Docket: 1883 Saskatchewan Government Insurance Appellant - v. -, 2012 SKCA 42

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 42 Date: 20120405 Between: Docket: 1883 Saskatchewan Government Insurance Appellant - and - Felix Royer Respondent Coram: Jackson, Ottenbreit and Herauf JJ.A. Counsel: Steven Haichert for the Appellant Akram Attia for the Respondent

Appeal: From: Automobile Injury Appeal Commission 2009 SKAIA 47 Heard: September 27, 2011 Disposition: Allowed Written Reasons: April 5, 2012 By: The Honourable Mr. Justice Herauf In Concurrence: The Honourable Madam Justice Jackson The Honourable Mr. Justice Ottenbreit HERAUF J.A. I. Introduction [ 1 ] This is an appeal by Saskatchewan Government Insurance (“SGI”) from a decision of the Automobile Injury Appeal Commission (the “Commission”). SGI had denied Felix Royer income replacement benefits (“IRB”) under the no fault provisions of The Automobile Accident Insurance Act , R.S.S. 1978, c. A-35, (the “ Act ”).

Mr. Royer successfully appealed the decision of SGI to the Commission. The Commission held that Mr. Royer’s income as reported on his income tax returns for 2005, 2006 and 2007 did not accurately reflect wages or salary paid in return for work done by Mr. Royer. As a result, the Commission ordered SGI to reconsider Mr.

Royer’s entitlement to the IRB based upon his “actual income considering all the circumstances and shall not limit its reconsideration to the figures reported on the income tax returns”. [ 2 ] For the reasons that follow, I conclude that the Commission erred in law by making findings of fact on the basis of no evidence and erred in law in its

interpretation of the relevant statutory provisions. In the result, I would allow the appeal, set aside the decision of the Commission and reinstate SGI’s decision to deny Mr. Royer IRB for 2005, 2006 and 2007. II. Background [ 3 ] Felix Royer was injured in a motor vehicle accident on September 9, 2004. At the time of the accident Mr. Royer was a salaried employee and shareholder of Royer Trucking Ltd. Royer Trucking Ltd. operated a cattle operation and a lumber and sawmill business. [ 4 ] On April 11, 2005, SGI denied Mr. Royer any entitlement to an IRB.

After much discussion and correspondence, the matter proceeded to mediation. As a result of mediation, SGI concluded that Mr. Royer was entitled to IRB. In order to confirm Mr. Royer’s entitlement, SGI requested his personal and corporate income tax returns for the years in question. [ 5 ] Upon receipt of the income tax returns, SGI ascertained that Mr. Royer’s income for the 2005, 2006 and 2007 calendar years was higher than his traditional income of $36,000 per year that was used by SGI as the base income to calculate the IRB. Mr.

Royer continued to receive income of $36,000 per year from Royer Trucking Ltd. for the 2005, 2006 and 2007 calendar years. The income tax returns indicated that he also received a management fee in each of those years in the amount of $21,500 in 2005, $25,000 in 2006 and $10,000 in 2007. As a result, SGI denied Mr. Royer’s entitlement to IRB since his yearly employment income was greater than the yearly employment income upon which the benefit was calculated. III. The Decision of the Commission [ 6 ] The Commission accepted that management fees were properly included as income for the purpose of calculating IRB.

It reasoned, however, that the salary was not paid in return for work done by Mr. Royer for the business and should not be included for the purpose of calculating IRB. [ 7 ] The Commission concluded that post-accident Mr. Royer could do only a few sedentary aspects of his work. It held that while income tax returns are the best starting point for accurately determining a person’s income there are occasions, such as this one, where the income tax returns do not reflect a person’s earnings. The Commission found that Mr. Royer’s accountant, through error or

convenience, improperly reported his employment income as income from salary or wages as opposed to income from a dividend or shareholder’s loan. If the employment income would have been reported as a dividend or shareholder’s loan, it would not have been considered income for the purposes of the IRB. [ 8 ] Ultimately, the Commission held that “the monies paid as employment income [to Mr. Royer] after the accident were simply a means of drawing income from the company and were not, in fact, employment income”. As a result, the Commission directed that SGI reconsider Mr.

Royer’s entitlement to IRB based on actual income not limited to the figures reported on the income tax returns. IV. Applicable Legislation and Regulations [ 9 ]

Section 113 of the Act sets out how a person’s entitlement to IRB is determined: 113(1) This

section does not apply to a student.

(2) An insured is entitled to an income replacement benefit if, as a result of an accident, the insured: (

a) is unable to continue an employment held by the insured at the date of the accident; (

b) is unable to hold an employment he or she would have held in the first 180-day period following the accident if the accident had not occurred; or (

c) is deprived of benefits pursuant to the Employment Insurance Act (Canada) or any other prescribed benefits to which he or she was entitled at the date of the accident.

(3) The insurer shall calculate the income replacement benefit for the employment that the insured is unable to continue on the following basis: (

a) if the insured holds employment in the employ of another, the yearly employment income of the insured calculated on the basis of the income the insured earned or would have earned from all employments the insured held or would have held but for the accident in the first 180-day period after the accident; …

(4) On and after the 181st day after the accident, an insured is entitled to an income replacement benefit if the insured is unable to hold employment he or she held or would have held but for the accident.

(5) An income replacement benefit pursuant to subsection (4) is to be the greatest of: (

a) an income replacement benefit calculated on the basis of the yearly employment income attributed to the insured in the first 180-day period after the accident; (

b) an income replacement benefit calculated on the basis of the average employment income the insured earned in the two years before the accident as set out in the regulations, including any benefits received pursuant to the Employment Insurance Act (Canada), any benefits received under an employment disability plan, and any benefits received pursuant to The Workers’ Compensation Act, 1979 or similar provisions in any other Act , or any legislation of any other jurisdiction, that relate to the compensation of individuals injured in accidents; [emphasis added] [ 10 ]

Section 138 of the Act determines the amount of an IRB is 90 percent of the insured’s net income: 138 Subject to the other provisions of this Division, the amount of an income replacement benefit that an insured is entitled to is 90% of the insured’s net income. [ 11 ]

Section 139 of the Act specifies how a person’s net income is calculated: 139 The amount of an insured’s net income is the amount NI calculated in accordance with the following formula: NI = YEI – D where: YEI is the lesser of: (

a) the insured’s yearly employment income; and

(

b) the maximum yearly insurable earnings; and D is an amount calculated by the insurer in accordance with this

section and the regulations for income tax pursuant to The Income Tax Act, 2000 and the Income Tax Act (Canada), premiums pursuant to the Employment Insurance Act (Canada) and contributions pursuant to the Canada Pension Plan . [emphasis added] [ 12 ]

Section 131 of the Act indicates when IRB ceases to be payable. For the purpose of the appeal, the provision utilized by SGI to deny IRB to Mr. Royer is 131(e): 131(1) Notwithstanding any other provision of this Part, an insured ceases to be entitled to a benefit pursuant to this Division when any of the following occurs: (

e) the insured holds an employment from which the yearly employment income is equal to or greater than the yearly employment income on which the benefit is calculated; [emphasis added] [ 13 ]

Section 100 (

q) of the Act defines yearly employment income as: 100 In this Part: (q) “yearly employment income”, with respect to an insured, means the yearly employment income of the insured that the insurer uses to determine benefits pursuant to Division 4. [ 14 ] Finally, s. 17 of The Personal Injury Benefits Regulations , R.R.S. c. A-35, Reg. 3 provides further guidance with respect to how yearly employment income is calculated: 17(1) In this section, “work cycle” means the length of time or the number of hours of work, as determined by the insured’s employer, that an insured must complete to earn the insured’s regular salary or wages.

(2) Subject to any other provision of these regulations, the insured’s yearly employment income not derived from self-employment at the date of the accident is to be calculated on the sum of the following: (

a) the greater of: (

i) the salary or wages regularly payable, excluding the benefits or commissions mentioned in clauses (

b) and (c), earned in the work cycle immediately prior to the accident in which the insured is entitled to an income replacement benefit multiplied by the number of work cycles in a normal 12-month period; (ii) the salary or wages regularly payable, excluding the benefits or commissions mentioned in clauses (

b) and (c), earned in the 12 months before the accident; and (iii) the salary or wages regularly payable, excluding the benefits or commissions mentioned in clauses (

b) and (c), earned or to be earned in each work cycle in the first 180-day period after the accident in which the insured is entitled to an income replacement benefit multiplied by the number of work cycles in a normal 12-month period; V. Jurisdiction and Standard of Review [ 15 ] SGI appealed the decision of the Commission to this Court as authorized by s. 194(1) of the Act : 194(1) The insurer or the claimant may appeal a decision of the Court of Queen’s Bench or appeal commission to the Court of Appeal on a question of law only. [ 16 ] In Caplette v.

Saskatchewan Government Insurance , 2011 SKCA 69 , 334 D.L.R. (4 th ) 628, a recent decision of this Court, Jackson J.A. concluded that the standard of review for decisions of the Commission appealed pursuant to s. 194(1) should be the same as for appeals from the Court of Queen’s Bench. The standard of review for decisions from the Court of Queen’s Bench was addressed by Klebuc C.J.S. in Murphy v.

Saskatchewan Government Insurance , 2008 SKCA 57 , [2008] 7 W.W.R. 401 as follows: 4 Consequently, the right of appeal as well as the jurisdiction of this Court is limited to questions of law including the application of the law to the facts found by the hearing judge. The applicable standard of appellate review is one of correctness. See Gallop v. Mulatz , 2008 SKCA 29 , where Cameron J.A. succinctly articulated the applicable principles at para. 34: [34] To the extent the points give rise to issues of law, in the sense they call into question the trial judge's identification of the relevant

law, including the judge's selection and

interpretation of the law, the power of the Court to act on its own view of the law is not fetteredin this or any other way. If, in the judgment of the Court, the trial judge's identification of the relevant law is not "correct" the Court is tosubstitute its own view of the law for that of the trial judge and act accordingly: Housen v. Nikolaisen, 2002 SCC 33 , [2002] 2S.C.R. 235.

In general, this is also true of the application of the law to the facts as found, for this entails evaluating the facts against alegal standard, a matter that calls for a normative judgment and the drawing of conclusions in law based on the facts as found: St-Jean v.Mercier, 2002 SCC 15 , [2002] 1 S.C.R. 491; ABB Inc. v. Domtar Inc., 2007 SCC 50; Ellis-Don Ltd. v. Ontario (LabourRelations Board), 2001 SCC 4 , [2001] 1 S.C.R. 221; Farm Credit Corp. v.

Valley Beef Producers Co-operative Ltd. (2002),2002 SKCA 100 , 223 Sask.R. 236 (C.A.). 5 Since the right of appeal is confined to a question of law, neither the right of appeal nor the jurisdiction of the Court extends to afinding of fact. However, a finding of fact may be grounded in an error of law, as will be the case, for example, when a finding: (

a) isbased on no evidence; (

b) is made on the basis of irrelevant evidence or in disregard of relevant evidence; or, (

c) is based on an irrationalinference of fact. See: P.S.S. Professional Salon Services Inc. v. Saskatchewan Human Rights Commission et al., 2007 SKCA 149,(2007), 302 Sask.R. 161 at paras. 60-65 (leave to appeal to SCC dismissed [2008] S.C.C.A. No. 69). The right of appeal, of course,extends to such errors of law. VI. Position of the Parties a. Appellant - SGI [17] SGI submits it is not disputed that Mr. Royer’s base employment income for the purposes of calculating the IRB was $36,000.

This was the income reported in the 2001, 2002 and 2003 taxation years, and would therefore be considered the “income the insured…would have earned from all employments the insured…would have held but for the accident in the first 180-day period after theaccident” according to s. 113(3)(a). The same income was reported in Mr. Royer’s 2005, 2006 and 2007 taxation years. As well as hissalary, Mr. Royer received a management fee for each of these three years which, on the face of it, shows yearly employment income“greater than the yearly employment income on which the benefit is calculated”. As a result, s. 131(1)(

e) of the Act is triggered and Mr.Royer is not entitled to IRB. [18] As well, SGI contends that even if Mr. Royer was able to do only sedentary aspects of the work he did prior to the motor vehicleaccident, he was still being paid the same base salary as well as a management fee which exceeded his base salary that the IRB wasbased upon. In reality, Mr.

Royer was still working for Royer Trucking Ltd. and the fact that he may not have been doing as much is ofno consequence since he received the same salary plus management fees. [19] SGI also maintains the Commission’s finding that it could not reconcile an identical income for the extensive work that Mr. Royerdid before the accident versus the work he did post-accident simply means the Commission found that Mr. Royer did not “earn” theincome reported on his income tax returns. This finding runs contrary to this Court’s decision in Saskatchewan Government Insurance v.

Epp, 2008 SKCA 161, 306 D.L.R. (4th) 91 which set aside a Commission decision that narrowly interpreted the word “earn”. [20] Finally, SGI submits that there was no evidence to support Mr. Royer’s contention that he was selling capital assets to pay himselfa wage. b. Respondent - Felix Royer [21] Mr. Royer’s submission is succinct. First, he contends the Commission made a finding of fact that Mr. Royer’s source of incomewas generated by the sale of assets from Royer Trucking Ltd. Second, and in any event, he submits the Commission found he had notearned the money.

The fact that his accountant recorded the money he took from Royer Trucking Ltd. as a wage instead of dividends orshareholder’s loans should not be held against him. Mr. Royer also submits that SGI has continued with the appeal in spite of thisunassailable finding of fact and is not acting in good faith. As a result, he requests solicitor/client costs for what he maintains is afrivolous and vexatious appeal. VII. Analysis [22] I start by mentioning the obvious. The onus was upon Mr. Royer to prove that money he received from Royer Trucking Ltd. wasnot employment income.

During the hearing before the Commission, much blame was placed upon the accountants for Royer TruckingLtd. for designating monies paid to Mr. Royer as salary or wages as opposed to shareholder loans or dividends. Unfortunately, Mr.Royer’s accountant was not called as a witness at the hearing. Without this evidence, the Commission was left to speculate about thisissue and other matters relating to the financial information, both personal and corporate, of Mr. Royer and Royer Trucking Ltd.

In fact,the Commission acknowledged that the financial records “tend to show the company as being stable”[1] which calls for an explanationfrom the accountants in light of Mr. Royer’s assertion that capital assets were being sold to provide funds for his spouse and him to liveon. As well, the vexing question as to why Mr. Royer and his spouse were receiving significant management fees for the years inquestion was never answered by Mr. and Mrs. Royer other than to say the accountant decided what to do.

[23] In my view, this lack of an explanation leaves the evidentiary basis for the factual findings of the Commission deficient. TheCommission accepted Mr. Royer’s evidence that personal and capital assets were being sold during the period from 2005-2007 toprovide a source of income but the financial records suggest otherwise. The total tangible capital assets of Royer Trucking Ltd. as set outin the income tax returns increased from $826,000 in 2004 to $866,500 in 2007[2]. Total sales from Royer Trucking Ltd. were $818,000in 2005 and close to $700,000 in 2006[3].

Both these amounts are well over the average of $520,000 for sales in the three years prior tothe accident. The evidence from Mr. Royer points to the increased sales being as a result of Royer Trucking Ltd. purchasing wood fromBritish Columbia rather than cutting it in Saskatchewan[4]. This increased acquisition and sale of existing inventory reflects the increasein total sales as opposed to an increase generated from a sale of capital assets. This point becomes even more important when examiningthe reasons of the Commission.

The Commission acknowledged at para. 67 of its decision that the ruling relates to IRB for the yearsuntil, and including, 2007 only. In spite of this, the Commission at para. 21 of its decision speaks to the sale of company assets asfollows: [21] … In 2007 or 2008, he [Mr. Royer] sold his land, about 260 acres. … In 2008, he sold off the calves first and in 2009, the cows…. More recently, he sold some of the equipment - a truck trailer and baler - and is trying to sell the rest. … [24] The sale of capital assets post 2007 has absolutely no relevance to the question before the Commission.

With respect, theCommission’s finding of fact relating to the sale of capital assets was not relevant to the period in question, and as outlined, runs contraryto information in the financial records for 2005-2007 and the evidence from Mr. Royer. In P.S.S. Professional Salon Services Inc. v.Saskatchewan (Human Rights Commission), 2007 SKCA 149, [2008] 5 W.W.R. 440 this Court noted that a finding of fact may begrounded in an error of law in certain situations.

At paras. 62 and 68 the Court stated: 62 This ties in with the notion that "an unreasonable finding of fact" falls to be categorized as an error of law for the purposes ofjudicial review in the classical sense, and with the associated notion that when errors of law are open to judicial review unhindered by aprivative clause then "unreasonable errors of fact", though no others, are subject to review: Blanchard v. Control Data Canada Ltd., (SCC), [1984] 2 S.C.R. 476 at 494-95.

It also ties in with the further notion that a tribunal "errs in law" if it ignoresrelevant evidence or evidence it is required to consider: Woolaston v. Minister of Manpower and Immigration, (SCC),[1973] S.C.R. 102; Canada (Director of Investigation and Research, Competition Act) v. Southam, (SCC), [1997] 1S.C.R. 748 at para. 41: "If the Tribunal did ignore items of evidence that the law requires it to consider, then the Tribunal erred in law." 68 It follows, that a tribunal cannot reasonably make a valid finding of fact on the basis of no evidence or irrelevant evidence.

Nor canit reasonably make a valid finding of fact in disregard of relevant evidence or upon a mischaracterization of relevant evidence. To do sois to err in principle or, in other words, to commit an error of law. … Nor can a tribunal reasonably make a valid finding of fact based onan unfounded or irrational inference of fact. [25] There was no evidence to support the Commission’s finding of fact that Mr. Royer, in the years 2005-2007, was selling capitalassets to provide an income. To reiterate, the evidence before the Commission was that (

i) total tangible capital assets of Royer TruckingLtd. increased in every year between 2004 and 2007; (ii) total sales from Royer Trucking Ltd. post-accident were substantially higherthan the average for sales in the years prior to the accident; (iii) there was evidence from Mr. Royer that the increased sales resulted fromthe acquisition of wood from British Columbia and the sale of existing inventory; and (iv) the sale of assets occurred in yearssubsequent to 2007. [26] The analysis does not stop there. If, as I have found, the Commission’s decision cannot rest on a finding that Mr.

Royer was sellingassets, the Commission’s decision reflects further error – which brings us to Mr. Royer’s alternative basis for sustaining the decision. [27] There is no dispute that during the three years in question Mr. Royer was doing work for Royer Trucking Ltd. It was explained assupervising employees, placing orders, negotiating sales and acting as President and Director of Royer Trucking Ltd. While theCommission acknowledged this fact, it concluded that Mr. Royer was not doing the extensive work he did for Royer Trucking Ltd. pre-accident.

As a result, the Commission concluded that the company’s financial records and income tax returns were clearly inaccurateand did not reflect the work Mr. Royer actually did for the company. In other words, the Commission found Mr. Royer did not earn theincome that was reported. [28] I find this conclusion in error for two reasons. First, s. 113(2)(

a) of the Act states an insured is entitled to IRB if he or she is“unable to continue an employment held by the insured at the date of the accident”. The evidence is uncontroverted that Mr. Royercontinued his employment with Royer Trucking Ltd. post-accident. Second, s. 113(4) specifies “an insured is entitled to an incomereplacement benefit if the insured is unable to hold employment he or she held or would have held but for the accident”. Both theseprovisions speak to employment income and do not specify that it has to be earned employment income. [29]

Section 17 of The Personal Injury Benefits Regulations speaks to the calculation of yearly employment income coming from “thesalary or wages regularly payable”. Once again, there is no reference to earned yearly employment income. It appears to me that theCommission took great pains to avoid any reference to the phrase “earned income” in order not to run afoul of this Court’s decision in

Epp . [ 30 ] Epp also involved an appeal by SGI from a decision of the Commission that directed SGI to continue paying IRB to Mr. Epp. Mr. Epp was a farmer injured in a 1998 automobile accident. Mr. Epp was offered, but rejected, replacement labour so SGI commenced paying him benefits based upon what his partnership interest in the farm brought in prior to the accident. After the accident, friends and family did the work Mr. Epp had to do for no money, so Mr. Epp’s actual income from the farm did not decrease. SGI analyzed Mr. Epp’s income tax returns and informed him in 2003 that he had been overpaid.

The Commission allowed Mr. Epp’s appeal from this decision. The Commission concluded that SGI was not entitled to take into account income that Mr. Epp did not actually earn by doing work. SGI’s appeal to this Court was allowed on the basis the Commission narrowly interpreted the word “earn” and that income earned from a partnership, as Mr. Epp’s was, was not directly related to the labour or services that Mr. Epp himself provided. At para 14 of the Epp decision the Court stated: 14 The Commission clearly erred in its

interpretation of the word "earn" as used in s. 140 of the Act . The word "earn" has a far broader meaning than that attributed to it by the Commission.

The dictionary definition used by the Commission itself includes simply "to be entitled to" as one meaning of the word as well as "money in return for labour or services." In adopting the narrower definition, the Commission seems to have overlooked or ignored the provisions of the Act and Regulations passed under its authority which spell out exactly how business income from a self-employment, by way of a proprietorship or partnership interest, is to be calculated. [ 31 ] The Commission distinguished Epp on the footing that the issue in Epp was partnership income which was not relevant in this case.

In my view, however, the Commission’s rulings in Epp and this appeal are similar as they both indicate that income must be “earned” to be considered income for the purposes of the IRB calculation. As well, both Commission decisions held the income of Mr. Epp and of Mr. Royer, as set out in their income tax returns, was income that was not “earned”.

In each case, SGI was directed to calculate the IRB upon a consideration of all the circumstances and “shall not limit its reconsideration to the figures reported on the income tax returns”. [ 32 ] In my view, the Commission has made the same error in this case as it did in Epp . Section 131(1) (

e) of the Act makes no reference to Mr. Royer earning anything. The

section simply specifies that a person “holds an employment from which the yearly employment income is equal to or greater than the yearly employment income on which the benefit is calculated”. To reiterate, Mr. Royer’s yearly employment income as recorded on his income tax returns from 2005, 2006 and 2007 was higher than his yearly employment income before the accident. There is no provision in the legislation or Regulations that suggest yearly employment income must be “earned” to fit within the meaning of these provisions. In the result, the Commission erred in law in the

interpretation of yearly employment income for the purpose of calculating the IRB benefit. VIII. Conclusion [ 33 ] The appeal is allowed. The decision of the Appeal Commission is set aside. The decision of SGI to deny Mr. Royer an IRB for 2005, 2006 and 2007 is reinstated. DATED at the City of Regina, in the Province of Saskatchewan, this 5th day of April, A.D. 2012. “Herauf J.A.” Herauf J.A. “Herauf J.A.” for Jackson J.A. “Ottenbreit J.A.” Ottenbreit J.A.