



COURT OF APPEAL
        FOR BRITISH COLUMBIA




Citation:



Port
                Chevrolet Oldsmobile Ltd. (Re),









2004 BCCA
            37




Date: 20040126





Docket: CA030337; CA030338

In the Matter of the
Bankruptcy and Insolvency Act

and

In the Matter of the Proposal of
Port Chevrolet Oldsmobile Ltd.










Before:



The Honourable
            Madam Justice Ryan





The Honourable
            Madam Justice Newbury





The Honourable
            Madam Justice Levine









D.G. Nygard



Counsel for the Appellant
Minister of National Revenue





J.F. Grieve



Counsel for the Respondent
Port Chevrolet Oldsmobile Ltd.





B.J. Ingram



Counsel for the Respondent
PricewaterhouseCoopers as Trustee





Place and
            Date of Hearing:



Vancouver, British Columbia





November 24, 2003





Place and
            Date of Judgment:



Vancouver, British Columbia





January 26, 2004














Written
              Reasons by
:





The Honourable
            Madam Justice Newbury





Concurring Reasons by:





The Honourable
            Madam Justice Levine





Concurred
              in by:





The Honourable
            Madam Justice Ryan





Reasons for Judgment of the Honourable Madam Justice
        Newbury:

[1]

The
        respondent Port Chevrolet Oldsmobile Ltd. ("Port") has carried
        on business as an automobile dealership in the lower mainland of British
        Columbia for some years.  On July 9, 2002, the appellant Canada Customs
        and Revenue Agency ("CCRA") issued a Notice of Assessment to
        Port under the
Excise Tax Act
, R.S.C. 1985, c. E-15, for
        the sum of $16,436,009.96 in respect of a 43-month period ending in October
        1998.  According to the Notice, the assessment represented "adjustments
        to input tax credits" of $8,651,572.86, a penalty of $3,201,994.73,
      interest of $2,419,549.16 and "other penalty" of $2,162,893.21.

[2]

Port
        denied liability for the amount assessed and began preparing a Notice of
        Objection to Assessment in the form required by the
Excise Tax Act
.  The
      Objection stated in part:

2.    The Taxpayer
        was fraudulently induced by Sameer Mapara to purchase vehicles that it
        believed existed (the "Vehicles") from one or more companies
      associated with Sameer Mapara ("Mapara's Companies").

3.    The Vehicles
        were purchased during the reporting periods from April 1, 1995 to October
      31, 1998 (the "Reporting Periods").

4.    The Taxpayer
        paid goods and services tax ("GST") to Mapara's Companies on
        the purchase of the Vehicles and claimed input tax credits ("ITCs")
      in respect of that tax.

5.    The Taxpayer
        was then fraudulently induced by Mapara to resell the Vehicles to Mapara's
      Companies for export.

6.    The Taxpayer
        did not collect GST on the subsequent resale of Vehicles to Mapara's
      Companies as it understood that the Vehicles were being purchased for export.

. . .

11.   The Taxpayer was defrauded by Mapara and Mapara's
        Companies into believing that the Vehicles existed and were owned [by]
        Mapara's Companies and were being acquired by Mapara's Companies for
      export.

Port also took the position that many of the amounts
        assessed were statute-barred, that it was entitled to certain rebates
      against the tax assessed, and that CCRA had incorrectly calculated various
      tax
        credits to which it was entitled.  Further, Port contended that it had
        exercised due diligence in determining its net taxes and had not knowingly
        or under circumstances amounting to gross negligence, consented to or
        acquiesced in the making of a false statement or omission in a return,
        and was therefore
        not liable to pay penalties under s. 285 of the
Excise Tax Act
.  The
      Notice of Objection was delivered to CCRA on or about September 12, 2002.

[3]

There
        was no evidence that CCRA invoked the procedure available under s. 316
        of the
Excise Tax Act
and certified an amount payable by
        Port.  (Where a certificate is registered in the Federal Court, it is said
        to have the same effect as if it were a judgment for a debt in the amount
        certified.)  However, execution proceedings of some kind were evidently
        instituted by CCRA against Port, leading General Motors of Canada, Port's
        inventory supplier and financier, to express concern about the company's
        viability.  Sensing that it could be out of business unless it took action,
        Port decided to make a proposal to its creditors under the
Bankruptcy
        and Insolvency Act
, R.S.C. 1985, c. B-3 as amended (the "
BIA
").  Port
        issued notice of its intention to do so on July 10, 2002, which had the
        effect of staying all proceedings against it pursuant to s. 69 of the
BIA
.  Port's
        solicitors also began correspondence with its banker, with General Motors,
        and with CCRA in hopes of arriving at some arrangement whereby Port could
      remain in business and pursue its objection to the assessment.

[4]

The
        final form of Port's proposal to creditors (filed on October 4, 2002)
      was unusual, but reflected the fact that but for the CCRA assessment, Port
        was not experiencing any particular financial difficulty.  The proposal
        contemplated that the company would create a "pool" of not less
        than $250,000 by depositing with the Trustee 50 percent of profits earned
        during the ensuing five years.  From this pool the Trustee would pay
        the claims of CCRA for any outstanding source deductions under the
Income
        Tax Act
, R.S.C. 1985, c. 1 (5th Supp.), unsecured creditors with
        claims of $400 or less in full, and other unsecured creditors pro rata
        according to the amounts of their claims.  Preferred creditors were to
        be paid in full in accordance with s. 136(1) of the
BIA
in
        priority to unsecured creditors, and secured creditors were to be paid
        in accordance with already existing arrangements, or as might be "arranged
        between the Company and each of those parties outside of the terms of this
        Proposal."  The proposal also contemplated that if CCRA's assessment
        under the
Excise Tax Act
was eliminated or reduced "in
        accordance with the applicable process of appeal", CCRA would repay
        to the Trustee "any amount to which CCRA would not be entitled if
        its Proof of Claim either did not reflect the Assessment or reflected it
        in the reduced amount, as applicable, and the Trustee may adjust any subsequent
        dividends to CCRA accordingly."  The proposal was silent about what
        would happen if Port's objection to the assessment was not ultimately
      successful.

[5]

The
        meeting of creditors to vote on the proposal was scheduled for October
        25, 2002.  With the notice of meeting, creditors received the Trustee's
        preliminary report on Port's affairs.  It was prepared on the assumptions
        that (i) Port could either meet its obligations to the business creditors
        or negotiate compromises with them, (ii) it could "successfully deal
        with the impact" of the CCRA assessment, and (iii) it would be able
        to continue operating under the General Motors dealer's agreement.  Based
        on these assumptions, and on its review of Port's assets, the Trustee reported
        that a forced liquidation in bankruptcy would not provide sufficient funds
        to make any payment on account of the claims of preferred or unsecured
        creditors.  The Trustee therefore recommended that the creditors accept
        the proposal which, if the underlying assumptions were correct, would
        result in the payment in full of all preferred creditors, the continued
        employment
        of Port's 55 employees and, depending on its success in appealing the
      CCRA assessment, full or partial recovery to unsecured creditors.

[6]

Also
        accompanying the notice of meeting and the Trustee's report was a letter
        to creditors dated October 3, 2002 from Port's president, Mr. Michael
      Wolfe.  He
      stated in part:

Most of you know how
        we ended up in this situation.  Canada Custom[s] and Revenue Agency ("CCRA")
        has assessed Port for an amount of some $16,000,000 in connection with
        GST related to [sic] transactions which took place several years ago.  Port
        obviously does not have the money to make that kind of payment and we do
        not think that we are liable to pay it in the first place.  We are appealing
        that CCRA assessment, but until that appeal is resolved, CCRA's claim
      is there.

When CCRA issued its $16,000,000 assessment, they also took steps against
        some of Port's assets, namely accounts receivable.  Had we done nothing,
        Port's cash flow would have been eliminated and we would have had to
      shut down.

[7]

In
        the weeks leading up to the creditors' meeting, solicitors for Port and
        CCRA discussed the proposal in correspondence, but CCRA declined to indicate
        ahead of time how it would vote at the meeting.  The day before the meeting,
        CCRA forwarded to the Trustee a proof of claim in "Form 31" (prescribed
        by the Superintendent under the
BIA
) in the amount of $15,864,279.83.  The
      material portions of the Form 31 stated:

3.    That the debtor
        was, at the date of the proposal namely July 10, 2002, and still is, indebted
        to the creditor in the sum of $15,864,279.83 as specified in the statement
        of account attached and marked Schedule "A", after deducting
      any counterclaims to which the debtor is entitled.

4.    (X) UNSECURED
      CLAIM of $15,864,279.83.

That in respect of this debt, I do not hold any assets of the debtor
      as security and

(X)   Regarding the amount of $15,864,279.83, I do not
      claim a right to priority.

5.    That, to the
        best of my knowledge, the above-named creditor is not related to the
      debtor within the meaning of section 4 of the Bankruptcy and Insolvency
      Act.

6.    That the following
        are the payments that I have received from, and the credits that I have
        allowed to the debtor within the three months immediately before the
      date of the initial bankruptcy event within the meaning of Section 2 of
      the
      Bankruptcy and Insolvency Act.

NIL

Attached as Schedule "A" to the Form 31 was
        a statement of account consisting of columns of dates and a net tax amount,
        interest, penalty and a "period total" for each date.  The total
      of "period totals" shown on Schedule "A" was $15,874,279.83.

[8]

The
        creditors' meeting was duly held on October 25.  According to the minutes
        of the meeting, the Trustee advised those present that CCRA's claim was "not
        proven due to an unresolved appeal and Notice of Objection filed by the
        Company.  Therefore, its claim had been disallowed and valued at nil for
        purposes of the meeting and . . . CCRA had been informed of this just prior
        to the meeting."  After some discussion of the proposal and an adjournment,
        the chair of the meeting stated that for purposes of voting on the proposal,
        CCRA's claim would be valued at nil.  The chair declined a request by CCRA
        for a further adjournment to seek the opinion of legal counsel.  The
        proposal was approved by creditors representing 99 percent of the total
        claims in
        value and 98 percent of the creditors by number, excluding CCRA in both
      cases.

[9]

The
        Trustee's formal Notice of Disallowance was forwarded in due course to
      CCRA.  It stated the following reasons for the disallowance:

1.    Your Proof
        of Claim is unsupported by any evidence for an alleged debt of $15,864,279.83
        owed by Port on account of Goods and Services Tax.  Subsection 124(4)
        of the BIA requires a proof of claim to include not only a statement
        of account
      but also the evidence by which the statement of account can be substantiated.

2.    Based on
        a review by the Trustee of the Notice of Objection filed with CCRA on
      behalf of Port and dated September 12, 2002, the Trustee is not persuaded
      that
        Port is in fact indebted to CCRA and the Trustee would require but is
      not aware of any adjudication in favour of CCRA resolving the claim it
      is asserting
      against Port.

3.    In particular,
        based on the contents of the Notice of Objection, it appears that Port
        paid a significant amount of money to a third party in connection with
        what Port believed to be the purchase of vehicles owned by the third party
        and claimed an equivalent figure as an Input Tax Credit, thereby reducing
        the amount payable by Port to CCRA on account of collected Goods and Services
        Tax.  Port alleges that it was fraudulently induced by a Sameer Mapara
      to purchase vehicles from him and his associated companies.

4.    In its
        Notice of Objection Port raises several grounds of objection.  First, Port
        claims that all assessment of reporting periods beginning April 30, 1996
        and ending May 31, 1998 are statute-barred under subsection 298(1) of the
        Excise Tax Act.  The total period covered by the CCRA assessment extends
        from April 30, 1996 to October 31, 1998.  Second, Port claims that Input
        Tax Credits were claimed by it in respect of amounts paid as or on account
        of tax in circumstances where none was actually payable, and that Port
        is therefore entitled to have CCRA apply rebates for such payments against
        the net tax assessed against Port.  Third, Port objects to the substantial
        penalties claimed by CCRA.  Finally, Port takes issue with the calculations
        of the amount of Input Tax Credits claimed by Port.  The CCRA Proof of
      Claim does not address any of these issues raised by Port.

5.    Such other reasons as the Trustee may subsequently
      determine are applicable.

[10]

By
        the time CCRA received this notice, it had already applied to the Supreme
        Court of British Columbia to appeal the disallowance pursuant to s. 135(4)
        of the
BIA
.  The Court's order dismissing that appeal is
      the first of the two orders now being appealed to this court.

The First Chambers Judgment

[11]

Madam
        Justice Neilson dealt in Chambers below with the first appeal.  She noted
        in her Reasons (see [2002] B.C.J. No. 3206) that the appeal raised two
        basic questions, the first of which I regard as one of statutory compliance
      and the second as more substantive:

1.    Were the trustee
        and the Chair in error in disallowing the claim for non-compliance with
      s. 124 of the
Bankruptcy and Insolvency Act
?

2.    Did the trustee and Chair err in categorizing CCRA's claim as contingent
      and of no value for the purpose of voting?  [para. 18]

On the first question, she started with the proposition
        that the provisions of the
BIA
dictating the form of proofs
        of claim are "mandatory and to be strictly construed", and that
        a proof of claim must be sufficient to enable a trustee to make an informed
        decision on its merits.  In this regard, she cited
Re G. Totton Publishers
        Ltd.
(1975) 20 C.B.R. (N.S.) 140 (Ont. S.C.) and
Re Riddler
(1991)
        3 C.B.R. (3d) 273 (B.C.S.C.).  She then described the proof of claim
      filed by CCRA as follows:

CCRA's proof
        of claim follows the format of Form 31, and attaches a statement of account
        that shows a debt occurring between 1995 and 1998 of $15,864,279.83.  It
        includes no reference to the assessment, or to any other basis for this
        account.  There is nothing in the proof of claim that could be construed
        as evidence in support of the claim.  It makes no mention of the Notice
        of Objection.  Nor does it set out any explanation for the discrepancy
        of almost $600,000 between the debt described in the proof of claim and
        the assessment that was delivered on July 9, 2002.  In paragraph 6, where
        it is required to state payments from, or credits to, the debtor in the
      three months preceding the date of bankruptcy event, the response is "nil".

In my view, these defects provided a lawful basis for the trustee
        to exercise his discretion in favour of disallowing the claim pursuant
        to s. 135(2).  There was nothing in the proof of claim on which he could
      make an informed decision as to its merits.  [paras. 24-5]

[12]

Further,
        Neilson J. noted, CCRA had provided no explanation for the discrepancy
        between the amount claimed in the Notice of Assessment and that in the
        proof of claim.  She found nothing in the proof of claim itself or in the
        evidence on the appeal to permit her to infer that it arose from credits
        made to Port since July 10, 2002.  CCRA's other arguments  that the Trustee
        should have required further evidence under s. 135(1), that CCRA had been
        led to expect that formalities would not be strictly observed, and that
        the Trustee should generally have extended greater "latitude" to
      the CCRA  were also rejected.  The Chambers judge reasoned:

I find it difficult
        to believe they would have led CCRA to expect any leniency with respect
        to the formalities required to permit it to vote against the proposal.  Port
        had consistently and strenuously denied the basis for CCRA's debt.  Its
        proposal was necessitated by CCRA's action in executing against its assets.  Port
        was fighting for its economic survival.  CCRA, as the largest potential
        unsecured creditor, carried effective veto power over the proposal, and
        would not advise Port if it was in favour of it prior to the meeting.  In
        my view, CCRA would be naive to think it could deliver an inadequate
        proof of claim in these circumstances, the day before the meeting without
        it
      being challenged.

I recognize
        that
Re Totton
,
supra
, suggests there should be
        some latitude given to creditors in filling out proofs of claim, as many
        are
        completed by creditors without the benefit of legal assistance.  I find
        those comments have limited application, however, to sophisticated and
      experienced creditors such as CCRA.  [paras. 30-1]



Considering also that trustees are experienced professionals
        who have a discretion to exercise, the Chambers judge concluded that
      the Trustee in this case was within its discretion in disallowing CCRA's
      Proof
        of Claim under s. 135(2).  She stated she would dismiss the appeal
      on that ground alone.

[13]

Neilson
        J. went on, however, to examine CCRA's submission that the Trustee and
        the chair of the meeting had erred in categorizing CCRA's debt as contingent
        and of no value.  On this issue, CCRA relied heavily on ss. 299(3), 299(4),
      313(1) and 315(2) of the
Excise Tax Act
, which provide:

299(3)
Assessment
          valid and binding
- An assessment, subject to being vacated on an
          objection or appeal under this Part and subject to a reassessment,
shall
        be deemed to be valid and binding
.

. . .

299(4)
Assessment
          deemed valid
- An assessment shall, subject to being reassessed or
          vacated as a result of an objection or appeal under this Part, be
deemed
          to be valid and binding, notwithstanding any error, defect or omission
        therein or in any proceeding under this Part relating thereto
.

* * *

313(1)
Debts
          to Her Majesty
 All taxes, net taxes, interest, penalties, costs
          and other amounts payable under this Part are debts due to Her Majesty
          in right of Canada and are recoverable as such in the Federal Court or
          any other court of competent jurisdiction or in any other manner provided
        under this Part.

* * *

315(2)
Payment of Remainder
 Where the Minister mails a
        notice of assessment to a person, any amount assessed then remaining
      unpaid is payable forthwith by the person to the Receiver General.  [Emphasis
      added.]

[14]

As
        well, CCRA cited the decision of the Ontario Court of Appeal in
Re
        Norris
(1989) 75 C.B.R. (N.S.) 97, in which a trustee in bankruptcy
        had disallowed a proof of claim filed by the Crown against an individual,
        Mr. Norris, on the basis of a notice of assessment issued against a corporation
        pursuant to s. 227(10) of the
Income Tax Act
.  Mr. Norris
        was a director of the corporation and if the Crown's claim against the
        corporation was valid, would be jointly and severally liable for the assessed
        amount.  He made an assignment in bankruptcy.  The Crown issued a notice
        of assessment in the same amount against him personally.  The trustee was
        not satisfied with the claim filed by the Crown and asked for more information.  The
        Crown supplied the notice of assessment directed to Mr. Norris, but the
        trustee was still not satisfied and asked for Revenue Canada's working
        papers.  Neither these papers nor any further details were supplied,
      leading the trustee to disallow Revenue Canada's entire claim.

[15]

The
        Ontario Court of Appeal ruled that although it had been "within the
        power" of the trustee to "call for evidence to support the proof
        of claim", the trustee's request had been "fully answered by
        the notice of assessment".  After citing s. 152(8) of the
Income
        Tax Act
(the terms of which are similar to those of s. 299(4) of
      the
Excise Tax Act
quoted above), the Court stated:

A taxpayer who
        objects to an assessment may file a notice of objection pursuant to s.
        165(1) of the Income Tax Act and if necessary proceed to exercise rights
        of appeal to the Tax Court and to the Federal Court.  When the trustee
        in bankruptcy wishes to question the validity of an assessment against
        a bankrupt he, like anyone else, must seek his remedy within the Income
        Tax Act: see
Re Carnat Const. Co.
and
Re Selkirk
(1972),
      17 C.B.R. (N.S.) 302 (Ont. S.C.).

To hold that
        the trustee in bankruptcy can disallow an assessment made pursuant to the
        Income Tax Act would be tantamount to clothing the trustee with the powers
        of the Tax Court.  No interpretation of the Bankruptcy Act can support
      such a conclusion.

In the result, the appeal is allowed and the disallowance is set
        aside and the trustee in bankruptcy is directed to allow the claim filed
        by the Crown.  Such allowance of the claim is, however, without prejudice
        to the right of the trustee in bankruptcy to proceed with any right he
      may have under the Income Tax Act.  [at 99]

[16]

However,
        the Chambers judge in the case at bar found
Re Norris
(and
Re
        Bateman
(1998) 10 C.B.R. (4th) 197 (N.S.S.C.)) to be distinguishable
      from this case.  In her analysis:

Those authorities
        deal with a trustee managing a bankrupt estate, in which the assets were
        vested in the trustee.  There had evidently been no challenge to the assessment
        by the debtor prior to bankruptcy.  Nor had the trustee filed a notice
      of objection.

I find the circumstances here quite different.  The debtor is not
        yet bankrupt.  It was a profitable business with over 50 employees before
        the assessment and is now diligently pursuing a proposal under the
Bankruptcy
        and Insolvency Act
,
which is the only course left open to
        it to avoid a bankruptcy and continue to operate, in the face of an assessment
        that it claims is invalid.  Neither the debtor nor the trustee are seeking
        to avoid the appeal procedures outlined in the
Excise Tax Act
.  Instead,
        the debtor is vigorously pursuing them.  The problem is that those procedures
        could not be completed before the first creditors' meeting.  Port has evidently
        convinced the trustee that there is merit to its objection.  Even CCRA's
        representative, Mr. O'Connell, has conceded to the trustee that one possible
        outcome of Port's challenge may be a nil value to CCRA's claim.  [paras.
      40-1]

She also noted that the Court in
Re Norris
had
        relied on
Re Carnat Construction Co
.
Ltd.
(1958)
        37 C.B.R. 47 (Ont. S.C.), where Smily J. had stated that although any challenge
        to an income tax assessment made by a trustee in bankruptcy must be pursued
        through the appeal process in the
Income Tax Act
, there was
      also

. . .
no question that
The

Bankruptcy Act
provisions
          must be complied with, by the filing of proof of claim by the Crown
with
          respect to income tax, and that this assessment may be disallowed by
          the Trustee, and that in such event the Crown is called upon to proceed
          under the provisions of
The

Bankruptcy Act
and appeal
        from that disallowance.  [at 48; emphasis added.]

[17]

Relying
        on this passage, Neilson J. accepted that the debtor or trustee is bound
        to follow the appeal process in the applicable taxing statute to ascertain
        the final amount of any debt owed to CCRA.  On the other hand, if CCRA
        wished to "participate in concurrent proceedings under the
Bankruptcy
        and Insolvency Act
", it was bound to comply with that statute
        with respect to the proof of its claim and, she added, "that compliance
        includes recognition of the trustee's powers to determine a claim is contingent
        and value it accordingly."  (para. 43.)  She found additional support
        for this conclusion in s. 4.1 of the
BIA
 a provision not
        referred to in
Re Norris
 which states that the
BIA
binds
        Her Majesty in Right of Canada, and in the fact that whereas the
Income
        Tax Act
expressly subordinates the
BIA
to its terms,
      the
Excise Tax Act

does not do so.

[18]

The
        Chambers judge also saw substantial practical reasons for permitting
      Port to continue operating pending resolution of the excise tax appeal.  That
        appeal might take a year  during which the CCRA was to be entitled to
        receive "the lion's share" of profits set aside for the unsecured
        creditors under the proposal.  On the other hand, substantial prejudice
        would accrue to Port, its employees and its other creditors if it were
        prematurely forced into bankruptcy on the strength of an assessment that
        might be successfully challenged.  In the result, she found that the Trustee
        had not erred in categorizing CCRA's claim as contingent and of no value.  She
      dismissed the appeal on this ground as well.

The Second Chambers Judgment

[19]

The
        second order under appeal in this court was made five days later, on
      November 18, 2002, by Mr. Justice Groberman.  After hearing counsel for Port, the
        Trustee and the Minister of National Revenue, he approved Port's proposal
        pursuant to s. 59 of the
BIA,
but postponed the coming
        into effect of his order until noon on November 21 in order to allow
        CCRA to seek leave to appeal the rejection of its claim, to appeal his
        order,
        and to seek a further stay.  However, CCRA did not seek a further stay
        prior to November 21, so that Groberman J.'s order became effective as
      of that date.

[20]

On
        November 22, CCRA filed notices of appeal in this court in respect of the
      two orders.

On Appeal

[21]

In
        this court, much of CCRA's argument was taken up with the second branch
        of Neilson J.'s Reasons for Judgment  the conclusion that it lay within
        the discretion of the Trustee to rule that CCRA's claim was a contingent
        one and to assign it a nil value.  The basis of CCRA's submission was
        again that because s. 299(4) of the
Excise Tax Act
provides
        that subject to being vacated on an objection or appeal, a notice of
        assessment
        shall be deemed to be "valid and binding", it was not open to
        the Trustee to rule that CCRA's claim was anything other than valid and
        provable in the amount stated.  In response, the Trustee and Port contend
        that, to quote from Port's factum, the fact that the Crown has "conferred
        upon its collectors the right to assess an amount outstanding subject to
        objection or appeal cannot turn something which is clearly contingent into
        something which is not contingent."  Counsel notes that even CCRA's
        representative at the creditors' meeting acknowledged that ultimately,
      CCRA's claim might amount to nothing.

[22]

The
        issue thus framed is a difficult one of principle.  With all due respect
        to the Court in
Re Norris
, it is not answered by a general
        statement to the effect that the process for challenging an assessment
        under the
Excise Tax Act
is the process prescribed by that
        statute.  That principle is not in question here: unlike the corporate
        taxpayer or its director in
Norris
, Port
is
proceeding
        under the
Excise Tax Act
with its objection to the assessment.  The
        whole purpose of the proposal was apparently to secure time in which to
        carry out that process.  In the meantime, the statutory validity of the
        assessment unless and until Port succeeds in having it set aside, does
        not necessarily mean that in
fact
, CCRA's claim may not be highly
        questionable or of doubtful "value".  (I express no opinion on
        whether that is so in this case.)  The real question is the nature of
        the determination made by a trustee in examining and assessing proofs
        of claim
        under the
BIA
.  Does the trustee make a determination of
fact
concerning
        the validity of (all) the claims filed against the debtor, or is it bound
        to rule as a matter of
law
that an assessment under the
Excise
        Tax Act
, no matter how questionable it might be in fact, is valid
        and fully binding on the debtor for purposes of the
BIA
?  CCRA
        contends that the answer is simple: s. 299 of the
Excise Tax Act
prevails
        notwithstanding the particular facts or equities surrounding the claim,
        and the trustee is obliged to accord it 'full faith and credit', even
        though the assessment may later be set aside.  The other view, however,
        is that the
BIA
and
Excise Tax Act
may be
        reconciled by distinguishing the commercial judgements made in the "real" world
        by a trustee under the
BIA
, from the artificial "deeming" provisions
        of the
Excise Tax Act
which may be invoked by CCRA without
      regard for the objection and appeal process provided in the same statute.

[23]

Unfortunately,
        no appellate authority was brought to our attention considering this
      question, or considering how the two statutes relate to each other in this
      regard.  In
        the absence of direct authority, I prefer to decide this case on a more
        technical basis  the Chambers judge's conclusion on the first branch
      of her reasons that CCRA's proof of claim did not comply with s. 124 of
      the
BIA
.  For
      convenience, I set out s‑ss. (1) and (4) thereof below:

124. (1)
Creditors
          shall prove claims
 Every creditor shall prove his claim, and
          a creditor who does not prove his claim is not entitled to share in
          any
        distribution that may be made.

. . .

(4)
Shall refer to account
 The proof of claim shall contain
        or refer to a statement of account
showing the particulars of the claim
and
        any counter-claim that the bankrupt may have to the knowledge of the creditor
and
        shall specify the vouchers or other evidence, if any, by which it can be
      substantiated
.  [Emphasis added.]

[24]

I
        did not understand CCRA to argue, and I do not read
Re Norris
to
        suggest, that when advancing a claim (whether for taxes due or otherwise)
        under the
BIA
, CCRA need not comply with the applicable
        provisions regarding proofs of claim.  (Indeed, I note that s. 124 was
        not mentioned by the Court in
Re
Norris.)  The ground of appeal stated
        by CCRA in its factum was whether CCRA's proof of claim had in fact been
        defective "such as to justify total disallowance of the claim."  (With
        respect to the latter phrase, I am not aware of any authority for the
        proposition that a defective claim could result in only a
partial
disallowance
        of the claim.)  This ground is inextricably tied to CCRA's argument that
        the Chambers judge failed to consider all the evidence before her  including
        evidence not before the Trustee  in deciding whether CCRA's proof of
      claim had met the requirements of s. 124.

[25]

All
        counsel seemed to be in agreement with CCRA's contention that its appeal
        of the Trustee's decision was a "trial
de novo
" such that
        CCRA could file further evidence in order to establish a provable claim
        in the court below.  The only authority cited on this point was
Re
        Eskasoni Fisheries Ltd.
(2000) 16 C.B.R. (4th) 173, a decision
      of a registrar of the Nova Scotia Supreme Court.  The Registrar stated:

Where a creditor appeals to the court from the decision of a trustee
        to disallow a claim that appeal will proceed by way of trial
de novo
.  While
        I have found no specific case or commentary that makes this point clear,
        it is clear from a review of the cases generally that a Judge or Registrar
        hearing an appeal from a trustee's decision is not required simply to proceed
        upon the information before the trustee.  In other words, on
        such appeals the court is entitled to accept and consider all evidence
      relevant to the claim.  [para. 17]

I note that the ability of the court to accept "new" evidence
        can operate in favour of either party: in
Eskasoni
,

a
        trustee was permitted to advance a separate and distinct basis for disallowing
        a claim on the appeal in addition to the basis previously advanced at the
      meeting.

[26]

Since
        counsel did not challenge
Eskasoni
, I frame the question
        before us to be whether, on the basis of the material before the Trustee, "as
        amplified" by the further evidence filed in the court below, the proof
        of claim filed by CCRA complied with s. 124.  Specifically, did the document "contain
        or refer to a statement of account showing the particulars" thereof,
        and did it specify the "vouchers or other evidence, if any, by which
      it could be substantiated"?

[27]

I
        agree with Neilson J. that the answer to these questions is "no".  As
        I have already described, CCRA's proof of claim consisted of a covering
        letter, a Form 31 and a Schedule "A" listing a series of assessments,
        penalties and interest charges.  I note that consistent with s. 124(4),
        the form prescribed for proofs of claim (presumably also prescribed by
        the Superintendent) is accompanied by an instruction that "The attached
        statement of account or affidavit must specify the vouchers or other evidence
        in support of the claim."  CCRA's proof of claim simply stated at
        paragraph 3 that Port was indebted to CCRA as of July 10, 2002 in the amount
        of $15,864,279.83 "as specified in the statement of account attached
        and marked Schedule 'A', after deducting any counterclaims to which the
        debtor is entitled."  No reference was made to allegations regarding
        Port's sale of non-existent vehicles to a fraudulent party or parties,
      nor to any evidence by which the claim could be substantiated.

[28]

As
        noted earlier, CCRA's Form 31 also stated that CCRA had not received
      any amount from the debtor within the three months preceding the proposal.  If
        this was correct, then even if the Notice of Assessment had been attached
        to the proof of claim, a discrepancy between the amount claimed ($15,864,279.83)
        and the amount stated in the Notice of Assessment ($16,436,009.96) would
        have been apparent.  On the other hand, there was affidavit evidence
        before the Chambers judge to the effect that Port
had
made payments
        in the usual course to CCRA within three months of making the proposal.  If
        this was correct, the Form 31 may have been inaccurate.  In either event,
        the Notice of Assessment would not have "fully answered" the
        question which no doubt arose in the Trustee's mind as to which amount
      was correct  unlike the situation in
Re Norris
,
supra
.

[29]

In
        its factum, CCRA suggests that these defects would have been cured had
        Neilson J. not "failed to consider the Assessment, the Statement of
        Audit Adjustments, the Notice of Objection, the Proof of Claim with Schedule
        'A' and the affidavit material in evidence before her."  With respect,
        there is little doubt that the Chambers judge considered the Proof of Claim
        and Schedule "A" before her.  There was also in evidence before
        her (but not before the Trustee) an affidavit of Mr. O'Connell, an employee
        of CCRA, who attached as exhibit "A" a copy of the Assessment
        dated July 9, 2002 and Port's Notice of Objection in turn dated September
        12, 2002.  The Notice of Objection had attached to it a "Statement
        of Facts and Reasons for Objection of Port Chevrolet Oldsmobile Ltd.",
        which had obviously been prepared by or on behalf of Port.  This document
        set out in general terms the allegation that Port had been defrauded by
        Mr. Mapara and his companies into believing that various vehicles existed
        and were being acquired by his companies for export.  It also advanced
        the other defences noted earlier in these Reasons.  Clearly, the Chambers
        judge considered this document, since she referred at several places in
        her Reasons to Port's objection to the assessment.  In any event, the
        Notice of Objection and the Statement of Facts and Reasons serve to cast
        doubt
      on CCRA's assessment  they do not support it.

[30]

The
        Statement of Audit Adjustments referred to in CCRA's factum was filed
      as an exhibit to the affidavit of Mr. Peerson, a member of the law firm
      acting
        for Port.  This document, prepared by CCRA, is a list of "tax changes" for
        each month covered by the assessment, stating in each case an amount and
        that "ITCs on export vehicles disallowed as they pertained to the
        purchases of non-existent vehicles or vehicles that were not owned by the
        alleged vendors.  Bills of lading (all fraudulent) were used to substantiate
        about 50% of these alleged exports."  Again, CCRA did not provide
        copies of the bills of lading "or other evidence, if any" by
        which the claim could be substantiated.  The Statement of Audit Adjustments
        is a series of conclusory accounts which could provide the Trustee with
        no assistance in carrying out his duty of determining the validity of
      the claim.

[31]

In
        these circumstances, I see no error in the Chambers judge's conclusions
        that the documents filed by CCRA in proof of its claim, as augmented by
        the documents described above, did not comply with s. 124(4) of the
BIA
.  I
        would therefore dismiss the appeal from Neilson J.'s order on that basis.  I
        would also dismiss the appeal from the order of Groberman J., which essentially
      followed upon Neilson J.'s order.

[32]

In
        view of my conclusion, it is unnecessary for me to deal with a fourth
      issue raised by the Trustee in its factum, namely whether, if CCRA had
      been successful
        on this appeal, the creditors' vote would be vacated or whether CCRA
      would simply have become entitled to share in any distribution under the
      existing
        proposal.  I leave that interesting question, as well as that raised
      on the second branch of Neilson J.'s Reasons, for another day.

The Honourable
Madam
      Justice Newbury


Reasons for Judgment of the Honourable Madam Justice
        Levine:

[33]

I
        have had the privilege of reading in draft form the reasons for judgment
        of my colleague, Madam Justice Newbury. I agree that the appeals should
        be dismissed on the ground that CCRA's proof of claim failed to comply
        with the requirements of s. 124 of the
BIA
. I also agree
        that the questions of whether a Trustee in Bankruptcy may determine that
        an assessment under the
Excise Tax Act
is "contingent" and
        how a successful appeal by CCRA would impact on the voting process for
      the proposal should be left for another day.

[34]

In
        my opinion, CCRA's failures to reconcile the amount claimed in its proof
        of claim with the amount claimed in its Notice of Assessment and to accurately
        record payments made by Port in the three months before the proposal were
        fatal to its claim. The additional evidence provided to Neilson J. did
        not remedy these defaults. For this reason, the Trustee was justified in
      rejecting CCRA's proof of claim.

[35]

While
        the factual circumstances in
Re Norris
differed in that the
        Trustee there was administering a bankrupt estate and no notice of objection
        had been filed, I agree with the decision of the Ontario Court of Appeal
        insofar as it determined that Revenue Canada was not required to produce
        its working papers to the Trustee to substantiate its proof of claim. In
        this case, in my view, CCRA was not required to refer in its proof of claim
        to the allegations of fraud that formed the basis for the Assessment or
        to provide copies of the bills of lading referred to in the Assessment.
        Nor, in my opinion, was CCRA required to refer or append to its proof of
      claim the Notice of Objection that had been filed by Port.

[36]

The
        question of whether the Trustee may determine, as a factual matter, that
        a claim by CCRA that complies in form with s. 124 of the
BIA
is
      of doubtful validity or value, remains open.

[37]

I
      would dismiss the appeals.

The Honourable
      Madam Justice Levine

I Agree
:

The Honourable
      Madam Justice Ryan




