This Ontario Court of Appeal decision illuminates (in part of its 182 pages) legal principles of estoppel by representation and convention. These principles might, in rare cases, apply to contracts between parties. One would generally not expect them to arise in tax disputes because the CRA is bound to apply the law:
“● Expectations of a substantive outcome. Sometimes an administrative decision-maker may lead one to believe that a particular substantive decision will be made but then fails to make it. Even though the person has a legitimate expectation that a particular substantive outcome will be reached, that expectation is not enforceable: … St. Ann’s IslandShooting and Fishing Club Ltd. v. The King, 1950 CanLII 28 (SCC), [1950] S.C.R. 211, per Rand J., at page 220 (“there can be no estoppel in the face of an express provision of a statute”); … In the tax context, see …; Louis Sheff (1984) Inc. v. The Queen, 2003 TCC 589 at paragraph 45 (“an estoppel cannot override the law of the land and…the Crown is not bound by the errors or omissions of its servants”); ….
● Departures from policies. Changes in policies or departures from policies, by themselves, do not constitute an abuse of discretion or make a decision unreasonable: … Administrative decision-makers are bound to apply the law of the land, not their administrative policies, to the facts before them. For example, in the tax context, information bulletins do not create estoppels: Vaillancourt v. Deputy M.N.R., [1991] 3 F.C. 663 at page 674 (C.A.); Stickel v. Minister of National Revenue, [1972] F.C. 672 at page 685 (T.D.).”
Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250 at para 75.
Even so, there might be some especially rare cases where the issue comes up. Settlement agreements might be such a case, as these comments from the Federal Court of Appeal suggest:
“[35] The general rule is that parties should be bound by the agreements that they make. There is no good reason to create an exception here. As suggested by the Tax Court in 1390758 Ontario Corp. v. R., 2010 TCC 572, 2010 D.T.C. 1385, this would be very unfair to CBS: “[b]oth sides of a dispute are entitled to know that if they invest the time and effort required to negotiate a settlement, then their agreement will bind both parties” (at para. 37).
[36] The Crown entered into the settlement agreement believing that it was in its best interest to do so. It should be required to live up to its bargain. In my view, it would not be appropriate for the Court to wade into the merits of the agreement.”
Canada v. CBS Canada Holdings Co., 2020 FCA 4.
In CBS Canada Holdings, the Crown had sought to rely on long settled authority for the principle that it is not bound by settlements that are contrary to the law and the facts. As the FCA explained above, it did not accept the principle to be so broad.
The Ontario case that is the topic of this post was a dispute over a land development project in the Northeast of Toronto. Although the Court of Appeals decision was split on application of the estoppel principles, there is no dispute about what the principles are:
“B. Estoppel by Representation
(1) Governing Legal Principles
[134] In Canadian Superior Oil Ltd. v. Paddon-Hughes Development Co., 1970 CanLII 3 (SCC), [1970] S.C.R. 932, at pp. 939-40, the Supreme Court stated that the essential factors giving rise to estoppel by representation are:
(1) a representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made;
(2) an act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made; and
(3) detriment to such person as a consequence of the act or omission.
[135] More recently in Ryan v. Moore, at para. 5, the Supreme Court referred to its much earlier decision in Page v. Austin (1884), 1884 CanLII 6 (SCC), 10 S.C.R. 132, at para. 164, to describe the doctrine of estoppel by representation as follows:
‘Estoppel by representation requires a positive representation made by the party whom it is sought to bind, with the intention that it shall be acted on by the party with whom he or she is dealing, the latter having so acted upon it as to make it inequitable that the party making the representation should be permitted to dispute its truth, or do anything inconsistent with it.'”
…
“C. Estoppel by Convention
(1) Governing Legal Principles
[144] At para. 59 of Ryan v. Moore, the Supreme Court states that the following criteria form the basis of the doctrine of estoppel by convention:
(1) The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly). [Emphasis in original.]
(2) A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.
(3) It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.
[145] On the first criterion – which the Court refers to as “Assumption Shared and Communicated” – the Court provides the following additional guidance, at paras. 61-62:
‘The crucial requirement for estoppel by convention, which distinguishes it from the other types of estoppel, is that at the material time both parties must be of “a like mind”. The court must determine what state of affairs the parties have accepted, and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity.
‘While it may not be necessary that the assumption by the party raising estoppel be created or encouraged by the estopped party, it must be shared in the sense that each is aware of the assumption of the other. Mutual assent is what distinguishes the estoppel by convention from other types of estoppel. … Thus, it is not enough that each of the two parties acts on an assumption not communicated to the other. Further, the estopped party must have, at the very least, communicated to the other that he or she is indeed sharing the other party’s (ex hypothesi) mistaken assumption.’ [Citations omitted.]
[146] The court also offers further guidance on the second and third criteria, namely, reliance and detriment. It notes that the requirement of detrimental reliance lies at the heart of true estoppel and that detrimental reliance encompasses two distinct, but interrelated concepts: reliance and detriment: at paras. 68-69.
[147] Reliance requires a finding that the party seeking to establish the estoppel changed its course of conduct by acting, or abstaining from acting, in reliance upon the assumption, thereby altering its legal position: at para. 69.
[148] In terms of detriment, the Court offers this guidance, at para. 73 of Ryan v. Moore. Once the party seeking to establish estoppel shows that it acted on a shared assumption, it must prove detriment. For the plea to succeed, it must be unjust or unfair to allow a party to resile from the common assumption. A change from the presumed legal position will facilitate the establishment of detriment “because there is an element of injustice inherent within the concept of the shared assumption – one party has acted unjustly in allowing the belief or expectation to ‘cross the line’ and arise in the other’s mind”: at para. 73, citing Sean Wilken, Wilken and Villiers: The Law of Waiver, Variation and Estoppel, 2nd ed. (Oxford: Oxford University Press, 2002), at p. 228.”