Dockets: T-1709-90
T-1711-90
T-1712-90
Neutral citation: 2001 FCT 937
BETWEEN:
SEASPAN INTERNATIONAL LTD.
Plaintiff
- and -
HER MAJESTY THE QUEEN
Defendant
[1] Her Majesty seeks to amend the statements of defence filed on her behalf in these actions. At issue is whether such amendments should be allowed. The plaintiff argues that in the present circumstances the Court has no jurisdiction to hear the plaintiff's motion, or alternatively, the Court should not hear the plaintiff's motion, and finally, in any event, the Court should not allow the amendment.
BACKGROUND FACTS
[2] In these actions, the plaintiff seeks to recover federal sales tax and excise tax paid by it in 1988 on diesel fuel it purchased. The plaintiff asserts that the fuel was used to generate electricity which was not used primarily in the operation of a vessel, so as to be exempt from taxation. The plaintiff's actions were commenced in June of 1990. Defences were filed in December of 1990. In each statement of defence it is admitted that the plaintiff purchased diesel fuel "and paid excise tax and sales tax on those purchases".
[3] Since March of 2000, the actions have been specially managed and Prothonotary Hargrave was designated as the case management judge.
[4] On February 10, 2000, Mr. Hargrave by order set a schedule for completing further steps in the proceedings which included a provision that pre-trial motions should be heard by May 12, 2000.
[5] On December 5, 2000, Prothonotary Aronovitch as a result of a pre-trial conference ordered that the matters be scheduled for trial, at which time the issue to be determined is whether the defendant was correct to deny the plaintiff's refund claims on the ground that electricity generated by the diesel fuel was electricity used primarily in the operation of a vehicle.
[6] In February of 2001, the defendant determined that she wished to amend her pleadings so as to withdraw the admission that the plaintiff paid excise and sales tax, and to assert instead that because the plaintiff was not licensed under the Excise Tax Act, R.S., c. E-15 ("Act") to remit excise and sales tax to the Crown, the plaintiff never directly paid or remitted tax and so was not entitled to claim any refund (the "end-user argument").
[7] At a case management conference heard on June 1, 2001, Mr. Hargrave determined that the effect of the order of February 10, 2000 was to negate the possibility of further motions to amend pleadings. Prothonotary Hargrave set the matter for trial to commence on August 21, 2001.
[8] No appeal was taken from the order. Instead, counsel for the defendant advised the plaintiff of the defendant's intent to make the motion to amend the pleadings before the trial judge at the commencement of the trial. In response, plaintiff's counsel requested a trial management conference in accordance with a Rule 270 of the Federal Court Rules, 1998. Such a conference was held, resulting in a direction that the trial judge would hear a motion on August 10, the issues to be argued being whether the Court could or should hear the defendant's motion to withdraw her admission and amend, and if so, whether the defendant should be given leave to amend. The purpose of hearing the motion at an earlier date was to give certainty to counsel and to the parties as to the issues to be dealt with at_ trial.
[9] The motion was heard on August 10, and on August 13 an order issued dismissing the defendant's motion to amend. These are the reasons for that order.
THE JURISDICTION OF THE COURT TO HEAR THE DEFENDANT'S MOTION TO AMEND
[10] The plaintiff argued that the defendant's motion should not be heard on the ground that it is identical to the motion which Prothonotary Hargrave considered and refused to allow the defendant to set for hearing. It was argued that:
i) a judge of the Court does not have jurisdiction to entertain the same motion;
ii) the defendant's conduct is tantamount to judge shopping and is an abuse of process; and
iii) allowing the motion to be heard offends the principles and goals of case management.
[11] On the issue of jurisdiction, the plaintiff argued that only a judge sitting on an appeal of the prothonotary's order could reconsider or set aside that order and allow the defendant's motion to be heard.
[12] With respect, I have concluded that this submission fails to recognize the distinct roles of the case management judge and the trial judge.
[13] The powers of a case management judge are set out in Rule 385(1) which provides generally that a case management judge "shall deal with all matters that arise prior to the trial or hearing of a specially managed proceeding" [underlining added]. A trial judge hearing an action maintains complete control over the trial process, and retains unimpeded jurisdiction to hear a motion brought by a party during the trial to amend its pleadings.
[14] This motion was scheduled before the trial judge as a result of a trial management conference convened to assist in the just and timely disposition of the action. The fact that the matter was heard by the trial judge eleven days before the formal commencement of the trial does not, in my view, alter the jurisdiction of the trial judge. I conclude therefore that the Court in the person of the trial judge retains jurisdiction to hear this motion, and that given the jurisdiction of a case management judge nothing in the order of June 1, 2000 was intended to foreclose any motion being made to the trial judge.
[15] As to whether or not the motion should be heard by the Court, generally amendments may be made at anytime so long as no injustice results which cannot be compensated in costs. The process of the Court is designed to facilitate the efficient determination of the real questions in controversy in an action. The proposed amendment is one of substance, that is potentially determinative of the plaintiff's claim. The fact on which the proposed amendment is premised, the non-licensed status of the plaintiff under the Act, is not in dispute. In those circumstances I conclude that the interests of justice are best served by allowing the motion to amend to proceed.
[16] The case law of the Court is to the effect that no matter how negligent or careless may have been an omission from a pleading, and no matter how late the proposed amendment, it should be allowed if it can be made without injustice: Visx Inc. v. Nidek Co., (1998), 234 N.R. 94 (F.C.A.). That jurisprudence is dispositive, in my opinion, of the plaintiff's argument that it is an abuse of process to even hear the defendant's motion.
[17] The fact that the motion is not brought at a general sitting of the Court before another prothonotary or a judge, but rather is brought before the trial judge, satisfies me that this is not impermissible judge shopping.
THE MERITS OF THE MOTION TO AMEND
[18] The parties were agreed that the test for the withdrawal of an admission was set out by the Federal Court of Appeal in Andersen Consulting v. Canada, [1998] 1 F.C. 605 (C.A.). There, the Court adopted a flexible approach to ensure that triable issues are tried in the interests of justice. The Court adopted the approach of the courts of British Columbia which approach was articulated by the Court of Appeal at paragraph [13] as follows:
At the other end, the British Columbia courts have taken a more flexible approach and have not required as a condition essential to a withdrawal of an admission that the admission in the statement of defence be made inadvertently or hastily. Rather, they have adopted as a test that, in all the circumstances of the case, there be a triable issue which ought to be tried in the interests of justice and not be left to an admission of fact. Under such a test, inadvertence, error, hastiness, lack of knowledge of the facts, discovery of new facts, and timeliness of the motion to amend become factors to be taken into consideration in deciding whether or not the circumstances show that there is a triable issue which ought to be tried in the interests of justice. [Footnotes omitted]
[19] I accept that those are relevant factors to be considered. As well, amendments should be allowed for the purpose of determining the real questions in controversy provided that the amendments will not result in unremediable injustice (Canderel Ltd. v. Canada, [1994] 1 F. C. 3 (C.A.)). Delay by itself is not a bar to allowing an amendment (Visx, supra).
[20] As the overriding concern is the interests of justice, the result in any case will be very fact specific. The following facts are, I find, germane to the present motion.
[21] The plaintiff filed refund claims in respect of federal sales tax and excise tax paid by it on diesel fuel used on its vessels to generate electricity, at least from 1976 through 1992. The refund claims alleged that the reason for refund was "federal sales tax paid on diesel fuel used for generating electricity". [underlining added] Claims for the years up to 1987 were apparently allowed.
[22] All refund claims were audited by Revenue Canada and the plaintiff produced invoices from the plaintiff's fuel suppliers for Revenue Canada auditors. The invoices disclosed that the fuel suppliers had charged the plaintiff for diesel fuel and for federal sales tax and excise tax under the Act.
[23] In 1989, the Excise Branch refused to refund the sales and excise tax paid in 1988 on the ground, as stated in the relevant notices of determination, that marine vessels had been determined to be vehicles. Because operation of a vehicle was viewed to include using generators which produced electricity to heat, cool and light the vehicle no refund was said to be payable.
[24] The notices of determination which advised the plaintiff that its claim to refunds for the 1988 year were denied contained no complaint that the plaintiff had not paid the tax or that it was an end-user.
[25] In response to the notices of determination, the plaintiff filed on December 20, 1989 notices of objection which alleged that the plaintiff had purchased fuel and paid in error sales and excise tax in specified amounts.
[26] In January 1990, the Excise Branch published "Excise News #67". Excise News was regularly published by the Excise Tax Interpretations Section under the authority of the Minister. Excise News #67 published the policy of the Excise Branch with respect to the exemption for diesel fuel used to generate electricity in vehicles, and the policy for end-user claims. The latter policy stated that end-users could file applications for refund if they could prove that it was impossible at the time of sale to determine the intended use of the goods in question. Thus, in some circumstances end-user claims were contemplated by the Excise Branch.
[27] Commencing in March of 1990, the appeals division of the Excise Branch confirmed the notices of determination and disallowed the plaintiff's objection. The reason given in the notices of decision was that the plaintiff's vessels were vehicles and were engaged in the conveyance of floating goods from one point to another. No complaint was made that the plaintiff had not paid the tax or that the plaintiff was an end-user. Under subsection 81.17(5) of the Act where the Minister rejects an objection, the Minister is obliged to give a brief explanation for the decision.
[28] Refund claims filed by the plaintiff for the 1989 year were allowed, although subsequent claims have been held pending the conclusion of this litigation.
[29] After the pleadings closed in this action, in April 1993 counsel for the parties executed a statement of agreed facts for the purpose of having a question of law determined before trial. The question to be determined was whether the plaintiff's vessels were "vehicles" within the meaning of the Act. In the statement of agreed facts it was admitted that the plaintiff paid tax under the Act on diesel fuel purchased for the generation of electricity used in certain aspects of the operation of those of its vessels which are tug boats and train ships.
[30] Joyal J. determined the question of law and found that the plaintiff's vessels were vehicles. His reasons recite the fact that the plaintiff paid tax as more particularly set out in the agreed statement of fact. The decision of Joyal J. was affirmed by the Federal Court of Appeal and an application for leave to the Supreme Court of Canada was dismissed. All appeal proceedings were, of course, premised on the statement of agreed facts.
[31] The pre-trial memorandum filed by the defendant asserted that the fundamental issue to be determined in this action was that as stated by Prothonotary Aronovitch in her order of December 5, 2000.
[32] In February of 2001, the defendant knowing that the plaintiff was an end-user and not licensed under the Act, determined that it wished to argue that the plaintiff had not directly paid or remitted excise tax to the Minister so that the plaintiff was not eligible to qualify for refund under section 68 of the Act. If allowed to amend, the Crown would rely on authorities such as Canada v. M. Geller_ Inc., [1963] S.C.R. 629 and Price (Nfld.) Pulp and Paper Ltd. v. Canada, [1974] 2 F.C. 436 (C.A.) and could well move for summary judgment. It is asserted by the Crown's deponent on this motion that the end-user argument was inadvertently overlooked when the Crown's statements of defence were filed.
[33] At all times the plaintiff purchased the fuel at marine fuelling stations. For the taxes and periods in question the plaintiff purchased fuel from three suppliers. Affidavits were filed sworn by representatives of two of those suppliers to the effect that the suppliers were licensed under the Act, and that had the plaintiff approached the supplier to make a 1988 refund claim on the plaintiff's behalf (and to refund to the plaintiff the proceeds of such a claim) there is no reason to believe that the supplier would not so agree, or the supplier would have agreed to do so. It was not argued before me that the third supplier would not have been similarly inclined. Both suppliers consented to being added to this action as a plaintiff if a suitable representation agreement (and indemnity) could be agreed to.
[34] The defendant has advised the plaintiff that the Crown will not consent to treating the claims as if made by the plaintiff as agent for the fuel suppliers, or to adding the suppliers as parties to the action, or to allowing the late filing of new refund applications by the fuel suppliers. The defendant states that the Act contains a complete code which governs refund applications and that these alternatives are foreclosed by the statutory limitation period found in the Act.
[35] It was generally accepted on this motion that if the amendment is allowed, the plaintiff would seek consequential amendments and further discovery, so that the currently scheduled trial dates would be lost.
[36] On those facts, I make the following findings.
[37] First, allowing the amendment at this time would result in prejudice to the plaintiff which is not compensable in costs. If the defendant had articulated the end-user argument in its notices of decision or not made the admissions as to payment in its statements of defence which it now seeks to withdraw, I am satisfied that the plaintiff could and would have made its claims through its fuel suppliers. I note that this procedure was followed by the end-user in British Columbia Ferry Corp. v. Canada (Minister of National Revenue), 2001 F.C.A. 146, [2001] F.C.J. 722. The plaintiff cannot now proceed in this fashion because of the limitation provision found in the Act and this is prejudice which cannot be remedied by an order for costs.
[38] The defendant argued that the fact that a proposed amendment might make the case more difficult for a party to win is not the kind of prejudice to be considered on a motion to amend. However, in the present case, it is not the proposed amendment which might make the plaintiff's case more difficult, it is the timing of the amendment. The case would have been equally winnable, or loseable, had the argument been raised within the limitation period when the plaintiff could have entered into an agreement with its fuel suppliers for the prosecution of refund claims.
[39] The defendant argued that what the fuel suppliers may have done is not relevant, that the matter should not go to trial on wrong facts, and that the plaintiff's claim is fundamentally flawed and the Crown should now be allowed to bring its end-user argument.
[40] With respect to the first argument, it is, I believe, inconsistent for the Crown to argue that the actions of the fuel suppliers would be irrelevant while arguing that the claim is fundamentally flawed. The claim would not be arguably flawed if it had been brought by the fuel suppliers. Thus, the actions of the fuel suppliers would have been most relevant. While it appears that the suppliers would have carried the claims on the plaintiff's behalf, any lingering doubt arises only because the defendant did not raise this issue at the outset. The defendant cannot rely on any doubt that arises because of the lateness of its motion to amend.
[41] As to the second argument, it was not suggested that the plaintiff's status under the Act is relevant to the issue the parties jointly posed at the pre-trial stage: whether the electricity produced by the fuel was used primarily in the operation of a vehicle. Therefore, the matter will not proceed to trial on wrong facts that require consideration in the course of determining the issue to be decided at trial.
[42] I also find that the proposed amendment would not facilitate the determination of the real question in controversy. Since the decision of Joyal J. the real question in controversy has been the whether the electricity generated by the fuel was electricity used primarily in the operation of a vehicle. The end-user argument is a distinct, new defence which the defendant did not raise in the notices of decision and determination, or in its defence, or on the determination of the preliminary question of law.
[43] While it was asserted by the Crown's deponent that the defence was overlooked, the deponent admitted on cross-examination that before making that assertion he did not speak to the auditor who issued the notice of determination, the appeals officer who issued the notice of decision, or the designated appeals officer who would have instructed counsel on the defence. The position of the Crown in its defence as now framed is consistent with the notices of decision and determination, the policy of the department with respect to end-user claims as set forth in Excise News #67, and the Crown's treatment of the plaintiff's pre-1988 and 1989 refund claims. The evidence of the Crown has failed to satisfy me that the end-user defence was inadvertently overlooked in 1990 when the statements of defence were filed.
[44] Applying these findings to the test articulated by the Court of Appeal in Andersen Consulting, supra, and considering as well that the defendant took six months to file its statements of defence so that they cannot be said to have been filed in haste, that the defendant has at all times had knowledge (actual or constructive) that the plaintiff was not licensed under the Act and had access to the original fuel invoices, and that the motion to amend is made after the Court has determined a question of law upon agreed facts which are inconsistent with the proposed amendment, I am satisfied that the motion to amend should be dismissed.
[45] To summarize, the defendant's request to amend is too late, would be too prejudicial, and would not promote the interests of justice.
[46] The costs of this motion are reserved to be dealt with at the conclusion of the trial.
(Sgd.) "Eleanor R. Dawson" Judge
Vancouver, British Columbia
August 22, 2001
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1709-90, T-1710-90, T-1711-90 and T-1712-90
STYLE OF CAUSE: Seaspan International Ltd. v. Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: August 10, 2001
REASONS FOR ORDER OF THE COURT BY: Dawson J.
DATED: August 22, 2001
APPEARANCES:
Timothy W. Clarke FOR PLAINTIFF
Michael Roach FOR DEFENDANT
SOLICITORS OF RECORD:
Bull, Housser & Tupper FOR PLAINTIFF
Vancouver, British Columbia
Deputy Attorney General of Canada FOR DEFENDANT
Department of Justice
Ottawa, Ontario