Tedesco et al1 concerned whether it would be an "abuse of process by re-litigation" if members of a partnership continued to pursue an appeal relating to the validity of a partnership loss determination, after the partnership discontinued its Tax Court of Canada ("TCC") appeal for the same issue. The TCC had struck the individual appellants' notices of appeal but the Federal Court of Appeal ("FCA") reversed and reinstated the appeals.
The appellants were partners in TSI I Limited Partnership (“TSI”), which allocated losses to partners in 2000 and 2001. Each appellant claimed some portion of those losses in determining their income in those years. The Minister of National Revenue (“Minister”) determined that the TSI losses were nil and issued notices in March, 2006. TSI filed notices of objection (“NOOs”) and the Minister ultimately confirmed the determinations. The appellants were reassessed to deny the partnership losses they claimed, they filed NOOs and the reassessments were confirmed. TSI and each appellant filed a notice of appeal to the TCC. The TSI appeal proceeded first. TSI discontinued its appeal by notice of discontinuance, resulting in the deemed dismissal of the appeal pursuant to ss. 16.2 (2) of the Tax Court of Canada Act (“TCC Act”).
Each appellant raised in their notices of appeal the same issues that TSI raised, although they ultimately only pursued the issue of whether the Minister’s loss determinations were statute-barred. After the TSI appeal was discontinued, the Crown sought to strike the individual appellants’ appeals. The TCC judge raised a preliminary issue concerning the TSI appeal of the Minister’s loss determinations: pursuant to ss. 165(1.15),2 an objection to a determination is made by a member of the partnership, and that person must be designated for that purpose in an information return or otherwise expressly authorized by the partnership. TSI was the partnership and not a member. The TCC judge stated that it was unclear why TSI appealed instead of a partner on behalf of the partnership. However, because the formal validity of the appeals had not been previously challenged, TSI’s appeal was treated as having been filed on behalf of all of the partners, but also has having been dismissed on behalf of all of the partners when TSI’s TCC appeal was discontinued. The TCC judge went on to conclude that if the appellants were allowed to continue to appeal on the basis of the statute-barred argument, that would amount to an abuse of process. Thus, their appeals were all struck. Consequently, the sole issue before the FCA was whether the appeals should have been struck on the basis of abuse of process for re-litigation.
The FCA stated the trite proposition that a partnership does not pay tax, but rather computes income or loss as though it was a person and then allocates to each partner their proportionate share of the income or loss. Any assessment or reassessment of tax payable therefore occurs at the level of the individual partner. To reduce administrative burden and avoid a multiplicity of disputes, ss. 152(1.4) allows the Minister to make a single determination of partnership income or losses. Similarly, ss. 165(1.15) allows that an objection to a determination may be made by one member who is so designated or authorized. Pursuant to ss. 152(1.7), the Minister’s determination of income or loss binds the Minister and each partner, subject to the usual objection and appeal rights.
As referenced above, the TCC questioned why the partnership objected and appealed. However, it was assumed that the TSI appeal was valid and the validity of the appeal was not in dispute before the FCA (therefore, the question of whether this kind of appeal was fundamentally technically sound was left for another day). The appeals of each individual partner were against the reassessments they were issued for 2000 and 2001, which raised the question of whether allowing them to proceed with the statute-barred argument would be an abuse of process after TSI discontinued its appeal.
The FCA summarized the leading Supreme Court of Canada (“SCC”) case of CUPE,3 which had awful facts: a Toronto city worker was convicted of sexual assaulting a boy; his employment was then terminated and he filed a grievance. At issue was whether, during the grievance process, he could re-litigate whether he committed sexual assault. The SCC stated that “the doctrine of abuse of process engages ‘the inherent power of the court to prevent the misuse of its procedure, in a way that would ... bring the administration of justice into disrepute’.” To allow re-litigation would cast doubt on the validity of the conviction and the primary focus of the abuse of process doctrine is to maintain the integrity of the adjudicative process. The SCC also quoted Goudge JA’s dissenting reasons in Canam:4
The doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel. …
One circumstance in which abuse of process has been applied is where the litigation before the court is found to be in essence an attempt to relitigate a claim which the court has already determined.
The SCC further confirmed that the doctrine would apply where issue estoppel is inapplicable, but where proceeding would “violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice”.
Applying the general principles to the situation in Tedesco, the FCA stated that there had not actually been any finding that the Minister’s loss determinations were made within the time period for so doing under the Act. The TSI appeal was discontinued and the TCC judge held that this meant that any issues in the appeal were deemed to have been adjudicated and dismissed by the TCC. However, the FCA rejected that conclusion. Section 16.2 of the TCC Act states that an appeal is deemed dismissed on the day the TCC receives a written notice of discontinuance. It goes no further. A deemed dismissal produces the same effect as a judgment dismissing an appeal and is a final determination of a matter, but the effect is a legal fiction.5 In Tedesco, the FCA did not interpret that guidance as meaning that each and every issue in the appeal was deemed to have been determined. Had the TSI appeal proceeded, the issue of whether the loss determinations were statute-barred would have been addressed. But because the appeal was discontinued, there was no judicial decision concerning those loss determinations or the statute-barred issue. Taking into account judicial economy, the FCA held that there would not be a waste of judicial resources to have the statute-barred issue considered and there was no risk of inconsistency between judgments, because there was no substantive judgment in TSI’s appeal. The FCA held that it would not be an abuse of process for the appellants to raise the issue of whether the loss determinations were made within or after the expiration of the period limited by the Act and, if so, how that would affect the reassessments issued against the appellants. Thus, the FCA held that the notices of appeal should not have been struck, the appeal was allowed and the TCC’s orders were set aside.
1 (2019 FCA 235).
2 Unless otherwise noted, all statutory references are to the Income Tax Act (“Act”).
3 2003 SCC 63.
4 51 O.R. (3d) 481 (ONCA), approved 2002 SCC 63.
5 See Scarola, 2003 FCA 157.
Read the original article on GowlingWLG.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.