasonable prospect of success, assuming that they can show material injury and proximate cause.
B. Material Injury
It was argued, but I think not strenuously, that denial of the determined value tax calculation procedure, of itself, does not show that the applicants have suffered a loss.
In the affidavit material the applicants set out the amounts of tax which they believe they would have saved if they had been allowed the one-third reduction in taxes which they understand the determined value method would have allowed. Counsel for the respondents questions how the applicants know that they would be entitled to that deduction.
It is clear, however, from the evidence, even if one discounts affidavit assertions that the applicants were denied a “lawful 33 and 1/3 percent … deduction,” that there was a denial of a method of tax calculation, as a finding of fact by the Canadian International Trade Tribunal:
The evidence before the Tribunal clearly establishes that the kitchen industry throughout Canada was entitled, under departmental policy, to calculate its sales tax liability in accordance with ruling card 3700/107-1 between April 23, 1985, and March 16, 1989…. The result would appear to have been an inequitable and unjustifiable application of departmental policy to the industry in one region of the country. (Seine River Cabinets Ltd. v. M.N.R. (1992), 5 TCT 1122, at pp. 1123-1124.)
The applicants have satisfied me that they have suffered a loss by being denied a tax calculation method which was used in the rest of Canada.
C. Causation
There are a number of ways in which this area has been analyzed to determine whether a defendant might be liable, assuming duty, breach of duty and injury. In this instance one need go only to the reasonable foreseeability test.
Much of the background is set out in the affidavit of Zvi Gitter, who appears to have spearheaded the present cooperative approach by a number of cabinet makers, notwithstanding they are in competition with each other.
The factual material set out in the reasons for judgment of March 2, 1992, of the Canadian International Trade Tribunal, attached to Mr. Gitter’s affidavit, sets out a chronology in 1985 and 1986 indicative of a fair degree of activity concerning the taxation of cabinet makers.
Revenue Canada, in Manitoba, could easily foresee destruction of the particular INET message, on which the intended actions are to be based, would necessitate Manitoba cabinet makers calculating their tax at a higher rate. As a result all cabinet makers in Manitoba would pay more taxes and be at a competitive disadvantage.
It is easily foreseeable that putting discovery of legitimate tax relief beyond the applicants would result in harm to cabinet makers paying tax during the relevant time.
CONCLUSIONS
Section 81 of the Excise Tax Act is a complete bar to the plaintiffs’ amendment of the statements of claim in Imperial Cabinet (1980) Co. Ltd., T-1557-92 and in the three similar existing actions, Kliewer’s Cabinets Ltd., T-1331-91; Artec Design Inc., T-1556-92 and Seine River Cabinets Ltd., T-1555-92. The applications in these actions are dismissed with costs to the defendant.
The applicants in Elgin Cabinet Incorporated and the seven other similar motions, for an extension within which to commence actions, have the burden of coming clearly within the requirements for extension of limitation period under the Limitation of Actions Act.
They have not been able to do so in the case of the intended claims against either the Minister and former Ministers of National Revenue or the named employees of Revenue Canada. However the Crown can be liable for the neglect of its servants and employees.
I have spent considerable time reading and re-reading the substantial affidavit material filed on these eight applications. Some portions of those affidavits are not admissible and I have disregarded those portions. Other portions are suspect and I have given them less weight. However, all things considered, the applicants have satisfied the onus on them under the Limitation of Actions Act.
The applicants have shown that the applications have been timely, given that time runs from the knowledge of the destruction of the Revenue Canada INET message. Where necessary the applicants have satisfactorily explained a delay of some months in bringing the present applications and in any event there is no prejudice.
It appears to me that the applicants, on a cause of action based on the destruction of the INET message, have a cause of action with a reasonable and realistic prospect of success.
The applicants come clearly within several of the material facts set out in subsection 20(2) in that within the last twelve months they have discovered an act on the part of Revenue Canada, namely the destruction of the INET message, which had led to them suffering damages.
The applicants have satisfied me that they meet the requirements of subsection 20(3) of the Limitation of Actions Act in that the material facts which they have discovered in the last twelve months are perhaps facts which a tax consultant and former employee might happen upon, with some prior knowledge, but not facts which a cabinet maker, exercising due diligence, would reasonably have either looked for or found.
I have therefore granted an extension of time, pursuant to subsection 14(1) of the Limitation of Actions Act, so that the applicants may file a statement of claim against Her Majesty the Queen in right of Canada, on the terms set out in the proposed statements of claim attached to the affidavits in support of the motions in the eight applications to begin actions, with all reasonable necessary changes made to those drafts to reflect that there is no extension of time to proceed against the balance of the proposed defendants.
The statements of claim must be filed by September 2, 1994.
Costs shall be in the cause.