Date: 20061222
Docket: T-1169-06
Citation: 2006 FC 1548
Ottawa, Ontario, December 22, 2006
PRESENT: The Honourable Mr. Justice Blanchard
IN THE MATTER of Assessments issued by the Minister
of national revenue in virtue of the Income Tax Act,
Canada Pension Plan and Employment Insurance Act
BETWEEN:
HER MAJESTY THE QUEEN
Respondent
AGAINST:
MICHAEL (MALEK) CHAMAS
Applicant
REASONS FOR ORDER AND ORDER
1. Introduction
[1] The Applicant, Mr. Michael Chamas, seeks a review pursuant to subsection 225.2(8) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (the ITA), of the July 12, 2006 order by this Court authorizing the Minister of National Revenue (the Minister) to take forthwith any of the actions described in paragraphs 225.1(1)(a) to (g) of the ITA in respect to notices of assessment dated July 10, 2006, hereinafter referred to as the jeopardy order.
2. Facts
[2] On September 16, 2005, the Applicant received a registered letter from the Canada Revenue Agency (the Agency) dated September 15, 2005, requesting that he meet with Mr. Martel, an auditor with the Agency to discuss his residency status in Canada and his different commercial activities in Canada. The letter also stated that failing a response by the Applicant within 30 days the Agency would proceed to determine his status based on the information it had and then apply the provisions of the ITA.
[3] Upon receipt of the letter the Applicant contacted Mr. Martel by telephone and claims that he informed him that because of his business dealings abroad he was rarely in Canada during weekdays and when here it was to visit with his children on weekends. He stated that he would be back in a few weeks and would arrange for a meeting at that time.
[4] Mr. Martel’s evidence is that during the conversation it was agreed that they would meet upon his return on October 5, 2005. The Applicant, being in his car at the time and unable to write asked that Mr. Martel confirm the meeting in writing. Having attempted to do so unsuccessfully by fax, Mr. Martel proceeded to confirm the meeting by letter to the Applicant on September 19, 2005.
[5] Upon receiving the second letter, the Applicant allegedly contacted Mr. Martel and informed him that fixing a date was premature and contrary to their discussion. The applicant contends that at the time he also informed Mr. Martel that he was a resident of Dubai in the United Arab Emirates and not a resident of Canada during the five taxation years in issue. He also claims that Mr. Martel requested that he produce evidence of his residency in Dubai. The Applicant alleges that he sent a copy of his Dubai residency card to the Agency and filed proof of the fax transmission. The applicant also claims that he had a subsequent phone conversation with Mr. Martel to confirm that the fax had been received. Mr. Martel allegedly stated that the card was not only satisfactory, but would have permitted quicker resolution had it been provided earlier.
[6] The Applicant further contends that at no time did Mr. Martel communicate in any manner that there were any outstanding issues or tax debts, and he left the Applicant with the impression that matters relating to the investigation had been favourably resolved. The Applicant states that prior to July 17, 2006, he had no indication that the Agency intended to claim any amounts from him and he was never given an opportunity to respond.
[7] The respondent has a different version of the facts relating to the meeting and the fax transmission. When the auditor, Mr. Martel, sought to discuss residency with the applicant, the latter was unavailable to meet. According to Mr. Martel’s evidence four attempts were made to set up a meeting. The Applicant offered the following reasons for failing to attend. On the first occasion he did not attend because he was going back to Dubai; the second time, he was ill; the third time he was celebrating a Jewish holiday; and on the fourth attempt the Applicant could not meet because he was again leaving to Dubai and Zurich. Following the fourth attempt, Mr. Martel attests that the Applicant promised to call back to set up an appointment but did not. Mr. Martel further attests that he did not receive the Applicant’s residency card from the United Arab Emirates and that his records show that his fax machine did not receive a fax on September 23, 2005, matching the description and time of the fax transmission allegedly sent by the Applicant.
[8] The Agency proceeded to prepare Notices of Assessment for taxations years 2001 through 2005 using the “net worth method” totalling $952,355.36 plus interest. The Notices were all dated July 10, 2006 and on July 12, 2006, the Respondent was granted the jeopardy order which authorized the immediate seizure of movable and immovable property for the purposes of collecting and/or guaranteeing payment of the amount assessed against the Applicant pursuant to the Notices of Assessment. The jeopardy order was served on the applicant on July 17, 2006.
[9] On the basis of a Writ of Seizure, the following collection procedures were initiated by the Respondent against the Applicant’s assets, on or after July 17, 2006:
(a) seizure of a residence situated at 205 de Gaulle Boulevard, Lorraine, belonging to Ms. Garas, the mother of the applicant’s children;
(b) seizure of the majority of the moveable property within the above property;
(c) seizure of two leased vehicles;
(d) seizure of the contents of a bank account with the CIBC situated at 299 Labelle Boulevard, Rosemère, a U.S. dollar account held by the Applicant;
(e) seizure of the contents of a bank account with the CIBC situated at 299 Labelle Boulevard, Rosemère, held jointly in the names of the applicant and Ms. Garas;
(f) seizure of real property situated at 24 Elm Street, Laval;
(g) seizure of real property situated at 282 Kenna Boulevard, St-Colomban;
(h) seizure of real property situated at 5 Légaré Street, St-Eustache;
(i) seizure of real property situated at 41 Blainville Street West, Ste-Thérèse.
3. Issue
The following issue arises on this review:
A. Has the applicant established on a balance of probabilities that there are reasonable grounds to doubt that the test required by subsection 225.1 (2) of the ITA has been met?
4. The Law
[10] Factors to be considered in the conduct of a review of jeopardy order pursuant to subsection 225.1(2) of the ITA were dealt with by Mr. Justice François Lemieux in Canada (Minister of National Revenue - M.N.R.) v. Services M.L. Marengère, [1999] F.C.J. No. 1840 (QL). At paragraph 63 of his reasons for decision the learned Judge wrote:
(1) The perspective of the jeopardy collection provision goes to the matter of collection jeopardy by reason of delay normally attributable to the appeal process. The wording of the provision indicates that it is necessary to show that because of the passage of time involved in an appeal, the taxpayer would become less able to pay the amount assessed. In other words, the issue is not whether the collection per se is in jeopardy but rather whether the actual jeopardy arises from the likely delay in the collection.
(2) In terms of burden, an applicant under subsection 225.2(8) has the initial burden to show that there are reasonable grounds to doubt that the test required by subsection 225.2(2) has been met, that is, the collection of all or any part of the amounts assessed would be jeopardized by the delay in the collection. However, the ultimate burden is on the Crown to justify the jeopardy collection order granted on an ex parte basis.
(3) The evidence must show, on a balance of probability, that it is more likely than not that collection would be jeopardized by delay. The test is not whether the evidence shows beyond all reasonable doubt that the time allowed to the taxpayer would jeopardize the Minister's debt.
(4) The Minister may certainly act not only in cases of fraud or situations amounting to fraud, but also in cases where the taxpayer may waste, liquidate or otherwise transfer his property to escape the tax authorities: in short, to meet any situation in which the taxpayer's assets may vanish in thin air because of the passage of time. However, the mere suspicion or concern that delay may jeopardize collection is not sufficient per se. As Rouleau J. put it in 1853-9049 Quebec Inc., supra, the question is whether the Minister had reasonable grounds for believing that the taxpayer would waste, liquidate or otherwise transfer its assets, so jeopardizing the Minister's debt. What the Minister has to show is whether the taxpayer's assets can be liquidated in the meantime or be seized by other creditors and so not available to him.
(5) An ex parte collection order is an extraordinary remedy. Revenue Canada must exercise utmost good faith and insure full and frank disclosure. On this point, Joyal J. in Peter Laframboise v. The Queen, [1986] 3 F.C. 521 at 528 said this:
The taxpayer's counsel might have an arguable point were the evidence before me limited exclusively to that particular affidavit. As Counsel for the Crown reminded me, however, I am entitled to look at all the evidence contained in the other affidavits. These affidavits might also be submitted to theological dissection by anyone who is dialectically inclined but I find on the whole that those essential elements in these affidavits and in the evidence which they contain pass the well-known tests and are sufficiently demonstrated to justify the Minister's action.
In Duncan, supra, Jerome A.C.J., after quoting Joyal J. in Laframboise, supra, viewed the level of disclosure required by the Minister as one of adequate (reasonable) disclosure.
[11] In my opinion the views expressed by Justice Lemieux accurately reflect the proper interpretation of the applicable statutory provisions and factors to be considered by a court in reviewing jeopardy orders.
5. Analysis
A. Has the applicant established on a balance of probabilities that there are reasonable grounds to doubt that the test required by subsection 225.1 (2) of the ITA has been met?
[12] The Respondent contends that recovery of the amount assessed is jeopardized by a delay in the collection of that amount on the following grounds, namely:
(1) The Applicant was delinquent in respect of his obligations to fiscal authorities;
(2) The Applicant provided false and misleading information to banking institutions he dealt with;
(3) The Applicant habitually expedited the transfer of large sums of money from his bank accounts; and
(4) An outstanding judgment against the Applicant since 2003 in the amount of $37,500 remains unpaid.
[13] The Applicant takes issue with the Respondent’s versions of the facts and attempts to explain discrepancies in the evidence. He claims his pattern of behaviour is not that of a man looking to avoid his responsibilities, and that the evidence paints a far different picture of his circumstances, than that advanced by the Agency. He is critical of the way the investigation was conducted, alleging that the Agency proceeded with a secret investigation in contravention of the rules of procedural fairness and principles of openness. He alleges that the circumstances do not support a determination that there are reasonable grounds to believe that the collection of all or any part of the amount assessed would be jeopardized by a delay in collection.
[14] In support of his contention, the Applicant points to the following factors:
(1) Contrary to the Respondent’s contention, there is evidence that he is making investments in Canada by purchasing properties and making significant deposits in Canadian bank accounts.
(2) There is no evidence to suggest that he has attempted to waste or dispose of property. On the contrary, the Applicant claims that he has increased his assets in Canada by purchasing properties.
(3) The evidence shows that he made significant deposits in Canadian bank accounts even after knowing he was being investigated by the Agency.
This is not, he claims, behaviour consistent with someone attempting to secretly dispose of his assets.
[15] The Applicant further maintains that he has taken definitive steps to establish residency in Canada to spend more time with his daughter, who is 5, and his son, who is 10, both registered in a private Quebec school for the upcoming year. He submits that he intends to formalize his relationship with Ms. Garas, the mother of his children, and has undertaken to sponsor her for immigration purposes.
[16] The Applicant claims that after his final discussion with Mr. Martel, he was left with the impression that once the issue of his residency in Dubai was established, the matter would be settled. After sending, via fax transmission, a copy of his residence card, he maintains that he could reasonably conclude that the investigation would be ended. Since Mr. Martel or the Agency made no further attempt to communicate with him before the notice of assessment was served, he felt no need to make further inquiries.
[17] I will now review the evidence in relation to the four grounds relied on by the Respondent in support of the jeopardy order.
[18] The Applicant did not file a tax return for the period under review either as a resident or as a non-resident. The evidence also establishes that the Canadian corporations for which the Applicant was either a director or a shareholder and which earned revenues in Canada also failed to file returns. Those same corporations failed to remit to the Agency the requisite payroll deductions of their employees as required by law. The Applicant does not dispute his failure to comply with filing obligations under the ITA.
[19] With respect to the conflicting versions of events which transpired between Mr. Martel and the Applicant after the initial registered letter was issued on September 15, 2005, I prefer Mr. Martel’s version. I make this factual determination for the following reasons.
[20] The Applicant’s evidence is not consistent with the probabilities affecting the case as a whole. His explanations for failing to meet with Mr. Martel were unconvincing, and I find highly improbable that Mr. Martel would abruptly end such an investigation upon receipt of a faxed copy of a foreign residency card, as alleged by the Applicant. Further, the evidence to be reviewed later in these reasons establishes that the Applicant has demonstrated an ability to mislead and be untruthful in order to achieve an objective.
[21] Mr. Martel, an auditor with the Agency, has no financial or personal interest in the outcome of this case. There is a ring of truth to his version of events and I find it to be consistent with the nature of the investigation and the request contained in the initial letter sent to the Applicant. Put differently, Mr. Martel’s story is in harmony with the preponderance of probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.
[22] I am of the opinion that the evidence supports the Respondent’s contention that the Applicant was evasive when initial attempts were made to contact him and that the residency card allegedly sent by the Applicant was never received by the Agency.
[23] The evidence in support of the Respondent’s second ground for the jeopardy order, namely, the provision by the Applicant of false and misleading information to a financial institution in order to secure credit, is compelling. The record shows that the Applicant provided false information to “la Banque Laurentienne” in order to secure a line of credit in March 2005. He submitted a letter from one of his companies C=B02 Inc. to confirm that he was an employee since 1997 earning $93,600.00 per annum. He also provided a fabricated Statement of Remuneration Paid (T-4 form) allegedly issued by C=B02 Inc. for the year 2004, which is found to be inconsistent with employment records of the company filed with the Agency.
[24] Later in the same month, the Applicant applied to the same bank for a “Visa” credit card application. With this application he alleges to be employed with “MCCA Zurich” as an administrator since 2002, earning $93,600.00 per annum. The application makes no reference to his earlier declared employment with C=B02 Inc. during the same period. These conflicting versions of the Applicant’s employment history serve to impugn his credibility.
[25] Finally, on April 6, 2006, the Applicant applied for a mortgage loan with “Les Caisses Populaires Desjardins”. In the credit application, he claimed to be a manager with “MCCA Ltée” earning $328,000.00 per annum. This Canadian corporation never filed a return with the Agency. The evidence also establishes that contrary to information contained in the credit application, the Applicant does not hold a registered retirement savings plan (RRSP).
[26] With respect to the March 2005 application to secure a line of credit, the Applicant does not deny that he obtained credit by submitting the impugned documents to the Bank. He explains that he was unaware of the contents of the application for credit even though he had signed and had personally delivered the document to the Bank. The applicant’s explanation is simply not credible.
[27] I find that the above evidence regarding the Applicant’s credit and loan applications supports the Respondent’s contention that the Applicant is capable of falsifying documents and misrepresenting his circumstances in order to achieve an end.
[28] Regarding the Respondent’s third ground in support of the jeopardy order, the evidence shows that the Applicant has many bank accounts through which he transacted large sums of money. While the transfer of large sums of money is not necessarily unusual, certain banking practices of the Applicant can only be characterized as unorthodox. For instance, the Applicant personally cashed large cheques made payable to his company. Indeed, the record shows that “ La Banque Laurentienne” sent the Applicant a letter in respect of a bank account for which he was the authorized signatory. The letter informed him that this account with the Bank would be closed at all branches because the Bank was unhappy with the nature of transactions in the accounts and that recent audits had revealed unorthodox transactions (“des opérations inhabituelles”).
[29] Further, the record also establishes that when questioned about a $300,000.00 withdrawal in one month, the Applicant explained that most of the money went for “property purchase or purchase of another car”. The evidence, however, reveals that all of the applicant’s real estate acquisitions occurred prior to the withdrawal and that all of his luxury cars were on lease.
[30] The record also establishes that the Applicant used the services of “L’Agence Arylo”, a short term credit provider, to negotiate the transfer of large sums of cash from foreign accounts. These transfers exceeded $600,000.00 in total.
[31] I therefore find that the evidence supports the Respondent’s contention that the Applicant was capable of expediting the transfer of large sums of money. The evidence also demonstrates that the Applicant engaged in unorthodox banking practices.
[32] Finally, the fourth ground upon which the Respondent relies is about a judgment dated April 30, 2003, registered in “La Cour du Québec” against the Applicant in the amount of $37,500.00 for unearned professional fees. The amount remains unpaid and the evidence shows that the judgment creditor, TÉ-BÉ Inc., was unable to collect because it was unable to locate the Applicant. The Applicant contends that this information is “insignificant” in the context of the jeopardy order. I disagree. In my view, this is the most compelling evidence in support of the Respondent’s argument that recovery of the assessed amount is jeopardized by a delay in the collection. Notwithstanding the Applicant’s significant property holdings and his demonstrated ability to access important sums of money, mostly cash, in the period since the registration of the judgment against him, the Applicant has nevertheless failed to satisfy the outstanding judgment. Further, the amount of the judgment is relatively small when considered in the context of the sums accessible to the Applicant, according to the evidence.
[33] Having failed since 2003 to satisfy a $37,500.00 debt, in these circumstances, raises doubt as to the Applicant’s intentions regarding his future financial obligations. In my view, the Applicant’s failure to satisfy this outstanding judgment demonstrates that he is also likely not to pay the assessed amount should that amount ultimately be determined to be owing by him.
[34] The Applicant’s demonstrated ability to misrepresent his circumstances, his unorthodox banking practices, his failure to meet the obligations of the ITA, his lengthy absences from the country making him difficult to reach, and his behaviour vis-à-vis both the outstanding judgment registered against him, and his past dealings with the Agency all serve to demonstrate that on a balance of probabilities it is more likely than not that collection of amounts assessed for the tax years 2001-2005 would be jeopardized by delay.
[35] The Applicant raises two further arguments. First, he contends that the Agency conducted a secret investigation in contravention of the rules of procedural fairness and principles of openness. Second, he alleges that the Agency failed to exercise utmost good faith and ensure full and frank disclosure to the Court in its application for the jeopardy order. I will deal with each of these arguments in turn.
[36] With respect to the conduct of the investigation, the evidence does not support the Applicant’s contention of a “secret investigation”. The Applicant was notified by registered mail that an investigation had been instigated. The initial letter of September 15, 2005, requested a meeting to discuss his residency status and his different commercial dealings in Canada. He was also notified that should he not respond within 30 days matters would be determined without his input and in accordance with the ITA. Having determined that Mr. Martel’s version of events is to be preferred over the Applicant’s, there is simply no evidence to support the Applicant’s allegation. The Applicant had every opportunity to participate, he simply chose not to. The Agency did not violate the principles of procedural fairness and openness in the circumstances.
[37] With respect to the Applicant’s second argument regarding the Agency’s disclosure obligation in seeking the jeopardy order. The law imposes a duty of utmost good faith on the Agency in making such ex parte applications. It is because of the potentially devastating effects that could flow from the execution of a jeopardy order on certain types of properties that the Agency must ensure full and frank disclosure. The jurisprudence establishes that in the circumstances, the disclosure must be “adequate” or “reasonable”. See Marengère, supra.
[38] The applicant alleges that although Mr. Martel disclosed that he was unable to meet with the Applicant, he failed to disclose important facts which would have supported the Applicant and contradicted the allegation that he was uncooperative and evasive. Particularly, the Applicant’s version of the disputed facts in respect to the conversations with Mr. Martel regarding his residency status and transmission of his residency card. The applicant alleges the failure to include this information in the disclosure indicates the respondent’s lack of good faith and that the disclosure was not full, fair and frank.
[39] Earlier in these reasons, I resolved the issue of the conflicting evidence in respect to the Applicant’s evasiveness and his residency card in favour of the Respondent’s evidence. I preferred Mr. Martel’s evidence. Based on the evidence that I have accepted as credible, I find there to be no basis to support the Applicant’s argument. In the circumstances, I find that the disclosure to have been adequate and reasonable. The Agency has met its disclosure obligations in its application for the jeopardy order.
6. Conclusion
[40] For the above reasons, the motion will be dismissed.
ORDER
THIS COURT ORDERS that:
1. The motion for review, pursuant to subsection 225.2(8) of the Income Tax Act, of the July 12, 2006 order of this Court is dismissed.
“Edmond P. Blanchard”
Judge
FEDERAL COURT
SOLICITORS OF RECORD
STYLE OF CAUSE: Her Majesty the Queen v. Michael (Malek) Chamas
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: December 4, 2006
REASONS FOR ORDER AND ORDER: Blanchard J.
APPEARANCES:
Mr. Christopher Mostovac FOR THE APPLICANT
514.397.0013
Ms. Véronica Romagnino FOR THE RESPONDENT
514.496.2562
SOLICITORS OF RECORD:
Mr. Christopher Mostovac FOR THE APPLICANT
Montréal Quebec
John H. Sims, Q.C. FOR THE RESPONDENT
Deputy Attorney General of Canada
Montréal Quebec