Heron Bay Investments Ltd. v. Minister of National Revenue, 2010 FCA 203

• Judge: Nadon, Sharlow and Layden-Stevenson, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: June 23, 2010
• Jurisdiction: Canada (Federal)
• Citations: 2010 FCA 203;(2010), 405 N.R. 73 (FCA)

Heron Bay Inv. Ltd. v. MNR (2010), 405 N.R. 73 (FCA)

MLB headnote and full text

Temp. Cite: [2010] N.R. TBEd. AU.012

Heron Bay Investments Ltd. (appellant) v. Her Majesty the Queen (respondent)

(A-415-09; 2010 FCA 203)

Indexed As: Heron Bay Investments Ltd. v. Minister of National Revenue

Federal Court of Appeal

Nadon, Sharlow and Layden-Stevenson, JJ.A.

July 29, 2010.

Summary:

In October and November of 1994, Heron Bay Investments Ltd. provided a loan to Viewmark Homes Ltd. to finance most of Viewmark's share of the deposit required to purchase real estate in a joint venture. When computing its income for income tax purposes for the fiscal year ending August 31, 1995, Heron Bay deducted the Viewmark loan on the basis that it was either doubtful or bad. The Minister of National Revenue reassessed to disallow the deduction. Heron Bay objected and appealed.

The Tax Court of Canada, in a decision reported at 2009 TCC 337, dismissed the appeal. Heron Bay appealed.

The Federal Court of Appeal allowed the appeal and remitted the matter to a different Tax Court judge for reconsideration.

Administrative Law - Topic 2266

Natural justice - The duty of fairness - What constitutes procedural fairness - [See Courts - Topic 5 and Courts - Topic 555 ].

Administrative Law - Topic 2266

Natural justice - The duty of fairness - What constitutes procedural fairness - In October and November of 1994, Heron Bay Investments Ltd. provided a loan to Viewmark Homes Ltd. to finance most of Viewmark's share of the deposit required to purchase real estate in a joint venture - When computing its income for income tax purposes for the fiscal year ending August 31, 1995, Heron Bay deducted the Viewmark loan on the basis that it was either doubtful or bad - The Minister of National Revenue reassessed to disallow the deduction - Heron Bay objected and appealed - The Tax Court judge dismissed the appeal - Heron Bay appealed, asserting that the Tax Court judge breached procedural fairness when he applied s. 69 of the Income Tax Act to the detriment of Heron Bay without affording it an opportunity to make submissions - The Federal Court of Appeal rejected this ground of appeal - The introduction of s. 69 without inviting submissions was a breach of the rules of procedural fairness and should not have occurred - However, this breach did not result in a detriment to Heron Bay - Having carefully reviewed all of the judge's comments on the issue of whether the Viewmark loan was doubtful on August 31, 1995, the court concluded that the reference to s. 69 was obiter - This particular breach, by itself, did not justify a retrial - See paragraphs 25 to 39.

Courts - Topic 5

Stare decisis - Authority of judicial decisions - General principles - Authority and use of precedents - General - In October and November of 1994, Heron Bay Investments Ltd. provided a loan to Viewmark Homes Ltd. to finance most of Viewmark's share of the deposit required to purchase real estate in a joint venture - When computing its income for income tax purposes for the fiscal year ending August 31, 1995, Heron Bay deducted the Viewmark loan on the basis that it was either doubtful or bad - The Minister of National Revenue reassessed to disallow the deduction - Heron Bay objected and appealed - The Tax Court judge dismissed the appeal - Heron Bay appealed, asserting that the Tax Court judge breached procedural fairness by considering authorities not cited by either party without inviting submissions - The Federal Court of Appeal rejected this ground of appeal - The judge could not be precluded from referring in his deliberations to cases that were not cited by a party and were not referred to in his reasons - Nor could the judge, when addressing a legal issue raised by a party, be precluded from referring to a case he considered relevant to that issue merely because the case was not cited by a party - The mere fact that the judge referred to cases not cited by either counsel was not, by itself, an error of law or a breach of procedural fairness - As to the judge's reliance on articles by learned authors, he had simply adopted from those articles excerpts (including case references) stating principles that the authors had derived from jurisprudence relevant to the issues raised in the appeal - The judge's reference to those articles was not an error of law or a breach of procedural fairness - See paragraphs 20 to 24.

Courts - Topic 555

Judges - Powers - To intervene in examination of witnesses - In October and November of 1994, Heron Bay Investments Ltd. provided a loan to Viewmark Homes Ltd. to finance most of Viewmark's share of the deposit required to purchase real estate in a joint venture - When computing its income for income tax purposes for the fiscal year ending August 31, 1995, Heron Bay deducted the Viewmark loan on the basis that it was either doubtful or bad - The Minister of National Revenue reassessed to disallow the deduction - Heron Bay objected and appealed - The Tax Court judge dismissed the appeal - Heron Bay appealed, asserting that the Tax Court judge breached procedural fairness by intervening excessively in examinations and cross-examinations, notably of Libfeld, witness for Heron Bay - The Federal Court of Appeal allowed the appeal and remitted the matter to a different Tax Court judge for reconsideration - Of the total questions put to Libfeld in the examination in chief, the judge asked 56 of them (approximately 22%) - In the cross-examination, the judge asked Libfeld 6 of the 315 questions (approximately 2%) - The number of interventions by the judge during the examination in chief of Libfeld was extraordinary, but that by itself did not establish that the interventions were improper - Many of the judge's questions were appropriate attempts to clarify the facts and gain a full understanding of the transactions - However, very early in the course of the examination in chief of Libfeld, the judge seemed to fall into the habit of taking over the questioning - Further, it was clear from the judge's reasons that the evidence of Libfeld elicited by the judge provided the evidentiary basis upon which the judge relied for a critical conclusion in favour of the Crown - This evidence was elicited by the judge in the course of a lengthy intervention toward the end of a morning of questioning of Libfeld in which the judge almost routinely took over the questioning from counsel for Heron Bay - The record was such as to give a reasonable and well informed observer the impression that the judge, during the examination of Libfeld and as a result of his own questioning, adopted a position in opposition to Heron Bay on a critical issue in the case, giving rise to a reasonable apprehension that the judge was not a fair and impartial arbiter - See paragraphs 40 to 58.

Courts - Topic 590

Judges - Duties - Duty to appear just and impartial - [See Courts - Topic 555 ].

Courts - Topic 691

Judges - Disqualification - Bias - Reasonable apprehension of bias - [See Courts - Topic 555 ].

Courts - Topic 691.1

Judges - Disqualification - Bias - Reasonable apprehension of bias - Effect of - [See Courts - Topic 555 ].

Practice - Topic 5010

Conduct of trial - General principles - Power of judge to intervene - [See Courts - Topic 555 ].

Cases Noticed:

Ainsworth Lumber Co. v. Canada, [2001] 3 C.T.C. 2001; 2001 DTC 496 (T.C.C.), refd to. [para. 20].

British Columbia Telephone Co. v. Minister of National Revenue, [1986] 1 C.T.C. 2410; 86 DTC 1286 (T.C.C.), refd to. [para. 20].

Minister of National Revenue v. Canada Trustco Mortgage Co., [2005] 2 S.C.R. 601; 340 N.R. 1; 2005 SCC 54, refd to. [para. 20].

Canadian Commercial Bank v. Prudential Steel Ltd. (1986), 75 A.R. 121; 49 Alta. L.R.(2d) 58; 66 C.B.R.(N.S.) 172 (Q.B.), refd to. [para. 20].

Hogan v. Minister of National Revenue (1956), 15 Tax A.B.C. 1 (I.T.A.B.), refd to. [para. 20].

Rich v. Minister of National Revenue, [2003] 3 F.C. 493; 300 N.R. 29; 2003 FCA 38, refd to. [para. 20].

Industrial Investments Ltd. v. Minister of National Revenue, [1973] C.T.C. 2161; 73 DTC 118 (T.R.B.), refd to. [para. 20].

Pacific Mobile Corp., Re (1982), 141 D.L.R.(3d) 696 (Que. C.A.), refd to. [para. 20].

Pacific Mobile Corp., Re, [1985] 1 S.C.R. 290; 57 N.R. 63, refd to. [para. 20].

Pacific Mobile Corp. (Trustee of) v. American Biltrite (Canada) Ltd. - see Pacific Mobile Corp., Re.

Royal Bank of Canada v. Tower Aircraft Hardware Inc. et al. (1991), 118 A.R. 86; 78 Alta. L.R.(2d) 271; 3 C.B.R.(3d) 60 (Q.B.), refd to. [para. 20].

Saltzman v. Minister of National Revenue, 64 DTC 259 (T.A.B.), refd to. [para. 20].

Société d'investissement Desjardins v. Minister of National Revenue, [1991] 1 C.T.C. 2214; 91 DTC 393 (Eng.); 91 DTC 373 (Fr.) (T.C.C.), refd to. [para. 20].

Swystun Management Ltd. v. Minister of National Revenue, [1979] C.T.C. 2476; 79 DTC 417 (T.R.B.), refd to. [para. 20].

Flexi-Coil Ltd. v. Minister of National Revenue, [1996] 1 C.T.C. 2941 (T.C.C.), affd. [1996] 3 C.T.C. 57; 199 N.R. 120; 96 DTC 6350 (F.C.A.), refd to. [para. 32].

Coppley Noyes & Randall Ltd. v. Minister of National Revenue, [1991] 1 C.T.C. 541; 43 F.T.R. 291; 91 DTC 5291 (T.D.), varied 93 DTC 5508 (F.C.A.), refd to. [para. 32].

Highfield Corp. v. Minister of National Revenue, [1982] C.T.C. 2812; 82 D.T.C. 1835 (T.R.B.), refd to. [para. 32].

James v. Minister of National Revenue, [2001] 1 C.T.C. 227; 266 N.R. 104; 2001 D.T.C. 5075 (F.C.A.), refd to. [para. 40].

Chippewas of Mnjikaning First Nation v. Ontario et al. (2010), 265 O.A.C. 247; 2010 ONCA 47, refd to. [para. 40].

Authors and Works Noticed:

Carr, Brian R., and Milot, Duane R., Copthorne: Series of Transaction Revisited in Corporate Tax Planning (2008), 56:1 Can. Tax. J., pp. 243 to 268 [para. 20].

Côté, Pierre-André, Interpretation of Legislation in Canada (2nd Ed. 1991), generally [para. 20].

Fortin, Guy, and Beaulieu, Melanie, The Meaning of the Expressions "In The Ordinary Course of Business" and "Directly or Indirectly", Report of Proceedings of the Fifty-fourth Tax Conference, 2002 (2003), pp. 36:1 to 60 [para. 20].

Johnson, Elizabeth J., and Wilson, James R., Financing Foreign Affiliates: The Term Preferred Share Rules and Tower Structures in International Tax Planning (2006), 54:3 Can. Tax. J., pp. 726 to 761 [para. 20].

Counsel:

William I. Innes, David Spiro and Douglas Stewart, for the appellant;

William Softley, Perry Derksen and John Shipley, for the respondent.

Solicitors of Record:

Fraser Milner Casgrain LLP, Toronto, Ontario, for the appellant;

Myles J. Kirvan, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on June 23, 2010, at Toronto, Ontario, by Nadon, Sharlow and Layden-Stevenson, JJ.A., of the Federal Court of Appeal. The following judgment of the Court of Appeal was delivered at Ottawa, Ontario, by Sharlow, J.A., on July 29, 2010.