What Counts as a “waiver in writing”?

Noran West Developments Ltd v The Queen, 2012 TCC 434

See HERE for a paper on Waivers of Limitation Periods in the ITA.

At issue was what constitutes a “waiver in writing” and how a waiver is to be construed, where the waiver did not refer to any taxpayer specifically or to what was and was not covered by the waiver.

The Court refused to interpret the phrase “in writing” in the same manner as in the Statute of Frauds used the term (requiring the person(s) to be identified by name), citing a lack of a normative principle of statutory interpretation supporting such an interpretation.  The Court held that the phrase was clear and unambiguous, requiring only that the waiver be reduced to writing and not be oral.  In interpreting the waiver, the court said that the correct approach is to ascertain the intention of the parties from the documents and relevant circumstances available. The court refused to interpret the contract strictly against the MNR.

FACTS

Noran was involved in a joint venture with two numbered companies to develop some land into condominiums.  One numbered company held legal title in trust for Noran and the other numbered company.  At some point condominiums were transferred to Noran, others to Ayers (shareholder of Noran), and one to another shareholder of the other numbered company.

The MNR audited Noran to determine what income to include due to the non-arm’s length transfer of the condominiums and reassessed Noran and the other numbered company on the basis of underreported joint venture income, and Ayres to include a shareholder benefit in income.  Ayers claimed he held legal title for Noran, but no documentation or corroboration was provided. Objections were filed to the reassessment of Noran and one numbered company, but not on Ayres’s account.

After negotiations, the corporations and the MNR reached an agreement to reduce the FMV of the condominiums by a certain amount, and the MNR requires and obtained a waiver of the right to object that did not name any taxpayer directly.  The taxpayer believed that the only issue agreed to was the FMV and that the other issues between the MNR and the corporations and himself had not been agreed to – therefore the waiver did not apply to the other issues.

ANALYSIS

The court began by asking what the correct interpretation of the words “in writing” were, as found in subsection 169(2.2) which reads:

Waived issues — Notwithstanding subsections 169(1) and 169(2), for greater certainty a taxpayer may not appeal to the Tax Court of Canada to have an assessment under this Part vacated or varied in respect of an issue for which the right of objection or appeal has been waived in writing by the taxpayer.

The Taxpayer argued that the phrase “in writing” should be interpreted in the same manner as the same words have been in the Statute of Frauds, as in McKenzie v Walsh, (1920) 61 S.C.R. 312, and Imperial Bank v Nixon, [1926] 4 D.L.R. 1052, so as to require the identification of the parties in order to be operative.  The Court, however, was not convinced that the phrase in subsection 169(2.2) should be interpreted the same way, stating that the taxpayer had not pointed to a normal rule of statutory interpretation that could be relied on.

The Court held there was no ambiguity in the words “in writing” and all that is required is that a waiver be reduced to writing rather than be given orally (para 31).  The sufficiency and terms of the waiver are a matter of contractual interpretation: Solberg v The Queen, 92 D.T.C. 6448 (F.C.T.D.), as endorsed by the FCA in Mitchell v The Queen, [2003] 2 F.C. 767,: “The appropriate approach to the interpretation of [a] waiver is to seek to ascertain the intention of the parties as expressed in that document together with any relevant circumstances for which evidence is available”. The court looked at the waiver and concluded that the agreement was intended to apply to the corporation only because: (1) it referred to amounts that only related to the corporation; (2) the proposed reassessment are specific and don’t refer to changes in shareholder benefits, and (3) the use of “I”, “me” and “my” make it clear that the waiver is intended only to apply to one taxpayer, the corporation.

The Taxpayer also argued that the waiver is void as the director (Ayres) misinterpreted the terms of the waiver, preventing the parties being ad idem.  The case of Canadian Imperial Bank of Commerce v Weinman et al, 6 C.P.C. (3d) 189 (Ont. Ct. (G.D.), was relied on as authority that no settlement agreement can be reached due to a lack of ad idem, where one party misconstrues the terms of the proposed agreement.  The Court referred to Ron Ghitter Consultants Ltd v Beaver Lumber Company Limited, 2003 A.B.C.A. 221, to say that to prevent the formation of a contract, the mistake has to be fundamental (ie an essential term of the contract) so as to prevent the appreciation of the fundamental character of the offer and acceptance (para 53).  The Court, after reviewing the waiver agreement, did not accept that Ayres could have believed it to apply to anyone other than Noran, and therefore makes in highly unlikely that there was an intention otherwise.  The court was not satisfied that an operative mistake was proven in this case.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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