Friedberg & Co. Inc. et al. v. The Corporation of the City of Toronto

[Indexed as: Friedberg & Co. Inc. v. Toronto (City)]

71 O.R. (3d) 639

[2004] O.J. No. 2807

Docket No. C39983

Court of Appeal for Ontario,

Feldman, MacPherson and Cronk JJ.A.

June 30, 2004

Assessment -- Business assessment -- Confirmation of error in assessment -- Refund of taxes from municipality if taxpayer overcharged by reason of any gross or manifest error in preparation of assessment roll that was error of fact -- Application for refund not valid unless assessment commission has confirmed error in assessment -- Municipality denying application for refund -- Divisional Court erring in not granting application for judicial review of municipality's decision -- Taxpayer entitled to refund -- Municipal Act, R.S.O. 1990, c. M.45, s. 443.

Friedberg & Co. Inc., A.D. Friedberg Inc. and Friedberg Mercantile Group (collectively"Friedberg") carried on business in the City of Toronto as investment dealer, portfolio manager and agent for investors and mutual funds. For the years 1993 to 1997, it was assessed for business tax under s. 7(1)(b) of the Assessment Act as "other financial business". However, in 1997, the Court of Appeal released its decision in Regional Assessment Commissioner, Region No. 9 v. Templeton Management Ltd. and the decision indicated that Friedberg should have been assessed at the 50 per cent rate of an "agent" under s. 7(1)(f) (i) of the Assessment Act. After the release of this judgment, a consultant for Friedberg met with the acting Regional Assessment Commissioner and provided him with financial statements and other documentation. The acting Commissioner agreed that the proper assessment for Friedberg was at the "agent" rate, and Minutes of Settlement were prepared the next day in respect of the 1997 assessment appeal and in respect of an outstanding appeal for the 1993 year.

Friedberg had no outstanding assessment appeals for 1994 to 1996, and it sought relief under s. 443 of the Municipal Act, which allows a taxpayer to obtain a refund of taxes from the municipality if "overcharged by reason of any gross or manifest error in the preparation of the assessment roll that was an error of fact . . . but not an error in judgment in making the assessment . . .". Subsection 443(7)(b) provides that an application for a refund is not valid "unless the assessment commission has confirmed the error in the assessment referred to in the [page640] application", and to obtain the confirmation required by s. 443(7)(b), Friedberg's consultant wrote a letter dated November 30, 1998, which the acting Commissioner signed back on December 9, 1998. The letter was included with the s. 443 application and, although there was a dispute about the effect of this letter, it recorded the documentation that had been provided and the Minutes of Settlement to change the assessment.

The City of Toronto rejected Friedberg's s. 443 application, and Friedberg applied for judicial review of the City's decision. The Divisional Court dismissed the application. Its reasons were three-fold: (1) the letter of November 30, 1998 was not a confirmation in accordance with s. 443(7)(b); (2) Friedberg ought to have sought judicial review against the Assessment Commissioner and not the City; and (3) the court was not bound to follow the decision of Emco Ltd. v. Ontario (Regional Commissioner, Region No. 25) ("Emco") because it was distinguishable as it involved a mathematical error and not a question that required an analysis of facts and law. Friedberg appealed.

Held, the appeal should be allowed.

Section 443 was added to the Municipal Act to add to a municipality's power under s. 442 to cancel, reduce or refund taxes. Section 443 extended the relief back two years prior to the application for "overcharge by reason of any gross or manifest error in the preparation of the assessment roll". In this new section, the requisite errors were not limited to clerical errors but they had to be errors of fact. The section provides that an error of fact may include, but is not limited to, clerical errors, the transposition of figures or typographical errors, but not an error in judgment in making the assessment upon which the taxes have been levied. The question whether an error that resulted in the incorrect categorization of a business is an error of fact or an error in judgment can be a difficult one, as the commissioner's role is to apply the statute, as interpreted by the case law, to the facts. However, in the case at bar, as in the Emco case, the Assessment Commissioner was provided with the facts and based on those facts, together with consideration of the applicable case law, the Commissioner determined that Friedberg's business category was in error and it should have been placed in a different category. The Commissioner's error was confirmed in accordance with s. 443(7)(b) of the Act. There is no required format and, in this case, Friedberg obtained the Assessment Commissioner's agreement in writing that the change in the business assessment category was based on the facts presented to the Commissioner. Finally, the City was the proper respondent for an application for judicial review. It was the City's refusal to acknowledge the Commissioner's confirmation that was the subject of review.

APPEAL from the judgment of the Divisional Court (Blair R.S.J., Carnwath and J. MacDonald JJ.), [2003] O.J. No. 193 dismissing an application for a judicial review of a decision made on an application under s. 443 of the Municipal Act, R.S.O. 1990, c. M.45.

Cases referred to Emco Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 23) (1997), 1997 1915 (ON CA), 100 O.A.C. 293, [1997] O.J. No. 2192; Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3, 63 Q.A.C. 161, 171 N.R. 161, 95 D.T.C. 5017; Regional Assessment Commissioner, Region No. 9 v. Templeton Management Ltd. (1997), 1997 4480 (ON CA), 33 O.R. (3d) 539, 146 D.L.R. (4th) 571, 39 M.P.L.R. (2d) 288 (C.A.); St. Catharines (Assessment Commissioner) v. Interlake Tissue Mills Co., 1969 9 (SCC), [1970] S.C.R. 441, 9 D.L.R. (3d) 20 Statutes referred to Assessment Act, R.S.O. 1990, c. A.31, ss. 7(1) [rep. S.O. 1997, c. 5, s. 5], 40 Municipal Act, R.S.O. 1990, c. M.45, ss. 442, 443, 496(a) Municipal Act, 2001, S.O. 2001, c. 25, s. 358 [page641]

Jeff G. Cowan, for appellants. Thomas H. Wall and Kirsten Franz, for respondent.

The judgment of the court was delivered by

1FELDMAN J.A.: -- The issue in this case is the proper interpretation and application of s. 443(1) of the Municipal Act, R.S.O. 1990, c. M.45, which allows taxpayers to obtain a refund of taxes that were "overcharged by reason of any gross or manifest error in the preparation of the assessment roll that was an error of fact . . . but not an error in judgment in making the assessment . . .".

2The appellant (referring to the three Friedberg entities) was originally assessed for business tax under s. 7(1)(b) of the Assessment Act, R.S.O. 1990, c. A.31, at the 75 per cent rate as "other financial business" for the 1993 to 1997 taxation years. However, following the release of the decision of the Court of Appeal in Regional Assessment Commissioner, Region No. 9 v. Templeton Management Ltd. (1997), 1997 4480 (ON CA), 33 O.R. (3d) 539, 146 D.L.R. (4th) 571 (C.A.), the Assessment Commissioner agreed, applying the decision to the business conducted by the appellant, that the appellant should have been assessed at the 50 per cent rate as an "agent" under s. 7(1)(f)(i). The appellant had assessment appeals outstanding for the 1993 and 1997 years and the assessment was corrected in respect of those years. The appellant had not appealed its assessments for the 1994, 1995 and 1996 years, and therefore sought a refund of the taxes for those years under s. 443 of the Municipal Act . The city denied the application for refund and the denial was upheld on judicial review by the Divisional Court. The appellant appeals, with leave, from that decision.

3For the reasons that follow, I would allow the appeal, quash the decision of the city that the refund application is invalid under s. 443(7)(b) of the Municipal Act, and order that the city council consider the application for a partial refund of business taxes for the years 1994 to 1996 under s. 443(10), in accordance with the appellant's application and these reasons.

Facts

4The appellant conducts business as an investment dealer and portfolio manager. A significant part of its business involves [page642] acting as agent either for investors or for mutual funds, thereby earning brokerage commissions and fund management fees.

5The appellant's original premises were located at 347 Bay St. in Toronto, and in the summer of 1994, the appellant also began occupying additional leased premises in BCE Place. In respect of those new premises, the appellant only received Notices of Omitted Assessments for business tax for the 1994, 1995 and 1996 taxation years in 1996, and the appellant paid those tax bills promptly. It did not appeal the assessments for those years for either the BCE Place or the Bay Street premises.

6The appellant retained a tax consultant to prepare appeals for the 1997 taxation year, on the basis that it should have been taxed as a retailer at the 30 per cent rate. However, the appellant subsequently learned of the then recently released Templeton Management decision of this court from its new consultant, Milton Drash, who approached the Regional Assessment Commissioner to discuss the application of that case to the appellant's business. In March 1998, Mr. Drash met with Colin Eldridge, the acting Regional Assessment Commissioner. He showed Mr. Eldridge the appellant's financial statements from 1992 to 1997, which confirmed that 75 per cent of the appellant's revenue was from brokerage commissions and management fees, as well as other documentation describing the appellant's business and corporate structure in order to demonstrate that the appellant was a financial agent. Mr. Drash also provided Mr. Eldridge with the Templeton decision, which held that where a financial institution operates as an agent, it is entitled to be taxed as an agent at the 50 per cent tax rate.

7There is a slight conflict in the evidence as to whether there were one or two meetings between Mr. Drash and Mr. Eldridge, and whether Mr. Eldridge received quick legal advice regarding the applicability of the Templeton decision at the March meeting, or whether he consulted the commission's lawyer after one meeting and made his decision later after receiving the legal advice. There are no written records or file at the commission dealing with this matter.

8In any event, Mr. Eldridge agreed that the proper assessment rate for the appellant was the 50 per cent "agent" rate and not the 75 per cent "other financial business" rate, and Minutes of Settlement were prepared and executed in respect of the 1997 assessment appeal and in respect of an outstanding appeal for the 1993 year. The Assessment Review Board issued its confirmatory decisions later that year.

9With no outstanding assessment appeal for the 1994 to 1996 assessment years, Mr. Drash sought to recover the overpayment of [page643] taxes for those years, paid based on the incorrect classification of the appellant at the 75 per cent taxation rate, by seeking a refund under s. 443 of the Municipal Act. For that purpose, Mr. Drash attempted to obtain confirmation from Mr. Eldridge that the basis of the change to the assessments for 1993 and 1997 was the facts and documentation presented to him at the meeting in March. They had a telephone conversation followed up by a letter dated November 30, 1998 to Mr. Eldridge, which he signed back on December 9, 1998 and returned to Mr. Drash. Again there is a conflict in the evidence, as Mr. Eldridge denied that he understood that the letter was to be used for a s. 443 application and took the position in the application that he had told Mr. Drash that he did not believe that such an application was available in the circumstances. Mr. Drash's evidence is that Mr. Eldridge confirmed that the change in assessment category was based on the facts and documents presented by the appellant to the Regional Assessment Commissioner. The letter records the documentation provided at the March 1998 meeting and says:

As a result of the above facts, it was agreed that the business assessment rate for Friedberg should be changed from 75 percent to 50 percent for all locations and Minutes of Settlement giving effect to this change were prepared and signed on March 20, 1998.

I trust the facts contained herein are complete and accurate, and request your acknowledgement of same.

The letter is signed by Mr. Drash and the facts are acknowledged to be true and accurate by Mr. Eldridge.

10When the city received the s. 443 application, which included the letter of November 30, 1998, it obtained reports from two assessors in respect of the appellant's two locations. One report states "no recommendation", while the other says: "443 application improper vehicle for business assessment reduction. Attached notices of decision relate to s. 40 Assessment Act appeals. This assessor lacks jurisdiction to make a recommendation." Ultimately, the Assessment Commissioner, Mr. Ridding, advised the city that he would not confirm an error in the assessments as required by s. 443(7) and, on that basis, in a letter dated July 18, 2000, the city denied the refund requests.

11On the application for judicial review, the Divisional Court rejected the submission that the letter of November 30, 1998 constituted the confirmation required by s. 443(7)(b).

12The Divisional Court's reasons were threefold: (1) the letter did not confirm "an error in the assessment" in accordance with s. 443(7)(b); (2) the appellant was obliged to seek judicial review of the decision of the Assessment Commissioner and not [page644] the decision of the city; and (3) the court was not bound to follow the decision in Emco Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 23), 1997 1915 (ON CA), [1997] O.J. No. 2192, 100 O.A.C. 293, because it was distinguishable, as it involved a mathematical error and not a question that required an analysis of facts and law.

Issues

(1) Did the Divisional Court err in its interpretation of this court's decision in Emco in respect of the type of error that can attract a refund under s. 443 of the Municipal Act?

(2) Did the Divisional Court err by misapplying s. 443(7)(b) of the Municipal Act?

(3) Did the Divisional Court err in its interpretation of this court's decision in Emco by requiring the appellant to seek judicial review of the decision of the Assessment Commissioner rather than of the decision made by the city?

Analysis

Issue 1

13The statutory framework for the analysis is contained in s. 443 of the Municipal Act and s. 40 of the Assessment Act, which provided at the relevant time: [See Note 1 at the end of the document]

Section 443 of the Municipal Act

443(1) An application to the council for the cancellation, reduction or refund of taxes levied in the years indicated in subsection (5) may be made by any person who was overcharged by reason of any gross or manifest error in the preparation of the assessment roll that was an error of fact, which may include but is not limited to, clerical errors, the transposition of figures or typographical errors, but not an error in judgment in making the assessment upon which the taxes have been levied.

(2) The council may by by-law appoint a committee composed of at least three persons who are members of council or who are eligible to be elected members of council but these persons shall not be employees of the municipality or of a local board as defined in the Municipal Affairs Act and the committee shall hear the applications under subsection (12) and section 105 applies thereto. [page645]

(3) An application may be made from the 1st day of March until the 31st day of December of any year, by giving written notice to the clerk of the municipality.

(4) Where the Minister of Revenue extends the time for the return of the assessment roll of a municipality under subsection 36(2) of the Assessment Act, an application under this section to the council of that municipality shall not be made earlier than sixty-one days after the assessment roll is returned.

(5) A separate application may be made for taxes levied in each or either of the two years preceding the year in which the application is made if the assessment on the property or business, as the case may be, has not been the subject of an appeal, complaint or application under section 35, 40 or 46 of the Assessment Act, in either of those years or in the year in which an application is made under this section, but where an error is made subsequent to all such appeals, complaints or applications under section 35, 40 or 46 of the Assessment Act, an application may be made under this section in respect to that error.

(6) The clerk shall forward a copy of the application to the assessment commissioner and the regional registrar of the Assessment Review Board.

(7) An application is not valid and shall not be heard by council unless,

(a) the application complies with subsection (5); and

(b) the assessment commissioner has confirmed an error in the assessment referred to in the application.

(8) Where an application is not valid under subsection (7), the clerk shall notify the applicant in writing of the reasons therefore.

(9) Notice of a hearing by the council under this section shall be given by mail by the clerk of the municipality to the applicant not less than fourteen days before the date upon which the application is to be dealt with by the council.

(10) The council may reject the application or,

(a) if the taxes have not been paid, cancel the whole of the taxes or reduce the taxes;

(b) if the taxes have been paid in full, order a refund of the whole of the taxes or any part thereof; or

(c) if the taxes have been paid in part, order a refund of the whole of the taxes paid or any part thereof and reduce or cancel the portion of the taxes unpaid.

(11) The decision of the council is final.

(12) The council shall hear and dispose of every application not later than the 30th day of April in the year following the year in which the application is made and the clerk shall thereupon cause notice of the decision to be given by mail to the persons to whom notice of the hearing of the application was given.

(13) Despite subsection (12), where council has appointed a committee to hear applications, the committee shall hear every application before the 31st day of March in the year following the year in which the application is made.

(14) The clerk shall deliver or mail a copy of the notice of a decision of council to the assessment commissioner, but failure to comply with this subsection does not invalidate the proceedings taken under this section. [page646]

(15) The Lieutenant Governor in Council may make regulations prescribing errors that are to be included or excluded as errors of fact under subsection (1).

Section 40(1) of the Assessment Act

40(1) Any person, including a municipality or a school board, may complain in writing to the Assessment Review Board that he, she, it or another person,

(a) was assessed too high or too low;

(b) was wrongly placed on or omitted from the assessment roll;

(c) was wrongly placed on or omitted from the roll in respect of school support.

14This court faced a very similar question regarding the interpretation and application of s. 443 of the Municipal Act in the 1997 case of Emco, supra. Emco sold plumbing supplies from a London outlet and had been paying business tax at the 75 per cent rate as a "wholesale merchant" under s. 7(1)(b) of the Assessment Act. For 1990, the assessment was changed to the 50 per cent rate under s. 7(1)(e) of the Act: "business of selling goods and services through a chain of more than five . . . outlets". This change was made in response to a letter from Emco to the city of London at the end of 1989, seeking a reduction of its business tax rate on the basis that the company operated out of 17 locations in Ontario and therefore qualified for the rate applicable under s. 7(1)(e).

15The city of London taxation department immediately noted the reduction requested on the letter. Subsequently, in January 1990, the Ministry of Revenue sent a memo to all Regional Assessment Commissioners in Ontario, advising that Emco operated out of 17 locations in Ontario and that it should be assessed under s. 7(1)(e). In 1999, Emco received a refund for its overcharge from the city of Waterloo under s. 496(a) (later s. 443) of the Municipal Act. Emco applied in November 1990 to the city of London for a similar refund for the 1998 and 1999 years.

16However, the Regional Assessment Commissioner took the position that determination of the business tax rate is a judgment made by the assessor based on the information available at the time the assessment is made and is not an error of fact under s. 443(1). The Regional Assessment Commissioner therefore refused to confirm to the city of London that an error was made in the preparation of the assessment roll, as required by s. 443(7) as a precondition for a refund. The city of London so advised Emco, resulting in its application to the Divisional Court. That application, as framed, sought judicial review of the decision of the Regional Assessment Commissioner and not of the decision of the city. [page647]

17There was evidence provided by the Assessment Commissioner on the application, that the reason the Emco assessment was changed was because the assessment authorities had originally taken the position that s. 7(1)(e) of the Assessment Act did not apply to chains of wholesalers, then made a policy decision in 1990 reversing that position. The Divisional Court accepted the position of the Assessment Commissioner that the change in assessment was the result of a change in opinion by the tax authorities as to the proper classification of Emco's business.

18However, the Court of Appeal took a different view. It rejected the evidence of the change of policy because it was hearsay and because it conflicted with the apparent chain of events in respect of Emco. The court held that if the pre-1990 assessment was made based on the information gathered at the time, then that information must have been in error because once the Commissioner (and the city) learned that there were 17 outlets in Ontario, the assessment was immediately changed for 1990 and subsequent years. The court therefore concluded that the assessments for 1998 and 1999 were made based on erroneous information, and that the error was an error of fact.

19The Divisional Court in the within application characterized the error in Emco as a mathematical error of fact, as distinguished from this case, where it concluded [at para. 2] that "the decision to enter into the Minutes of Settlement for the years 1993 and 1997 required an analysis of facts and law."

20Section 443 was added to the Municipal Act in 1988, and was in addition to s. 442. Section 442(1) provided for an application to the municipal council for the cancellation, reduction or refund of taxes levied in the year of the application, for various reasons, including (f): ". . . overcharged by reason of any gross or manifest error that is a clerical error, the transposition of figures, a typographical error or similar type of error, but not an error in judgment in making the assessment upon which the taxes have been levied". Section 443 extended the relief back two years prior to the application, again for "overcharge by reason of any gross or manifest error in the preparation of the assessment roll . . .". However, in this new section, the requisite type of errors were not limited to clerical errors but they had to be errors of fact. The section goes on to provide: "that was an error of fact, which may include but is not limited to, clerical errors, the transposition of figures or typographical errors, but not an error in judgment in making the assessment upon which the taxes have been levied" (emphasis added). The refund power given to the municipal council is intended to be remedial in order to allow justice to be done to a taxpayer who has been overcharged: [page648] St. Catharines (Assessment Commissioner) v. Interlake Tissue Mills Co., 1969 9 (SCC), [1970] S.C.R. 441, 9 D.L.R. (3d) 20, at p. 446 S.C.R.

21Under the legislative scheme, a municipal council's power to correct errors is limited to clerical and factual errors because it is the Assessment Commissioner's role to make judgments relating to the making of the assessment, and there is an appeal process under the Assessment Act for errors of that type in respect of the current year. Also, for future years, a taxpayer can attempt to convince the Assessment Commissioner to change the taxpayer's business taxation classification. However, the municipality does not control the assessment but only the taxes themselves, and its power is limited to considering specific requests for relief from taxes acknowledged to have been improperly levied in the current year or the previous two years.

22The question whether an error that resulted in the incorrect categorization of a business is an error of fact or an error of judgment can be a difficult one, as the commissioner's role is to apply the statute, as interpreted by the case law, to the facts. However, in this case, as in the Emco case, the Assessment Commissioner was provided with the facts of the taxpayer's business during the period from 1992 to 1997 and, based on those facts, together with consideration of the applicable case law, the Commissioner determined that the appellant's business category was in error, and that the appellant should have been placed in a different category with a significantly lower assessment rate.

23In my view, this case is on all fours with Emco, in that the error was that at the time of the assessments for the relevant years, the Assessment Commissioner did not know the full facts regarding the appellant's business, which demonstrated that the business clearly fell into the "agency" category. Of course, even if the business could also fit within another category, there is a residual presumption in favour of the taxpayer, who is entitled to the lower assessment rate: Quebec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3, 171 N.R. 161; Templeton, supra. Mr. Eldridge confirmed on cross-examination that had the appellant appealed its assessments for the 1994, 1995 and 1996 years, the assessments would have been changed.

Issue 2

24The Divisional Court also rejected the appellant's application on two related procedural grounds. The first was that the November 30, 1998 letter from the acting Regional Assessment Commissioner, Mr. Eldridge, did not constitute the confirmation [page649] required by s. 443(7)(b) of an error in the assessment. In this case, the appellant took a rather unusual approach in obtaining the required confirmation in writing from the Assessment Commissioner and submitting it with the application, rather than waiting for the city to seek and obtain the Assessment Commissioner's view of the application on the forms it did ultimately obtain. However, I agree with the appellant that there is no required format for the confirmation and, in this case, the appellant obtained the Assessment Commissioner's agreement in writing that the change in the appellant's business assessment category was based on the facts presented to the Commissioner. Although the word "error" was not used, the effect is the same. Later, the Assessment Commissioner's office reverted to the position it had taken in the Emco case that choosing the appropriate business assessment category is a question of judgment and therefore no tax refund should be given under s. 443. In addition, in his evidence on the application, Mr. Eldridge took the position that he never agreed that a s. 443 refund was available in the circumstances of this case. However, the issue for confirmation is not the opinion of the Assessment Commissioner as to the applicability of s. 443, but only whether there was an error in the assessment referred to in the application. The November 30, 1998 letter effectively constituted such confirmation.

Issue 3

25The other procedural issue that concerned the Divisional Court in this case was the identity of the respondent. In Emco, the respondent was the Regional Assessment Commissioner and it was the refusal of that official to provide the confirmation that was nominally the subject of the judicial review, although the decision that was attacked was the city's refusal to refund the taxes.

26In this case, the appellant's position, which has been endorsed on this appeal, was that there was confirmation of the error by the Regional Assessment Commissioner as required by s. 443(7)(b); therefore, it was the city's refusal to acknowledge that confirmation and proceed to consider the application for the refund that was the subject of the judicial review.

27I am satisfied that the appellant is entitled to its remedy in this matter and that the procedure it adopted was not inappropriate on the facts of this case.

28The appellant has asked for an order requiring the city to make a partial refund of business taxes for the 1994, 1995 and 1996 taxation years. However, because s. 443(10) gave the [page650] municipal council the authority to determine the refund application, the proper order is for the city council to consider the application based on the findings and conclusions of this court.

Conclusion

29I would therefore allow the appeal from the Divisional Court, and substitute an order quashing the decision of the city that the appellant's application for a partial refund is invalid under s. 443(7)(b), and requiring the city council to consider the application under s. 443(10), applying the findings and conclusions of this court to the issue.

30The costs of the appeal shall be to the appellant on the partial indemnity scale, fixed in the amount of $8,000 for both the leave to appeal application and the appeal, inclusive of disbursements and GST.

Order accordingly.

Notes

Note 1: The Municipal Act has been repealed and replaced by Municipal Act, 2001, S.O. 2001, c. 25. Section 358 of the Municipal Act, 2001 is similar but not identical to s. 443 of the repealed Municipal Act. The business assessment tax in s. 7 of the Assessment Act was abolished by Bill 106, S.O. 1997, c. 5, s. 5. Neither of these changes is applicable to this appeal.