IMPERIAL PACIFIC GREENHOUSES LTD. Appellant v. HER MAJESTY THE QUEEN, 2011 FCA 79

Federal Court of Appeal Cour d'appel fédérale Federal Court of Appeal Cour d'appel fédérale Date: 20110301 Docket: A-306-10 Citation: 2011 FCA 79 CORAM: EVANS J.A. DAWSON J.A. LAYDEN-STEVENSON J.A. BETWEEN: IMPERIAL PACIFIC GREENHOUSES LTD. Appellant and HER MAJESTY THE QUEEN Respondent Heard at Vancouver, British Columbia , on March 1, 2011. Judgment delivered from the Bench at Vancouver, British Columbia , on March 1, 2011. REASONS FOR JUDGMENT OF THE COURT BY: DAWSON J.A. Date: 20110301 Docket: A-306-10 Citation: 2011 FCA 79 CORAM: EVANS J.A. DAWSON J.A. LAYDEN-STEVENSON J.A.

BETWEEN: IMPERIAL PACIFIC GREENHOUSES LTD. Appellant and HER MAJESTY THE QUEEN Respondent REASONS FOR JUDGMENT OF THE COURT (Delivered from the Bench at Vancouver , British Columbia, on March 1, 2011) DAWSON J.A. [ 1 ] This is an appeal from a judgment of the Tax Court of Canada (Tax Court). In reasons cited as 2010 TCC 431 ; [2010] T.C.J. No. 328 , the Tax Court dismissed the appeal of Imperial Greenhouses Ltd. (Imperial) from an assessment issued by the Minister of National Revenue (Minister).

The following brief review of the facts is sufficient for the purpose of this appeal. [ 2 ] As of January 3, 2006, an individual named Paul Houweling had a tax liability of $4,596,399.00 under the Income Tax Act , R.S.C. 1985, c. 1 (5th Supp.) (Act). Prior to that date, Mr. Houweling had lent monies to Imperial. The loan had not been repaid, and as of January 3, 2006, the amount of Imperial​s indebtedness to Mr. Houweling was $758,631.00. [ 3 ] On January 3, 2006, the Minister issued a requirement to pay to Imperial in respect of amounts Imperial was liable to pay to Mr. Houweling.

The requirement to pay was issued pursuant to

section 224 of the Act . For this appeal, the relevant portions of

section 224 are subsections 224(1) and (4) which state: 224.

(1) Where the Minister has knowledge or suspects that a person is, or will be within one year, liable to make a payment to another person who is liable to make a payment under this Act (in this subsection and subsections 224(1.1) and 224(3) referred to as the ​tax debtor​), the Minister may in writing require the person to pay forthwith, where the moneys are immediately payable, and in any other case as and when the moneys become payable, the moneys otherwise payable to the tax debtor in whole or in part to the Receiver General on account of the tax debtor​s liability under this Act. [​]

(4) Every person who fails to comply with a requirement under subsection 224(1), 224(1.2) or 224(3) is liable to pay to Her Majesty an amount equal to the amount that the person was required under subsection 224(1), 224(1.2) or 224(3), as the case may be, to pay to the Receiver General . [emphasis added] 224.

(1) S​il sait ou soupçonne qu​une personne est ou sera, dans les douze mois, tenue de faire un paiement à une autre perso nne qui, elle-même, est tenue de faire un paiement en vertu de la présente loi (appelée « débiteur fiscal » au présent paragraphe et aux paragraphes (1.1) et (3)), le ministre peut exiger par écrit de cette personne que les fonds autrement payables au débiteur fiscal soient en totalité ou en

partie versés, sans délai si les fonds sont immédiatement payables, sinon au fur et à mesure qu​ils deviennent payables , au receveur général au

titre de l​obligation du débiteur fiscal en vertu de la présente loi. . . .

(4) Toute personne qui omet de se conformer à une exigence du paragraphe (1), (1.2) ou (3) est tenue de payer à Sa Majesté un montant égal au montant qu​elle était tenue , en vertu du paragraphe (1), (1.2) ou (3), selon le cas, de payer au receveur général . [Non souligné dans l​original.]

[4] Imperial failed to comply with the requirement to pay. Therefore, on October 12, 2007, the Minister issued an assessmentagainst Imperial in the amount of $758,630.00. [5] Imperial appealed this assessment to the Tax Court. The sole issue before the Tax Court was whether, for the purpose ofsubsection 224(1) of the Act, the sum of $758,630.00 was payable by Imperial to Mr. Houweling within one year of the issuance of therequirement to pay. [6] Imperial conceded in the Tax Court that the loan agreement between it and Mr. Houweling had no terms associated with it.

It argued, however, that after the loan had been advanced in full a verbal agreement was entered into by which it was agreed that the loanwould not be payable before the resolution of a lawsuit Imperial had commenced relating to the supply of water to Imperial's property(the water lawsuit). The water lawsuit was not settled until March, 2008.

It followed, according to Imperial, that the assessment shouldbe vacated because no monies were payable by it within one year of the issuance of the requirement to pay. [7] In dismissing its appeal the Judge rejected Imperial's contention that, as a result of a verbal agreement, it was a term of theloan that it would not be payable before the resolution of the water lawsuit. Instead, the Judge found that the loan became payable onApril 5, 2006 or shortly thereafter when Mr. Houweling​s wife sold her shares in Imperial.

It followed that Imperial had failed to complywith the requirement to pay and so was properly assessed by the Minister. [8] With respect to the asserted verbal agreement, the Judge found as follows: 26. The only evidence of this verbal agreement was the statement of Albert De Vries [a director of Imperial] that it was hisunderstanding that this loan was tied to the lawsuit and was to be repaid when the amount was received in relation to the claim made inthe lawsuit. There was nothing in writing in relation to this condition nor did the Appellant call Paul Houweling as a witness to confirmthis condition.

Since the debt was owing to Paul Houweling and since this condition would have affected his right to receive payment, itseems to me that the Appellant should have called Paul Houweling as a witness. 27. It also seems to me that it is also important that this ground for allowing the appeal was not raised in the notice of appeal.

In thesection of the Amended Notice of Appeal (which is dated October 9, 2008) that is labelled as "Material Facts to be Relied Upon", thereis only one paragraph and this paragraph is as follows: At all material times, there was no written loan agreement between Imperial Pacific Greenhouses Ltd. ("IPG") and Paul Houweling. There is no indication in the amended notice of appeal that it was a term of the loan that Paul Houweling would not be paid until thewater case was concluded. 28.

As a result while it may have been the understanding of Albert De Vries that the amount would not be payable by theAppellant to Paul Houweling until the lawsuit was resolved, I do not find that this was a condition of the loan. [9] The only issue raised on this appeal is whether the Judge erred in finding that it was not a term of the loan that the moniesowing were not payable before the resolution of the water lawsuit. [10] The existence of an alleged verbal agreement concerning the repayment terms of the loan is a question of fact or mixed factand law that contains no extricable question of law.

Therefore, this Court may only intervene on appeal if the Judge committed apalpable and overriding error when he concluded that the loan was not subject to a term that no monies would be payable before theresolution of the water lawsuit: Housen v. Nikolaisen, 2002 SCC 33 , [2002] 2 S.C.R. 235. [11] Imperial argues that the Judge erred, at paragraph 26 of his reasons, by stating that there was nothing in writing evidencingthe verbal agreement. It points to a letter written by Mr. De Vries to the Canada Revenue Agency on July 23, 2004 which was notexpressly mentioned by the Judge.

The letter stated: The notes to the financial statements I believe answer the questions you have asked me. Questions related to agreements are all verbal,there is nothing in writing.

It was agreed between the shareholders that loans, interest, truck rental all became payable to shareholders assoon as money becomes available out of the court settlement with the claim for the water and property tax issue; which to date nodecision has been finalized. [emphasis added] [12] At paragraph 26 of the reasons the Judge was making the point that the alleged verbal agreement was never reduced towriting and there was no other document between the parties that referenced any verbal agreement.

Imperial has not pointed to anydocument in the record that evidences the verbal agreement or the parties' understanding of it. Mr. De Vries​ July 23, 2004 letter to theCanada Revenue Agency relied upon by Imperial did not establish the existence of the verbal agreement. Mr. De Vries​ letter simply

referred to an agreement between the shareholders. Mr. Houweling was never a shareholder of Imperial. The letter is not evidence of an agreement between Imperial and its lender, Mr. Houweling. It follows that the Judge did not err by failing to reference Mr. De Vries​ letter to the Canada Revenue Agency. [ 13 ] Imperial also argues that the Judge erred by drawing an adverse inference from Imperial's failure to call Mr. Houweling as a witness. This is said to be an error because the Canada Revenue Agency and courts in British Columbia had previously found Mr.

Houweling to be an unreliable witness. [ 14 ] There is no merit to this submission. Assuming that the Judge drew such an inference, it was for the Judge to assess the reliability of Mr. Houweling's testimony. Neither the view of the Canada Revenue Agency nor findings of other courts in other cases would be determinative of the issue of the reliability of Mr. Houweling​s testimony before the Tax Court. Mr. Houweling, as the lender, would have been a necessary party to the alleged verbal agreement. His evidence would have been central to establish the existence of the verbal agreement.

As such he should have been called as a witness or his absence should have been adequately explained. [ 15 ] For these reasons, Imperial has failed to demonstrate that the Judge committed any palpable or overriding error. The appeal will therefore be dismissed. Costs were not sought and are not awarded. ​Eleanor R. Dawson​ J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-306-10 STYLE OF CAUSE: IMPERIAL PACIFIC GREENHOUSES LTD. v. HER MAJESTY THE QUEEN PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: March 1, 2011 REASONS FOR JUDGMENT EVANS J.A.

OF THE COURT BY: DAWSON J.A. LAYDEN-STEVENSON J.A. DELIVERED FROM THE BENCH BY: DAWSON J.A. APPEARANCES : Albert De Vries FOR THE APPELLANT Ron Wilhelm David Everett FOR THE RESPONDENT SOLICITORS OF RECORD : Agent for the Appellant Nanaimo , British Columbia FOR THE APPELLANT Myles J. Kirvan Deputy Attorney General of Canada FOR THE RESPONDENT