2016 QCCA 1587, 2016 QCCA 1587

Lauber c. Reid 2016 QCCA 1587 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025316-159 ( 500-17-082947-147 ) MINUTES OF THE HEARING DATE: September 29, 2016 CORAM: THE HONOURABLE julie dutil , J.A. mark schrager , J.A. marie-josée hogue , J.A. APPELLANT COUNSEL BUNNIE (BUNNY) ELEANOR LAUBER (BERKE) Mtre SERGE FOURNIER ( BCF s.e.n.c.r.l. ) RESPONDENT COUNSEL LYNDA REID Mtre PAUL DÉRY-GOLDBERG (Spiegel, Sohmer, inc.) On appeal from a judgment rendered on May 4, 2015 by the Honourable Justice Donald Bisson of the Superior Court, District of Montreal.

DESCRIPTION : Tax system - Tax on goods and services - Tax on the sale in Quebec - Loan agreement and renovation. Clerk: Mihary Andrianaivo Courtroom: Pierre-Basile-Mignault HEARING

9:30 Beginning of the hearing. Submissions by Mtre Fournier. 10:00 Recess. 10:06 Resumption of the hearing. Submissions by Mtre Déry-Goldberg. 10:08 BY THE COURT : Judgment read out by the Honourable Julie Dutil, J.A. – See page 3. 10:09 Conclusion of the hearing.

Mihary Andrianaivo Clerk BY THE COURT JUDGMENT [ 1 ] This is an appeal from the judgment of the Superior Court, District of Montreal (the honourable Donald Bisson), delivered from the bench on May 4, 2015, condemning Appellant to pay Respondent $120,548.75, plus interest, additional indemnity and costs. [ 2 ] The aforementioned sum represents the amounts payable pursuant to the Excise Tax Act [1] and the Act Respecting the Québec Sales Tax , [2] or colloquially “GST” and “PST”, arising from sums due by Appellant to Respondent on a contract for renovation of the former’s home. [ 3 ] Briefly the facts disclosed that Appellant, who is a real-estate agent, wished to sell her home but needed to pay certain debts and to undertake certain renovations to succeed in selling the home for an acceptable price.

She entered into a contract with Respondent, memorialized in an “Agreement of Loan and Renovation”, under the terms of which Respondent undertook to lend Appellant $300,000 and to renovate the house. [ 4 ] The loan was secured by a second ranking hypothec on the house and was repayable with interest upon the earlier of March 30, 2013 or the sale of the house.

The contract also provided that the benefit of the term was lost in the event of default. [ 5 ] The other portion of the contract provided for Respondent to renovate the home “in such manner as she determines appropriate in her absolute discretion” subject to consultation with Appellant.

Respondent was to hire contractors and trade persons and was alone responsible to them for payment of work and materials. [ 6 ] Upon the sale of the property, following completion of the renovations, the contract provided that Respondent was to be paid 35% of the sale price “in consideration of the renovation work” with a minimum of $805,000 and a maximum of $910,000. This consideration was stipulated as payable on closing directly by the transaction notary to Respondent. The house was sold on January 21, 2014 for $2,295,000.

Respondent invoiced Appellant for $805,000 as the sum payable for the renovation work pursuant to the contract plus $40,250 GST and $80,298.75 PST. [ 7 ] Appellant paid the $805,000 but refused to pay the taxes, which refusal gave rise to the action instituted against her by Respondent in the Superior Court.

It is around this refusal to pay the sales tax that the issues in Appeal revolve: (i).- Was the contract between the parties, one of partnership, so that the payment of $805,000 was not made in consideration of a “taxable service” but rather was Respondent’s portion of the profit generated by the activities of the partnership? (ii).- Did Respondent have a valid right of action to collect the taxes given that she was not registered for such purposes with the tax authorities? (iii).- Did interest properly commenced to run from the date of the demand letter sent by Respondent’s attorneys? [ 8 ] All of these issues were correctly addressed by the trial judge such that there arises no reversible error in his judgment that would cause this Court to intervene. [ 9 ] The judge correctly decided that the contract was not one of partnership.

He cites the applicable

Article 2186 C.C.Q. and then accurately paraphrases the conditions precedent to the existence of a partnership: [26] This

Article provides that, at its first paragraph, which is the relevant one, a contract of partnership is a contract by which the parties act in spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by

combining property, knowledge or activities and to share among themselves any resulting pecuniary profits. He then analyzes the contract based on its title and wording noting the absence of the word “partnership” or any provision for rights and obligations that would satisfy the criteria for the creation, even on a tacit basis, of a partnership. [ 10 ] In particular, he found that there was no intent to create a partnership.

Aside from the loan, the contract provided for the engagement of Respondent by Appellant in order to provide a service which was payable as a percentage of the eventual sale price of the house. As the judge remarked, Appellant asked Respondent to submit her “invoice for the renovations”. Such

interpretation by Appellant herself is compelling [3] and compatible with the conclusion that the contract was one of service and not partnership. We would add that the contract appears to have been professionally drawn so that the concept, let alone the term “partnership”, would not be unknown to the draftsman. The term was certainly not unknown to Appellant who used it in her testimony though not in the contract. [ 11 ] The characterization of the contract and the finding as to the absence of intention to create a partnership are questions of fact.

The standard of review by an appellate Court is well known. [4] There is no demonstration of a manifest error in the judgment of first instance on the first ground of appeal. [ 12 ] On the second ground of appeal, the judge correctly decided that the right to bring an action to recover the sales taxes is not subject to the collector having been registered with the tax authorities when the services were provided. (In fact, Respondent completed the registration on the day that she issued the invoice).

Sections 223 and 224 of the Excise Tax Act and the Sections 425 and 427 of the Act Respecting the Québec Sales Tax , demonstrate that the taxes are payable as a function of the supply of a taxable service (in this instance) and not the registration with the taxing authorities by the supplier of the service.

The right of recovery by legal proceedings is specifically created by the statutes as if the tax debt was due to the supplier and not the taxing authority. [5] [ 13 ] Though not argued by Appellant, it should also be mentioned that the silence of the contract on the subject of sales tax is of no moment once one concludes that the services in question are taxable because the law provides that unless specifically stipulated, GST and PST are not included in the gross price for the taxable goods or service. [6] [ 14 ] Regarding the third ground of appeal, the judge ordered that interest be paid as of the date of the demand and not, as argued, the date when Respondent provided proof to Appellant that the taxes had in fact been paid (January 15, 2015).

The trial judge found that almost all the taxes had been paid by Respondent to the authorities prior to the institution of proceedings. [ 15 ] In principle, interest is payable from the time of default which is determined by the extra-judicial demand, in this case, contained in the lawyer’s letter of February 20, 2014. [7] [ 16 ] We see no reversible error in the judge’s decision concerning the date from which interest was awarded. [ 17 ] There does however appear a clerical error in the judgment because the date of the demand letter is February 20, 2014 and not February 27, 2014 as indicated in the conclusions of the judgment.

In any event, the demand letter accorded a ten-day delay during which to pay and there has been no incidental appeal so that there is little reason and no jurisdiction to make the correction requested by Respondent. FOR THESE REASONS, THE COURT: [ 18 ] DISMISSES the appeal with legal costs. JULIE DUTIL, j.a. mark schrager, j.a. marie-josée hogue, j.a. ANNEX

Excise Tax Act 223

(1) If a registrant makes a taxable supply , other than a zero-rated supply, the registrant shall indicate to the recipient , either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient in respect of the supply, 223

(1) L’inscrit qui effectue une fourniture taxable (sauf une fourniture détaxé

e) doit indiquer à l’acquéreur , selon les modalités réglementaires ou sur la facture ou le reçu délivré à l’acquéreur ou dans la convention écrite conclue avec celui-ci : (

a) the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax; or

a) soit la contrepartie payée ou payable par l’acquéreur pour la fourniture et la taxe payable relativement à celle-ci, de sorte que le montant de la taxe apparaisse clairement ; (

b) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply.

b) soit la mention que le montant payé ou payable par l’acquéreur pour la fourniture comprend cette taxe. 224 Where a supplier has made a taxable supply to a recipient, is required under this Part to collect tax from the recipient in respect of the supply, has complied with subsection 223(1) in respect of the supply and has accounted for or remitted the tax payable by the recipient in respect of the supply to the Receiver General but has not collected the tax from the recipient, the supplier may bring an action in a court of competent jurisdiction to recover the tax from the recipient as though it were a debt due by the recipient to the supplier . 224 Le fournisseur , ayant effectué une fourniture taxable au profit d’un acquéreur et tenu par la présente

partie de percevoir la taxe de celui-ci relativement à la fourniture, qui s’est conformé au paragraphe 223(1) en ce qui concerne la fourniture et qui a rendu compte au receveur général de la taxe payable relativement à la fourniture, ou la lui a versée, sans la percevoir de l’acquéreur peut intenter , devant un tribunal compétent, une action en recouvrement de la taxe de l’acquéreur comme s’il s’agissait d’un montant que celui-ci lui doit . Act Respecting the Québec Sales Tax 425.

Where a registrant makes a taxable supply , other than a zero-rated supply, the registrant shall indicate to the recipient , either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient, 425.

Un inscrit qui effectue une fourniture taxable , autre qu’une fourniture détaxée, doit indiquer à l’acquéreur de la manière prescrite, ou sur la facture ou le reçu délivré à l’acquéreur, ou dans une convention écrite conclue avec celui-ci: (1) the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax , in which case the registrant may indicate a total amount made up of both that tax and the tax under

Part IX of the Excise Tax Act (Revised Statutes of Canada, 1985,

chapter E-15 ); or 1° soit la contrepartie payée ou payable par l’acquéreur pour la fourniture et la taxe payable à l’égard de celle-ci de façon à ce que le montant de la taxe apparaisse clairement , auquel cas l’inscrit peut indiquer un montant total constitué à la fois de cette taxe et de celle prévue à la

partie IX de la

Loi sur la taxe d’accise (L.R.C. 1985, c. E-15 );

(2) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply. 2° soit que le montant payé ou payable par l’acquéreur pour la fourniture comprend la taxe payable à l’égard de celle-ci. Where the registrant indicates to the recipient the rate of the tax, he shall indicate it apart from the rate of any other tax. Lorsque l’inscrit indique à l’acquéreur le taux de la taxe, il doit l’indiquer séparément du taux de toute autre taxe. In addition, the tax shall be referred to by its name, an abbreviation of its name or a similar designation.

No other form of reference to the tax may be used. De plus, la taxe doit être désignée par son nom, une abréviation de celui-ci ou une indication similaire. Aucune autre mention portant sur cette taxe ne peut être utilisée. 427. Where a supplier has made a taxable supply to a recipient, is required under this Title to collect tax from the recipient in respect of the supply, has complied with

section 425 in respect of the supply and has accounted for or remitted the tax payable by the recipient in respect of the supply to the Minister but has not collected the tax from the recipient , the supplier may bring an action in a court of competent jurisdiction to recover the tax from the recipient as though it were a debt due by the recipient to the supplier . [Emphasis added.] 427. Un fournisseur qui a effectué une fourniture taxable à un acquéreur, qui est tenu en vertu du présent

titre de percevoir de celui-ci la taxe relative à cette fourniture, qui s’est conformé à l’

article 425 en ce qui concerne la fourniture et qui a rendu compte ou versé au ministre la taxe payable par l’acquéreur à l’égard de la fourniture sans la percevoir de ce dernier, peut intenter une action devant un tribunal compétent pour recouvrer la taxe de l’acquéreur comme s’il s’agissait d’un montant que celui-ci lui doit .