T-610-89
Nova Ban-Corp Limited and Container Port of
Alberta Research Corporation (Plaintiffs)
v.
Aage F. Tottrup, Container Port of Alberta
Research Corporation and Her Majesty the
Queen in Right of Canada Represented by the
Minister of National Revenue (Defendants)
INDEXED AS: NOVA BAN-CORP LTD. V. TOTTRUP (T.D.)
Trial Division, Strayer J.—Edmonton, September
14; Ottawa, September 21, 1989.
Federal Court jurisdiction — Trial Division — Nova Ban-
Corp alleging president of Container Port (CPARC) acceding
to excessive assessment of income tax for which should have
been personally responsible, thereby benefiting himself and
prejudicing CPARC creditors — Alberta Court granting leave
under Canada Business Corporations Act, ss. 232 and 234 to
bring action in name of CPARC in Federal Court to determine
proper tax payable — Action seeking declaration assessment
nullity, certiorari quashing assessment and compensation from
individual defendant — Court without jurisdiction over essen
tial matter of claim, i.e. corporate law or creditor and debtor
— Canada Business Corporations Act not assigning jurisdic
tion to Federal Court to hear actions such as this — Ss. 232(2)
and 234(2) require action to be brought in court as defined, i.e.
provincial superior court — Statement of claim struck.
Income tax — Practice — Third party creditor seeking
declaration tax assessment nullity, certiorari quashing assess
ment and compensation from individual defendant — No
express authority in Income Tax Act permitting third party to
attack assessment — Confidentiality of taxation information
militating against third parties attacking assessment —
Income Tax Act, s. 241(2), stating no official required to
testify in legal proceedings as to information obtained on
behalf of Minister for purposes of Act, obstacle to third party
challenge to assessment — Action also defective as not by way
of appeal and out of time — No notice of objection to
assessment filed as required by s. /65.
Creditors and debtors — Third party creditor bringing
action seeking declaration income tax assessment nullity, cer-
tiorari quashing assessment and compensation — Federal
Court not having jurisdiction over essential matter of claim,
i.e. corporate law or law of creditors and debtors.
Practice — Pleadings — Motion to strike — Action by third
party seeking declaration tax assessment nullity, certiorari
quashing assessment and compensation from individual
defendant — Alleging president of corporate defendant acced
ing to excessive assessment of tax he should personally have
paid — Statement of claim struck: (I) Court lacking jurisdic
tion over law of creditor and debtor, (2) third party not
permitted to attack assessment; (3) action not by way of appeal
and (4) out of time.
Practice — Costs — Costs awarded to defendants on party
and party basis in successful application to strike statement of
claim — Leave of Court of Queen's Bench of Alberta to
commence action in Federal Court not relieving plaintiffs of
costs — Action exceeding that expressly authorized — Uncer
tainty of proceeding evident from clear requirements of Income
Tax Act and case law — Solicitor-client costs unjustified as
plaintiffs' conduct of litigation not patently negligent, vexa
tious or abusive.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canada Business Corporations Act, S.C. 1974-75-76, c.
33, ss. 2(1), 232 (as am. by S.C. 1978-79, c. 9, s. 74),
234(2).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 165, 169 (as
am. by S.C. 1980-81-82-83, c. 158, s. 58, item 2), 172,
241(2) (as am by S.C. 1980-81-82-83, c. 68, s. 117).
CASES JUDICIALLY CONSIDERED
APPLIED:
Hart v. Canada (M.N.R.), [1986] 3 F.C. 178; (1986), 86
DTC 6335; [1986] 2 C.T.C. 63; (1986), 4 F.T.R. 176
(T.D.); Inland Revenue Comrs v. National Federation of
Self-Employed and Small Businesses Ltd, [1981] 2 All
ER 93 (H.L.).
REFERRED TO:
R. v. Parsons, [1984] 2 F.C. 909; (1984), 54 N.R. 227;
(1984), 84 DTC 6447; [1984] C.T.C. 352 (C.A.); Bech-
thold Resources Ltd. v. Canada (M.N.R.), [1986] 3 F.C.
116; (1986), 86 DTC 6065; [1986] 1 C.T.C. 195; (1986),
1 F.T.R. 123 (T.D.); G.R. Block Research & Develop
ment Corp. v. M.N.R. (1987), 87 DTC 5137; [1987] 1
C.T.C. 253; (1987), 9 F.T.R. 229 (F.C.T.D.).
COUNSEL:
G. J. Steward-Palmer for plaintiffs.
S. M. Macdonald for defendants Aage F.
Tottrup and Container Port of Alberta
Research Corporation.
P. G. Hodgkinson and C. Coughlan for
defendant Her Majesty the Queen in Right of
Canada Represented by the Minister of Na
tional Revenue.
SOLICITORS:
Milner & Steer, Edmonton, for plaintiffs.
Macdonald and Freund, Edmonton, for
defendants Aage F. Tottrup and Container
Port of Alberta Research Corporation.
Deputy Attorney General of Canada for
defendant Her Majesty the Queen in Right of
Canada Represented by the Minister of Na
tional Revenue.
The following are the reasons for order ren
dered in English by
STRAYER J.:
Relief Sought
The notices of motion filed respectively by Her
Majesty the Queen and the other defendants seek
identical remedies: namely the grant of leave to
file a conditional appearance in order to object to
the jurisdiction of the Court, a finding that the
Court has no jurisdiction to entertain this action,
and in the alternative the striking out of all or part
of the statement of claim on other grounds. It was
agreed at the outset that argument would only be
presented with respect to conditional leave and the
jurisdictional question, the remainder of the
application being adjourned indefinitely and
depending on the determination of these issues.
Facts
The plaintiff Nova Ban-Corp Limited claims to
be a creditor of Container Port of Alberta
Research Corporation and has proceedings pend
ing in the Alberta Court of Queen's Bench in that
respect. On October 16, 1984 the Minister of
National Revenue issued a notice of assessment
against Container Port. On August 28, 1985 a
certificate of tax indebtedness in respect of that
assessment was filed in the Federal Court and a
writ of fieri facias was issued. On April 8, 1987 a
new notice of assessment was issued, apparently
with respect to the same tax liability. It is common
ground that no notice of objection or notice of
appeal was filed by Container Port in respect of
either of these assessments.
Briefly put, Nova Ban-Corp Limited as creditor
of Container Port apparently takes the position
that the individual defendant Aage F. Tottrup,
president of Container Port, acceded to an exces
sive assessment of income tax which should have
been payable by Tottrup himself, thereby benefit
ing himself and prejudicing the creditors of Con
tainer Port. Nova Ban-Corp sought to amend its
pleadings in the Court of Queen's Bench of Alber-
ta in order inter alla to seek to vary the assessment
of income tax on Container Port. Mr. Justice
Cooke of that Court issued an order on October 3,
1988 which provided in part as follows:
2. Nova Ban is granted leave pursuant to secs. 232 and 234 of
the Canada Business Corporations Act to commence a single
separate action ("the action" or "the Derivative and Oppres
sion Action") in the name and on behalf of CPARC in The
Federal Court of Canada to determine the proper and appropri
ate tax payable by CPARC arising out of any tax assessments
against CPARC since its incorporation and all related questions
touching thereon including any and all defenses which would
otherwise be open to Revenue.
Nova Ban-Corp then acting on behalf of itself and
(pursuant to the order of Mr. Justice Cooke) on
behalf of Container Port, brought this action seek
ing the following relief:
(a) a Declaration against the Minister that the assessment of
Container Port in respect of the SRTC and the related
Certificate, Requirement to Pay and writ of fieri facias
are nullities;
(b) a Declaration that the Minister is estopped from proceed
ing with the collection of the tax purportedly levied or
imposed by the assessment, and from continuing any pro
ceedings under the Certificate, Requirement to Pay and
writ of fieri facias;
(c) Certiorari quashing the assessment of Container Port and
the related Certificate, Requirement to Pay and writ of
fieri facias;
(d) an Order requiring the Defendant Tottrup to cause Con
tainer Port to produce to this Honourable Court and the
Plaintiffs financial statements for Container Port in the
form required by Section 155 of the Canada Business
Corporations Act for the period 1984 to 1988, inclusive or,
for an accounting in such other form as this Honourable
Court may deem appropriate;
(e) in the alternative, a Declaration as to the proper amount of
tax owed by Container Port in respect of the SRTC;
(f) judgment against Tottrup compensating the Plaintiffs as
"aggrieved persons" in respect of excess taxes which Tott-
rup has caused Container Port to pay or agree to pay;
(g) such further and other relief as this Honourable Court
may deem just;
(h) costs.
Conclusions
At the outset counsel for the various defendants
satisfied me that they had raised a prima facie
doubt as to the jurisdiction of the Court. Counsel
for the plaintiffs indicated that she had no instruc
tions to oppose the grant of leave to the defendants
to enter a conditional appearance. I therefore
granted such leave.
With respect to the substantive question of
whether this Court has jurisdiction to entertain
such an action, I am satisfied that it does not.
Firstly, it is clear that this Court has no jurisdic
tion over the individual defendant Tottrup or the
corporate defendant Container Port with respect to
the subject-matter of this action. The essential
claim against Tottrup is that he unlawfully
arranged for Container Port to pay more income
tax than it should have done, thus prejudicing
Nova Ban's ability as a creditor of Container Port
to recover monies owing to it. These are matters of
corporate law or of creditor and debtor. To the
extent that federal laws are involved, I can find no
statutory assignment of jurisdiction to this Court
to administer those laws. To the extent that pro
vincial laws are involved there is an equal lack of
jurisdiction in the Court to entertain such claims.
While the order of Mr. Justice Cooke could not, of
course, confer any jurisdiction on this Court which
it did not otherwise have, it should be noted that
he only gave leave to bring such an action "to
determine the proper and appropriate tax payable
by CPARC." He did not authorize any such action
for the purpose of claiming compensation from
Tottrup, as requested in the prayer for relief in the
present action.
Secondly, the remainder of the claims in the
statement of claim all essentially involve a chal
lenge to the assessment of October 16, 1984 and to
the enforcement measures which followed it. I take
it that the request for an order requiring Tottrup
to produce financial statements or for an account
ing is intended to assist the plaintiffs and the
Court in determining whether the assessment was
correct. While the subject-matter of federal
income tax is within federal jurisdiction and is
governed by existing federal statute law, the ques
tion remains as to whether there has been any
statutory assignment by Parliament of jurisdiction
to the Federal Court to hear proceedings such as
the present one. I am satisfied that there has not.
The plaintiffs strongly rely on the order of Mr.
Justice Cooke of the Court of Queen's Bench of
Alberta purportedly made under sections 232 and
234 of the Canada Business Corporations Act.'
Subsection 232(1) provides as follows:
232. (1) Subject to subsection (2), a complainant may apply
to a court for leave to bring an action in the name and on
behalf of a corporation or any of its subsidiaries, or intervene in
an action to which any such body corporate is a party, for the
purpose of prosecuting, defending or discontinuing the action
on behalf of the body corporate.
In subsection 2(1) of the Act the word "court" is
defined to mean the superior courts of the various
provinces as specifically named therein. In respect
of Alberta the relevant "court" at the time this
order was made would have been the Court of
Queen's Bench. On its face subsection 232(1)
might suggest that if that "court" once authorized
an action whether in that court or some other
court, then Parliament must be taken to have so
authorized the action. However it is clear from
subsections 232(2) and 234(2) that the action or
application when brought must also be brought in
the "court" as defined; namely, in Alberta, in the
Court of Queen's Bench. In subsection 232(2) it is
provided that "No action may be brought ...
under subsection (1) unless the court is satisfied
that". [Emphasis added.] This clearly implies that
the action is to be brought in the same "court" as
gives leave for the action to be brought. Similarly
in subsection 234(2) it is the "court" which has
authority to give the various forms of relief speci
fied there, some of which relief might be involved
in the statement of claim filed in the Federal
' The Act then in effect was S.C. 1974-75-76, c. 33 as
amended in this respect by S.C. 1978-79, c. 9, s. 74.
Court in this action. Thus the Canada Business
Corporations Act does not provide a basis for a
creditor to commence proceedings in the Federal
Court in the name of its debtor in respect of the
tax assessment of that debtor.
Nor does the Income Tax Act [S.C. 1970-71-72,
c. 63] authorize any one but the taxpayer to
challenge a tax assessment. The plain words of the
Act do not so provide. By sections 165, 169 [as am.
by S.C. 1980-81-82-83, c. 158, s. 58, item 2], and
formerly 172 (authorizing appeals to the Federal
Court) it is the "taxpayer" who is authorized to
file an objection to an assessment or to bring an
appeal. In the present case it is obvious that Nova
Ban-Corp Limited is not the taxpayer in question.
I can find no authorization in the Income Tax Act
for the creditor Nova Ban being able to appeal the
assessment of Container Port by suing in the name
of the latter. It is obvious that the "plaintiff"
Container Port in the present action is somehow
distinct from the "defendant" Container Port
which is the real taxpayer. Apart from the absence
of any express authority for such a proceeding, I
agree respectfully with my colleague Walsh J. in
Hart v. Canada (M.N.R.) 2 where he held that a
creditor of a taxpayer had no standing to challenge
the assessment and the enforcement action taken
pursuant to it. I believe that the House of Lords
decision in Inland Revenue Comrs v. National
Federation of Self-Employed and Small Busi
nesses Ltd,' quoted by him, provides a clear
rationale for denying any implication that a person
other than the taxpayer can challenge his assess
ment. The House of Lords there emphasized the
confidentiality of taxation information which mili
tates against third parties coming in to attack an
assessment. In Canada that confidentiality is
required, in circumstances such as the present, by
subsection 241(2) [as am. by S.C. 1980-81-82-83,
c. 68, s. 117] of the Income Tax Act which states
that no official shall be required in connection with
any legal proceedings to testify as to information
obtained on behalf of the Minister for the purposes
of the Act. This would clearly provide a major
obstacle to any third party challenging an assess
2 [1986] 3 F.C. 178; (1986), 86 DTC 6335; [1986] 2 C.T.C.
63; (1986), 4 F.T.R. 176 (T.D.).
3 [1981] 2 All ER 93 (H.L.) at pp. 98-99.
ment in court and it cannot be implied that such a
challenge is authorized.
There are other obstacles to this action proceed
ing as framed. I believe it is now adequately
settled that a challenge to an assessment or the
enforcement action which is based on the assess
ment must be by way of an appeal as authorized
under the Act. 4 The present action is not in the
form of an appeal: the remedies sought include
declarations and certiorari, as well as a money
judgment against the defendant Tottrup. It cannot
be regarded as an appeal under the Act. Further,
even if it were an appeal it is out of time. No
notice of objection was ever filed by the taxpayer
with respect to either assessment. By section 165
the taxpayer has ninety days from the mailing of
the assessment to file such an objection. Although
it is possible to obtain an extension of that period,
an application for such extension must be made,
according to subsection 167(5), to the Tax Court
within one year after the expiry of the normal
time. No such application has been made. There
fore any appeal, even if otherwise tenable, could
not be commenced by a statement of claim filed on
March 23, 1989, almost two years after the last
assessment.
It should be underlined that the plaintiffs' action
must fail, not because of some arcane jurisdiction
al conflict between the Court of Queen's Bench of
Alberta and the Federal Court of Canada, but
because the action is intrinsically defective. That
is, there is no court which will entertain a chal
lenge to federal income tax assessment other than
one brought by the taxpayer; nor entertain such a
^ R. v. Parsons, [ 1984] 2 F.C. 909; (1984), 54 N.R. 227;
(1984), 84 DTC 6447; [1984] C.T.C. 352 (C.A.); Bechthold
Resources Ltd. v. Canada (M.N.R.), [1986] 3 F.C. 116; (1986),
86 DTC 6065; [1986] 1 C.T.C. 195; (1986), I F.T.R. 123
(T.D.); G.R. Block Research & Development Corp. v. M.N.R.
(1987), 87 DTC 5137; [1987] 1 C.T.C. 253; (1987), 9 F.T.R.
229 (F.C.T.D.).
challenge except in the form of an appeal; nor
entertain an appeal except within the prescribed
time limits.
I will therefore grant the applications of the
respective defendants and order that the action be
struck out on the basis that this Court has no
jurisdiction to hear such a claim.
The plaintiffs contended that even if they should
not succeed in respect of this application, costs
should not be awarded against them because they
commenced their action in the Federal Court with
the leave of the Court of Queen's Bench of Alber-
ta. As I have noted above, the action which they
commenced went well beyond what was expressly
authorized by Mr. Justice Cooke. Further, it is
clear that he did not, and could not, assure them of
success in the Federal Court and his order express
ly recognized the right of the Minister of National
Revenue to râise any defences he might have.
Given the clear requirements of the Income Tax
Act and the state of the jurisprudence, it must
have been evident that such a proceeding would be
highly uncertain.
For their part the defendants have asked for
costs on a solicitor-client basis. Such an award
would be justified only if the manner of conduct of
the litigation by the plaintiffs was patently negli
gent, vexatious, or abusive. I am unable to charac
terize it as such on the basis of the information I
have before me.
Therefore the defendants are entitled to their
costs on this application on a party and party
basis.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.