9041-6868 Québec Inc. v. Canada (Minister of National Revenue)

9041-6868 Québec Inc. v. Canada (Minister of National Revenue) Court (s) Database Federal Court of Appeal Decisions Date 2005-10-17 Neutral citation 2005 FCA 334 File numbers A-559-04 Decision Content Date: 20051017 Docket: A-559-04 Citation: 2005 FCA 334 CORAM: DÉCARY J.A. LÉTOURNEAU J.A. PELLETIER J.A. BETWEEN: 9041-6868 QUÉBEC INC. Appellant and THE MINISTER OF NATIONAL REVENUE Respondent Hearing held at Montréal, Quebec, on October 5, 2005 Judgment delivered at Ottawa, Ontario, on October 17, 2005 REASONS FOR JUDGMENT: DÉCARY J.A. CONCURRED IN BY: LÉTOURNEAU J.A. PELLETIER J.A. Date: 20051017 Docket: A-559-04 Citation: 2005 FCA 334 CORAM: DÉCARY J.A. LÉTOURNEAU J.A. PELLETIER J.A. BETWEEN: 9041-6868 QUÉBEC INC. Appellant and THE MINISTER OF NATIONAL REVENUE Respondent REASONS FOR JUDGMENT DÉCARY J.A. [1] The issue before the Tax Court of Canada was whether Mr. Tambeau's employment with the appellant company was insurable within the meaning of paragraph 5(1)(a) of the Employment Insurance Act and, if so, whether that insurable employment was excluded under paragraph 5(2)(b). On September 27, 2004 (2004 TAC 648), a judge found that the contract between Mr. Tambeau and the appellant was a contract of service rather than a contract for services, and it was therefore insurable. He further found that Mr. Tambeau did not control more than 40 percent of the voting shares of the appellant and therefore could not claim the exclusion set out in paragraph 5(2)(b) of the Act. [2] With respect to the nature of the contract, the judge's answer was correct, but, in my humble opinion, he arrived at it incorrectly. He did not say anything about the provisions of the Civil Code of Québec, and merely referred, at the end of his analysis of the evidence, to the common law rules stated in Wiebe Door Services Ltd. v. Canada (Minister of National Revenue), [1986] 3 FC 533 (FCA) and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983. I would hasten to point out that this mistake is nothing new and can be explained by the vacillations in the case law, to which it is now time to put an end. [3] When the Civil Code of Québec came into force in 1994, followed by the enactment of the Federal Law - Civil Law Harmonization Act, No. 1, SC 2001, c. 4 by the Parliament of Canada and the addition of section 8.1 to the Interpretation Act, R.S.C., c. I-21 by that Act, it restored the civil law of Quebec to its rightful place in federal law, a place that the courts had sometimes had a tendency to ignore. On this point, we need only read the decision of this Court in St-Hilaire v. Canada, [2004] 4 FC 289 (FCA) and the article by Mr. Justice Pierre Archambault of the Tax Court of Canada entitled "Why Wiebe Door Services Ltd. Does Not Apply in Quebec and What Should Replace It", recently published in the Second Collection of Studies in Tax Law (2005) in the collection entitled The Harmonization of Federal Legislation with Quebec Civil Law and Canadian Bijuralism, to see that the concept of "contract of service" in paragraph 5(1)(a) of the EmploymentInsurance Act must be analyzed from the perspective of the civil law of Quebec when the applicable provincial law is the law of Quebec. [4] To begin, it will be useful to reproduce several passages from the preamble to the Harmonization Act, No. 1 and the text of section 8.1 of the Interpretation Act: Preamble to the Federal Law - Civil Harmonization Act, No. 1 . . . WHEREAS the harmonious interaction of federal legislation and provincial legislation is essential and lies in an interpretation of federal legislation that is compatible with the common law or civil law traditions, as the case may be; . . . WHEREAS the provincial law, in relation to property and civil rights, is the law that completes federal legislation when applied in a province, unless otherwise provided by law; . . . Property and Civil Rights 8.1 Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province's rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied. Préambule de la Loi d'harmonisation no 1 du droit fédéral avec le droit civil Attendu : . . . qu'une interaction harmonieuse de la législation fédérale et de la législation provinciale s'impose et passe par une interprétation de la législation fédérale qui soit compatible avec la tradition de droit civil ou de common law, selon le cas; . . . que, sauf règle de droit s'y opposant, le droit provincial en matière de propriété et de droits civils est le droit supplétif pour ce qui est de l'application de la législation fédérale dans les provinces; . . . Propriété et droits civils 8.1 Le droit civil et la common law font pareillement autorité et sont tous deux sources de droits civils au Canada et, s'il est nécessaire de recourir à des règles, principes ou notions appartenant au domaine de la propriété et des droits civils en vue d'assurer l'application d'un texte dans une province, il faut, sauf règle de droit s'y opposant, avoir recours aux règles, principes et notions en vigueur dans cette province au moment de l'application du texte. [5] Section 8.1 of the Interpretation Act came into force on June 1, 2001. It codified the principle that the private law of a province and a federal statute are complementary, which had been recognized (see St-Hilaire, supra) but had not always been put into practice. When that section came into force, the immediate effect was to restore the role of the civil law in matters under the jurisdiction of this Court, to bring to light how the common law might have been borrowed from, over the years, in cases where Quebec civil law applied or should have applied, and to caution us against any such borrowing in future. [6] It is possible, and in most cases even probable, that where contracts are similar they would be characterized similarly, whether the civil law or common law rules are applied. The exercise, however, is not a matter of comparative law, and the ultimate objective is not to achieve a uniform result. On the contrary, the exercise, as was in fact intended by the Parliament of Canada, is one of ensuring that the approach taken by the court is the approach that applies in the applicable system, and the ultimate objective is to preserve the integrity of each legal system. On that point, what was said by Mr. Justice Mignault in Curly v. Latreille, (1920) 60 S.C.R. 131, at page 177 applies as well now as it did then: [TRANSLATION] It is sometimes dangerous to go outside a legal system in search of precedents in another system, based on the fact that the two systems contain similar rules, except, of course, where one system has borrowed a rule from the other that was previously foreign to it. Even when the rule is similar in the two systems, it may be that it has not been understood or interpreted in the same way in each of them, and because the legal interpretation-I am of course referring to interpretation that is binding on us-is in fact part of the law that it interprets, it may in fact happen that despite their apparent similarity, the two rules are not at all identical. I would therefore not base the conclusions that I think must be adopted in this case on any precedent taken from English law . . . (Emphasis added) [7] In other words, it is the Civil Code of Québec that determines what rules apply to a contract entered into in Quebec. Those rules are found in, inter alia, the provisions of the Code dealing with contracts in general (arts. 1377 C.C.Q. et seq.) and the provisions dealing with the "contract of employment" (arts. 2085 to 2097 C.C.Q.) and the "contract of enterprise or for services" (arts. 2098 to 2129 C.C.Q.). Articles 1378, 1425, 1426, 2085, 2098 and 2099 C.C.Q. are of most relevance for the purposes of this case: 1378. A contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation. . . . 1425. The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract. 1426. In interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account. . . . 1440. A contract has effect only between the contracting parties; it does not affect third persons, except where provided by law. . . . 2085. A contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer. . . . 2098. A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to carry out physical or intellectual work for another person, the client or to provide a service, for a price which the client binds himself to pay. 2099. The contractor and the provider of services is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance. 1378. Le contrat est un accord de volonté, par lequel une ou plusieurs personnes s'obligent envers une ou plusieurs autres à exécuter une prestation. . . . 1425. Dans l'interprétation du contrat, on doit rechercher quelle a été la commune intention des parties plutôt que de s'arrêter au sens littéral des termes utilisés. 1426. On tient compte, dans l'interprétation du contrat, de sa nature, des circonstances dans lesquelles il a été conclu, de l'interprétation que les parties lui ont déjà donnée ou qu'il peut avoir reçue, ainsi que des usages. . . . 1440. Le contrat n'a d'effet qu'entre les parties contractantes; il n'en a point quant aux tiers, excepté dans les cas prévus par la loi. . . . 2085. Le contrat de travail est celui par lequel une personne, le salarié, s'oblige, pour un temps limité et moyennant rémunération, à effectuer un travail sous la direction ou le contrôle d'une autre personne, l'employeur. . . . 2098. Le contrat d'entreprise ou de service est celui par lequel une personne , selon le cas l'entrepreneur ou le prestataire de services, s'engage envers une autre personne, le client, à réaliser un ouvrage matériel ou intellectuel ou à fournir un service moyennant un prix que le client s'oblige à lui payer. 2099. L'entrepreneur ou le prestataire de services a le libre choix des moyens d'exécution du contrat et il n'existe entre lui et le client aucun lien de subordination quant à son exécution. [8] We must keep in mind that the role of the Tax Court of Canada judge is to determine, from the facts, whether the allegations relied on by the Minister are correct, and if so, whether the true nature of the contractual arrangement between the parties can be characterized, in law, as employment. The proceedings before the Tax Court of Canada are not, properly speaking, a contractual dispute between the two parties to a contract. They are administrative proceedings between a third party, the Minister of National Revenue, and one of the parties, even if one of those parties may ultimately wish to adopt the Minister's position. [9] The contract on which the Minister relies, or which a party seeks to set up against the Minister, is indeed a juridical fact that the Minister may not ignore, even if the contract does not affect the Minister (art. 1440 C.C.Q.; Baudouin and Jobin, Les Obligations, Éditions Yvon Blais 1998, 5th edition, p. 377). However, this does not mean that the Minister may not argue that, on the facts, the contract is not what it seems to be, was not performed as provided by its terms or does not reflect the true relationship created between the parties. The Minister, and the Tax Court of Canada in turn, may, as provided by articles 1425 and 1426 of the Civil Code of Québec, look for that true relationship in the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage. The circumstances in which the contract was formed include the legitimate stated intention of the parties, an important factor that has been cited by this Court in numerous decisions (see Wolf v. Canada (C.A.), [2002] 4 FC 396, paras. 119 and 122; A.G. Canada v. Les Productions Bibi et Zoé Inc., 2004 FCA 54; Le Livreur Plus Inc. v. M.N.R., 2004 FCA 68; Poulin v. Canada (M.N.R.), 2003 FCA 50; Tremblay v. Canada (M.N.R.), 2004 FCA 175). [10] The expression "contract of service", which has been used in the Employment Insurance Act since its origin and which was the same as the expression used in article 1667 of the Civil Code of Lower Canada, is outdated. The Civil Code of Québec in fact now uses the expression "contract of employment", in article 2085, which it distinguishes from the "contract of enterprise or for services" provided for in article 2098. [11] There are three characteristic constituent elements of a "contract of employment" in Quebec law: the performance of work, remuneration and a relationship of subordination. That last element is the source of the most litigation. For a comprehensive definition of it, I would refer to what was said by Robert P. Gagnon in Le droit du travail du Québec, Éditions Yvon Blais, 2003, 5th edition, at pages 66 and 67: [TRANSLATION] 90- A distinguishing factor - The most significant characteristic of an employment contract is the employee's subordination to the person for whom he or she works. This is the element that distinguishes a contract of employment from other onerous contracts in which work is performed for the benefit of another for a price, e.g. a contract of enterprise or for services governed by articles 2098 et seq. C.C.Q. Thus, while article 2099 C.C.Q. provides that the contractor or provider of services remains "free to choose the means of performing the contract" and that "no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance," it is a characteristic of an employment contract, subject to its terms, that the employee personally perform the agreed upon work under the direction of the employer and within the framework established by the employer. 91 - Factual assessment - Subordination is ascertained from the facts. In this respect, the courts have always refused to accept the characterization of the contract by the parties. . . . 92 - Concept - Historically, the civil law initially developed a "strict" or "classical" concept of legal subordination that was used for the purpose of applying the principle that a master is civilly liable for damage caused by his servant in the performance of his duties (article 1054 C.C.L.C.; article 1463 C.C.Q.). This classical legal subordination was characterized by the employer's direct control over the employee's performance of the work, in terms of the work and the way it was performed. This concept was gradually relaxed, giving rise to the concept of legal subordination in the broad sense. The reason for this is that the diversification and specialization of occupations and work methods often made it unrealistic for an employer to be able to dictate or even directly supervise the performance of the work. Consequently, subordination came to include the ability of the person who became recognized as the employer to determine the work to be performed, and to control and monitor the performance. Viewed from the reverse perspective, an employee is a person who agrees to integrate into the operational structure of a business so that the business can benefit from the employee's work. In practice, one looks for a certain number of indicia of the ability to control (and these indicia can vary depending on the context): mandatory presence at a workplace; a somewhat regular assignment of work; the imposition of rules of conduct or behaviour; an obligation to provide activity reports; control over the quantity or quality of the services, etc. The fact that a person works at home does not mean that he or she cannot be integrated into a business in this way. (Emphasis added) [12] It is worth noting that in Quebec civil law, the definition of a contract of employment itself stresses "direction or control" (art. 2085 C.C.Q.), which makes control the actual purpose of the exercise and therefore much more than a mere indicator of organization, as Mr. Justice Archambault observed at page 2:72 of the article cited supra. [13] In this case, the terms of the contract are unequivocal. It is described as an "employment agreement", and it refers consistently to the "employee". It contains the gamut of clauses generally associated with contracts of employment: term, renewal, grounds for dismissal, description of duties under the control of the employer, remuneration on an annual basis payable periodically, vehicle and cellular telephone supplied by the employer, vacation time, participation in programs established for the employees by the employer, non-competition clause. The common intention of the parties, as expressed in the contract, is clear: what they have agreed to is a contract of employment. [14] The appellant called witnesses in an attempt to show that the true nature of the contractual arrangement between the parties was not as it was described in the contract, but the judge was not impressed: [43] Mr. Verreault's version of the facts and Mr. Tambeau's version as reported by Mr. Poulin are diametrically opposed not only with regard to the work Mr. Tambeau actually carried out for the Appellant, but also with regard to the results obtained and the remuneration he was paid. [44] However, certain facts are indisputable. Mr. Tambeau signed a contract of employment with the Appellant on August 18, 2000. Although Mr. Verreault tried to minimize its significance, the fact remains that the Appellant's request for an injunction against Mr. Tambeau in April 2002 was based on this same contract. As for the control the Appellant had over Mr. Tambeau's activities, it is hard to believe that the latter could do and did what he wanted without being accountable to anyone as Mr. Verreault more or less stated. The authority the Appellant could exercise as a result of the fact that the contract had been signed can hardly be ignored even if it was not in fact exercised very effectively. [15] Counsel for the appellant argued that the judge could not have found Mr. Poulin's testimony to be credible, since Mr. Poulin had merely reported what was said by Mr. Tambeau, who did not testify. I cannot accept that argument. First, it was up to the appellant, who had the burden of proof, to call Mr. Tambeau, and it did not do so. Second, it was open to the judge to prefer Mr. Poulin's testimony to the testimony of Mr. Verreault, particularly when Mr. Verreault contradicted the actual terms of the contract he had signed and had previously relied on that contract to obtain an injunction against Mr. Tambeau in the Quebec Superior Court. [16] Accordingly, and although the judge did not say so in the language of the civil law, he was right to find that the Minister's allegations were correct and that the Minister could conclude from them that the contract was a contract of employment. There is nothing here that warrants intervention. [17] With respect to the second finding, that Mr. Tambeau, the employee, did not control more than 40 percent of the voting shares of the appellant, counsel for the appellant submitted that the judge had erred in interpreting the expression "if the person controls more than 40% of the voting shares of the corporation" in paragraph 5(2)(b) of the Act. In counsel's submission, the number of voting shares that must be considered in determining the percentage cannot include shares in respect of which the holders are unable to exercise their voting rights. In this case, numerous shares were held by a shareholder that was prevented from exercising its right to vote, under section 102 of the Quebec Companies Act, because it had not paid for them. [18] That argument cannot be accepted. A voting share does not cease to be a voting share simply because the holder of the share is unable to exercise its right to vote. The total number of issued voting shares does not vary based on whether or not a shareholder exercises its right to vote, or whether or not it is able to do so. That is precisely what this Court held in Cloutier v. Canada (Minister of National Revenue), [1987] 2 FC 222, (C.A.), in which Mr. Justice Marceau said, at page 226: The relationship is in fact between the "issued shares" and the "controlled shares", and it should be borne in mind that the issuing of a share is an indisputable fact which is established once and for all at the outset: only its control is a debatable fact which may vary with time. . . . (Emphasis added) [19] In this case, the judge instructed himself correctly in the law, by relying on Cloutier, and moreover did not make any erroneous finding of fact within the meaning of subsection 27(1.3) of the Federal Courts Act. [20] I would therefore dismiss the appeal with costs. "Robert Décary" J.A. I agree "Gilles LÉTOURNEAU" J.A. I agree "J.D. Denis PELLETIER" J.A. Certified true translation Monica F. Chamberlain FEDERAL COURT OF APPEAL COUNSEL OF RECORD DOCKET: A-559-04 STYLE OF CAUSE: 9041-6868 QUÉBEC INC. v. THE MINISTER OF NATIONAL REVENUE PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: October 5, 2005 REASONS FOR JUDGMENT: DÉCARY J.A. CONCURRED IN BY: LÉTOURNEAU J.A. PELLETIER J.A. DATE OF REASONS: October 7, 2005 APPEARANCES: Jean-Félix Racicot FOR THE APPELLANT Michel Lamarre FOR THE RESPONDENT SOLICITORS OF RECORD: Jean-Félix Racicot Montréal, Quebec FOR THE APPELLANT John H. Sims, Q.C. Deputy Attorney General of Canada Montréal, Quebec FOR THE RESPONDENT Docket: A-559-04 CORAM: DÉCARY J.A. LÉTOURNEAU J.A. PELLETIER J.A. BETWEEN: 9041-6868 QUÉBEC INC. Appellant and THE MINISTER OF NATIONAL REVENUE Respondent JUDGMENT The appeal is dismissed with costs. "Robert Décary" J.A. Certified true translation Monica F. Chamberlain