Case information

Taxation — Procedure — Collection — Interim order declaring simulation, imposing charge and requiring preservation — Simulation — Duty to disclose — Whether Federal Court of Appeal clearly erred in law in finding that it was not dealing with palpable and overriding error such that transactions in issue were simulated — Whether Federal Court of Appeal clearly erred in law in determining that it was not dealing with palpable and overriding error as regards respondent’s breach of his duty to make full and frank disclosure in order to obtain interim order — Federal Courts Rules, SOR/98-106, Rule 458 — Civil Code of Québec, arts. 1451 and 1452.

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The applicant 9427-2572 Québec inc. and its sole shareholder and director, the applicant Hélène Desrochers, were both the subject of an interim order issued by the Federal Court further to an ex parte motion filed under Rule 458 of the Federal Courts Rules, SOR/98-106, by the respondent, His Majesty the King in Right of Canada, represented by the Minister of National Revenue. The purpose of that motion was to obtain a declaration of simulation, charging and preservation against certain movable and immovable property transactions and operations between the applicants and 9303-6234 Québec inc., as third parties, and four other parties, namely Annie Deslongchamps, Les Habitations Malo inc., Groupe Immobilier Malo inc. and 9262-8346 Québec inc., considered to be judgment debtors because of various proceedings brought by creditors to collect on their claims. The respondent submitted that the judgment debtors had taken various actions to remove property from their patrimony or to encumber all of their equity, essentially, in favour of the applicant 9427-2572 Québec inc. despite the fact that they were indebted to His Majesty for significant sums arising from income not reported to the tax authorities, and that there were other proceedings against them for unpaid debts. According to the respondent, the purpose of those transactions and operations was to shield the judgment debtors’ property from their creditors, including His Majesty, or to give the appearance of a significant depletion in the available equity. The court issued the requested interim order for an initial period of six months. That order was renewed several times subject to certain adjustments against the property in question. The applicants, 9303-6234 Québec inc. and the Land Registry Office, then third parties, and the judgment debtors challenged the conclusions of the interim order in the Federal Court. The Federal Court dismissed the challenges, and the Federal Court of Appeal dismissed the appeal.