Granofsky, 2017 FCA 119: counsel of record can give the taxpayer's written consent to a subsection 169(3) settlement

2017 FCA 119 · Federal Court of Appeal

Author: Sas Tullo

This is an appeal from a Tax Court order that enforced an out-of-court settlement of an income tax appeal and quashed the appeal. The taxpayer said he had never signed anything and had only authorised his lawyer to negotiate, so the settlement and the reassessments issued under subsection 169(3) of the Income Tax Act were invalid. The Federal Court of Appeal, in a short judgment from the bench, disagreed. A taxpayer who tells counsel by email to go ahead has given a mandate to execute the agreement, and counsel of record can supply the “consent in writing” the subsection requires. The case matters to anyone settling a tax appeal through a lawyer: the email trail can bind you.

Facts

Mr. Granofsky appealed to the Tax Court against reassessments of his 2005 to 2008 taxation years. The Tax Court, by order of D’Auray J. dated August 17, 2016 (2016 TCC 181), dismissed his motion to invalidate a settlement agreement reached with the Minister under subsection 169(3) of the Act and recognised the validity of the Minister’s reassessments (para 1). The Tax Court had found that his counsel was mandated to negotiate a settlement on his behalf, given the express wording of an email he sent her on September 3, 2015, accepting the Minister’s offer, and that his personal signature was not required where a taxpayer is represented by counsel (para 2).

The decision under appeal

In the Tax Court, D’Auray J. heard the appellant’s motion to set aside the settlement and the Crown’s motion to enforce it (TCC paras 1-3). The appellant had been reassessed in October 2010 for unreported income totalling $3,128,324 over four years and had appealed in June 2013 (TCC para 4). His counsel of record testified that in July 2015 the appellant’s objective was to settle or postpone the hearing and to relieve the pressure of collection; offers and counter-offers followed, the appellant at one point decided to proceed to trial, and at the end of August 2015, with the trial set for September 8, he told her he wanted to discontinue, whereupon she proposed to seek a better settlement instead and he told her to go ahead (TCC paras 6-11). On September 3, 2015, she emailed him the terms, writing “as you have mandated me, an out of court settlement was negotiated”, and asked him to confirm that she could sign; he replied the same day, “accepted ok” (TCC paras 12-13). She signed the settlement that day, signed a notice of discontinuance to be held in trust until the reassessments issued, and in November 2015 confirmed that the reassessments matched the settlement; the appellant then asked for time to reflect and on December 1, 2015, said she had never had a mandate to settle (TCC paras 15-20).

The judge held that the September 3 exchange reflected a mandate to settle, that the appellant’s own uncontradicted instruction to discontinue made it difficult for him to say he wanted only collection relief, and that his silence until December was telling (TCC paras 35-38). Counsel was counsel of record under section 31 of the Tax Court of Canada Rules (General Procedure) and, as the appellant’s mandatary under Quebec civil law, was entitled to sign; when a party is represented, counsel may consent in writing on the taxpayer’s behalf for the purposes of subsection 169(3) (TCC paras 41-43). In any event the appellant’s own email reply was itself written consent, since subsection 169(3) does not require a settlement signed by both parties (TCC para 44). Following 1390758 Ontario Corp v The Queen, 2010 TCC 572, the appeal was quashed because the reassessments had already been issued (TCC paras 47-48).

Issues

The Court of Appeal had to decide whether the Tax Court erred in interpreting subsection 169(3) when it concluded that the appellant had consented to the settlement, given his argument that the provision and clause 3 of the agreement required him personally to review the agreement and consent in writing, and that his counsel was mandated only to negotiate (para 3).

Holding

The appeal was dismissed with costs (para 7). The Tax Court made no legal error and no palpable and overriding error in its analysis of the governing principles or its appreciation of the evidence regarding the terms of the agreement and counsel’s authority to sign (para 4).

The court’s reasoning

Scott J.A., for a panel that also included Noël C.J. and Boivin J.A., applied the standard of review from Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, and found neither a legal error nor a palpable and overriding error in the Tax Court’s treatment of the settlement and of the validity of the reassessments issued under subsection 169(3) (para 4).

The Court rejected the appellant’s characterisation of the email exchange. Counsel’s email outlined all the modifications she had been able to negotiate on his behalf, and those modifications “were accepted without any form of ambiguity by the appellant’s email in response” (para 5). By sending that email the appellant conferred an express mandate to execute the agreement on his behalf. Counsel was therefore counsel of record within the meaning of Rule 31 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a, and was entitled to provide, for the purposes of executing the agreement, the consent in writing referred to in subsection 169(3) (para 6). It followed that there was no fault in the Tax Court’s conclusions on the validity of the agreement and the enforceability of the reassessments (para 6).

Subsection 169(3) provides that, notwithstanding section 152, the Minister may at any time, with the consent in writing of the taxpayer, reassess for the purpose of disposing of an appeal. According to the consolidated text on the Justice Laws website, section 169 has not been amended since 2010, so the provision the courts applied is the current one.

Practical implications

The decision is short, but it settles a practical point that arises whenever a tax appeal is settled by exchange of correspondence rather than by a document the taxpayer signs personally. Subsection 169(3) says “the consent in writing of the taxpayer”; it does not say the taxpayer’s signature. The Court of Appeal’s reasoning proceeds in two steps: the client’s email conferred a mandate to execute, and the lawyer, as counsel of record, could then give the written consent. Either step on its own would probably have sufficed, as the Tax Court’s alternative holding that the client’s own email was written consent (TCC para 44) suggests, but the Court of Appeal rested on the mandate.

In my view the lesson for counsel is to do what counsel did here: put the terms in an email, ask expressly for confirmation that the agreement may be signed, and keep the reply. The lesson for clients is the converse. A two-word reply to such an email is a binding instruction, and second thoughts after the reassessments issue come too late. The Tax Court’s observation that the appellant stayed silent from September to December, knowing his trial date had passed (TCC para 38), shows how conduct after the fact can confirm the mandate.

The decision also confirms the remedy. Once the Minister has reassessed in accordance with the settlement, the appeal from the original reassessments is quashed rather than allowed, following 1390758 Ontario Corp (TCC para 47). A taxpayer who wants to resile from a settlement therefore has to attack the mandate itself, and will face the uncontradicted evidence of his own lawyer. Whether an application for leave to appeal was made is not verified here.

For a reader who is not a lawyer, the takeaway is that if your lawyer emails you the terms of a deal with the CRA and you reply that you accept, the deal is done. If you are not sure, say so before you reply, not after the new assessments arrive.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

Granofsky v. Canada, 2017 FCA 119. Judgment delivered from the bench at Montréal on June 5, 2017. Noël C.J., Scott, and Boivin JJ.A.; reasons by Scott J.A. Docket A-324-16. Reasons on the Federal Court of Appeal’s site. Also on CanLII.

Decision under appeal: Granofsky v. The Queen, 2016 TCC 181, D’Auray J., order and reasons dated August 17, 2016 (motions heard May 30, 2016, at Montréal). Reasons on the Tax Court’s site. Also on CanLII.