GEM Health Care Group Limited v. The Queen

GEM Health Care Group Limited v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2017-02-06
Neutral citation
2017 TCC 13
File numbers
2014-79(GST)G
Judges and Taxing Officers
Don R. Sommerfeldt
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2014-79(GST)G
BETWEEN:
GEM HEALTH CARE GROUP LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on January 26 and 27, 2016, at Halifax, Nova Scotia
By: The Honourable Justice Don R. Sommerfeldt
Appearances:
Counsel for the Appellant:
Bruce Russell, Q.C.
Brian Awad
Counsel for the Respondent:
Martin Hickey
AMENDED JUDGMENT
These Appeals are allowed and the reassessments (the “Reassessments”) which are the subject of these Appeals are referred back to the Minister of National Revenue (the “Minister”) for reconsideration and reassessment in accordance with the attached Reasons, and, in particular, on the basis that, during the period from January 1, 2009 to September 30, 2011:
a) the Appellant acted as the agent for and on behalf of Heart of the Valley Long Term Care Centre Limited, Whitehills Long Term Care Centre Limited and Admiral Long Term Care Centre Limited (collectively, the “Owners”) with respect to the development and construction of the nursing homes owned by the respective Owners, such that the Appellant did not supply construction services to any of the Owners, with the result that the Appellant was not required to collect or remit the goods and services tax and harmonized sales tax (“GST/HST”) in respect of any such alleged construction services; and
b) the management services supplied by the Appellant to Melville Ridge Holdings Limited (“Melville Ridge”) did not include any services performed by Syed Hussain, with the result that the Appellant properly calculated and charged the appropriate amount of consideration for those services and collected and remitted the correct amount of GST/HST in respect of those services.
In all other respects, the Reassessments are confirmed. In particular:
a) the Appellant was not entitled to input tax credits in respect of the reduction, as of December 31, 2009, in the amount of the management fees charged to Melville Ridge and to the owner of the North Hills nursing home; and
b) the Minister properly reassessed the Appellant for GST/HST in respect of parking fees charged by the Appellant to guests of the Garden Inn.
Costs, with a fee for second counsel for conduct of the hearing, are awarded to the Appellant in accordance with Tariff B of Schedule II to the Tax Court of Canada Rules (General Procedure).
This Amended Judgment is issued in substitution of the Judgment dated January 25, 2017.
Signed at Ottawa, Canada, this 6th day of February, 2017.
“Don R. Sommerfeldt”
Sommerfeldt J.
Citation: 2017 TCC 13
Date: 20170125
Docket: 2014-79(GST)G
BETWEEN:
GEM HEALTH CARE GROUP LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sommerfeldt J.
I. INTRODUCTION [1] These Reasons pertain to the Appeals by GEM Health Care Group Limited (“GEM”) in respect of various reassessments (the “Reassessments”) issued by the Canada Revenue Agency (the “CRA”) on behalf of the Minister of National Revenue (the “Minister”) on June 1, 2012, under Part IX of the Excise Tax Act.[1] The Reassessments were issued in two sets. One set was issued to GEM in respect of its business number 88325 9038 RT0001 (which was the business number for GEM’s long-term care facilities), and covered monthly reporting periods from January 1, 2009 through September 30, 2011.[2] The other set of Reassessments was issued in respect of business number 88325 9038 RT0002, covered monthly reporting periods in the months of December 2009, December 2010 and January through June, August and September 2011, and related to the commercial activities of Mahpal Developments (“Mahpal”), which was an unincorporated division of GEM.[3]
[2] Notwithstanding that Mahpal is a division of, and thus forms part of the same legal entity as, GEM, the pleadings distinguished between Mahpal and GEM, as did much of the evidence that was presented. Accordingly, these Reasons will refer to both Mahpal and GEM, but it should be remembered that Mahpal is legally part of GEM.
II. MATTERS IN DISPUTE [3] The Reassessments, to the extent that they are the subject of these Appeals, related to four matters:
a) Some of the Reassessments imposed the goods and services tax and harmonized sales tax (“GST/HST”) in the context of construction services allegedly supplied by Mahpal to three wholly owned subsidiaries of GEM in respect of three new nursing homes.
b) Some of the Reassessments imposed GST/HST in respect of the supply of management services by GEM to another wholly owned subsidiary of GEM.
c) Some of the Reassessments denied input tax credits (“ITCs”) pertaining to a reduction in 2009 of management fees charged by GEM to two subsidiaries.
d) Some of the Reassessments imposed GST/HST in respect of parking fees charged by GEM to guests of the Garden Inn, which was owned and operated by GEM.
In its Notice of Appeal and Amended Notice of Appeal, GEM challenged the correctness of the Reassessments, insofar as they pertained to the above matters.
[4] At the commencement of the hearing, counsel for GEM advised the Court that, as the amount of GST/HST in respect of the parking charges for guests of the Garden Inn was relatively small, that issue would not be contested further by GEM.
III. BACKGROUND A. GEM Health Care Group Limited [5] On January 1, 2000, GEM Management Holdings Limited, Gables Lodge Limited, Mahpal Developments Limited and 3001889 Nova Scotia Limited amalgamated to form an amalgamated corporation known as “GEM Health Care Group Limited”. That amalgamated corporation (or its successor) subsequently participated in two additional amalgamations, on January 1, 2014 and January 1, 2015. In each case, the newly amalgamated corporation retained the name “GEM Health Care Group Limited”.[4]
B. Mahpal Developments [6] After the amalgamation that took effect as of January 1, 2000, the name “Mahpal Developments” was used to refer to the construction division of each of the three successive amalgamated corporations mentioned above. When the three nursing homes were developed and constructed, much of the work was done in the name of Mahpal Developments.[5] It was acknowledged by all the parties that Mahpal Developments was a division or an unincorporated branch of GEM, such that anything done by Mahpal was actually done by GEM. However, Mahpal and GEM had separate bank accounts and separate business numbers.
C. Corporate Structure [7] Syed Hussain and his wife, Gloria, are the only shareholders and directors of GEM. Mr. Hussain is the president and chief executive officer (“CEO”) of GEM. Gloria, who is a registered nurse, is the secretary and director of nursing of GEM. GEM, as well as various affiliates and/or subsidiaries, were all incorporated (or formed by amalgamation) under the laws of Nova Scotia.
[8] During the particular material times, GEM owned all the issued shares of the capital stock of various corporate bodies (the “Subsidiaries”), including Melville Ridge Holdings Limited (“Melville Ridge”),[6] Heart of the Valley Long Term Care Centre Limited (“HOTV Ltd.”), Whitehills Long Term Care Centre Limited (“Whitehills Ltd.”) and Admiral Long Term Care Centre Limited (“Admiral Ltd.”). Mr. Hussain was a director and the president and CEO of each of those four Subsidiaries. He acted on behalf of each Subsidiary when it entered into an agreement with another Subsidiary in the corporate group (the “Group”). Mr. Hussain stated that the practice within the Group was not to reduce intercorporate, intra-Group agreements to writing. Rather, those agreements were made orally. This was done because he was the decision-maker on both sides of the transaction.
[9] GEM provided various services to each of the Subsidiaries, including payroll services, union consulting and negotiating services, purchasing services, IT services, strategic planning, and human resource services (including hiring and firing) in respect of the senior management of each Subsidiary. The hiring and firing of lower-level staff was done by the respective Subsidiaries.
[10] Mr. Hussain was the employee of GEM who performed many of the activities constituting the services provided by GEM to the Subsidiaries. GEM paid a salary to Mr. Hussain for the services that he provided to GEM and for the services that he provided on behalf of GEM to the Subsidiaries.
[11] During the particular material times, the Group owned and operated 12 or 13 nursing homes. GEM owned a few of the nursing homes itself. Mr. Hussain provided services in respect of those nursing homes. As well, on behalf of GEM, he provided to most of the Subsidiaries services that were similar to the services that he provided in respect of GEM’s own nursing homes. The fee typically charged by GEM to a Subsidiary (other than Melville Ridge) for the management services provided by GEM was 5% of the gross revenue of the Subsidiary.
D. New Nursing Homes [12] In 2008, the Government of Nova Scotia embarked on a plan to replace various nursing homes in the province, including two that were then owned and operated by GEM. One of those nursing homes was to be replaced with two nursing homes, in different locations. Thus, over a period of time, GEM was involved in the development of three new nursing homes, known as Heart of the Valley Long Term Care Centre (“HOTV Centre”), Whitehills Long Term Care Centre (“Whitehills Centre”) and The Admiral Long Term Care Centre (“Admiral Centre”). In conjunction with the development of the new nursing homes, GEM arranged for three new Subsidiaries to be incorporated, one for each nursing home. The three new Subsidiaries (which will sometimes be referred to as the “Owners”) were, as indicated and defined above, HOTV Ltd., Whitehills Ltd. and Admiral Ltd. respectively. Mr. Hussain arranged for the particular parcel of land for each nursing home to be conveyed:
a) by him alone to HOTV Ltd.,
b) by his wife and him to Admiral Ltd., and
c) by Melville Ridge to Whitehills Ltd.,[7]
by means of three Indentures, each dated June 2, 2009 and each signed by or on behalf of the respective grantors. The Indentures were not signed on behalf of the respective grantees (but I do not think that anything turns on that).
E. Development and Construction of Nursing Homes [13] To provide the contractual framework for the development and construction of the three new nursing homes, Her Majesty The Queen in Right of the Province of Nova Scotia (the “Nova Scotia Crown”) entered into a Development Agreement and a Service Agreement with each of HOTV Ltd., Whitehills Ltd. and Admiral Ltd. respectively. The Development Agreement and the Service Agreement between the Nova Scotia Crown and HOTV Ltd. were signed by a representative of HOTV Ltd. on April 14, 2009 and by a representative of the Nova Scotia Crown on May 20, 2009. GEM was a party to the Development Agreements and the Service Agreements between the Nova Scotia Crown and Whitehills Ltd. and between the Nova Scotia Crown and Admiral Ltd. respectively (but was not a party to the agreements between the Nova Scotia Crown and HOTV Ltd.). The Development Agreements and the Service Agreements among the Nova Scotia Crown, GEM and Whitehills Ltd. and among the Nova Scotia Crown, GEM and Admiral Ltd. were signed by representatives of GEM and Whitehills Ltd. or Admiral Ltd. (as the case may be) on November 19, 2009 and by representatives of the Nova Scotia Crown on November 24, 2009.
[14] In discussing the three Development Agreements, Mr. Hussain stated that each Development Agreement provided that GEM was to take responsibility for the construction of the particular nursing home. The reason for this requirement was that, at that time, the three Owners were new corporations, and had only minimal assets and no staff. Therefore, the Government of Nova Scotia wanted GEM to be responsible for the development.
[15] I am not certain that the HOTV Development Agreement contained the provision described in the previous paragraph. The Development Agreement pertaining to the HOTV Centre (Exhibit R-1, Tab 2) is between the Nova Scotia Crown and HOTV Ltd. GEM is not a party to that agreement. Having reviewed the HOTV Development Agreement, I did not find any reference therein to GEM or any provision stating that GEM was responsible for the construction of the HOTV Centre.
[16] The other two Development Agreements (Exhibit A-1, Tabs 11 and 13) each have three parties, the first two being the Nova Scotia Crown and GEM and the third being Whitehills Ltd. or Admiral Ltd., as the case may be. The Crown entered into evidence a complete copy of the Development Agreement pertaining to the HOTV Centre (Exhibit R-1, Tab 2). GEM entered into evidence copies of excerpts (containing the first page and the signing page) of each Development Agreement (Exhibit A-1, Tabs 9, 11 and 13). I was not provided with complete copies of the Development Agreements among the Nova Scotia Crown, GEM and either Whitehills Ltd. or Admiral Ltd., as the case may be. The first page and the signing page of the Whitehills Development Agreement and the Admiral Development Agreement appear to be similar to the corresponding pages of the HOTV Development Agreement, other than for the fact that the Whitehills and Admiral Development Agreements also show GEM as a party. The Whitehills Development Agreement and the Admiral Development Agreement define the term “Service Providers” as being both GEM and the particular Owner. There does not appear to be any effort in those agreements to differentiate between GEM and the particular Owner, particularly insofar as the respective duties of each might be concerned. Assuming that pages 2 through 23 of the Whitehills Development Agreement and the Admiral Development Agreement are the same as the corresponding pages in the HOTV Development Agreement, I do not think that there will be anything in those agreements that indicates that GEM is to be treated differently than the particular Owner insofar as the responsibilities under the corresponding agreement are concerned.
[17] There do not appear to have been any documents that were prepared at the time of the development or construction of the nursing homes for the purpose of delineating the respective responsibilities of GEM on the one hand and each of the three Owners on the other hand. Based on the evidence, it does not appear as though, when the Development Agreements were drafted and signed, the parties gave any thought to the relationship between GEM and the three Owners or the capacity in which each would be functioning during the course of the development and construction of the nursing homes.
[18] In the early stages of the development and construction of the nursing homes, the three Owners were new corporations without significant assets and without employees (other than the designated officers). Accordingly, much of the work in respect of the development and construction of the nursing homes was done by employees of GEM. However, it is important to note that the senior officers of GEM were also senior officers of the three Owners.
[19] For each nursing home, GEM (including Mahpal) entered into contracts with an architect and with a general contractor, who entered into various subcontracts with the suppliers who provided labour and materials for the design and construction of the nursing homes. One of the fundamental issues in this Appeal is whether GEM entered into those contracts in its own right or whether it did so as agent for and on behalf of the three Owners.
F. Financing [20] Mr. Hussain explained that, unlike previous nursing home projects, where the developer was required to obtain its own financing in the market place, in 2007, when the Government of Nova Scotia proposed its Continuing Care Strategy to renew or replace certain long-term care facilities, the Government was willing to provide financing for the construction costs. Accordingly, in conjunction with the proposed loans:
a) on August 17, 2009, HOTV Ltd. and Nova Scotia Housing Development Corporation (“HDC”) entered into a Mortgage and a Security Agreement in respect of a loan in the amount of $16,271,963, to provide financing for the construction and outfitting of the HOTV Centre;
b) on December 15, 2009, Whitehills Ltd. and HDC entered into a Mortgage and a Security Agreement in respect of a loan in the amount of $19,550,936, to provide financing for the construction and outfitting of the Whitehills Centre; and
c) on December15, 2009, Admiral Ltd. and HDC entered into a Mortgage and a Security Agreement in respect of a loan in the amount of $23,841,719, to provide financing for the construction and outfitting of the Admiral Centre.
It is significant that, in respect of each of the three loans, the borrower was the particular Owner, and not GEM or Mahpal.
IV. ANALYSIS A. Construction of Nursing Homes [21] GEM takes the position that, to the extent that any activities pertaining to the construction of the three nursing homes were performed in the name of GEM (including Mahpal), those activities were performed by GEM (including Mahpal) as agent for the respective Owners. On the other hand, the CRA takes the position that the Owners engaged the services of GEM (whose construction arm was Mahpal) to complete the construction of the nursing homes, and that GEM, in its own right, provided construction services to the Owners.
[22] There was no written agency agreement that expressly stated that GEM acted as the agent of any of the Owners. However, as an agency relationship may be express or implied, it is also necessary to determine whether there was an implied agency relationship between GEM on the one hand and any or all of the Owners on the other hand.
(1) Legal Principles [23] As indicated by Hogg, Magee and Cook, the resolution of these Appeals will require a consideration of general law, as well as tax law:
The Income Tax Act relies implicitly on the general law, especially the law of contract and property…. Whether a person is an employee, independent contractor, partner, agent, beneficiary of a trust or shareholder of a corporation will usually have an effect on tax liability and will turn on concepts contained in the general law, usually provincial law.[8]
In these Appeals, it is necessary to consider not only the law of contract and the law of property, but also the law of agency.
[24] Before focusing on the legal principles pertaining to implied agency, it is useful to review a few fundamental principles concerning agency in general. In The Queen v Merchant Law Group,[9] the Federal Court of Appeal enunciated the following principle:
It is settled at common law that for an agency relationship to exist the agent must be able to affect the principal’s legal position with third parties by entering into contracts on the principal’s behalf or by disposing of the principal’s property….
This Court has previously recognized that an essential quality of agency is whether the putative agent has the capacity to affect the legal position of the principal….
… an essential quality of the agency relationship … [is] the ability to affect the principal’s legal position with respect to the particular transaction at issue.[10]
This principle is significant in the context of these Appeals, as will be noted below.
[25] Turning to the concept of implied agency in particular, the views of the CRA in respect of this concept are set out in a Policy Statement as follows:
Agency exists where one person (the principal) authorizes another person (the agent) to represent it and take certain actions on its behalf. The authority granted by the principal may be express or implied. In other words, an agency relationship may be created where one person explicitly consents to having another act on its behalf or behaves in such a way that consent is implied….
While two parties may agree that one party is to act as agent with respect to transactions undertaken on behalf of the other party, the absence of such an agreement is not sufficient to conclude that an agency relationship does not exist.
Although the intention of the parties is an important determinant of the nature of the relationship between the parties, case law supports the possibility that two parties may be engaged in an agency relationship without even being aware of it, provided their actions indicate that one party is acting as agent on behalf of another. In other words, agency is generally evident from the conduct of the parties.[11]
[26] A leading textbook, Canadian Agency Law, discusses the creation of an agency relationship by implied contract in these terms:
As with other contracts, the agency relationship may be impliedly created by the conduct of the parties, without anything having been expressly agreed as to terms of employment, remuneration, etc…. The assent of the agent may be implied from the fact that he has acted intentionally on another’s behalf. In general, however, it will be the assent of the principal which is more likely to be implied…. Such assent may be implied where the circumstances clearly indicate that the principal has given authority to another to act on his behalf. This may be so even if the principal did not know the true state of affairs. Mere silence will be insufficient. There must be some course of conduct to indicate the acceptance of the agency relationship. The effect of such an implication is to put the parties in the same position as if the agency had been expressly created.[12] [Footnote numbers omitted.]
[27] In the Kinguk Trawl case, the Federal Court of Appeal quoted the following textbook definition of the term “agency”:
… a fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts.[13]
[28] In Kinguk Trawl, the relationships between two Canadian fishing corporations on the one hand and a Danish fish-marketing company on the other hand were governed by respective trade agreements pertaining to shrimp caught by the Canadian corporations and delivered to the Danish company. There was no written agency agreement between the respective parties, nor did either trade agreement appoint the Danish company as the agent of the particular Canadian corporation. The Federal Court of Appeal, after construing the trade agreements as a whole and considering the circumstances, concluded that the shrimp remained beneficially owned by the Canadian corporations until sold by the Danish company, from which it followed that the activities carried on by the Danish company under the trade agreements were conducted by the Danish company on behalf of the Canadian corporations as their agent.[14] Thus, Kinguk Trawl illustrates that a finding of agency, depending on the circumstances (including any relevant agreements), may be made in a situation where two parties do not actually describe their relationship as an agency relationship and where there is no express appointment of one as the agent of the other.
[29] In Fourney v The Queen,[15] Hogan J stated that “the test for finding an agency relationship in the absence of a written agreement is restrictive; it requires evidence of the necessary conduct.”[16] He quoted portions of Professor Fridman’s comments in respect of implied agency, as set out in an earlier edition of the above-mentioned textbook on agency law, and stated a few principles pertaining to implied agency. Several of those principles are paraphrased as follows:
a) In the absence of a written agency agreement, a court must closely examine the conduct of the parties to determine whether there was an implied intention to create an agency relationship.[17]
b) In reviewing the conduct of the alleged principal and the alleged agent, a key consideration is to determine the level of control which the former exerted over the latter.[18]
c) The alleged principal’s control over the actions of the alleged agent may be manifested in the authority given by the former to the latter. In other words, the concepts of authority and control sometimes overlap.[19]
d) Where it is alleged that a corporation is acting as the agent of its shareholders, a high threshold of evidence is needed.[20]
(2) Application to Facts: Conduct of the Parties [30] Having examined the conduct of GEM and the Owners, in the light of the oral and documentary evidence, as explained in the paragraphs that follow, I have come to the conclusion that, in the context of the development and construction of the three nursing homes, GEM acted as the agent of the Owners. I will now turn to a discussion of the factors which led me to this conclusion.
(a) Incomplete Understanding of Legal Relationships [31] I am not satisfied that Mr. Hussain had a complete understanding of the legal relationships among the various corporations in the Group. For instance, during his direct examination, Mr. Hussain seemed uncertain or confused as to the distinction between a subsidiary and a division, and whether Mahpal was a subsidiary or a division of GEM. He ultimately provided oral evidence that coincided with the documentary evidence (which showed that Mahpal was a division of GEM), but it took him several false starts and a bit of time to arrive at that conclusion.[21] However, later, in cross-examination, Mr. Hussain stated, “Mahpal is just a subsidiary.”[22]
[32] Similarly, Mr. Hussain initially stated that neither Mahpal nor GEM had authority to bind the Owners.[23] Subsequently, near the conclusion of his direct examination, Mr. Hussain testified that GEM had the authority to bind the Owners.[24]
[33] In making the above observations, I do not intend to be critical of Mr. Hussain. Rather, I am simply pointing out that, while he was undoubtedly highly skilled and successful in managing nursing homes, his understanding of legal concepts and legal relationships was at times incomplete and perhaps even incorrect. However, having an incomplete or incorrect understanding of a legal relationship does not negate the existence of the relationship.
(b) No Written Agency Agreement or Construction Agreement [34] GEM did not enter into a formal agency agreement with any of the Owners. However, it should also be noted that, insofar as the evidence disclosed, there was no formal agreement between GEM and any Owner pursuant to which (as alleged by the Crown) GEM agreed to provide construction services to that Owner. Therefore, in order to determine the relationship between GEM and each Owner, it is necessary to examine the conduct of the parties.
(c) Ownership of Land [35] As stated in paragraph 12 above, on June 2, 2009 the land on which each nursing home was to be constructed was conveyed to the Subsidiary that was to be the owner and operator of that nursing home. In each case, the conveyor (or transferor) of the land was a person or persons other than GEM. Apart from certain invoice-like documents (that are critical to the Crown’s theory of the case and that will be discussed below), there was no evidence to suggest that GEM, at any time, supplied any land to HOTV Ltd., Whitehills Ltd. or Admiral Ltd.
[36] After June 2, 2009, as HOTV Ltd., Whitehills Ltd. and Admiral Ltd. each owned the land on which its nursing home was constructed, each of those three Owners came within paragraph (a) of the definition of “builder” in subsection 123(1) of the ETA.
(d) Architect, General Contractor and Consultant [37] SP Dumaresq Architect Ltd. (“Dumaresq”) was appointed as the architect to design the HOTV Centre, the Whitehills Centre and the Admiral Centre. As well, Dumaresq reviewed and approved for payment each progress billing submitted by the general contractors.[25]
[38] A general contractor was engaged in respect of the construction of each of the three nursing homes. In particular, Roscoe Construction Limited was engaged as the general contractor in respect of the construction of the HOTV Centre,[26] Pomerleau Inc. was engaged as the general contractor in respect of the construction of the Whitehills Centre,[27] and Maxim 2000 Inc. was engaged as the general contractor in respect of the construction of the Admiral Centre.[28]
[39] The Nova Scotia Department of Health (“DoH”) imposed a requirement that there be a consultant appointed in respect of each construction project. Accordingly, Costello Fitt Limited was appointed as the consultant, to provide project management services in respect of the HOTV Centre, the Whitehills Centre and the Admiral Centre.[29]
[40] Given all the construction-related services provided by the architect, the general contractors and the consultant, if GEM was engaged to provide construction services to the Owners, as alleged by the Crown, it is not precisely clear what those services were. Mr. Hussain explained that two employees of GEM, George Oickle and Colin Bagnell, were involved in the construction of the nursing homes. Mr. Oickle supervised the construction projects, and Mr. Bagnell was a project manager. There was no evidence as to whether GEM, in its capacity as the employer of Mr. Oickle and Mr. Bagnell, was acting as a principal in its own right or was acting as an agent on behalf of the Owners. The Crown submitted that the construction services provided by GEM consisted of compiling the services and materials that were needed and then managing the construction projects to completion. However, there was no evidence to confirm that GEM conducted those activities as principal, rather than as agent.
(e) Building and Other Permits [41] On June 27, 2008, GEM applied to the Annapolis District Planning Commission for a building permit in respect of the HOTV Centre to be constructed in Middleton, Nova Scotia. The application showed GEM as the applicant and Syed Hussain as the registered owner.[30] The application for the building permit contained a declaration in which the applicant solemnly declared that “I am the owner/authorized agent of the owner named in this application….” It was clear that GEM was not the owner of the land, with the result that the statement just quoted must have indicated that GEM was declaring that it was the authorized agent of the owner (who was then Mr. Hussain, but which was subsequently HOTV Ltd.). Thus, the application contained an acknowledgment by GEM that it was acting as an agent in applying for the building permit. The application was annotated to indicate that the permit was requested for the foundations and site works only and that a subsequent application for a permit for construction of the building would be submitted in July.
[42] It appears that the subsequent application for a permit was not submitted to the Annapolis District Planning Commission until December 8, 2008, when an application for both a building permit and a development permit was submitted.[31] This application also contained the same declaration as the first application, pursuant to which GEM solemnly declared that it was the authorized agent of Mr. Hussain. On June 15, 2009, the Commission granted permission to proceed beyond the foundation stage. By that time, HOTV Ltd. had become the owner of the land on which the HOTV Centre was to be built.
[43] On October 19, 2009, Halifax Regional Municipality granted a building permit, a development permit and a streets and services permit in respect of the Whitehills Centre.[32] These permits, which are set out in a single document, show the applicant as being Mahpal and the property owner as being Whitehills Ltd. There is nothing on the permits that expressly describes or refers to the relationship between the applicant and the property owner. Given that GEM acted as the authorized agent of the landowner in applying for the building permit and development permit in respect of the HOTV Centre, it is conceivable that Mahpal similarly was acting as the authorized agent of Whitehills Ltd. in applying for the building permit, the development permit and the streets and services permit in respect of the Whitehills Centre. Furthermore, by applying for and obtaining the building permit, the development permit and the streets and services permit, Mahpal affected Whitehills Ltd.’s legal position (one of the hallmarks of an agency relationship is the ability of the agent to affect the principal’s legal position[33]). The permits contained the following statements:
Civic number must be posted prior to the issuance of an occupancy permit…. These permit(s) have been issued based on plans provided by the applicant. Construction must be strictly in accordance with the approved plans…. Builder is responsible to prevent silt runoff into the street row and adjacent properties.[34]
The statements quoted above set out obligations imposed by Halifax Regional Municipality on Whitehills Ltd., and are indicative of the manner in which Mahpal, by applying for the permits, affected the legal position of Whitehills Ltd. vis-à-vis Halifax Regional Municipality.
[44] On April 20, 2010, Halifax Regional Municipality issued a one-page document entitled “Permits,” containing a building permit, a development permit and a streets and services permit, in respect of the Admiral Centre.[35] This document shows both the applicant and the property owner as being Admiral Ltd.
(f) Acquisition or Accession of Materials [45] As the various general contractors and subcontractors (collectively, the “Contractors”) worked on the nursing homes, they provided work and materials, the latter being incorporated into and affixed to the various nursing homes. At the conclusion of the hearing, I asked counsel to provide a submission explaining how title to the materials incorporated into a particular nursing home was transferred from a particular Contractor to the Owner of that nursing home (i.e., HOTV Ltd., Whitehills Ltd. or Admiral Ltd., as the case may be).
[46] Counsel for GEM submitted that title to the materials passed by way of accession, upon the specific goods in question being appropriated to the contract and being delivered to or installed in a particular nursing home. In the context of appropriation, counsel for GEM referred me to Fridman’s text entitled Sale of Goods in Canada, which states:
…provided goods answering to the description contained in the contract are in a deliverable state, the essential element in the transference of property in such goods is “appropriation to the contract” (subject to the consent of both parties to such appropriation)….
[Fridman then discussed a case dealing with a contract for the construction and sale of a ship, which specifically stated that property was to pass in things “appropriated” for the ship when the first instalment of the purchase price was paid.] The word “appropriated” was described as a “term of legal art,” with a certain definite meaning. For appropriation to take place, there had to be some definite act, such as the affixing of the property to the vessel itself in the case in question, or some definite agreement between the parties which amounted to an assent to the property in the materials passing from one party, that is, in the instant case, the builders, to the other, the purchasers.[36]
[47] With respect to the concept of accession, counsel for GEM referred me to two cases, the first of which is Crown Tire Service Ltd. v The Queen,[37] which stated the following:
In Benjamin’s Sale of Goods (London, 1974), in considering the distinction between a contract of sale of goods and a contract for work and materials, it is stated:
Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any contract of sale.[38]
The other case referred to me by counsel for GEM is the Will-Kare Paving case, which referred to Crown Tire and quoted the above passage.[39]
[48] Counsel for the Crown submitted that the materials in the nursing homes were deemed, by subsection 191(3) of the ETA, to have been transferred from GEM to the respective Owners upon substantial completion of the nursing homes.[40] More specifically, counsel for the Crown submitted that the transfer of title occurred when the nursing homes were substantially completed and GEM issued itemized invoices to the respective Owners.[41] This suggests that title to the materials for a particular nursing home passed only as that nursing home was substantially completed. However, elsewhere in his submissions, counsel for the Crown submitted that GEM provided construction services to the Owners, that such construction services encompassed multiple supplies of property and services, and that the provision of the materials was incidental to the supply of those construction services.[42] This proposition seems to suggest that title to the materials would have passed from GEM to the Owners in stages, as the construction progressed. Thus, there seems to be some inconsistency in the Crown’s position. Furthermore, counsel for the Crown has not explained how title to the materials supposedly came to be acquired by GEM before GEM purportedly transferred title to those materials to the Owners.
[49] Counsel for the Crown submitted that the transfer of title to the materials occurred by reason of the deeming provisions in subsection 191(3) of the ETA. However, an analysis of subsection 191(3) of the ETA shows that that provision applies only for the purposes of Part IX of the ETA, and, thus, does not apply for the purposes of general law, including the law of property. Hence, the deeming provision in subsection 191(3) of the ETA cannot form the basis pursuant to which title to the materials passed from the various Contractors to HOTV Ltd., Whitehills Ltd. or Admiral Ltd., as the case may be. Rather, the basis for the transfer of title must arise under the applicable principles of general law, including the law of contract, the law of property and the law of agency.[43]
[50] Even if the limitation in the opening words of subsection 191(3) of the ETA could be overcome, subsection 191(3) provides that the particular builder (and not some other person) is deemed to have made and received a taxable supply by way of sale of the multiple unit residential complex in question. In other words, subsection 191(3) contemplates that, at the time that the deeming provision becomes operative, the builder is already the owner of the complex. Subsection 191(3) does not provide for a deemed transfer of property from one person to another, but rather deems the same person (i.e., the builder) to both make and receive a taxable supply by way of sale. Therefore, subsection 191(3) cannot form the basis pursuant to which a builder acquires title to the materials that are used in constructing a multiple unit residential complex. Hence, subsection 191(3) cannot be the means pursuant to which title to the materials was transferred from the various Contractors to HOTV Ltd., Whitehills Ltd. or Admiral Ltd., as the case may be.
[51] Counsel for the Crown submitted that GEM provided to the Owners construction services consisting of the compilation of needed materials and services and the management of the particular construction project to completion, and further submitted that the provision of the materials would be of little assistance to the Owners without the corresponding construction services provided by GEM. According to counsel for the Crown, a single supply of construction services was provided by GEM to the Owners, and in the process of providing tho