Law Times

Page 18 June 12, 2017 • Law Times www.lawtimesnews.com CASELAW Employee was baggage handler at airport who required trans- portation security clearance (TSC) to access restricted ar- eas of airport. During renewal process, Transport Canada was made aware of three incidents involving employee and police. First incident related to use of someone else's credit card, sec- ond incident involved utter- ing threats, and third incident related to stolen laptop com- puter. Criminal charges were laid but ultimately withdrawn for first two incidents. After employee was given opportu- nity to explain these incidents, delegate of Minister of Trans- port cancelled employee's TSC. Employee brought application for judicial review. Application dismissed. There was no proce- dural unfairness, and decision was reasonable. Employee's sub- missions had been considered, and decision did not contradict explanations given by employee. Record showed dated nature of incidents and employee's young age were taken into account. Expertise of Transportation Security Clearance Advisory Body and minister should not be subject to second-guessing by court on these facts, which supported that determination fell within range of possible, acceptable outcomes. Minis- ter's belief that employee could pose risk because his previous conduct demonstrated lack of reliability, judgment, and trust- worthiness and because he had not restrained his conduct out of consideration of position of trust he held as holder of TSC was intelligible chain of analy- sis linking minister's findings of fact on employee's conduct to conclusion on employee's risk to aviation security. Mohamed v. Canada (At- torney General) (2017), 2017 CarswellNat 700, 2017 FC 271, E. Susan Elliott J. (F.C.). Tax Court of Canada Tax GOODS AND SERVICES TAX Administration and enforcement Sole officer, director and shareholder not entitled to represent corporation Corporation filed motion seek- ing order to allow Z to represent corporation in action. Accord- ing to Z's affidavit, he was sole officer, director and shareholder of corporation. No details were provided as to financial situa- tion of corporation and it was not alleged that corporation was unable to pay. Relevant rule was in s. 30(2) of Tax Court of Can- ada Rules (General Procedure). Rule did not provide specific re- quirements as to when relevant leave was to be granted. It was left for court to develop reason- able criteria taking into account variety of circumstances. Mo- tion dismissed. Corporation had not demonstrated that it was unable to pay for counsel. With over $115,000 at stake, this was not case where legal costs would overwhelm amount at issue. Case was not as easy or straightforward as corporation believed it to be. Based on docu- ments that corporation attached to notice of appeal and on reply filed by Minister of National Revenue, biggest amounts in issue appeared to be related to output tax. Based on materials, assessment was in large measure based on Minister's analysis of deposits into corporation's bank accounts and into Z's bank ac- count. Corporation seemed to claim that deposits into Z's ac- count related to Z's business unrelated to corporation's busi- ness. Organizing evidence of detailed nature relating to all deposits in issue and all input tax credits in issue was not likely to be easy or straightforward. Both corporation's submissions and affidavit asserted that all of corporation's representations were pure factual documents and that documents were un- available in audit process. It was not clear that Z understood that he would have to testify to explain documents and put them in context to show errors in bank deposits analysis and to show why certain input tax credits were justified. Z would not be able to adequately repre- sent corporation. There was no necessity to allow agent because of inability to pay counsel, given that amount in issue was signifi- cant, that it was not shown that Z was able to adequately rep- resent corporation, and given public interest in having effec- tive trial process while attempt- ing to limit costs. WJZ Enterprises v. R. (2017), 2017 CarswellNat 1404, 2017 TCC 57, Gaston Jorré J. (T.C.C. [General Procedure]). INCOME TAX Capital gains and losses Taxypayer's securities trading gains reassessed as income Taxpayer maintained two in- vestment accounts at company, one for Canadian and one for U.S. dollar positions. Taxpayer's strategy was to invest in diversi- fied securities that had poten- tial for 30 percent returns. In early 2009, taxpayer liquidated holdings in both accounts and converted them in cash to sup- posedly pay off mortgage. Tax- payer, however, purchased and sold stocks costing about $2.5 million. Taxpayer's total gain was $550,000. Taxpayer report- ed his gains and losses on these positions as capital gains in his 2009 income tax return. Canada Revenue Agency (CRA) reas- sessed to include full amount in income. Taxpayer appealed. Appeal dismissed. Reassessment characterizing gains as income gains was not incorrect. Tax- payer was trading in securities as business activity, or at least was buying and selling securities as part of adventure in nature of trade. Taxpayer's primary inten- tion when purchasing securities was to sell them at profit as soon as reasonable return could be realized. Taxpayer spent consid- erable time each day monitoring markets beyond what he said was required for his employ- ment. Nature of gains realized by taxpayer buying and selling securities in his investments accounts bore close similar- ity to what he was doing in his investment dealer positions for decades. Taxpayer was buying and selling throughout year, and his holding periods were clearly short and often very, very short. On balance of probabilities, taxpayer did not satisfy Court about his mortgage paydown plans. There were no bank doc- uments showing when taxpayer committed to renew mortgage. Surely at some point in first part of taxpayer's 2009 reinvestment activities, he realized that he was picking securities for quickest target cumulative return. Com- bined results of not being able to conclude taxpayer's investment strategy was unchanged in 2009 or that he liquidated in 2009 in order to pay off mortgage, and not having been given detailed evidence regarding prior years meant Court only considered actual activity in his accounts in 2009. Taxpayer's expertise extended to what he regarded as trading activities; whilst his securities trading activities in 2009 may not have risen to level of him carrying on business of trading securities, they appeared to handily meet all of require- ments to have been considered adventure or concern in na- ture of trade. Taxpayer was not treated differently or singled out because his investments were in securities. R. v. Foote (2017), 2017 Car- swellNat 1729, 2017 TCC 61, Patrick Boyle J. (T.C.C. [Gen- eral Procedure]). Ontario Civil Cases Bankruptcy and Insolvency PROPERTY OF BANKRUPT Family law issues Bankrupt not liable to former spouse as evidence not establishing fraudulent misrepresentation Bankrupt and former spouse (former spouse) bought home together in 2006. Same year, bankrupt's interest in home was deemed impressed with trust for unremitted source deduc- tions. Parties separated in late 2006. Between December 2008 and February 2009, bankrupt received 2008 Assessment in- dicating he owed CRA over $70,000 and gave it to lawyer, expecting it to be disclosed to former spouse in matrimonial proceedings. Proceedings were settled with February 2009 con- sent order requiring bankrupt to transfer interest in home to former spouse, which he did. Before transfer was registered, CRA certified bankrupt's tax debt and registered $30,562.73 lien against his half interest in home. Bankrupt made assign- ment into bankruptcy and was discharged. In 2011, former spouse brought claim against bankrupt for $80,562 in general damages and $50,000 in puni- tive damages, alleging reliance on bankrupt's non-disclosure of tax debt in December 2008 financial statement. Trial judge held that bankrupt committed civil fraud and materially mis- represented, concealed or failed to disclosure important facts he knew or ought to have known would likely affect how former spouse negotiated consent, or did so with willful disregard for consequences of doing so, and that former spouse would not have made consent had she known of tax debt. Bankrupt appealed. Appeal allowed; ac- tion dismissed; lower judgments set aside. It was not open to trial judge to find that bankrupt made representation that he had no liability to CRA and, so, no basis for finding he made false representation. As such, there was no evidence bankrupt knew former spouse intended to rely on any representation or that bankrupt intended that former spouse rely on absence of debts and liabilities in financial state- ments as representation he had no liability to CRA. There was no evidence either party knew CRA could register lien against bankrupt's interest in home. There was no evidence bank- rupt deliberately tried to mis- lead former spouse about true state of affairs, from which trial judge could infer fraudulent intent, or that former spouse relied on lack of reference to bankrupt's debts and liabilities to CRA in financial statements when consenting in February 2009. Trial judge erred in law in failing to analyze evidence as it related to test for fraudulent misrepresentation, approach- ing case on basis of fraudulent non-disclosure. Application of correct test would have led to conclusion that former spouse failed to prove on balance of probabilities all four of elements of tort of fraudulent misrepre- sentation and that claim did not survive bankruptcy and had to be dismissed. Moore v. Morris (2017), 2017 CarswellOnt 5551, 2017 ONSC 1980, Kiteley J., Swinton J., and M.L.J. Edwards J. (Ont. Div. Ct.). Civil Practice and Procedure COSTS Offers to settle or payment into court Bankrupt's consultants ordered to pay costs after rejecting settlement offer Bankrupt re-sold telephone equipment. In May 2012, bank- rupt began paying consultant, C, and C's company $10,000 per month. In November 2013, bankrupt began receiving loans from new lender it reported as revenue. In March 2015, bank- rupt's old lender brought ap- plication for bankrupt's receiv- ership. In April 2015, receiver and manager were appointed. In July 2015, bankrupt was as- signed into bankruptcy. At October 2015 examination un- der s. 163 of Bankruptcy and Insolvency Act (BIA), C testi- fied he had no contact with and could not name any of bank- rupt's customers or suppliers. Trustee in bankruptcy brought successful motion for order re- quiring C and C's company to repay $159,330 transferred dur- ing year prior to March 2014 (relevant period) to estate of bankrupt under s. 96 of BIA. Hearing was held to determine costs. C and C's company were jointly and severally liable to pay trustee its costs fixed in amount of $15,356.99 inclusive of dis- bursements and taxes. Trustee's offer to settle proceeding for $100,000 met procedural re- quirements of Rule 49 of Rules of Civil Procedure. There was no basis to depart from usual approach of ordering costs pay- able to winner or from enhance- ment of costs provided under Rule 49. Trustee beat amount of its offer and was entitled to costs to day of offer on partial indemnity basis and thereafter on substantial indemnity ba- sis. Trustee's lawyer's rates and hours were well within reason- able range. Small increase as penalty for time spent respond- ing to late filed material and for cross-examination without leave was properly included in bill of costs. National Telecommuni- cations Inc., Re (2017), 2017 CarswellOnt 5573, 2017 ONSC 2376, F.L. Myers J. (Ont. S.C.J. [Commercial List]); additional reasons (2017), 2017 Carswel- lOnt 3184, 2017 ONSC 1475, F.L. Myers J. (Ont. S.C.J. [Commer- cial List]). Conflict of Laws ENFORCEMENT OF FOREIGN JUDGMENTS Defences Party failing to establish breach of natural justice or fraud not entitled to setting aside of notice of default Subcontractor commenced legal proceedings in Quebec against contractor to recover amounts owing. Contractor made assignment in bankrupt- cy, and subcontractor was listed as unsecured creditor. Subcon- tractor added principal of con- tractor as personal defendant and ultimately noted contractor and principal in default. Princi- pal unsuccessfully brought mo- tion for order setting aside not- ing in default, and subcontrac- tor obtained default judgment against contractor and princi- pal. Subcontractor brought ac- tion in Ontario for recognition and enforcement of Quebec judgment against principal. Ac-

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