The Lawyers Weekly - December 16, 2011

In a ruling that has caught the attention of the business and legal community—and that relies on new pro-democracy measures the province has implemented— Revenue Quebec was ordered by a provincial court to pay $325,000 to a Montreal company and its owner to help cover legal fees it is expected to incur in a lawsuit against the tax authority.

The precedent-setting judgment by Quebec Superior Court Justice Michel Déziel held that actions undertaken by tax department employees “could constitute an abuse” under new provisions of the Code of Civil Procedure. His ruling was on a provisional motion for a $12.7-million lawsuit launched against Revenue Quebec by Groupe Enico Inc. and its founder Jean-Yves Archambault.

Enacted two years ago, the amendments to the code are intended to protect citizens from strategic lawsuits against public participation, also known as SLAPPs. These lawsuits are initiated against individuals or groups to stifle criticism. The amendments allow the courts to dismiss a proceeding deemed to be improper, specify what may constitute an improper use of procedures, and allow the courts to order the payment of costs.

Only Quebec has anti-SLAPP legislation. In April 2001, British Columbia enacted anti-SLAPP legislation but it was repealed five months later. Anti-SLAPP bills were also introduced in New Brunswick in 1997 and in Nova Scotia in 2003, but were never passed.

Montreal lawyer Lyne Guilbault successfully argued that, while the amendments are normally reserved for SLAPPs, Revenue Quebec’s handling of Enico’s tax file constituted an abuse of power.

“In spite of the apparent legit-
imacy of the defence and legal
arguments, the actions by Rev-
enue Quebec representatives
could constitute an abuse in the
sense of s.54.3 of the code,” Justice
Déziel said in a 17-page ruling.
Under s.54.3, the court may, in a
case where there appears to have
been an improper use of proced-
ure, order a provision for the costs
of the proceeding, if the circum-
stances justify it and if the court
considers that without assistance
the party’s situation would pre-
vent it from arguing its case.
“Revenue Quebec is big govern-
ment, and they have limitless
resources,” remarked Guilbault, a
partner with the law firm Gilbert
Séguin. “When a taxpayer sues
Revenue Quebec because they feel
that they abused their powers,
[the department’s] first reaction is
to financially drain them through
court procedures. This ruling will
force Revenue Quebec to act
adequately and make them think
twice before being abusive.”
The judgment harshly casti-
gates the way Revenue Quebec
handled Enico’s tax file. Archam-
bault’s nightmare began when two
tax department civil servants vis-
ited him at his company’s head-
quarters to examine his federal
and provincial sales tax payments.
He furnished all the documents.
THE LAWYERS WEEKLY

VOL. 22, NO. 27 NE WS FOR THE LEGAL PROFESSION DECEMBER 6, 2002

This ruling sends a very clear message. They have to stop treating taxpayers as second-class citizens. They have to be just and act with impartiality and honesty.

“

Louis Sirois, tax lawyer

In May, 2007, the department claimed he owed $325,000.

The situation then inexplicably took a turn for the worse. Revenue Quebec lost track of a payment Enico made but nevertheless forwarded Enico’s tax file to its collection department, an “ unfortunate error” that would lead Enico to be considered delinquent, Justice Déziel observed. In the meantime, a separate error saw an auditor mistakenly double the amount owed by Enico, leading to an erroneous notice of assessment.

In February, 2008, Revenue Quebec proceeded with two bank seizures, but then recognized that it had made an error and rescinded one. But it was too late.

“This was a second error that proved to have disastrous consequences on Enico’s financial health,” Justice Déziel wrote.

Enico’s bankers lost confidence, with one recalling its loan and credit line as well as refusing to make good on Enico’s paycheques. Employees then lost confidence in the firm, and many quit. Numerous clients and partners of the firm also ended their relationship with the company, which specializes in automation and robotics.

“Bank seizures are not the
mildest collection measure, as
contends the Revenue Quebec
representative,” Justice Déziel
said. “Rather, it is a measure that
we can describe as a nuclear
weapon under the circumstances.
In effect, the multiplication of
errors demonstrates carelessness
and temerity by representatives of
Revenue Quebec.”
Though Justice Déziel rejected
Enico’s claim for a reimburse-
ment of more than $750,000 in
high-tech provincial tax credits

ISTOCKPHOTO.COM

withheld by Revenue Quebec, he held that in order to allow the plaintiffs to assert their rights and “re-establish the economic forces between the parties,” the tax department will have to put up more than $325,000 to cover Enico’s legal and expert fees for its $12.7-million lawsuit against Revenue Quebec.

In November, 2010, Enico closed shop. It has filed for creditor protection under the federal Bankruptcy and Insolvency Act. Proceedings are still underway.

This ruling may lead taxpayers and companies to use Quebec’s anti-SLAPP provision to battle the provincial tax authority, says Louis Sirois, a tax lawyer who used to work for Revenue Quebec.

“Over the past couple of years there has been a noticeable deterioration in the social climate between the taxpayer and the state,” Sirois said. “Revenue Quebec now does things that they would never have even done five years ago. It’s become very tense.

“But this ruling sends a very
clear message. They have to stop
treating taxpayers as second-
class citizens.”
The ruling is also important
because Revenue Quebec rarely
has been condemned for some-
thing it did while exercising rights
granted by law, said Catherine
Pilon, a litigator with Fraser Mil-
ner Casgrain in Montreal. “The
ruling is interesting in terms of the
evolution of law and its apprecia-
tion of government conduct when
it exercises its rights,” Pilon said.
“The ruling does not go so far as to
say that Revenue Quebec abused
its rights conferred to it through
legislation. But it did say that it
appeared to act in an abusive man-
ner. One can expect that this rul-
ing—if it is upheld— will be cited
in procedural matters and in issues
relating to s. 54.3 of the Code.”
Revenue Quebec has appealed
the ruling but in an eye-opening
development stated it will pay
Enico’s legal expenses before the
appellate court. The Quebec
Court of Appeal will hear the case
next February. n

Publisher

Julie Murtha

Editor In Chief

Rob Kelly

Focus Editor

Matthew Grace, LL.B.

Business Editor

Melissa Dunne

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Cristin Schmitz

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Tammy Leung

Production Coordinator

Pauline Braithwaite

Interns

Karen Alexiou & Anum Lateef

Correspondents

Luigi Benetton, Toronto Arnold Ceballos, LL.B., Toronto Thomas Claridge, Toronto Christopher Guly, Ottawa Jeremy Hainsworth, Vancouver Geoff Kirbyson, Winnipeg Luis Millan, Montreal donalee Moulton, Halifax Mike Sadava, Edmonton

® THE LAWYERS WEEKLY VOL. 22, NO. 27 NEWS FOR THE LEGAL PROFESSION DECEMBER 6, 2002

THE LAWYERS WEEKLY

Vol. 22, No. 27 NEWS FOR THE LEGAL PROFESSION December 6, 2002

THE LAWYERS WEEKLY

VOL. 22, NO. 27 NEWS FOR THE LEGAL PROFESSION DECEMBER 6, 2002

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