JAFT Corp. v. Jones et al., (2015) 323 Man.R.(2d) 57 (CA)

• Judge: Hamilton, Beard and Mainella, JJ.A.
• Court: Court of Appeal (Manitoba)
• Case Date: March 03, 2015
• Jurisdiction: Manitoba
• Citations: (2015), 323 Man.R.(2d) 57 (CA);2015 MBCA 77

JAFT Corp. v. Jones (2015), 323 Man.R.(2d) 57 (CA);

      657 W.A.C. 57

MLB headnote and full text

Temp. Cite: [2015] Man.R.(2d) TBEd. SE.003

JAFT Corporation (applicant/appellant) v. David A. Jones and Lance C. Laufer (respondents/appellants) and William C. Jones (respondent) and The Attorney General of Canada (intervener/respondent)

(AI 14-30-08207; 2015 MBCA 77)

Indexed As: JAFT Corp. v. Jones et al.

Manitoba Court of Appeal

Hamilton, Beard and Mainella, JJ.A.

August 20, 2015.

Summary:

JAFT Corporation (with the concurrence and consent of the first two respondents (Jones and Laufer)) sought: (a) an order that the employment contract(s) between it and each of the three respondents, respecting JAFT's 2005 and 2006 taxation years, and the payments of salaries by JAFT to each of the respondents, in 2005 and 2006, were rescinded; and/or (b) in the alternative, an order that the employment contract(s) between JAFT and each of the respondents, and the payments of those salaries, were void ab initio. JAFT took the position that the salaries were paid out to the respondents based on the honest belief, expectation and understanding that its claims for Scientific Research and Experimental Development (SR&ED) tax credits for the 2005 and 2006 taxation years would be allowed based upon the fact that the projects were of a continuing nature and the credits had been allowed in the 2003 and 2004 taxation years. JAFT anticipated that the SR&ED tax credit refunds would be utilized to cover the required payroll tax remittances of the salaries that were paid out. The Canada Revenue Agency (CRA) assessed JAFT, Jones and Laufer for unpaid payroll tax remittances for 2005 and 2006. Further, the CRA had not allowed JAFT to amend the T4s issued for 2005 and 2006. The CRA also denied the first two respondents a 2007 tax deduction for repayment of the salaries paid out by JAFT in 2005 and 2006. The Attorney General of Canada, as intervener, opposed the application.

The Manitoba Court of Queen's Bench, in a decision reported at (2014), 304 Man.R.(2d) 86, dismissed the application. The court should decline to exercise jurisdiction to grant the relief sought where the Tax Court of Canada (TCC) might make findings in its tax appeal decisions which would include contractual, employment and commercial matters. Much of what JAFT was arguing related to such issues. It would be inappropriate to allow a parallel running of litigation respecting these matters. This was particularly so when rescission, if granted, would serve to alter the essence of the litigation before the TCC and, hence, inappropriately interfere with the jurisdiction assigned to a specialized tribunal. Alternatively, the court would have denied the relief in any event. The case smacked of attempts to adopt a retroactive/no-risk tax planning scenario or, in essence, rewrite history. The payroll tax remittances were lawfully owed under the transaction as originally structured and should not be rectified, rescinded, or declared void ab initio. JAFT, Jones and Laufer appealed.

The Manitoba Court of Appeal dismissed the appeal, finding no reason to intervene with the application judge's exercise of discretion to decline to exercise her jurisdiction. Therefore, the court did not address the judge's alternate ruling not to grant the remedy of rescission.

Contracts - Topic 1610

Formation of contract - Mistake, misunderstanding or misrepresentation - Misunderstanding, rescission - JAFT Corporation (with the concurrence and consent of the first two respondents (Jones and Laufer)) sought: (a) an order that the employment contract(s) between it and each of the three respondents, respecting JAFT's 2005 and 2006 taxation years, and the payments of salaries by JAFT to each of the respondents, in 2005 and 2006, were rescinded; and/or (b) in the alternative, an order that the employment contract(s) between JAFT and each of the respondents, and the payments of those salaries, were void ab initio - JAFT took the position that the salaries were paid out to the respondents based on the honest belief, expectation and understanding that its claims for Scientific Research and Experimental Development (SR&ED) tax credits for the 2005 and 2006 taxation years would be allowed based upon the fact that the projects were of a continuing nature and the credits had been allowed in the 2003 and 2004 taxation years - JAFT anticipated that the SR&ED tax credit refunds would be utilized to cover the required payroll tax remittances of the salaries that were paid out - The Canada Revenue Agency (CRA) assessed JAFT, and the first two respondents for unpaid payroll tax remittances for 2005 and 2006 - Further, the CRA had not allowed JAFT to amend the T4s issued for 2005 and 2006 - The CRA also denied Jones and Laufer a 2007 tax deduction for repayment of the salaries paid out by JAFT in 2005 and 2006 - The Attorney General of Canada, as intervener, opposed the application - The application judge held that it should decline to exercise jurisdiction to grant the relief sought where the Tax Court of Canada (TCC) might make findings in its tax appeal decisions which would include contractual, employment and commercial matters - Much of what JAFT was arguing related to such issues - It would be inappropriate to allow a parallel running of litigation respecting these matters - This was particularly so when rescission, if granted, would serve to alter the essence of the litigation before the TCC and, hence, inappropriately interfere with the jurisdiction assigned to a specialized tribunal - Alternatively, the court would have denied the relief - The case smacked of attempts to adopt a retroactive/no-risk tax planning scenario or, in essence, rewrite history - The payroll tax remittances were lawfully owed under the transaction as originally structured and should not be rectified, rescinded, or declared void ab initio - JAFT, Jones and Laufer appealed - The Manitoba Court of Appeal dismissed the appeal, finding no reason to intervene with the application judge's exercise of discretion to decline to exercise her jurisdiction - The TCC had "exclusive original jurisdiction" to determine references and appeals arising under the Income Tax Act - It was a matter of judicial economy; the TCC proceedings would not be resolved by permitting this application to proceed and the TCC proceedings overlapped with the determinations JAFT, Jones and Laufer sought through this application - While the TCC could not grant the rescission sought by JAFT, Jones and Laufer, it had jurisdiction to provide an adequate alternative remedy - Therefore, the court did not address the judge's alternate ruling not to grant rescission.

Courts - Topic 4502

Tax Court of Canada - General - Jurisdiction - [See Contracts - Topic 1610 ].

Courts - Topic 5609

Provincial courts - General - Concurrent and conflicting jurisdiction - Assumption of jurisdiction - Refusal of - [See Contracts - Topic 1610 ].

Courts - Topic 5695.2

Provincial courts - General - Jurisdiction or powers - Respecting income tax matters - [See Contracts - Topic 1610 ].

Equity - Topic 1106

Equitable relief - Contracts - Rescission - When available - [See Contracts - Topic 1610 ].

Mistake - Topic 4005

Relief - General - Circumstances when granted - [See Contracts - Topic 1610 ].

Practice - Topic 43

Actions - Commencement of - General principles - Avoidance of multiplicity of proceedings - [See Contracts - Topic 1610 ].

Cases Noticed:

Addison & Leyen Ltd. et al. v. Canada Customs and Revenue Agency, [2007] 2 S.C.R. 793; 365 N.R. 62; 2007 SCC 33, refd to. [para. 20].

Felsen Foundation v. Jabs Construction Ltd. et al., [1998] B.C.T.C. Uned. 276 (S.C.), appld. [para. 20].

GLP NT Corp. v. Canada (Attorney General), [2003] O.T.C. 573; 65 O.R.(3d) 840 (Sup. Ct.), refd to. [para. 20].

Baxter v. Canada (Attorney General), 2013 ONSC 3153, appld. [para. 20].

Agence du Revenu du Québec v. Services Environnementaux AES inc. et al., [2013] 3 S.C.R. 838; 453 N.R. 119; 2013 SCC 65, refd to. [para. 20].

R. v. Mills, [1986] 1 S.C.R. 863; 67 N.R. 241; 16 O.A.C. 81, refd to. [para. 31].

Moore v. British Columbia (1988), 50 D.L.R.(4th) 29 (B.C.C.A.), refd to. [para. 31].

Neira et al. v. Canada (Secretary of State) (1994), 50 B.C.A.C. 94; 82 W.A.C. 94 (C.A.), refd to. [para. 31].

Penner v. Niagara Regional Police Services Board et al., [2013] 2 S.C.R. 125; 442 N.R. 140; 304 O.A.C. 106; 2013 SCC 19, refd to. [para. 32].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 33].

Danso-Coffey v. Ontario (2010), 265 O.A.C. 345; 2010 ONCA 171, appld. [para. 38].

Juliar v. Canada (Attorney General) et al. (2000), 136 O.A.C. 301; 50 O.R.(3d) 728 (C.A.), dist. [para. 42].

McPeake et al. v. Canada (Attorney General), [2012] B.C.T.C. Uned. 132; 2012 BCSC 132, dist. [para. 42].

S & D International Group Inc. v. Canada (Attorney General) et al. (2011), 512 A.R. 118; 2011 ABQB 230, dist. [para. 42].

0741508 B.C. Ltd. et al., Re, [2014] B.C.T.C. Uned. 1791; 2014 BCSC 1791, dist. [para. 42].

Fairmont Hotels Inc. v. Canada (Attorney General) (2014), 123 O.R.(3d) 241; 2014 ONSC 7302, dist. [para. 42].

Holmes (Sheila) Spousal Trust v. Canada (Attorney General) (2013), 568 A.R. 364; 2013 ABQB 489, refd to. [para. 43].

Stephkan Holdings Inc. v. Canada Revenue Agency, 2013 QCCS 643, refd to. [para. 43].

Webster v. Canada (Attorney General) (2003), 312 N.R. 235; 2003 FCA 388, refd to. [para. 46].

Lloyd v. Canada, [2002] D.T.C. 1493, refd to. [para. 47].

Froom v. Canada (Minister of Justice) (2004), 327 N.R. 304; 2004 FCA 352, refd to. [para. 48].

McLaughlan v. Canada, 2007 TCC 209, refd to. [para. 49].

Fairmont Hotels Inc. et al. v. Canada (Attorney General), [2015] O.A.C. Uned. 421; 2015 ONCA 441, refd to. [para. 53].

Pallen Trust, Re (2015), 373 B.C.A.C. 37; 641 W.A.C. 37; 2015 BCCA 222, refd to. [para. 53].

Counsel:

P.K. Grower and A.M. Hanson, for the appellants;

A.N. Schroeder and L.L. Benham, for the respondent.

This appeal was heard on March 3, 2015, by Hamilton, Beard and Mainella, JJ.A., of the Manitoba Court of Appeal. Hamilton, J.A., delivered the following decision on August 20, 2015.