Richards v Richards, 2019 ABQB 908

Court of Queen’s Bench of Alberta Citation: Richards v Richards, 2019 ABQB 908 Date: 20191128 Docket: 1703 09292 Registry: Edmonton Between: Lee Christopher Wayne Richards Plaintiff - and - Kate Lee Richards also known as Kate Lee Barrett Defendant _______________________________________________________ Reasons for Decision of the Honourable Madam Justice Avril B. Inglis _______________________________________________________ Introduction [ 1 ] This is an action in unjust enrichment. The Plaintiff, Mr. Richards, seeks to recover part of a tax liability from his ex-wife, Ms. Barrett.

The tax liability arose after the parties separated when the Canada Revenue Agency (“ CRA ”) disallowed a tax shelter that the parties had participated in during their marriage. [ 2 ] Mr. Richards argues that Ms. Barrett has been unjustly enriched at his expense because they both benefitted from the tax shelter, but he alone bears the financial burden of the CRA’s decision to disallow their deductions. [ 3 ] For the following reasons, I conclude that this claim is statute barred. Facts [ 4 ] The parties married at Westlock, Alberta on August 10, 2002. They have two children.

[ 5 ] On December 28, 2007, the parties sent two cheques to PanAggregate Financial Corporation (“ PFC ”) in the amounts of $11,200 and $1,344. These payments (the “ Donations ”) were ostensibly charitable gifts to the “Canadian Organization for International Philanthropy” (“ COIP ”), a registered tax shelter. The COIP scheme involved a complicated loan arrangement whereby participants would pay initial sums, followed by periodic interest pre-payments. COIP claimed that it used these funds to purchase HIV/AIDS medications for distribution in Sub-Saharan Africa. [ 6 ] Ms.

Barrett worked part-time for PFC at the time of the Donations. She witnessed the loan application and signed both cheques. The funds for the Donations came from a joint line of credit held by both parties. The parties met together with a COIP representative before submitting the loan application. Each party asserts that the other person was the instigator of their decision to participate in the COIP scheme. [ 7 ] On December 31, 2007, PFC issued an official donation receipt for $67,200. After some initial difficulties with their filings, Mr. Richards and Ms.

Barrett each successfully claimed deductions in the amounts of $53,100 and $2,100 respectively, on their 2007 tax returns. Mr. Richards carried forward the remainder of the original $67,200 payment and claimed it on his 2008 tax return. [ 8 ] The parties received a 2007 tax refund of approximately $23,076, which they deposited into a joint account or applied to a joint line of credit. A COIP representative instructed the parties to keep these funds to the side in case the CRA retroactively disallowed the donations, as it eventually did. [ 9 ] In July 2008, the parties moved as a family to New York State.

This arrangement was short-lived, and the parties separated in August 2008. Mr. Richards returned to Canada, and Ms. Barrett remained in New York with the children. [ 10 ] The parties entered into a Separation Agreement in New York on September 5, 2008, which included the following mutual release: MUTUAL RELEASE AND DISCHARGE OF GENERAL CLAIMS.

Subject to the provisions of this agreement, each party has remised, released and forever discharged, and by these presents does for himself or herself and his or her heirs, legal representatives, executors, administrators and assigns, remise, release and forever discharge the other of and from all cause or causes of action, claims, rights or demands whatsoever in law or in equity which either of the parties hereto have had or now have against the other except any or all cause or causes of action for divorce, and any defenses either may have to any divorce action brought by the other. [ 11 ] Under the Separation Agreement, Ms.

Barrett agreed to file any remaining tax returns and split any return equally. She also waived any right to spousal support even though Mr. Richards was the primary wage-earner. Mr. Richards did not obtain independent legal advice, despite being urged to do so by Ms. Barrett’s lawyer. [ 12 ] Ms. Barrett duly filed the 2008 tax returns, and on March 26, 2009, the 2008 tax return of $9,072.83 was deposited into the parties’ old joint chequing account. These funds were redirected to an account held solely by Ms. Barrett, who forwarded half of the refund to Mr. Richards. [ 13 ] On February 24, 2010, the CRA sent Mr.

Richards a letter notifying him that it had audited the 2007 and 2008 deductions, and it was disallowing the entire $67,200 donation (the “ First CRA Letter ”). The First CRA Letter detailed the CRA’s factual and legal basis for disallowing the deductions. The CRA took the position that there was no valid gift because the parties did not have the requisite donative intent, and in the alternative, asserted that the deduction was premised upon an overstated fair market value for the pharmaceuticals. Mr. Richards testifies that he did not know about COIP’s issues with the CRA until this letter.

The CRA subsequently sent Mr. Richards a Notice of Reassessment demanding $31,052.33, payable immediately (the “ CRA Debt ”). [ 14 ] Mr. Richards appealed the CRA’s decision by filing a Notice of Objection, which he prepared with COIP’s assistance. He testifies that COIP never promised any success, and he did not obtain the advice of a tax lawyer or accountant. Nevertheless, he maintained hope that his objection would succeed. [ 15 ] There is conflicting evidence regarding when Mr. Richards first notified Ms. Barrett of the CRA issues. Ms.

Barrett testified that she had no notice that the donations had been disallowed until March 2017. Mr. Richards testified that he discussed the disallowed payments with Ms. Barrett several days after receiving the First CRA Letter, and that she had denied any responsibility to contribute. Thus, from that point forward, he did not involve Ms. Barrett in the appeal process. [ 16 ] Meanwhile, on September 29, 2010, Justice Robert G. Main, Jr. of the New York State Supreme Court in Franklin County granted the parties a divorce judgment. [ 17 ] The CRA sent Mr.

Richards another letter on November 2, 2010 confirming receipt of his Notice of Objection. The CRA advised that the COIP scheme implicated many other taxpayers, so his file would be “held in abeyance until a final decision is taken in these files.” The CRA gave Mr. Richards the option to repay the amount owing without prejudice to his appeal. Otherwise, the outstanding amount would accrue interest. [ 18 ] Mr. Richards did not repay the CRA, and in fact, still has not repaid the CRA. He feels that Ms. Barrett should contribute, and he wants to recover Ms.

Barrett’s “share” before paying off the debt. [ 19 ] On April 29, 2013, Mr. Richards received a letter notifying him that the last COIP interest pre-payment of $1,573.60 was due. He contacted Ms. Barrett seeking her contribution of half that amount, but she declined. [ 20 ] On January 19, 2017, the CRA sent Mr. Richards a letter confirming that the taxpayers who litigated their COIP donations in the Tax Court of Canada had since withdrawn their objections (the “ Final CRA Letter ”). This letter reiterates the CRA’s position and gave Mr.

Richards 45 days to file a Waiver of Right of Objection or Appeal, in which he would agree with the CRA’s decision to disallow the donations in exchange for proactive interest relief.

[ 21 ] By March 2017, Mr. Richards exhausted all avenues of appeal. On May 1, 2017, he demanded that Ms. Barrett pay her proportionate share of the CRA Debt. On May 12, 2017, he filed a Statement of Claim against Ms. Barrett. At the time of filing, the CRA Debt was approximately $43,940.07. Interest continues to accrue on that amount. Issues [ 22 ] This action raises the following issues: 1. Is Mr. Richards’ claim against Ms. Barrett barred by s 6 of the Matrimonial Property Act, RSA 2000, c M-8 [ MPA ]? 2. If not, is Mr. Richards’ claim out of time under the Limitations Act , RSA 2000, c L-12 ? 3.

If not, is the Separation Agreement a defence to this claim? 4. If not, what is Ms. Barrett’s obligation to contribute to the CRA Debt? Issue 1 - Is Mr. Richards’ claim against Ms. Barrett barred by s 6 of the MPA ? [ 23 ] Mr. Richards claims that Ms. Barrett has been unjustly enriched because they both benefitted from the tax shelter, but he alone bears the consequences of the CRA’s decision to disallow the Donations. He disavows any reliance on the MPA . [ 24 ] On the other hand, Ms. Barrett argues that this claim is actually a matrimonial property claim.

She asks me to treat this action as if it had been brought under the MPA . If this action had been brought under the MPA , it would be out of time because it was filed more than two years after the date of the divorce judgment: MPA , s 6(1)(b). [ 25 ] I agree with the Defendant that this action is statute barred by the MPA . [ 26 ] The CRA Debt relates to tax years during the marriage. Both parties participated in the tax shelter during their marriage, and both parties benefited from it.

Courts have recognized that tax liabilities relating to tax years during a marriage are subject to distribution under provincial matrimonial property legislation, even if the liability was contingent at the time of distribution: Neely v Neely, 2019 BCSC 610 at para 63 ; S(

M) v S(W), 2008 SCC 35 at para 20 ; see also Horne v Horne, 2010 ABQB 32 at para 99 and Lander v Lander, 2011 ABQB 414 at para 17 . [ 27 ] Even though this claim is framed in unjust enrichment, this is essentially a claim for distribution of matrimonial property.

Section 17 of the MPA permits me to treat this claim as if it had been brought under the MPA : 17(1) If a question respecting property arises between spouses in any other matrimonial cause, the Court may decide the question as if it had been raised in proceedings under this Part. [ 28 ] I therefore find that Mr. Richards’ claim is statute barred because it was brought more than two years after the date of the divorce judgment: MPA , s 6(1)(b). Issue 2 – In the alternative, is Mr.

Richards’ claim out of time under the Limitations Act ? [ 29 ] Even if I had not treated this claim as if it were brought under the MPA , I would have found that Mr. Richards’ claim is barred by s 3 of the Limitations Act. [ 30 ] Mr. Richards argues that the elements of unjust enrichment did not arise until he received the Final CRA Letter in January 2017. Thus, he says, the time did not begin to run until all the elements of the cause of action arose: Salna v Awad, 2011 ABCA 20 at para 29 ; D’Agnone v D’Agnone, 2017 ABCA 35 at para 48 .

He argues that he did not–and could not have–known that the debt owing to the CRA actually had to be paid prior to receiving the Final CRA Letter. [ 31 ] Mr. Richards argues further that Ms. Barrett was aware of the CRA Debt as early as 2010, so she cannot claim she was unaware of a potential claim. [ 32 ] I find it ironic that Mr. Richards asserts that he did not have enough information until 2017, yet Ms. Barrett had sufficient information (from him) in 2010. [ 33 ] These arguments have no merit. Mr.

Richards knew or ought to have known upon receiving the First CRA Letter that, unless he succeeded in his appeals, he would be indebted to the CRA. I find as a fact that Mr. Richards knew from his conversation with Ms. Barrett within a few days of receiving the First CRA Letter that she would not voluntarily contribute “her share” of the CRA Debt. [ 34 ] I also do not accept Mr.

Richards’ claim that he could not have known that the CRA actually had to be repaid when, shortly after receiving the First CRA Letter, he received a Notice of Reassessment which was payable immediately, and when the CRA advised him in November 2010 that interest continued to accumulate on the amount owing.

[ 35 ] I appreciate that, until Mr. Richards received the Final CRA Letter, he remained optimistic that he could avoid the CRA Debt altogether. However, that did not make proceedings against Ms. Barrett unwarranted: Limitations Act, s 3(1)(a)(iii). The First CRA Letter clearly set out the factual basis for the CRA’s decision to disallow the donations. Discoverability in Alberta generally refers to material facts, not law: Laasch v Turenne, 2012 ABCA 32 at para 24 . Mr.

Richards’ attempts to appeal the CRA’s decision are irrelevant because related litigation does not stop the limitation period from running: Ewing v Allen, 2015 ABQB 264 at para 34 , citing Laasch at para 24 . [ 36 ] I also reject Mr. Richards’ argument that the limitations period is extended merely because Ms. Barrett had notice of the claim as early as February 2010. A defendant may be estopped from relying on a limitation period where there is both detrimental reliance and a promise or assurance which was intended to affect the legal relationship between the parties.

It is not enough that the defendant was merely aware of a potential claim. Disposition [ 37 ] Given the foregoing, it is unnecessary for me to address the Separation Agreement or the proper apportionment of the CRA Debt between the parties. [ 38 ] This claim is therefore dismissed. At the request of the parties, I decline to make an order with respect to costs at this time. Heard on the 13 th day of June, 2019. Dated at the City of Edmonton, Alberta this 28 th day of November, 2019. Avril B. Inglis J.C.Q.B.A. Appearances: L. Goodhand for the Plaintiff R. Rand, Q.C. and J.A. Fitzel for the Defendant