Judgments in Leave Applications Released

The Supreme Court yesterday released decisions in 27 leave applications. Twenty-four of these were denied, with three granted. This closely matches the rate at which the Supreme Court has historically granted leave (approximately 13% of applications). When these numbers are combined with the 6 out of 19 applications granted on February 1, it appears that the SCC is reversing its trend – discussed here recently by Yu-Sung Soh – of hearing fewer cases.

Evans v Teamsters Local Union No 31

This appeal finally provides the Supreme Court with the opportunity to examine the question of whether an employee who has been wrongly dismissed has an obligation to mitigate his damages by accepting a position with the same employer – an opportunity they missed 15 years ago when leave to appeal was denied in the controversial Ontario Court of Appeal judgment in Mifsud v MacMillan Bathurst Inc (1989), 70 OR (2d) 701.

On January 2, 2003, the employer Teamsters faxed Mr. Evans a letter terminating his employment. Although the letter made no mention of a working notice period, Mr. Evans met with his supervisor the same day and discussed the possibility. The trial judge, however, found that Mr. Evans had been wrongfully dismissed with the letter. The notice period was set at 22 months. Neither party is contesting these findings.

The Yukon Court of Appeal (see 2006 YKCA 0014) found that the conversation and a follow-up letter constituted an offer of a new job which was available to Mr. Evans for the duration of his notice period. To them, the question was whether it was reasonable for Mr. Evans to reject that job offer, given that he had no other employment prospects in Whitehorse.

The Court held that it was unreasonable for Mr. Evans to refuse to return to work, relying on the statement in Mifsud that “Where the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious (as in this case) it is reasonable to expect the employee to accept the position offered in mitigation of damages during a reasonable notice period, or until he finds acceptable employment elsewhere.” In this case, it was the identical job – one which Mr. Evans had (unhelpfully for his case) described as “the best job in the world.” The Court of Appeal unanimously set aside the trial judge’s award.

This case may not provide the ideal situation for the Supreme Court to look at the issues raised in cases like Mifsud, where employees may be required to mitigate their damages by taking a position that constitutes constructive dismissal. It will be interesting to see whether the Supreme Court limits its judgment to the specific facts at hand (where the positions are identical) or uses the opportunity to provide general guidance on when an employee will have to mitigate his damages by accepting a different position.

Sikorsky v Hayes Heli-Log Services

This appeal deals with a statutory privilege granted by the Canadian Transportation Accident Investigation and Safety Board Act, SC 1989, c 3, which privileges representations that are made by parties to the Canadian Transportation Safety Board in the course of an investigation. Sikorsky claimed this privilege covered a letter they sent to the Board, which they had also later sent to the American Federal Aviation Agency and National Transportation Safety Board. The letter became public through unrelated court proceedings in California.

Although the trial judge held that the letter was protected by the privilege, the BC Court of Appeal reversed the decision (see 2006 BCCA 306) on the grounds that the privilege only protected information communicated directly to the CTSB and did not protect information made public in other ways.

Justice Newbury dissented, arguing that since the provision in question assures parties that their representations can not be used in any proceedings, the Sikorsky company would have concluded that their representations would be protected regardless of whether they were sent to a third party as well. A result that denied the protection of privilege, she argued, would thwart the legislative objective of allowing parties to provide information to the CTSB with candour.

Canada v McLarty

This case involves the tax treatment of an investment in proprietary seismic data. Mr. McLarty invested $100,000 (of which $85,000 was in the form of a promissory note) in a joint venture which purchased a database. The joint venture would be operated by a corporation called Compton Resource Corporation (CRC). The database was purchased from CRC.

Mr. McLarty relied on this investment to claim Canadian Exploration Expense (CEE) to reduce his tax liability. The Minister of Finance reassessed his claim, found that the amount he had paid was in excess of fair market value, and disallowed the expense. The Tax Court of Canada allowed Mr. McLarty’s appeal and approved his CEE claim.

There were three issues at the Federal Court of Appeal (see 2006 FCA 152). The first was whether the purchase of the data in question met the statutory test for the exploration expense, which is defined in s. 66.1(6) of the Income Tax Act, RSC 1985, c 1, as one made “for the purpose of determining the existence, location, extent or quality of an accumulation of petroleum or natural gas.” The TCC had held that it was unnecessary to look beyond Mr. McLarty’s purpose in obtaining the data, and that no objective evidence was required to show that the data had been acquired for that purpose. The FCA disagreed, holding that objective evidence was required, but that the TCC had in fact found that evidence.

The second issue was whether Mr. McLarty’s liability under the promissory note was contingent, in which case it could not be claimed. The provisions of the note required revenues from the use of the data to be applied to reduce his indebtedness. If the payments made by the end of 1999 were insufficient to cover the full amount, the data could be sold to cover any remaining amount. Any amounts still owing would then be forgiven. Both the TCC and the FCA held that the liability was not contingent.

The final issue was whether the parties were dealing at arms length and whether the purchase had been at fair market value. The TCC had held that Mr. McLarty (as purchaser) and CRC (as vendor) were at arms length and that they were not in the position to question his business judgment as to what was a reasonable amount to pay. The FCA, however, felt that the relevant transaction was the purchase of the data by CRC (as operator of the joint venture and agent for Mr. McLarty) from CRC. Since this relationship was not at arms length, the Income Tax Act requires an inquiry as to the fair market value of the transaction, with the onus on the taxpayer to show that the value of his interest exceeds the Minister’s valuation. Since the TCC had not performed this inquiry, the matter was remitted for determination.

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