Newave Consulting Inc. v. Canada (National Revenue)

Newave Consulting Inc. v. Canada (National Revenue)
Court (s) Database
Federal Court Decisions
Date
2021-11-09
Neutral citation
2021 FC 1203
File numbers
T-904-21, T-945-21
Decision Content
Date: 20211109
Docket: T-904-21 and T-945-21
Citation: 2021 FC 1203
Toronto, Ontario, November 9, 2021
PRESENT: Mr. Justice Andrew D. Little
BETWEEN:
NEWAVE CONSULTING INC.
Applicant
and
THE MINISTER OF NATIONAL REVENUE
Respondent
ORDER AND REASONS
[1] These reasons concern a motion by the applicant for interim remedies against the respondent, the Minister of National Revenue, and the Minister’s motions to strike two Notices of Application filed by the applicant.
[2] The applicant is Newave Consulting Ltd. (“Newave”). The Minister of National Revenue is responsible for Canada Revenue Agency (“CRA”).
[3] Starting in 2018, CRA conducted an audit of Newave’s GST/HST filed returns for the three years from 2017 to 2019. The audit concluded that Newave was not carrying on a commercial business but instead was engaged in fraudulent activities designed to deprive the Minister of tax revenue under the Excise Tax Act, RSC 1985, c E-15.
[4] Earlier this year, CRA auditors (on behalf of the Minister) advised Newave by letter that they proposed to reassess the three years of GHT/HST returns, which would result in Newave owing approximately $72 million in tax and penalties.
[5] Newave demanded disclosure CRA’s internal analysis and supporting documents, and more time to make submissions. CRA agreed to additional time but did not provide the requested disclosure. After the additional time expired and after a call between CRA and Newave’s counsel, CRA issued Reassessments. CRA deregistered Newave’s GST/HST accounts and is in a position to start the process to collect the reassessed amounts.
[6] In June 2021, Newave filed two Notices of Application for judicial review in this Court. The applications purport to challenge CRA’s decisions on June 2, 2021, not to provide disclosure and additional time for submissions, and its decision to issue Reassessments.
[7] By Notices of Motion dated June 25, 2021, the Minister moved to strike out the Notices of Application. The Minister argues that the applications for judicial review are bereft of any hope of success.
[8] By Notice of Motion dated July 27, 2021, Newave moved for interim relief under the Federal Courts Act, RSC 1985, c F-7 for the following remedies, effective until it receives a decision on its pending judicial review applications:
a stay of any action by CRA to collect on the amounts owing in the Reassessments
a stay of the deregistration of its GST/HST account, and
an Order for mandamus requiring the Minister to register Newave with CRA’s GST/HST program.
[9] The motions were heard together in a day-long hearing.
[10] For the reasons that follow, the applicant’s motion for interim remedies is dismissed and the Minister’s motions to strike the Notices of Application are allowed.
I. Events Leading To These Motions
[11] Newave provided a chronology of the events leading to this motion, including correspondence between the parties, in an affidavit from Mr. Franklin Vilchez, a legal assistant employed by counsel for Newave. That affidavit also made statements on information and belief from two sources. One source was an unnamed person who was apparently a lawyer previously associated with Newave’s counsel. The other source was one of the corporate directors of Newave, Mr Olaitan Omidiran. I will return to this “evidence” below.
[12] Newave’s telecommunications business involves the resale of wholesale international voice-over-Internet protocol (“VOIP”) call traffic. It provides services to individuals and companies. It has operated since 2006.
[13] On December 13, 2018, the Canada Revenue Agency (“CRA”) commenced an audit of Newave. Between December 2018 and June 2020, CRA requested information from the applicant for the audit and the applicant responded.
[14] By registered letter dated March 16, 2021, CRA auditors advised Newave that it had completed its review of the GST/HST returns for the period January 1, 2017, to December 31, 2019 (the “audit period”). CRA proposed three things: to adjust Newave’s returns; to deregister its GST/HST program account; and to impose penalties. CRA would reassess Newave on that basis.
[15] CRA’s letter dated March 16, 2021, proposed changes to Newave’s returns, which were set out in an attached summary. CRA proposed adjustments in input tax credits (“ITCs”) claimed by Newave during the audit period, that would cause ITCs to be reduced by approximately $54.5 million.
[16] CRA explained its legal and factual position in the March 16 letter itself and in schedule E to the letter. CRA advised that its audit review of Newave’s GST/HST returns could not find enough evidence to establish that Newave was involved in a commercial activity during the audit period. As a result, CRA proposed to deregister the GST/HST program account effective December 31, 2020 under section 240 of the Excise Tax Act. In addition, CRA did not consider Newave to have been a registrant at any time during the audit period.
[17] Schedule E to CRA’s March 16 letter described CRA’s assessing positions, which I will summarize briefly:
First, CRA audit identified a sham, through evidence of an intentional deceit and an element of false appearance. The intentional deceit was the creation of fictitious Call Detail Records, which CRA Audit concluded were contrived to create an illusion of commercial activity. CRA Audit determined that Newave, its customers and suppliers had colluded to create artificial supplies of call minutes using a computer program that routed the fictitious calls through each customer’s and supplier’s computer servers. The scheme was designed to divert tax revenue from the Minister by creating fictitious ITCs or to disappear with the GST/HST funds collected.
Second, CRA audit concluded that the VOIP telecommunications minutes for which invoices were issued did not exist.
Third, CRA audit concluded that Newave was complicit in a carousel scheme, the sole purpose of which was to deceive the Minister and benefit from diverted GST/HST. CRA Audit alleged that the two principals of Newave personally benefited by having corporate amounts paid into their personal bank accounts.
Fourth, there were insufficient supporting documentation for the ITCs.
[18] CRA proposed to apply penalties on the adjustments to Newave’s returns of approximately $12.7 million.
[19] CRA advised that Newave had 30 days to send representations or explanations in response to its proposals, which CRA would consider before reassessing Newave’s returns and deregistering its GST/HST account. CRA advised that if it did not hear from Newave before April 16, 2021, CRA would send out the reassessment based on the proposed changes and deregister Newave’s account.
[20] By letter dated April 12, 2021, counsel for Newave advised that they had been recently retained to represent Newave during the audit. The same correspondence requested an extension of 60 days until June 15, 2021, to make comprehensive submissions.
[21] By letter dated April 14, 2021, CRA advised that it was willing to extend the proposal deadline to May 17, 2021, in order to allow counsel to submit representations or explanations for CRA’s consideration. CRA advised that the deadline would not be extended past May 17, 2021.
[22] By letter dated May 6, 2021, counsel for the applicant advised CRA that the extension of 30 days was “inappropriate and unprofessional” because: the CRA was making serious allegations of fraud and proposed to impose over $60 million in tax payable; the taxpayer was cooperative and timely in answering CRA’s audit queries; and the COVID-19 pandemic had slowed down turnaround times for everyone, not just the CRA. Counsel for the applicant requested information alluded to in schedule E of the March 16, 2021 letter, as follows:
a copy of CRA’s Call Detail Records and analysis;
the companies that CRA says that the taxpayer colluded with to create artificial supplies of minutes;
the name of the computer software that CRA says the taxpayer and the companies used to create fake call traffic;
specifics of what CRA says are questions surrounding the legitimacy of both Newave’s supplies and customers, direct and indirect;
the amount of the GST/HST, if any, that the CRA says was misappropriated as a result of the taxpayer’s alleged involvement in the alleged carousel scheme.
[23] In the May 6, 2021, letter, Newave’s position was:
all documents reviewed or relied upon by CRA audit must be disclosed (even if they disclose third-party information). A taxpayer cannot reasonably be expected to make fulsome submissions, or be treated fairly, if they are unaware of the full scope of CRA’s case against them.
[24] Newave’s counsel asked CRA to provide a list of the documents that the CRA refused to produce and its basis for refusal, so Newave could “determine whether it was necessary to bring an application for judicial review with respect to the CRA’s refusal to make full and fair disclosure”.
[25] Having not received an immediate response, counsel for Newave wrote to CRA by letter dated May 17, 2021, seeking an answer and reaffirming its position that it needed CRA’s documents and more time to make substantive submissions.
[26] CRA did not respond in writing, but instead scheduled a call with counsel on June 2, 2021.
[27] The Vilchez affidavit filed on the applicant’s motion for interim relief stated that Mr. Vilchez was “advised and verily believe[d]” that on June 2, 2021, CRA “advised counsel for the Applicant verbally that it would refuse to provide documentary disclosure” of CRA’s Call Detail Records analysis on which its assessing position was based, a list of the entities which CRA alleges Newave colluded with, the computer software that CRA alleges Newave used to manipulate the CDRs, the quantum of any GST/HST CRA alleges was misappropriated, and any other documents, working papers or information containing third-party information that the CRA relied upon to reach its conclusions. Counsel requested a further 30-day extension to make submissions.
[28] Mr. Vilchez’s affidavit stated, again on information and belief from the unnamed counsel, that the CRA Audit team leader advised counsel “verbally multiple times” that no further extension would be provided because there was “nothing that the taxpayer can provide that will change our mind”.
[29] On June 7, 2021, Newave filed an application for judicial review in Federal Court file number T-904-21. It also faxed the Notice of Application for judicial review to CRA.
[30] By letter dated June 7, 2021, CRA advised Newave and its counsel of CRA’s decision with respect to the proposals in its March 2021 letter and that Newave would be deregistered from its GST/HST account as of March 31, 2021. The Vilchez affidavit advised that this letter “was only received on June 16, 2021”.
[31] CRA issued Notices of Reassessment dated June 10, 2021. The Reassessments provided that Newave owes CRA approximately $72 million.
[32] On June 11, 2021, Newave filed a second Notice of Application for judicial review in Federal Court file number T-945-21.
[33] By letter dated June 28, 2021, counsel for Newave wrote to CRA requesting that CRA postpone collection action. CRA has not responded to this letter.
[34] Also by letter dated June 28, 2021, counsel for Newave wrote to CRA requesting that CRA exercise its discretion to refrain from deregistering Newave from GST/HST. CRA has not responded to this letter.
[35] On July 26 and 27, 2021, Mr. Vilchez followed up these letters by telephoning CRA’s business inquiries line. Neither agent with whom he spoke could provide an answer to the two letters dated June 28, 2021. In the second call, a CRA agent stated that there was a note on Newave’s file at CRA stating that the GST/HST account cannot be opened and “please do not reopen as it was determined as non-commercial”.
II. Newave’s Motion For Interlocutory Orders
[36] The applicant has commenced two applications for judicial review of decisions made by CRA. The Court has jurisdiction under section 18.2 of the Federal Courts Act, to grant interim orders pending the final determination of an application for judicial review. Section 18.2 provides:
Jurisdiction of Federal Court
Compétence de la Cour fédérale
Interim orders
Mesures provisoires
18.2 On an application for judicial review, the Federal Court may make any interim orders that it considers appropriate pending the final disposition of the application.
18.2 La Cour fédérale peut, lorsqu’elle est saisie d’une demande de contrôle judiciaire, prendre les mesures provisoires qu’elle estime indiquées avant de rendre sa décision définitive.
A. The Applicant’s Motion for Stays
[37] The applicant seeks a stay of any collection action by CRA and an Order staying the deregistration of Newave from its GST/HST account, both pending the disposition of the applications for judicial review.
[38] On this motion, the parties agreed that the Court should apply the three-stage approach in RJR-MacDonald Inc v Canada (Attorney General), [1994] 1 SCR 311. The three elements in the analysis are: (i) on a preliminary assessment of the merits of the applicant’s case, there is a serious issue to be tried (in the sense that the applicant’s claim is not frivolous or vexatious); (ii) the applicant would suffer irreparable harm if the stay is not granted; and (iii) the balance of convenience favours granting or denying the stay, based on an assessment of which party would suffer greater harm from the granting or refusal of the stay, pending a decision on the merits. See Canada (Attorney General) v Bertrand, 2021 FCA 103, at para 5; Arctic Cat Inc v Bombardier Recreational Products Inc, 2020 FCA 116, at para 10; Newbould v Canada (Attorney General), 2017 FCA 106, [2018] 1 FCR 590, at para 14.
Stage One: Preliminary Assessment of the Merits
[39] The first stage of the RJR-MacDonald framework involves a preliminary assessment of the strength of the merits of the applicant’s claims. In this case, as is typical, the standard is low – it requires a serious issue to be tried, meaning that the claim must not be frivolous or vexatious: RJR-MacDonald, at p. 337.
[40] The applicant submitted that the two Notices of Application raise issues about the “severe and egregious violation” of Newave’s procedural rights by CRA. The applicant submitted that CRA refused to conduct an audit of the applicant in good faith, refused to provide “basic documentary disclosure” at the audit stage and “refused to entertain any substantive submissions” from Newave. While the audit was conducted without allowing input from the applicant and its directors, CRA issued reassessments in excess of $72 million but without providing any meaningful disclosure to show its basis for assessment and without providing the applicant with an opportunity to make substantive submissions.
[41] At the hearing, the applicant referred to principles of procedural fairness and natural justice, both related to the need for disclosure of the basis for CRA’s Proposal dated March 16, 2021, in order to make meaningful submissions to CRA at the audit stage. The applicant did not point to any provision in the Excise Tax Act, or to case law, or to any express promise made by CRA to Newave during the audit, to support the position that CRA was required to disclose the documents Newave requested at the audit stage.
[42] The applicant situated its submissions in the statutory context of provisions in the Excise Tax Act. Newave submitted that in order to file a Notice of Objection to the Reassessments as a “specified person” under Excise Tax Act subsection 301(1.2), it must (a) reasonably describe each issue to be decided, (b) specify in respect of each issue the relief sought, and (c) provide the “facts and reasons relied on … in respect of each issue”. According to the applicant, disclosure from CRA is required in order to comply with the third requirement. Newave alleged that its objection rights could be curtailed if it could not provide the facts and reasons relied upon in respect of each issue. The applicant noted the consequence of failing to comply with Excise Tax Act subsection 301(1.2) as set out in subsection 301(1.4).
[43] The applicant confirmed at the hearing that it would be filing an objection under section 301 of the Excise Tax Act by the statutory deadline (which was the day after the hearing).
[44] The applicant also acknowledged at the hearing in this Court that it could ask for disclosure at the objection stage and again before the Tax Court. However, Newave argued that it needed to have the ability to challenge CRA at all stages, including at the audit stage and then at the Objection and Tax Court stages.
[45] The applicant also relied upon the Taxpayer Bill of Rights and referred to the doctrine of legitimate expectations.
[46] The applicant submitted that the CRA’s decision to reassess, the decision to deregister and the decision to take collection action were all discretionary decisions made by CRA that are subject to judicial review. The applicant referred to Canada (National Revenue) v JP Morgan Asset Management (Canada) Inc, 2013 FCA 250, [2014] 2 FCR 557 and Chrysler v Canada, 2008 FC 727 (Aalto P.) for judicial review of discretionary decisions, and to Walker v Canada, 2005 FCA 393 with respect to judicial review of collection actions.
[47] The respondent’s position was that the applicant had not raised a serious issue because it was essentially seeking prohibition against the Minister’s statutory authority to collect tax that is payable following a Reassessment under Excise Tax Act subsection 315(2). The respondent emphasized that, distinct from the Income Tax Act, RSC 1985, c 1 (5th Supp), Parliament had chosen under section 315 that there would be no stay on collection of tax payable. In the respondent’s submission, the applicant also has a satisfactory alternative remedy because on request, the Minister has discretion to suspend collection action upon request under subsection 315(3).
[48] The respondent also submitted that the applicant had not raised a serious issue with respect to the GST/HST registration, because the applicant has an adequate alternative remedy. The applicant could ask the Minister to be registered again under ETA subsection 241(1). If that discretion is exercised improperly, it could be judicially reviewed but only if proper grounds are alleged.
[49] I conclude that, on a preliminary basis, the applicant’s position on the merits is weak with respect to its allegations related to disclosure and submissions on the basis of procedural fairness, the deregistration of its GST/HST registration under the Excise Tax Act and its allegations related to collection actions under section 315 of the Excise Tax Act.
[50] The applicant alleged a breach of procedural fairness or natural justice, but it is hard to find a legal basis for such a violation in the law cited by the applicant. The applicant claimed that it had no opportunity to make submissions to CRA, but that is not supported by the correspondence in the record; it had more than 75 days to do so after CRA’s March 16, 2021. Its real submission must be that it had no meaningful opportunity to make submissions because it had to have disclosure of all of CRA’s supporting analysis and documents first.
[51] However, the applicant made no submissions as to the nature of its procedural fairness rights on the factors in Baker v Canada (Minister of Citizenship and Immigration), [1999] 2 SCR 817, at paras 22-27, and did not refer to any decided cases that support its alleged right to such disclosure at the audit stage (i.e., before the objection process in the Excise Tax Act or an appeal to the Tax Court), including after CRA makes a proposal to a taxpayer by letter. The principal case relied upon by the applicant concerned disclosure at the Notice of Objection stage: Scott Slipp Nissan Ltd v Canada (Attorney General), 2005 FC 1477 (Phelan J), at paras 1, 25 and 49-54.
[52] The applicant submitted that it needed disclosure in order to file a Notice of Objection, owing to the requirement ETA subsection 301(1.2), that it provide the “facts and reasons relied on … in respect of each issue”. This submission does not point to a legal right to disclosure under the statute or at common law, but may be a factual circumstance that could be taken into account in assessing Baker factors to support a disclosure right – if the applicant had made any such submissions and the respondent had the opportunity to respond.
[53] The applicant referred to the Taxpayer Bill of Rights and the doctrine of legitimate expectations. The applicant did not provide any evidence of specific representations made to it by CRA to ground its submission about disclosure under the Taxpayer Bill of Rights, or a clear, unambiguous and unqualified representation from CRA to support its position on a legitimate expectation of the requested disclosure: Canada (Attorney General) v Mavi, 2011 SCC 30, [2011] 2 SCR 504, at para 68. The Taxpayer Bill of Rights refers generally to providing “complete, accurate, and timely information in plain language explaining the laws and policies that apply to your situation” but does not, on its face, provide for specific disclosure of CRA’s analysis or supporting documents at the audit stage.
[54] I note also that in JP Morgan, the Federal Court of Appeal held that procedural defects committed by the Minister in making the assessment are not, themselves, grounds for setting aside the assessment and that if the Minister ignored, disregarded, suppressed or misapprehended evidence, an appeal in the Tax Court is an adequate, curative remedy: JP Morgan, at para 82. By extension, the same reasoning applies to the alleged procedural defect of non-disclosure at the audit stage—it can be remedied by disclosure from CRA at the objection or appeal stage.
[55] I will also consider the merits of the applicant’s arguments related to the bases for the interim relief requested—the GST/HST registration and collection issues under the Excise Tax Act.
[56] The decision to deregister the applicant from the GST/HST program was discretionary, in the sense that it was a decision made under a statutory provision that provides that the Minister “may” take action: see Excise Tax Act, subsection 242(1) (the “Minister may, after giving a person who is registered under this Subdivision reasonable written notice, cancel the registration of the person if the Minister is satisfied that the registration is not required for the purposes of this Part”). That decision was an adjunct to the Reassessments that have been issued. The applicant’s GST/HST registration has already been cancelled. As such, there is nothing to stay at this time. To achieve a result for the applicant, the Minister would have to be ordered to do something, either by mandatory order (which the applicant did not request and in any event attracts a higher standard at this first stage: R. v Canadian Broadcasting Corp, 2018 SCC 5, [2018] 1 SCR 196, at para 15) or by mandamus (which is addressed below in a separate section and cannot be sustained).
[57] With respect to collection actions by the Minister, the applicant correctly submitted that in Walker, the Federal Court of Appeal held that an application for judicial review may be made to this Court to challenge the legality of collection measures taken by the Minister to collect taxes allegedly due: Walker, at para 15. Further, Stratas JA held in JP Morgan that an application may be commenced to review conduct during collection that is not acceptable or defensible on the facts and the law: JP Morgan, at para 96, citing Walker.
[58] The applicant’s position in this motion is not that any collection action taken to date, or any specific threatened collection action, was or will be unlawful or an abuse. Instead, the applicant’s position was that all collection action that could be taken by the Minister should be stayed until the applicant’s judicial review application is determined.
[59] In the Excise Tax Act, subsection 315(1) provides that the Minister “may not take any collection action under sections 316 to 321 in respect of any amount payable or remittable by a person that may be assessed under this Part, other than interest, unless the amount has been assessed.” In this case, an amount has been reassessed and notices of reassessment have been sent: Johnson v Canada (National Revenue), 2015 FCA 51, at para 59. In law, the decision to reassess is not a discretionary decision, as the applicant contended. The Minister generally has no discretion to exercise, or abuse, in making an assessment: JP Morgan, at paras 77-78. In addition, assessments are legally conclusive and binding of tax liability unless and until set aside by the Tax Court: Iris Technologies Inc v Canada (National Revenue), 2020 FCA 117, at para 50. Subsection 299(3) deems an assessment to be valid and binding, subject to being reassessed or vacated because of an objection or appeal.
[60] The Excise Tax Act does not expressly restrict the Minister’s ability to take collection action after an assessment (or reassessment) has been issued; the statute requires in subsection 315(2) that if the Minister sends 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].
[61] The Minister relied on Mason v Canada (Attorney General), 2015 FC 926, in which Justice Strickland declined to enjoin collection action by the Minister after issuing notices of assessment for GST, pending an appeal to the Federal Court of Appeal. Strickland J agreed with and adopted an earlier finding of Justice Gleason in the same matter, who concluded that Mason’s application for judicial review did not raise a serious issue as it was clear under subsection 315(2) that the Minister was entitled to enforce GST assessments while appeals were pending: Mason, at para 23.
[62] In my view, given subsection 315(2), similar reasoning applies here. The Notices of Reassessment may be subject to challenge through the objection or appeal process, but the applicant has not identified a substantive basis in the statute or the case law to apply for judicial review in relation to collection actions by the Minister at this moment.
[63] In addition, by letter dated June 28, 2021, the applicant requested that the Minister postpone collection under subsection 315(3). There is a statutory mechanism to obtain a stay, which the applicant has triggered. It has not yet run its course.
[64] I also note that the present case is different from Iris Technologies Inc v Canada (National Revenue), 2021 FC 874 (Sadrehashemi J), which was at a later stage by the time that decision was made and cognizable administrative law claims had already been recognized by this Court: paras 35 and 37.
[65] On a preliminary assessment of the strength of the merits of the proposed applications for judicial review in this matter, I conclude that on the evidence and submissions made by the applicant, it has not raised serious issues that have substantive merit.
Stage Two: Irreparable Harm
[66] Many applications for interlocutory injunctions or stays turn on whether the party seeking the Order has demonstrated irreparable harm at the second stage of the analysis. An applicant must convince the Court that it will suffer irreparable harm if the injunction or stay is refused: CBC, at paras 12 and 18; RJR-MacDonald, at p. 348f.
[67] It is the nature or quality of the harm, rather than its magnitude, that must be “irreparable”. Irreparable harm is harm that cannot be compensated or remediated by money damages, or otherwise cured, for example because one party cannot collect damages from the other: RJR-MacDonald, at p. 341d.
[68] A court considering evidence of allegedly irreparable harm must be sensitive to the nature of the harm, and the nature of the evidence, that is before it. In Newbould, at paragraph 29, Pelletier JA made the following distinction concerning the proof of different kinds of irreparable harm:
In my view, the presence of two lines of cases such as these shows that the quality of the evidence – “clear and compelling” or something less – is a function of the nature of the irreparable harm being alleged. Where the harm apprehended is financial, clear and compelling evidence is required because the nature of the harm allows it to be proven by concrete evidence such as that set out at paragraph 17 of Gateway City Church [2013 FCA 126]. In the case of harm to social interests such as reputation or dignity, as in Douglas [v. Canada (Attorney General), 2014 FC 1115], the occurrence of irreparable harm can be satisfied by inference from the whole of the surrounding circumstances.
[Emphasis added.]
[69] To show irreparable harm, a moving party must adduce “clear and non-speculative” evidence of irreparable harm: see, for example, Air Passengers Rights v Canada (Transportation Agency), 2020 FCA 92 at para 28. In Janssen Inc v Abbvie Corporation, 2014 FCA 112, Stratas JA stated at paragraph 24 that “… the moving party must demonstrate in a detailed and concrete way that it will suffer real, definite, unavoidable harm – not hypothetical and speculative harm – that cannot be repaired later”. See also: Western Oilfield Equipment Rentals Ltd v M-I LLC, 2020 FCA 3, at paras 11-12; Canada (Attorney General) v Oshkosh Defense Canada Inc, 2018 FCA 102, at paras 25 and 30 (the “burden on a moving party seeking a stay is to adduce specific, particularized evidence establishing a likelihood of irreparable harm”); Glooscap Heritage Society v Canada (National Revenue), 2012 FCA 255, at para 31.
[70] For a recent example of a party failing to show concrete evidence of irreparable financial harm on the standard required by the Federal Court of Appeal, see Iris Technologies Inc v Canada (National Revenue), 2021 FC 874 (Sadrehashemi J), esp. at paras 51-62.
[71] On this motion, the applicant submitted that, by virtue of the reassessments, Newave owes over $72 million to the Minister. It submits that there are no collection restrictions against the CRA once a reassessment is issued under the Excise Tax Act. Because Newave cannot pay this debt, CRA can also pursue the directors of Newave for the alleged debt. Newave submitted that any collection action would bankrupt it, and any exercise of CRA’s collection power would severely impact Newave’s ability to continue litigating the applications. The applicant submitted that collection action would cause severe and irreversible financial hardship to Newave’s directors and reputational damage with its suppliers and clients. From the applicant’s perspective, after denying it procedural fairness at the audit stage, CRA would now be able to ensure that Newave would never be able to dispute CRA’s audit position.
[72] With respect to deregistration, the applicant submitted that CRA had effectively shut down Newave’s business by taking away its GST/HST registration. Without that registration, Newave is unable to collect GST/HST from its clients and cannot recover the amount of the ITCs it has already paid to its suppliers.
[73] The respondent submitted that Newave’s allegations were unsupported by details, documentary evidence or third-party information. The respondent submitted that Newave filtered its allegations through a legal assistant, by having Mr. Vilchez swear an affidavit on information and belief from a director of Newave that any collection action would devastate its finances and shut down its business. Thus, according to the respondent, Newave shielded itself from appropriate cross-examination with respect to its actual financial condition.
[74] According to the respondent, the applicant’s allegations of irreparable harm are merely bald assertions that fall well short of the type of proof required to demonstrate irreparable harm. The respondent observed that there was no evidence on this motion of any funds Newave may hold in bank accounts, any lines of credit it may hold, any valuable assets or existing liens or encumbrances on those assets, and any accounts receivable upon which it may be able to collect or accounts payable it must pay. There is no evidence such as bank accounts, title searches and audited financial statements to show that Newave has no ability to pay any of the amounts it owes to the Minister.
[75] With respect to registration for GST/HST, the respondent submitted that Newave had not made any recent claims for input tax credits. Accordingly, the evidence did not show that Newave actually requires GST/HST registration in order to continue operating its business and is not dependent on ITC claims in order to succeed.
[76] In my view, the applicant has not shown on this motion that it will suffer irreparable harm. On the evidence in the record, the applicant has not met the standard established by the Federal Court of Appeal for proof of irreparable harm, particularly to its financial status.
[77] The applicant’s evidence on irreparable harm was essentially contained in Mr. Vilchez’s affidavit, sworn on July 27, 2021 (and re-sworn on August 31, 2021 for technical reasons), at paragraphs 34 and 35:
Irreparable Harm as a result of Collection Action by the CRA
34. I have spoken with the Applicant’s director, Olaitan Omidiran on Tuesday, July 27, 2021 and verily believe it to be true that:
a. the Applicant does not have the ability to pay anything remotely close to $72,004,358.32;
b. any collection action against the Applicant will devastate its finances and shut down its business;
c. any collection against the director of the Applicant will bankrupt the director;
d. any collection against the Applicant will prevent the Applicant from arguing the First Application and the Second Application on its merits;
e. any collection against the Applicant will prevent the Applicant from disputing the Reassessments.
Irreparable Harm as a result of Deregistering the Applicant from GST/HST
35. I have spoken with the Applicant’s director, Olaitan Omidiran on Tuesday, July 27, 2021 and verily believe it to be true that:
a. the Applicant has no ability to operate without GST/HST registration;
b. the Applicant is in the business of purchasing wholesale VOIP minutes from suppliers and paying GST/HST thereon, and reselling VOIP minutes to its clients with a small markup;
c. without GST/HST registration, the Applicant must still pay HST, but cannot claim ITCs;
d. if the Applicant is unable to claim ITCs on the purchase of wholesale VOIP minutes, it has no ability to conduct business;
e. the Applicant has always remitted a small net HST and never claimed a refund; and,
f. the Applicant’s relationships with its existing clients is being irreparably harmed, because it cannot provide the services that it used to provide. Attached at Exhibit “Q” is a copy of an email from a client on June 21, 2021.
[78] In my view, this evidence on the central issue of irreparable harm is unsatisfactory. First, this sworn statement comes from Mr. Vilchez, who is a legal assistant at the offices of counsel for the applicant. Mr. Vilchez does not have firsthand knowledge of any of the matters in paragraphs 34 and 35 of his affidavit. Rather, his affidavit advised that he had spoken with the director of Newave on July 27, 2021 and believed that the stated matters about Newave’s and its director’s financial status were true.
[79] Second, paragraphs 34 and 35 of the affidavit comprise two lists of sweeping, conclusory statements. There are no facts to support the statements (except the last point in paragraph 35). The affidavit attached no financial records or other documents to support these statements. There is no explanation how or why Newave’s director came to these conclusions as advised to the affiant – or even how the director has sufficient knowledge of the company’s financial circumstances to be able to confirm these statements to Mr. Vilchez. Even if a person with apparent personal knowledge of the company’s and the director’s financial status had made these statements in a sworn affidavit, they would have been open to question on their face due to their level of generality and absence of supporting facts and evidence to support the assertions.
[80] The applicant did not suggest on this motion that it was not possible for Newave to provide firsthand evidence of the alleged harm it would suffer if the Minister is not restrained from taking collection action or if Newave were not registered for GST/HST. The circumstances of filing the affidavit were not so urgent that a knowledgeable person was not available. Nor did Newave contend that it had no alternative but to submit such conclusory statements to support its position.
[81] In fact, when the nature of this evidence arose at the hearing, counsel for Newave candidly admitted that Newave submitted the “evidence” in this manner in order to avoid an “aggressive” cross-examination by Department of Justice counsel of someone knowledgeable about Newave’s financial situation, owing to the nature of the fraud allegations made by CRA Audit and the associated risks to the individual and the company of giving evidence. In this context, Newave submitted that direct evidence was not necessary as it was obvious, even on hearsay evidence, that it did not have $72 million to pay to the Minister and that the stay would be in place only a few months until the judicial review application would be heard.
[82] I do not accept the applicant’s explanation for not producing someone knowledgeable about the financial affairs of Newave to prove irreparable harm. Newave cannot avoid tendering necessary evidence from a knowledgeable witness who is subject to cross-examination and, at the same time, expect to prove irreparable harm on the meagre, unsupported, hearsay evidence it has filed. As the respondent noted, Newave did not file documents such as financial statements, bank statements or other records with independently verifiable information that would disclose its current financial situation.
[83] I also decline to draw the inference that Newave implicitly requested—that on the evidence from the respondent’s affiant about Newave’s recent tax filings, the Court should infer that Newave does not have $72 million to pay the amounts in the Reassessments and that any collection action or GST/HST deregistration would result in irreparable harm. The evidence on this motion is insufficient to support that inference on the required legal standard. In addition, as is apparent, it is far from the best evidence that the applicant could have adduced.
[84] In my view, the evidence on this motion is insufficient to support conclusions about the company’s financial status for irreparable harm purposes, including that it would not be able to litigate its applications for judicial review if collection action by the Minister is not restrained. Further, the statement of possible impact on the director is speculative as it depends on CRA actions that it has not taken, or threatened to take, against the director personally.
[85] Given this assessment of the evidence, it is unnecessary to draw an adverse inference under Rule 81(2) of the Federal Courts Rules.
[86] The Federal Court of Appeal has been clear in numerous decisions that irreparable harm must be demonstrated with clear and convincing evidence, particularly with respect to financial harm. The evidence on this motion is far from sufficient to discharge that onus.
Stage Three: Balance of (In)Convenience
[87] The third stage of the RJR-MacDonald framework is an assessment of which party would suffer greater harm from the granting or refusal of the stay, pending a decision on