Introduction Although 24 years of jurisprudence have gone by since its codification in article 1375 of the Civil Code of Québec, the notion of good faith remains a vague concept whose incidence on the performance of contracts is still unclear.  Although it is increasingly evident that good faith is not a mere interpretive concept without substantial meaning, the most fundamental uncertainty remains— or rather, remained, until the Supreme Court of Canada rendered the decision that is the subject of this bulletin. This uncertainty has to do with knowing to what extent the general obligation of good faith can change the content of a contract duly entered into by the parties. In other words, could the judge, on the basis of article 1375 CCQ, intervene in the contract, the “law for the parties,” to remodel it according to the judge’s understanding of good faith? Context In this matter, the plaintiff, Churchill Falls, argued that the other contracting party, Hydro-Québec, had an obligation to renegotiate the price in a contract under which the latter had undertaken to purchase most of the electricity produced by the Churchill Falls power plant at a fixed price for a period of 65 years. According to Churchill Falls, this obligation to renegotiate the price was a matter of good faith and was required of Hydro-Québec due to the changes in the electricity market that meant that the fixed price in the contract had become too low compared to the prices paid on this market. The Court thus had to decide whether it could, on the basis of the notion of good faith, add an obligation to renegotiate the price to the fixed price contract. Decision The Supreme Court of Canada responded to this question in the negative, as had the Superior Court and Court of Appeal of Quebec. To do this, it analyzed and rejected each of the arguments submitted by Churchill Falls. We will briefly examine these arguments and the way in which the Supreme Court rejected them. The contract is not a joint venture contract Churchill Falls initially claimed that the contract that it had signed with Hydro-Québec was a joint venture contract, which, by its very nature, implies an equitable sharing of risks and profits, and therefore entails an obligation to renegotiate the price in order to better share the profits generated from the sale of electricity. The legal nature of a joint venture contract is disputed since some authors, looking to Quebec jurisprudence, are of the opinion that it consists of an undeclared partnership, while others defend the existence in Quebec law of a sui generis contract of joint venture.  Without getting into this debate, the majority of the Court was of the opinion that the contract in question fulfilled neither the criteria of an undeclared partnership contract, nor those of a sui generis contract of joint venture. In fact, regarding the undeclared partnership, the evidence showed no common intention to form a partnership (animus societatis) nor any combining of resources. Regarding the sui generis contract of joint venture, the majority of the Court identified from authors who defend this unnamed legal form the determining factor of “an intention to jointly assume the responsibility involved in carrying out the proposed project.” However, the contract in question clearly defined and divided the responsibility of each party to the contract in such a way that no intention to share responsibility for the project could be deduced. The contract is not a relational contract Churchill Falls then claimed that the contract that it had signed with Hydro-Québec was a relational contract that, by its very nature, entailed a stricter obligation of good faith, including, given the change in circumstances, the obligation for the parties to renegotiate the price in order to better share the profits from the sale of electricity. The majority of the Court rejected this argument because they were of the opinion that the contract in question was not a relational contract. They did not rule on the second part of this argument, regarding the scope of a good faith obligation if it were a relational contract. Regarding the definition of relational contracts, the position of the majority of the Court sets a precedent. In fact, while jurisprudence and authors have defined the relational contract in a variety of somewhat eclectic ways, the majority of the Court accepted only the definition proposed in 1998 by Professor Belley: “a relational contract can roughly be defined as a contract that sets out the rules for a close cooperation that the parties wish to maintain over the long term.” In essence, relational contracts provide for economic coordination as opposed to setting out a series of defined prestations. It is a corollary to the emphasis on the parties’ relationship that their respective prestations are not defined in much detail. The contract in question here clearly quantified and defined each party’s prestations, so that no important prestations were left undefined. According to the majority of the Court, this shows that the parties intended the project to proceed according to the words of the contract at face value, not on the basis of their ability to agree and cooperate from day to day to fill any gaps in the contract: “The Power Contract sets out a series of defined and detailed prestations as opposed to providing for flexible economic coordination. It is not therefore a relational contract.” No implied obligation to renegotiate the price Churchill Falls (CFLCo) also claimed that an implied obligation to collaborate and renegotiate the price is incident to the contract according to its nature, under art. 1434 CCQ. The majority of the Court dismissed this argument. On this subject also, the position of the majority of the Court sets a precedent. In fact, to a certain degree, the judges strengthened and shed light on the concept of implied contractual obligations under article 1434 CCQ. According to them, an implied duty may be incident to a contract according to the nature of the contract if the duty is consistent with the general scheme of the contract and if the contract’s coherency seems to require such a duty. However, such an implied clause must not merely add duties to the contract that might enhance it, but must fill a gap in the terms of the contract such that it can be presumed that the clause reflects the parties’ intention, which is inferred from their choice to enter into a given type of contract. The majority of the Court noted that in this case, there is nothing to suggest that the parties’ prestations would be incomprehensible and would have no basis or meaningful effect in the absence of an implied duty according to which Hydro-Québec must either exceed the usual requirements of good faith in cooperating with CFLCo or redistribute windfall profits: “The Contract governs the financing of the Plant and the sale of electricity produced there, and also strictly regulates the quantity of electricity to be provided by CFLCo and the price to be paid by Hydro-Québec. The meaningful effect of the sale for the parties is clearly identifiable: Hydro-Québec obtains electricity, while CFLCo receives the price paid for it. The fact that the price might not be in line with market prices does not destroy the very logic behind the sale or deprive it of any meaningful effect. Furthermore, the benefits each party derives from the sale are related to the other prestations associated with the construction of the Plant. There is no gap or omission in the scheme of the Contract that requires this Court to read an implied duty into the Contract in order to make it coherent.” The limits of good faith and the rejection of the doctrine of unforeseeability Finally, Churchill Falls argued that independently from the nature of the contract, Hydro-Québec was nonetheless obliged to renegotiate because, in Quebec civil law, the concepts of good faith and equity condition the exercise of the rights created by any type of contract. It argued that these concepts prevent Hydro-Québec from relying on the words of the Contract, because to do so in circumstances in which the Contract effectively provides for disproportionate prestations would be contrary to its duty to act in good faith and in accordance with equity. And given that the prestations owed by the parties have been disproportionate since the changes in the market occurred, it argued that Hydro-Québec has been violating its duties related to good faith since then by refusing to renegotiate the Contract.  In this regard, the majority of the Court began by categorically affirming that the doctrine of unforeseeability, which Churchill Falls seemed to rely on indirectly, was not part of Quebec civil law. The majority of the Court noted that Churchill Falls was seeking to use the concepts of good faith and equity in a manner that goes beyond the limits of the doctrine of unforeseeability even though the Quebec legislature has refused to incorporate that doctrine into the province’s civil law. They added that, “If unforeseeability itself has been rejected, a protection analogous to it that would be linked only to changes in circumstances without regard for the core conditions of the doctrine as recognized in other civil law jurisdictions could not become the rule in Quebec law.” The majority of the Court rejected equity as a basis for a possible obligation to renegotiate the price, because “its effect would then be to indirectly introduce either lesion or unforeseeability into our law in every case.” They added that the equity provided in article 1434 as a source of implied obligations “is not so malleable that it can be detached from the will of the parties and their common intention as revealed in and established by a thorough analysis of the whole of the relevant evidence.” In fact, the evidence revealed that both parties to the contract were experienced, and they negotiated its clauses at length and intended one of them to bear the risk of fluctuations in electricity prices. The majority of the Court also rejected the argument of good faith as a basis for a possible obligation to renegotiate the price. Their analysis in this regard is based on the following two assumptions, which clarify the concept of good faith. Firstly, according to them, good faith is a standard associated with the parties’ conduct; it cannot be used to impose obligations that are completely unrelated to their conduct. In other words, for good faith to be invoked with success, unreasonable conduct by one of the parties must be shown. In this case, Hydro-Québec did nothing but demand the performance of the contract as it had been agreed upon. The second assumption is that good faith serves to maintain the relevance of the prestations that form the basis of the contract even if the words of the contract do not specifically prohibit the parties from doing something that would impede its fulfilment. The majority of the Court adds that, “if the main prestations of a contract are renegotiated and modified, they will rarely remain relevant.” In other words, “Because good faith takes its form from the terms of the contract, it cannot serve to undermine the contract’s paradigm. But in the view of the Superior Court and the Court of Appeal, that is exactly what CFLCo is arguing for in this case: CFLCo is demanding that Hydro-Québec renounce its access to a source of electricity production at a stable cost, that is, to the principal benefit it derives from the Contract.” Commentary This decision sheds a very useful light on the relationship between good faith and the contents or scheme of a contract. Closing the door to the general application of the doctrine of unforeseeability, the Court instead favoured the binding force of contracts and contractual stability. Contrary to the claims of Churchill Falls, the obligation to act in good faith cannot oblige the parties to renegotiate the fundamental terms of the contract, but aims rather to enable the performance of the prestations under the contract. However, although in principle it is legitimate to demand adherence to a contract, a party’s rigidity must not reach the point of abuse of rights, in which case it could be sanctioned for its conduct and held responsible if there is resulting damage. Moreover, various judicial instruments can help palliate the unforeseeable. If the unforeseen situation is severe enough to be qualified as superior force under the Civil Code, in that it prevents a party to the contract from fulfilling its obligations, said party could be released from them. The parties are also free to define the concept of superior force in their relationship through a contractual clause. Similarly, the parties can limit the risks associated with the unforeseeable in long-term contracts through adjustment clauses, which can take several forms (indexing clauses, revaluation clauses, renegotiation clauses, etc.). This could be especially useful in a fixed-price contract where the risks are usually attributed to the service provider ahead of time. However, as the matter of Churchill Falls clearly shows, a party that has agreed by contract to assume a risk without providing for such adjustment mechanisms will have to assume the consequences.  

While individuals (natural persons) may represent themselves and need not resort to a lawyer before the courts, a legal person or a corporation must necessarily be represented by a lawyer, both pursuant to the Code of Civil Procedure (articles 23, 86 and 87) as well as by reason of the acts reserved for lawyers under an Act respecting the Barreau du Québec (CQLR c. B-1; see section 128) (hereinafter the “AB”). However, the question has arisen in the past as to whether an individual may represent a legal person or a corporation before a quasi-judicial tribunal, for example the Tribunal Administratif du Québec (hereinafter the “TAQ”), and inter alia validly sign and file proceedings with such a body. Two contradictory lines of authority had existed until recently within the ATQ, some adjudicators having answered the question with yes,1 others with no,2 and no decision of the Court of Québec (sitting on appeal from the TAQ) or of the superior courts had ever settled the matter. The controversy had to do mainly with the interpretation to be given to an exception to the acts reserved for lawyers, such exception being set out as follows in section 129(c) AB: 129. None of the provisions of section 128 shall limit or restrict: […] (c) the right of public or private bodies to be represented by their officers, except for the purpose of pleading, before any organization having a quasi-judicial function; In a decision rendered on March 22, 2017,3 Justice David L. Cameron of the Court of Québec (sitting on appeal from the TAQ) finally settled this matter, namely, to what extent a “private body” may be represented by its officers (rather than by a lawyer) before an organization having a quasi-judicial function. This is the first decision by the Court of Québec, Appeal Division — and indeed by any superior court — on this issue. The Court determined that under section 129(c) AB, supra, a private body may be represented by its officers before an organization having a quasi-judicial function, including for the signing and filing of proceedings, but not however as concerns the act of pleading. To come to this ruling, the Court had to determine five main issues, being the respective meanings to be given to the terms “represent”, “private body”, “officer”, “pleading” and whether the TAQ is an “organization having a quasi-judicial function”. We revisit these issues below, while also summarizing and commenting on the Court’s reasoning. 1. What is the extent of this right “to be represented”? What are the acts, actions and steps in the process that are included and that may be completed without a lawyer? The Court adopts a “[TRANSLATION] broad and inclusive approach [to the effect] that the exception is aimed at all steps of representation, from the preparation and drafting stages to when the case is closed (subject to pleading).”4 2. What types of entity fall under this exception and are considered “private bodies”? Being of the opinion that the expression “private body”, without further characterization, is the least specific and most generic term that the legislature could have used in this exception to the monopoly conferred by the AB upon lawyers, the Court concludes that “[TRANSLATION] the term “private body” is broad enough to encompass legal persons, partnerships or other bodies that do not possess legal personality, in sum, all entities of a private nature that are not individuals.”5 3. Who may be considered an “officer” of the private body? Once again, the Court rejects any formalism and points out, for instance, that it would not suffice to base oneself strictly on entries appearing in public registers (for example, in the Québec enterprise register), where the directors of a company are required to be listed. Instead, the Court decides that the actual roles and responsibilities of the person, in its relation to the entity it wishes to represent, are to be examined in order to establish (or not) the person’s status as officer. The Court characterizes the question as one of “[TRANSLATION] mixed fact and law”.6 4. What does the “except for the purpose of pleading” limitation mean? On this point, the parties were in agreement and the Court notes that “[TRANSLATION] the concept of pleading is very restrictive, meaning the activity of presenting an argument once the evidence is closed in the context of a hearing.”7 However, the Court goes further and specifies that, in the case at hand, the participation or representation by an officer should have been excluded “[TRANSLATION] merely for the purposes of pleading at law after the clarification of factual matters”.8 5. Is the TAQ an organization having a “quasi-judicial function”? In the Court’s opinion, yes; hence it finds the exception in section 129(c) AB is applicable.9 What is the situation with respect to private arbitration? “Private” arbitration is recognized as a private dispute prevention and resolution process in article 1 of the Code of Civil Procedure, whilst article 4 of the Code of Civil Procedure specifies that this dispute prevention and resolution process is confidential. Alternative dispute resolution mechanisms can present certain advantages, including confidentiality, and the legislature encourages parties to resort to them. The same issue is thus likely to arise in the context of private arbitration, seeing as these provisions of the AB are of public order.10 Although the Court settles the matter with respect to cases issuing from the TAQ, the result should be identical as far as private arbitration is concerned due to the quasi-judicial function of an arbitrator,11 based on a combined reading of sections 1 (definition of the word “court”), 128 and 129 AB. More specifically, subparagraphs 1 to 7 of section 128(2)(a) AB present an exhaustive list of exclusions to the monopoly provided for by section 128(2)(a) to lawyers, which list includes inter alia the arbitration of disputes or grievances within the meaning of the Labour Code12 or within the meaning of the Act respecting labour relations (...) in the construction industry13, but not “private” arbitration recognized as a private dispute prevention and resolution process in article 1 of the Code of Civil Procedure. One should therefore conclude that the monopoly created by section 128(2)(a) AB is applicable to private arbitration, as is the exception in section 129(c) AB, which allows a private body to be represented by its officers in this context, except for the purpose of pleading. Except as concerns the act of pleading. See, for example, 3639886 Canada Inc. c. Commission de protection du territoire agricole du Québec et als, 2002 CanLII 54567 (QCTAQ). See, for example, Raven c. Montréal (Ville), 2015 QCTAQ 04983. Ville de Longueuil c. 9128-2405 Québec Inc., 2017 QCCQ 2191. At the time of writing, no appeal had been initiated, but the time limit for appeal had not yet expired. We recommend that the reader follow up on this case or contact us. Ville de Longueuil c. 9128-2405 Québec Inc., 2017 QCCQ 2191, para. 181. Id., see paragraphs 210-214. Id., see paragraphs 225-226. Id., see paragraph 232. Id., see paragraph 232 in fine. Ville de Longueuil c. 9128-2405 Québec Inc., 2017 QCCQ 2191, para. 250-251. Fortin v. Chrétien, [2001] 2 S.C.R. 500, p. 516 (para. 21). AR Plomberie chauffage inc. c. Institution royale pour l’avancement des sciences, 2007 QCCS 2998, para. 45; Maçonnerie Demers inc. c. Lanthier, J.E. 2002-1335, AZ-50127879 (C.S.), para. 226; Hubert REID, Dictionnaire de droit québécois et canadien, 5e éd., Wilson-Lafleur, Montréal, 2015, p. 484 (definition of “pouvoir quasi judiciaire” [quasijudicial power]). See also, wherein the function of an arbitrator is considered analogous to a judicial function (thus quasi-judicial by nature): Zittrer c. Sport Maska Inc., [1985] C.A. 386, AZ-85011217, para. 54-55, reasons of Justice Lebel, as he then was (reversed by the Supreme Court of Canada but not on this point: [1988] 1 S.C.R. 564), this opinion of Justice Lebel being authoritative, see, for example: Charbonneau c. Industries A.C. Davie Inc., J.E. 89-759 (C.S.), p. 10; Promutuel Dorchester, société mutuelle d’assurances générales c. Ferland, J.E. 2001-26, AZ-01021003 (C.S), p. 6 and footnote 2; Marie-Josée HOGUE et Patrick FERLAND (dir.), Guide de l’arbitrage, Lexis Nexis Canada inc., Montréal, 2014, para. 1-8, 1-9 and 1-10. (CQLR, c. C-27), see paragraph 128(2)(a)[1] AB. (CQLR, c. R-20), see paragraph 128(2)(a)[6] AB.

CONTENTS The 2014 Federal Budget Plan sounds the death knell for two family tax planning measures much appreciated by entrepreneurs and some professionals The Expert and the Court You signed a contract for services... with an employee? How to properly identify the relationship between the parties and what are the consequences of a wrong categorization ? Application of GAAR to a cross-border debt “clean-up” transaction: The Pièces Automobiles Lecavalier Inc. CaseTHE 2014 FEDERAL BUDGET PLAN SOUNDS THE DEATH KNELL FOR TWO FAMILY TAX PLANNING MEASURES MUCH APPRECIATED BY ENTREPRENEURS AND SOME PROFESSIONALSMartin BédardINCOME SPLITTING THROUGH A TRUST OR PARTNERSHIPFirst, the 2014 Federal Budget Plan (the “Budget”) ends the possibilities for splitting the income of trusts and partnerships in respect of business and rental income attributed to a minor child.Such income will henceforth be considered as being part of the split income of the trust or partnership and taxed at the marginal rate.As described in the Budget, the conditions of application of this new measure are as follows: the income is derived from a source that is a business or a rental property; and a person related to the minor is actively engaged on a regular basis in the activities of the trust or partnership to earn income from any business or rental property, or has, in the case of a partnership, an interest in the partnership (whether held directly or through another partnership) The structures affected by these new measures could be used by professionals conducting their activities through a partnership of which their minor children or a trust established for their benefit were members. Such structures allowed for directly or indirectly allocating a portion of the income of the partnership to the minor child and thus benefit from progressive tax rates.As of 2014, the rules governing split income will apply to these structures, which will no longer offer a tax benefit. However, it is still possible to split such income with related persons who have reached the age of majority.POST-MORTEM INCOME SPLITTING: THE TESTAMENTARY TRUSTThe Budget also puts an end to the progressive tax rates applicable to a testamentary trust, a measure which was announced in the 2013 Federal Budget Plan.Up to now, testamentary trusts were allowing their beneficiaries to benefit from several progressive tax rates. Among the tax planning possibilities associated with the availability of such progressive tax rates were the use of numerous testamentary trusts, the postponement of the completion of the administration of an estate for tax purposes or the avoidance of the Old Age Security Recovery Tax.Testamentary trusts will henceforth be uniformly taxed at their marginal tax rates. However, progressive tax rates will remain applicable in the following two cases: (i) for the thirty-six (36) first months of an estate which is a testamentary trust and (ii) in the case of a trust whose beneficiaries are eligible for the federal disability tax credit.The Budget also provides that the tax year-end of testamentary trusts must henceforth be December 31 of each year starting December 31, 2015.These measures will apply to taxation years 2016 and following.THE EXPERT AND THE COURTDominique VallièresIn the context of litigation, lawyers frequently require the testimony of experts, particularly accountants. Well presented, this evidence may have a decisive influence on the outcome of a trial. In the contrary situation, a debate on the quality of the expert or the weight to be given to his or her testimony may occur. This is why we review in this bulletin the role, qualification and credibility of the expert.THE ROLE OF THE EXPERTThe role of the expert is to express an opinion based on his or her scientific, economic or other knowledge, which exceeds that of the judge and without which it is impossible to draw from the facts the correct conclusions. In other words, when the judge is able by himself to understand the facts and draw the correct inferences, an expert is neither necessary nor admissible. For example, the calculation of the gross profits from a contract, which only constitute a mathematical operation, will not require a particular expertise and an accountant called upon to testify on that matter will be at best considered as an ordinary witness. The role of the expert is to enlighten the Court in as objective or impartial a manner as possible.THE QUALIFICATION OF THE EXPERTTo express his or her opinion, the expert must first be recognized as such by the Court. The expert will therefore be first examined respecting his or her training and experience. If the expert qualification is contested, and the Court considers that the expert is insufficiently qualified, it may refuse to hear him or her. The qualifications of the expert must be related to the matters about which he or she testifies.The training of the witness and his or her practical experience, will be considered. Although either may be enough, a really convincing expert will generally have solid training and experience, failing which, even if the Court accepts to hear him or her, less weight may be given to his or her testimony.THE WEIGHT GIVEN TO HIS OR HER OPINIONAs is the case with any other witness, the Court will have to assess the credibility of the expert, particularly in the presence of contradictory opinions. The Court may review the seriousness of the steps taken by the experts. It will give more weight to the opinion of a witness who directly noted the facts and reviewed the data than to the opinion of another witness who only relied on what he or she has been told. A mostly theoretical opinion or an opinion which only describes principles will also be given less weight. It is important for the witness to explain why the particular facts of the case allow for drawing a particular conclusion. Furthermore, in the presence of diverging schools of thought on a particular item, the Court appreciates that the expert considers them and explains why one should be favoured over the other in the situation at hand. Dogmatism, the absence of justification and the out of hand dismissal of a recognized approach will also generally be negatively perceived.This is consistent with the very basis of the role of the expert, which is to impartially and objectively enlighten the Court. The Court will want to ensure that the expert keeps the required distance and independence to issue a credible opinion. If the Court perceives that the expert is taking sides or “pleads the case” of the party who retained his or her services, his or her credibility will suffer. Thus, even though it is admissible, the testimony of the expert and his or her conduct will be more closely scrutinized if it is demonstrated, for instance, that he or she is employed by a party or expressed in the past an opinion on similar issues.Although this situation is rarer, the Court could even refuse to hear the witness if it is convinced that he or she will be unable to be impartial. Such may be the case when the expert personally advocates in favour of the position defended by a party or the fact that he or she was personally involved in similar litigation. The animosity or the closeness which may exist between the expert and a party may also negatively affect the expert. In this respect, it is important for the expert to be transparent to the party who retains his or her services.CONCLUSIONThe really useful expert is the one whose conduct may be summarized by these three words: competence, thoroughness and objectivity.YOU SIGNED A CONTRACT FOR SERVICES… WITH AN EMPLOYEE? HOW TO PROPERLY IDENTIFY THE RELATIONSHIP BETWEEN THE PARTIES AND WHAT ARE THE CONSEQUENCES OF A WRONG CATEGORIZATION?Valérie Korozs and Martin BédardThe Court of Appeal of Québec recently issued an interesting decision on this subject in the Bermex international inc. v. L’Agence du revenu du Québec case1 (“Bermex”).It must be noted that regardless of the fact that the parties have described their agreement as a contract for services or an agreement with a self-employed person, a court is not in any way bound by such a description.The courts have developed certain criteria for analyzing the legal status of a person in order to determine whether that person is an employee or a self-employed person. Among these criteria, the relationship of subordination, that is, whether a person works under the direction or control of another person, has always been decisive.What about when a person is not, strictly speaking, “under the direction or control of another person”,2 due to the fact that he or she runs the business? This is the question the Court of Appeal had to answer in the Bermex case.The Court adopted a broad interpretation of the concept of the subordination relationship by considering the degree of integration of the worker into the company, a criterion derived from the common law.THE FACTSFollowing a tax audit of four companies, the Agence du revenu du Québec (the “Agency”) concluded that Mr. Darveau, their main director and officer, did not have the status of a self-employed person but rather that of an employee. Accordingly, the Agency was of the view that the management fees paid to Mr. Darveau had to be considered employment income and therefore, had to be included in the companies’ payroll.The four companies targeted challenged the Agency’s assessments before the Court of Québec but to no avail.THE DECISION OF THE COURT OF APPEALJust like the trial judge , the Court of Appeal concluded that the intent of the parties to enter into a service contract was not clear from the evidence in the case.The fact that Mr. Darveau was a shareholder of the appellant corporations allowed him some freedom of action, giving the impression that he acted as a self-employed person. It is not surprising that as an officer, Mr. Darveau managed his own schedule, work and compensation nor is it surprising that he was not under the direct supervision of another authority. This freedom resulted from his status as an officer and not from the contract for services upon which he was relying.The Court of Appeal placed a particular emphasis on the fact that it was the appellant companies who assumed all risk of loss and who profited from the activities: [translation] “Yet, a company does not assume the errors of an external consultant”.3 Mr. Darveau did not bring any [translation] “expertise requiring the intervention of an external person in an area that he knows better than anyone, he simply deals with the day-to-day problems of his companies, as he so acknowledges.”4CONCLUSIONAccording to the line of case law followed by the Court of Appeal in the Bermex case, one shall take criteria such as control, ownership of tools, expectation of profits and risks of loss, as well as integration into the company into consideration for the purpose of determining a person’s status as a self-employed individual or an employee.An erroneous categorization of the nature of the contract may have significant financial impacts on the company and the individual in question, both from a tax and labour law perspective. It is therefore essential to undertake a careful analysis of the true status of the person involved before the beginning of the contractual relationship._________________________________________1 2013 QCCA 1379.2 Article 2085 of the Civil Code of Québec.3 Para 59 of the Court of Appeal’s judgment.4 Para 60 of the Court of Appeal’s judgment.APPLICATION OF GAAR TO A CROSS-BORDER DEBT “CLEAN-UP” TRANSACTION: THE PIÈCES AUTOMOBILES LECAVALIER INC. CASE LAVERY, AN OVERVIEWÉric GélinasThe Tax Court of Canada recently rendered a decision dealing with the general antiavoidance rule (“GAAR”) in the context of the elimination of a cross-border debt between Greenleaf Canada Acquisitions Inc. (“Greenleaf”) and Ford US, its American parent company, prior to the sale of Greenleaf’s shares, who owed the debt, to a third party. In the case under review, Ford US subscribed for additional Greenleaf shares and Greenleaf used the proceeds from the subscription to repay its debt to Ford US.The purpose of the transactions in question was to avoid the application of section 80 of the Income Tax Act (“ITA”) upon the forgiveness of a portion of the debt. Without the debt repayment, the rules pertaining to debt parking contained in paragraphs 80.01(6) to (8) ITA would have resulted in the application of section 80 ITA in such a way as to reduce Greenleaf’s tax attributes and even add to its income the portion of the “forgiven amount” not being sheltered.The Minister of National Revenue (“Minister”) was of the view that GAAR applied to the “clean-up” transaction in such a way that Greenleaf had to realize a capital gain of $15 million on the forgiveness of the debt. Greenleaf’s tax attributes were accordingly reduced and certain adjustments to its taxable income were made pursuant to section 80 ITA.ANALYSIS OF THE COURTFrom the outset, the taxpayer acknowledged that the transactions provided it with a tax benefit, namely, the preservation of Greenleaf’s tax attributes through the avoidance of the provisions of section 80 ITA.As to whether these transactions constituted “avoidance transactions”, the taxpayer attempted, particularly through the testimony of the accounting expert, to prove that they had been carried out only for US tax and accounting purposes, and that they therefore had bona fide non-tax purposes and did not constitute avoidance transactions. The Court did not rely on this testimony because it constituted hearsay. Furthermore, the Court applied the negative inference doctrine since no representative of Ford US had testified and that the testimonies provided were deemed not to be credible.With respect to the issue of abuse, the Court agreed with the Minister’s argument to the effect that the “clean-up” transactions were abusive since they circumvented the purpose and spirit of section 80 ITA: if the debt had not been repaid using the proceeds from the subscription, the rules governing debt parking would have applied and Greenleaf’s tax attributes would have been reduced pursuant to section 80 ITA.CONCLUSIONThis decision is particularly important in a context of debt reorganization within a corporate group. The type of transactions discussed in the decision under review is frequently used. Practitioners will have to pay particular attention to the tax impact of such a transaction. When it is possible to do so, it will obviously be preferable to simply convert a debt into shares of the debtor corporation to the extent that paragraph 80(2)(g) ITA is applicable so that no forgiven amount will result from the conversion.