



COURT OF APPEAL FOR ONTARIO

CITATION: Jayco Inc. v. Canada (Revenue
    Agency), 2022 ONCA 277

DATE: 20220407

DOCKET: C69359

Pardu, Paciocco and Thorburn
    JJ.A.

BETWEEN

Jayco,
    Inc.

Plaintiff (Appellant)

and

Her Majesty the Queen in Right
    of Canada and The Canada Revenue Agency

Defendants (Respondents)

David Douglas Robertson, Jonathan Ip
    and Brittany Rossler for the appellant

Nancy Arnold, Kevin Dias and Benjamin
    Chamberland, for the respondents

Heard: March 21, 2022 by video conference

On appeal from the order of Justice Frederick L. Myers of the Superior
    Court of Justice, dated March 22, 2021, with reasons reported at 2021 ONSC
    2120.

Pardu J.A.:

[1]

Jayco, Inc. [Jayco] manufactures
    recreational vehicles in the United States and sells them to Canadian dealers. The
    Canada Revenue Agency [the CRA] took the position that delivery occurred in
    Canada and that Jayco was obliged to and failed to collect and remit GST/HST from
    the dealers. It assessed Jayco for almost $14 million in taxes.

[2]

Jayco was successful in the Tax
    Court of Canada in establishing that delivery occurred in the United States,
    and the assessment was set aside. Jayco incurred legal costs in contesting the
    assessment and interest charges on the security posted for the taxes claimed
    pending the hearing of the appeal. It sued for recovery of these expenses but
    its action was dismissed pursuant to r. 21.1(1)(b) of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194, on motion by the defendants. The motion judge accepted
    the argument of the respondents that the CRA had no duty to indemnify the
    appellant for costs incurred in dealing with a GST/HST audit and had no private
    law duty of care which could found a claim for recovery of expenses incurred in
    contesting an audit by the CRA.

[3]

The appellant submits that the
    motion judge erred in striking its two claims, which it defined in the
    following terms in its factum:

1.

Whether the respondents, as principal, owe a duty to indemnify their
    agent (the appellant) for damages caused as a result of the agent following the
    principals instructions. The appellant claims that it was the statutory agent
    of the respondent under the
Excise Tax Act
, R.S.C., 1985, c. E-15 [the
ETA
].

2.

Whether the respondents owe a duty of care to GST/HST registrants who
    are appointed under the
ETA
to be agents of Her Majesty the Queen in right
    of Canada, thus permitting an action in negligence to proceed.

[4]

It is common ground that the standard of review is correctness. Furthermore,
    there is no dispute that the legal test for determining whether a claim should
    be struck under r. 21.01(1)(b) is whether it is plain and obvious that the statement
    of claim discloses no reasonable cause of action, or put another way, that the
    claim has no reasonable prospect of success. Novel but arguable claims should
    be allowed to proceed to trial:
R. v. Imperial Tobacco
    Canada Ltd.
, 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 21;
Hunt v. Carey Canada Inc
., [1990] 2 S.C.R. 959.

The Nature of the Tax

[5]

In
Quebec (Revenue) v. Caisse populaire
    Desjardins de Montmagny
, 2009 SCC 49, [2009] 3 S.C.R. 286, at para.
10, the court described the operation of the GST/HST:

The GST, which was
    implemented in 1990 by legislation that amended the
ETA
(S.C. 1990, c. 45), replaced the former federal manufacturers sales tax. The GST
    can be regarded as a value-added tax. It is collected at every stage of the
    manufacturing and marketing of goods and services and is payable by the
    recipient, who is regarded as the debtor in respect of the tax liability to the
    Crown (s. 165
ETA
). However, the supplier is responsible for collecting
    and remitting the tax (s. 221(1)
ETA
). The supplier is deemed to hold
    the amounts so collected in trust for Her Majesty (s. 222(1) and (3)
ETA
)
    and must periodically file returns and make remittances. In addition, the Act
    establishes a system under which input credits can be claimed, at each step of
    the marketing and supply of the good, in respect of the taxes the supplier has
    had to pay to his or her own suppliers (
ss. 141.01
and
169(1)

ETA
).
    The ultimate recipient bears the full burden of the tax. [Citation omitted.]

The Claim for Indemnity

[6]

The appellant relies on s. 221(1) of the
ETA
,
which requires a supplier to collect
    the tax payable by a recipient:

221(1)
    Every person who makes a taxable supply shall, as agent of Her Majesty in right
    of Canada, collect the tax [] payable by the recipient in respect of the
    supply.

[7]

The appellant argues that this provision made it
    an agent of the respondents when it carried out the instructions of the CRA to
    either pay or secure the taxes claimed. Accordingly, the appellant argues that
    it is entitled to an indemnity owed by a principal to an agent when the
    principals instructions turn out to be based on an erroneous view of tax
    liability. The appellant acknowledges that the weight of authority has
    concluded that auditors carrying out administrative duties under the
Income
    Tax Act
, R.S.C., 1985, c. 1 (5th Supp.) [the
ITA
] owe no duty of
    care to taxpayers, but it argues that s. 221(1) of the
ETA
makes the
    present relationship different.

[8]

It is plain and obvious that this claim could
    not succeed.

[9]

The motion judge held that the Supreme Court of
    Canada resolved the issues of indemnity raised by this appeal in
Reference
    re Goods and Services Tax
, [1992] 2 S.C.R. 445. The appellant, however, submits
    that reference questions are advisory opinions which are not a decision by a
    court on the merits and which bind no one:
In Re Statutes of Manitoba relating
    to Education
(1894), 22 S.C.R. 577, at pp. 677-678;
Reference re
    Secession of Quebec
, [1998] 2 S.C.R. 217, at para. 25.

[10]

In
Reference re Goods and Services Tax
,
    Alberta argued that since suppliers were designated as agents of the government
    for the collection of the GST/HST, the common law duties of principals to
    agents were triggered, including a duty to reimburse agents for all costs and
    liabilities incurred in the course of the agency. The court found this to be an
    exaggeration of the common law duty of principals to agents, and adopted the
    language of Professor Fridman in The Law of Agency (5
th
ed. 1983), at
    p. 164:

The most important
    duty of the principal is to remunerate the agent for services rendered. The
    obligation to pay such remuneration  the agents commission  exists only
    where it has been created by an express or implied contract between principal
    and agent.

[11]

The court concluded that the duty to remunerate
    the agent for costs incurred in the course of the agency does not arise
    automatically, and only arises in cases in which the principal and the agent
    contract, expressly or by implication, for such remuneration to be paid. In the
    case of the GST/HST, it concluded that there was no contractual duty of
    reimbursement arising expressly or by implication, although it left open the
    case of whether there could ever arise a case in which governments would be
    under a duty to reimburse agents unilaterally created by statute for the costs
    incurred in the course of their agency: at p. 476.

[12]

The court went on to consider the common law
    right of indemnification for agents who inadvertently cause tortious injury to
    others in the course of their agency, and concluded that the collection of
    taxes as an agent in compliance with the
ETA
could not give rise to a
    right to indemnification: at pp. 476-477.

[13]

Finally, the court noted that any right to
    remuneration for the time and trouble involved in collecting the GST/HST would
    have to flow from the
Act
itself. The
Act
was silent on
    compensation, though it provided for a one-time transitional credit. Since Parliament
    had directed its mind to the issue of compensation for the costs of compliance
    with GST/HST collection, and established a scheme for compensation, common law
    rights which might have operated but for the statute cannot be relied upon: at
    p. 478.

[14]

Here, there is no question of express or implied
    contractual entitlement to reimbursement. There is no tortious liability to a
    third party which is the subject of a claim for indemnification. Section 221(1)
    of the
ETA
limits the agency to the collection of the tax from a
    recipient of a supply.

[15]

Both the
ITA
and the
ETA
rely
    on self-reporting by taxpayers. Those acts establish administrative structures
    for the assessment and audit of taxpayers. When the CRA delivers a Notice of
    Assessment or Reassessment claiming that more taxes are owing and the taxpayer
    delivers a Notice of Objection, the parties are taking opposing positions. Under
    these circumstances, it cannot be said that the taxpayer is acting as agent of
    the tax authority when it incurs interest or legal costs in the course of
    asserting its position.

[16]

Interest paid to post security for the taxes
    claimed, and legal fees incurred to contest the assessment, are not incurred
    for the collection of the tax from a recipient of a supply.

[17]

In the face of the comprehensive statutory
    scheme providing for Notices of Objection, appeals to the Tax Court of Canada,
    judicial review and some remedies for overpayment, such as interest on refunds
    and awards of costs, the absence of statutory provisions for indemnification for
    other interest paid and other legal costs is telling. Here, the Tax Court of
    Canada awarded solicitor and client costs to Jayco. Section 221 does not
    provide a basis to infer a statutory entitlement to more costs and interest
    beyond that provided in the
ETA
and the
Tax Court of Canada Act
,
    R.S.C., 1985, c. T-2.
[1]

[18]

Reference re Goods and Services Tax
is not binding, but it is persuasive. The motion judge was correct
    to conclude that it is plain and obvious that there is no right of indemnity
    arising from s. 221 of the
ETA
for the expenses claimed by the
    appellant.

Does the CRA owe a duty of care in relation
    to its administrative and audit functions?

[19]

The motion judge held that there was ample case
    law rejecting the proximity required to formulate a private law duty of care
    between the CRA and taxpayers facing an audit. While he noted that there could
    be a private law duty of care where the CRA undertook a criminal investigation,
    an investigator of criminal offences did not have the same relationship of an
    auditor to a taxpayer while carrying out administrative duties in an audit. This
    conclusion is so clearly right that the motion judge came to the correct
    decision in dismissing Jaycos duty of care claim pursuant to r. 21.1(1)(b).

[20]

Resolution of this issue turns on whether there
    is sufficient proximity between a taxpayer and the CRA to establish a prima
    facie duty of care. The relationship between the parties and broad questions of
    policy are relevant here:
Cooper v. Hobart
, 2001 SCC 79, [2001] 3
    S.C.R. 537, at para. 30. The second stage of the inquiry asks whether there are
    residual policy considerations which should negate or limit that duty of care.

[21]

Where a statutory regulator is mandated to
    protect the public interest, the creation of a private law duty of care may
    conflict with the regulators public duties. As noted in
Imperial Tobacco
,
at paras. 43-45:

A complicating factor is the role that
    legislation should play when determining if a government actor owed a
prima
    facie
duty of care. Two situations may be distinguished.  The first is the
    situation where the alleged duty of care is said to arise explicitly or by
    implication from the statutory scheme. The second is the situation where the
    duty of care is alleged to arise from interactions between the claimant and the
    government, and is not negated by the statute.

The argument in the first kind of case is that
    the statute itself creates a private relationship of proximity giving rise to a
prima facie
duty of care. It may be difficult to find that a statute
    creates sufficient proximity to give rise to a duty of care.  Some statutes may
    impose duties on state actors with respect to particular claimants. However,
    more often, statutes are aimed at public goods, like regulating an industry (
Cooper
),
    or removing children from harmful environments (
Syl Apps
).  In such
    cases, it may be difficult to infer that the legislature intended to create
    private law tort duties to claimants. This may be even more difficult if the
    recognition of a private law duty would conflict with the public authoritys
    duty to the public: see, e.g.,
Cooper
and
Syl Apps
. As stated
    in
Syl Apps
, [w]here an alleged duty of care is found to conflict
    with an overarching statutory or public duty, this may constitute a compelling
    policy reason for refusing to find proximity (at para. 28; see also
Fullowka
    v. Pinkertons of Canada Ltd.
, 2010 SCC 5, [2010] 1 S.C.R. 132, at para.
    39).

The second
    situation is where the proximity essential to the private duty of care is
    alleged to arise from a series of specific interactions between the government
    and the claimant. The argument in these cases is that the government has,
    through its conduct, entered into a special relationship with the plaintiff
    sufficient to establish the necessary proximity for a duty of care. In these
    cases, the governing statutes are still relevant to the analysis. For instance,
    if a finding of proximity would conflict with the states general public duty
    established by the statute, the court may hold that no proximity arises:
Syl
    Apps
; see also
Heaslip Estate v. Mansfield Ski Club Inc.
, 2009
    ONCA 594, 96 O.R. (3d) 401. However, the factor that gives rise to a duty of care
    in these types of cases is the specific interactions between the government
    actor and the claimant.

[22]

Here, the mandate of the CRA is to ensure that
    taxpayers pay taxes that are lawfully owed, for the benefit of all taxpayers
    and the country as a whole. The
ETA
establishes a comprehensive regime
    to deal with disputes over taxes owing, including appeals and judicial review. Recognition
    of a private law duty here would conflict with the agencys duty to the public;
    there is nothing in the legislative scheme to suggest that such a duty was
    contemplated. The administrative regime for enforcement of the GST/HST is
    broadly similar to that in place to enforce the
ITA
.

[23]

There are many instances where courts have held
    that broad statutory public duties foreclose a private law duty of care. As
    noted in
Reference re Broome v. Prince Edward Island
, 2010 SCC 11,
    [2010] 1 S.C.R. 360, such public duties do not generally, in and of themselves,
    give rise to private law duties of care: at para. 13; see also
Eliopoulos
    v. Ontario (Minister of Health & Long Term Care)
(2006), 82 O.R. (3d)
    321 (Ont. C.A.); and
River Valley Poultry Farm Ltd. v. Canada (Attorney
    General)
, 2009 ONCA 326, 95 O.R. (3d) 1.

[24]

Nor is there anything in the specific
    relationship between the appellant and the CRA that suggests that a finding of
    sufficient proximity would be appropriate. That the CRA was ultimately shown to
    have been wrong to assess the appellant for the taxes it claimed is not enough.

[25]

The appellant argues that
McCreight v.
    Canada (Attorney General)
, 2013 ONCA
    483,
116 O.R. (3d) 429 holds that in some circumstances, revenue
    authorities will owe a duty of care to a taxpayer.

[26]

In
McCreight
, the CRA was concerned
    that taxpayers and their accountants were applying for fraudulent research and
    development credits. It obtained search warrants for the homes and businesses
    of the taxpayers, their lawyers and accountants. It was authorized to retain
    the materials seized until July 1999. It had not completed its examination of the
    materials by then and applied for an extension. It was ordered to return the
    original materials by November 9, 1999.

[27]

On November 9, 1999, criminal charges were laid
    against various taxpayers and advisors alleging fraud and conspiracy. There was
    a judicial finding that the information in support of the charges was sworn primarily
    to retain possession of the seized documents: at para. 6. The criminal charges
    were ended by discharges, withdrawals or stays.

[28]

The plaintiffs sued for a variety of causes of
    action, including negligence. This court overturned the motion judges ruling
    that it was plain and obvious that the CRA investigator owed no duty of care to
    the plaintiffs, at paras. 60-62:

In my view, in this case, the motion judge
    erred in concluding that it was plain and obvious that the respondent CRA
    investigators did not owe a duty of care to McCreight and Skinner, policy
    considerations would foreclose such a duty in any event and, therefore, the
    negligence claim had no reasonable prospect of success and should be struck.

Firstly, given the Supreme Court's ruling in
Hamilton-Wentworth
that, in certain circumstances, police officers may owe a duty of care to their
    suspects, surely it is not plain and obvious that a CRA investigator owes no
    such duty when operating under
ITA
provisions that attract criminal
    sanction and under the
Criminal Code
. The same analogical reasoning
    applies to any residual policy rationale that could negate such a duty.

Secondly, I see no
    relevant distinction between the above-cited case of
Leroux
and this
    case. That case that involved a claim of negligence against CRA employees as
    well and the British Columbia Court of Appeal dismissed an appeal of an order
    permitting the cause of action to proceed to trial. The Court was not persuaded
    that the claim should be struck because it was at least arguable that such a
    cause of action could succeed and the issue was to be considered at trial.

[29]

The critical distinction that made
McCreight
different from the present case was the institution of criminal proceedings.
Hill
    v. Hamilton
‑
Wentworth Regional Police Services Board
, 2007 SCC 41, [2007] 3 S.C.R. 129

established that police officers have a duty in certain
    circumstances to an identified suspect to conduct a reasonable investigation.

[30]

This courts approval of
Leroux v. Canada
    Revenue Agency
, 2012 BCCA 63, 347 D.L.R. (4th) 122 as a basis to allow the
    action to proceed where criminal charges have been laid does not amount to
    affirmation that a duty of care also exists when the CRA undertakes
    administrative assessments and audits.

[31]

As the court noted in
McCreight
, it is
    not plain and obvious that CRA investigators owe no duty of care to those they
    are investigating when operating under
ITA
provisions that attract
    criminal sanction and under the
Criminal Code
: at para. 61.

[32]

Here, the appellants proximity claim was made
    in a non-criminal investigation where only its economic interests were at
    stake. Any liberty interests it might have had were not threatened and it
    asserted no
Charter
rights:
River Valley
,
at para. 51.

[33]

Policy reasons also favour rejection of a
    private law duty of care in relation to administrative assessments and audits. Such
    a duty would expose the government to unlimited liability to a practically
    unlimited class: taxpayers.

[34]

I agree with the views expressed in
Grenon
    v. Canada Revenue Agency
, 2017 ABCA
    96, 49 Alta. L.R. (6th) 228
, at para. 25, leave to appeal refused, [2017]
    2 S.C.R. vii (note):

[I]t is plain and obvious
    that an action in negligence cannot succeed. It is clear that, because of the
    inherently adverse relationship between auditors who are exercising a statutory
    function and taxpayers, a finding of sufficient proximity to ground a private
    law duty of care does not exist.

[35]

I conclude that the motion judge was correct to
    conclude that the CRA did not owe a private law duty of care to Jayco when it
    assessed Jayco for the taxes it claimed were owing.

[36]

A taxpayer may not be left without a remedy
    where it can establish the ingredients of an intentional tort, such as
    misfeasance in public office, which requires a showing of deliberate unlawful
    conduct in the exercise of public functions and awareness of the unlawfulness
    of the conduct and the likelihood of injury to the plaintiff:
Odhavji
    Estate v. Woodhouse
, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 23.
    Here, the appellant has not established any such intentional tort.

[37]

Accordingly, I would dismiss the appeal by
    Jayco, with costs to the respondent fixed at $10,000 inclusive of disbursements
    and taxes.

Released: April 7, 2022 G.P.

G.
    Pardu J.A.

I
    agree David M. Paciocco J.A.

I
    agree J.A. Thorburn J.A.





[1]
Section 296 of the
ETA
provides for interest on overpayments
    of tax, at a prescribed rate. Section 18.26 of the
Tax Court of Canada Act
allows that court to award costs to a taxpayer.


