Date: 20050224
Docket: T-451-04
Citation: 2005 FC 273
BETWEEN:
VR INTERACTIVE CORPORATION
Application
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
[1] By all accounts, VR Interactive Corporation is a good corporate citizen. It causes no one harm. It may do some good and, more to the point, it pays its taxes.
[2] It is engaged in research and development. Due to a corporate reorganization, it late-filed its claim for scientific research and experimental development credits for two taxation years. It asked the Minister to nevertheless, under what is commonly referred to as the "forgiveness provisions" of the Income Tax Act, process its claims as if they were filed on time. The Minister refused. This is a judicial review of that decision.
THE FACTS
[3] The facts are fairly straightforward. VR Interactive was a privately held corporation founded by a professor at the Nova Scotia College of Art and Design. In order to attract more capital, the corporation went public. Unfortunately, as sometimes happens in these matters, the founder and the new investors did not see eye to eye. There was a rather acrimonious parting of the ways. The founder left with, among other things, his knowledge of scientific research and experimental development matters and how to file claims in relation thereto under the Income Tax Act, R.S.C. 1985, c. 1 (supp.), as amended. The new Chief Executive Officer, Francis Mackenzie, was vaguely aware that there were scientific research credits to be had, but did not know how to go about it. The tax authorities' website gave notice of an executive service which could be of assistance. VR Interactive characterizes this as a "hand-holding" service. Mr. MacKenzie called the respondent's office in Halifax and was told that the man to speak to was Mr. Hayman. Mr. MacKenzie first tried to reach Mr. Hayman in the fall of 2002, managed to reach him in January 2003 and a meeting was organized for March 2003.
[4] I pause for a moment to mention that the two corporate tax years in question are the one ending in March 2001, and the other, which was a shortened year because of the reorganization, ending in October 2001. The deadlines to file for the credits were October 2002 and April 2003.
[5] The meeting with Mr. Hayman took place on 12 March 2003, and was rather technical in nature. Mr. Hayman, however, recalls informing VR Interactive that the delays to file for the first tax year had already expired, and the deadline for the second year was fast approaching. The representatives of VR Interactive who attended the meeting do not recall any discussion of deadlines.
[6] Mr. Hayman offered advice as to the type of information to file. However, this turned out to be more difficult that VR Interactive had thought and by the end of April 2003 it had still not submitted anything. It then spoke to its auditors who had some expertise in these matters. They were quick to point out that the company was already past the filing deadlines so that they would have to ask for forgiveness under section 220(2.1) of the Act. The claims were finally filed on 2 October 2003. VR explained the difficulties arising out of its reorganization as well as the helpful meeting with Mr. Hayman. However, it said that Mr. Hayman had not advised of any pressing deadlines. Following the meeting with Mr. Hayman, it began the process of completing the submission and came to realize it did not have the proper expertise which led it to call the auditors.
[7] The claims were reviewed by a research and technology officer of the Halifax Tax Services Office who noted VR Interactive's request that the Minister exercise his discretion to accept the claims late. Thereafter, a review committee considered the matter and recommended that the request for waiver of the filing deadlines be denied. Even though the departure of the scientist and founder of the company may have been a factor in delaying the submission of the claim, it was not beyond the company's control to the extent that it caused a delay from February 2002 to October 2003. Furthermore, six months had passed between the meeting with Mr. Hayman and the filing of the claims.
[8] In his affidavit, the Manager, Halifax Tax Services Office, Don Gibson, states that he reviewed the file and agreed with the recommendation and so wrote to VR Interactive advising of his decision not to waive the deadline requirements.
[9] At an early stage of these proceedings, VR Interactive was given leave to be represented by one of its corporate officers, rather than by a solicitor which is the normal rule. The respondent had not objected to that application. As a result, we were treated to a primer on administrative law. Many of the points raised were interesting, but do not relate to the case at hand.
ISSUES
[10] The case turns on the role played by Don Gibson, Manager of the respondent's Halifax office. He is the one who would not forgive VR Interactive its late filing.
[11] Although Mr. Gibson was once authorized to exercise the Minister's "forgiveness" discretion, VR Interactive argues that he was no longer so empowered when he made his negative decision. Subsidiarily, if he was so empowered, it argues, he failed to exercise his power by relying on underlings to make the decision for him, a decision based in part on a patently unreasonable finding of fact. There are also whiffs of issues of natural justice and good faith.
DID MR. GIBSON HAVE AUTHORITY?
[12] The Minister's discretion to waive requirements may be delegated to an officer or to a class of officers in accordance with section 220(2.01) of the Act. A number of persons holding various headquarters or field positions were authorized to waive the requirement to file any prescribed form, receipt or other document. The field positions covered included: "Director, Tax Services Office". Mr. Gibson, at all relevant times, was the "Director, Halifax Tax Services Office" and thus authorized under document RC991221K "Delegation of the Minister of National Revenue's Powers and Duties - Income Tax Act".
[13] VR Interactive argues that this authorization was revoked or lapsed following a publication released in 1999 by the Minister entitled: Setting a New Standard: A 7-Point Plan for Fairness. In that document it is said: "We will transfer authority for the fairness provisions to the Appeals Branch". Furthermore, in its performance report, 2001 - 2002, Annual Report to Parliament, as published on its website, the respondent said: "Our commitment to fairness is supported by the 7-point plan, which has now been implemented".
[14] Whatever was or was not done to implement the 7-point plan, the plain fact of the matter is that Mr. Gibson's authority was never revoked. Only the Minister could revoke that authority and he had not done so.
WAS THE DECISION MADE IN BAD FAITH?
[15] The only matter which could possibly be characterized as relating to bad faith is the alleged failure of Mr. Hayman to alert the applicant that it had already missed one deadline, and that the second was soon approaching. Mr. Hayman recalls that he had discussed the deadlines. However, giving VR Interactive the benefit of the doubt, it only says that Mr. Hayman was silent. There is no question of his making any sort of a representation which could possibly be considered as granting an extension of the delays. Everyone is presumed to know the law, and Mr. Hayman certainly had no duty to warn.
[16] It is well established that the scope of judicial review of discretionary decisions made under sections of the Act commonly referred to as the "fairness provisions", is limited to reviewing whether the discretion was exercised in good faith, with regard for relevant considerations and without regard to extraneous factors, and, where required, in accordance with the principles of natural justice. (Hindle v. Canada (Customs and Revenue Agency) 2004 FC 625; Lanno v. Canada (Customs and Revenue Agency), 2004 FC 932; Barron v. Minister of National Revenue, [1997] 2 C.T.C. 198 (F.C.A.), at para. 5.)
STANDARD OF REVIEW
[17] It has also been well established that a decision to deny relief under the "fairness provisions" must stand unless patently unreasonable. The authorities on point include Métro-Can Construction Ltd. v. Canada (2002), 225 FTR 154 (Teitelbaum J.) and Case v. Attorney General of Canada, 2004 FC 825 (O'Keefe J.).
[18] VR Interactive disputes the finding of the review committee, upheld by Mr. Gibson, that there had been a delay from February 2002 to October 2003. It points out that the first filing was only due in April 2003. However, all the review committee had done was to take VR Interactive's starting point in its submission in which it said that its problems began with the departure of the founder of the company in February 2002. Given the lead time to required prepare the documentation, the finding was not patently unreasonable; the finding was correct.
FAILURE TO EXERCISE JURISDICTION
[19] This brings us to the real nub of the case. VR Interactive argues that Mr. Gibson did not make a decision at all; he delegated his responsibility to the review committee, and simply rubber-stamped its recommendation. This argument comes from the old maxim Delegatus Non Potest Delegare (delegates cannot themselves delegate).
[20] It is true that Mr. Gibson relied on the review committee, particularly since he did not have personal expertise in scientific issues. However, he read VR Interactive's submission and satisfied himself that the factual basis of the recommendation was correct. His discretion was not fettered because he chose to sign the letter which was already drafted for him. Nor did he fetter his discretion by only considering the general guidelines published with respect to forgiveness without "thinking outside the box". As U.S. President Truman said: "the buck stops here". It stopped with Mr. Gibson.
[21] Mr. Gibson cannot be said to have failed to exercise his duty because of his reliance on the review committee. The final decision in fact and in law was his. As stated by Evans J. in Gerle Gold Ltd., et al v. Golden Rule Resources Limited, et al, [1999] 163 F.T.R 185, at para. 50 (reversed in part, but not on this point, (2000), 261 N.R. 361):
Second, in the institutional context of this decision, namely a government department, it is surely reasonable to interpret the duty of the Minister, or a delegate, to "review the matter" as impliedly authorizing the formation of a tentative view which is likely to be informed by the analysis provided by departmental officials.
BREACH OF NATURAL JUSTICE
[22] It was suggested that there should have been an oral hearing because of the differences of opinion between the VR Interactive officials and Mr. Hayman as to what was said at the meeting in March 2003. I see no reason why an oral hearing should have been granted. In any event, as aforesaid, since there is no suggestion that Mr. Hayman made representations as to delays for filing, which representations were acted upon to VR Interactive's detriment, the point is simply not germane.
[23] For these reasons, the application shall be dismissed with costs.
"Sean Harrington"
Judge
Ottawa, Ontario
February 24, 2005
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-451-04
STYLE OF CAUSE: VR INTERACTIVE CORPORATION
AND
CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: HALIFAX, NOVA SCOTIA
DATE OF HEARING: FEBRUARY 8, 2005
REASONS FOR ORDER : HARRINGTON J.
DATED: FEBRUARY 24, 2005
APPEARANCES:
Mark Pettigrew FOR APPLICANT
Caitlin Ward
FOR RESPONDENT
SOLICITORS OF RECORD:
FOR APPLICANT
John H. Sims, Q.C.
Deputy Attorney General of Canada FOR RESPONDENT