REASONS
FOR JUDGMENT
Campbell J.
Introduction
[1]
The Appellant was assessed as a director of D.M.
Stewart’s Cartage Ltd. (the “Corporation”) in
respect to the 2001, 2002 and 2003 taxation years for unremitted income tax,
employer contributions, interest and penalties in the total amount of
$477,546.08 pursuant to subsection 227.1(1) of the Income Tax Act (the “Act”).
[2]
The Appellant contends that he resigned as a
director of the Corporation by Notice of Resignation (the “Resignation”) dated July 20, 2006 and that the Minister
of National Revenue (the “Minister”) is now barred
from raising the assessment because it was raised on October 15, 2010, which is
beyond the two year limitation period set out in subsection 227.1(4) of the Act.
[3]
The Minister argued that the Appellant did not
cease to be a director of the Corporation on July 20, 2006 because the
Resignation was backdated and it is therefore not an authentic document.
[4]
The issue is whether the Appellant continued to
be a director after July 20, 2006, such that he will be liable for the
corporate debt. More specifically, the issue involves a determination of
whether the Resignation was backdated.
[5]
The Appellant purchased the Corporation in 1992.
It was in the business of general cartage, trucking and warehousing. Initially,
the Appellant’s wife, Angelika Bekesinski, was also a director of the
Corporation but she resigned on August 1, 2002.
[6]
The last annual report of the Corporation was
filed with the British Columbia Registrar of Companies in 2003. Beginning in
2004, the Appellant had numerous dealings with the Canada Revenue Agency (the “CRA”). Amid issues of bankruptcy and upon receiving notice
that the Corporation would be stricken from the records on March 25, 2006, the
Appellant’s corporate solicitor, Ted Hawthorne, directed that the Appellant’s
corporate registered office be changed from his law firm to the Appellant’s
home address.
[7]
On January 28, 2011, the Appellant contacted the
CRA to advise that he had previously resigned as a director by virtue of the
Resignation. Since this occurred shortly after the director’s liability
assessment and after numerous dealings with the Appellant over the years, the
CRA had suspicions that the Resignation had been backdated. Consequently, the
CRA had a forensic document chemist, with the Canada Border Services Agency,
Annie Vallière, test the Resignation for its authenticity by ink date testing.
At the hearing in October, 2013, following a voire dire, I ruled that
Ms. Vallière would be qualified as an expert witness in her capacity as a
forensic document chemist. After Ms. Vallière was qualified, the Appellant
raised an objection that the Expert Report did not satisfy Rule 145 of the Tax
Court of Canada Rules (General Procedure). The parties provided written
submissions on this objection and I issued my ruling on January 31, 2014 (2014
TCC 35). The Expert Report was excluded because it did not comply with Rule
145. The hearing did not resume and the parties provided no further evidence
except for final written submissions.
The Evidence
[8]
Four witnesses testified: the Appellant, his
wife, Angelika Bekesinski, his corporate solicitor, Ted Hawthorne and a CRA
collections enforcement officer, Cindie May Barlow.
[9]
The Appellant had been involved over the years
as a director with a number of companies. Between 2003 and 2004, an audit of
the Corporation was commenced. When a number of corporate sales and purchases
failed and litigation ensued, the Appellant and his wife began meeting with
Tony Bocking at the CRA concerning outstanding tax liabilities. Those two
meetings occurred in 2005 and 2006 and the Appellant left his records and files
with the CRA.
[10]
In 2008, the Appellant received requests from the
CRA to file year end returns for the Corporation despite its inactivity. His
next meeting with the CRA to discuss the corporate tax liabilities occurred in
2009. The Appellant did not produce or mention the Resignation at any of these
meetings. On cross-examination, the Appellant testified that he did not recall
receiving a warning letter from the CRA in 2005 advising that he and his wife
could be facing director’s liability with respect to corporate remittances.
However, he did recall that Mr. Bocking from the CRA advised him, in 2005 or
2006, that his wife would not be subject to director’s liability because she
had previously resigned as a director in 2002. He received numerous letters from
the CRA between 2005 and 2011, some of which advised him of the possibility
that he could be liable as a director of the Corporation. He never advised Mr.
Bocking that he was considering resigning as the director prior to the Resignation
in 2006, nor did he advise the CRA at any of the subsequent meetings that he
had already resigned.
[11]
With respect to his Resignation, he testified
that he decided to resign because he received notice that the Corporation was
going to be struck from the provincial records and he believed it was part of
finalizing the corporate activities. He stated that his wife typed his
Resignation and used the same wording as her own resignation, which she had
signed four years previously in 2002. After he signed it, he assumed his wife
put it in the corporate records. Eventually he packed up all the corporate
records and stored them in boxes. He thought that his wife had prompted him to
resign from the Corporation. No one except the Appellant and his wife knew
about his Resignation. He stated that he did not advise the creditors of the
Corporation because they were pursuing him, rather than the Corporation, based
on his personal guarantees.
[12]
It was on January 28, 2011 that the Appellant,
through a letter from his present counsel, first contacted the CRA to inform
them that he had resigned as a director in 2006. Upon request, he forwarded the
original document to the Minister on April 8, 2011 for testing.
[13]
Angelika Bekesinski recalled very little
concerning her resignation signed in 2002 and even less concerning the
Appellant’s. She stated that she “likely” typed
the Appellant’s Resignation because she handled all the correspondence at their
home. She testified that it would have been typed in the family room where the
computer was located. She guessed that she “probably”
would have stored the Resignation with the corporate records as it was her
practice to keep such things together. However, she had no independent
recollection of any of the circumstances surrounding the preparation, signing
or storing of the Appellant’s Resignation. In fact, she admitted that she only
remembered that the Resignation was drafted on July 20, 2006 through
discussions with the Appellant and his present counsel.
[14]
Ted Hawthorne, who had been the Appellant’s
corporate solicitor for 25 years, testified that he ceased to be corporate
counsel around 2005 or 2006 when the Corporation experienced various
difficulties and ceased to operate. He changed the registered office of the
Corporation to the Appellant’s home address to prevent an ongoing obligation to
deliver service of documents and correspondence to this client. He recalled “generally” receiving inquiries from the CRA and he “believed” they attended at his office. His recollection
was based primarily on what his general practice and office policies were about
advising clients on resigning and on director’s liability, especially when a
company was in trouble. He could not provide a specific timeline as to when he
advised the Appellant about resigning. However, he was certain that he would
have given such advice to the Appellant, particularly within the context of
their personal involvement as members of the same regimental association. With
respect to the Appellant’s Resignation, he testified that he did not prepare
it, as the wording was not consistent with how he would phrase it. However, he
believed it was consistent with how he would instruct a client to draft a
resignation letter.
[15]
Cindie May Barlow testified that she sent
correspondence to the Appellant respecting liability. During her first call
with the Appellant, he was concerned and recognized that this was a serious
matter. After sending the director’s liability assessment letter to the
Appellant and receiving no response, she certified the debt as collectible in
court and commenced various legal actions. She subsequently received a call
from the Appellant and his present counsel, advising her that there existed a
Notice of Resignation. Ms. Barlow stated this was the first indication that a
resignation existed. As such, a referral was made to the Special Investigations
Department on the basis that it seemed suspicious that, after contact with the
Appellant over the course of a number of years, a resignation dated in 2006
suddenly materialized following the director’s liability assessment in 2010.
The Appellant’s
Position
[16]
The Resignation is legally effective and
demolishes the Minister’s assumption that the Appellant was a director of the
Corporation. The Minister did not introduce any evidence that would support its
theory that the Resignation was backdated. For example, there were no letters,
notes or collection diary entries to suggest that the Resignation was
backdated. In addition, the Respondent did not call any witnesses that had been
involved with the matter during the period immediately before or after the
Resignation. With respect to the time delay in the disclosure of the
Resignation, the Appellant pointed out that the Minister never asked or took
any steps to inform the Appellant that he could resign.
[17]
The Appellant relied on the case of LeCaine v
The Queen, 2009 TCC 382, 2009 DTC 1246, to argue that there is a heightened
onus where an unusual allegation is made, such as the present allegation of
backdating. The party asserting such an unusual allegation has a higher onus
while staying within the range of a balance of probabilities.
The Respondent’s
Position
[18]
The Respondent did not dispute that the
Resignation was effective for the purposes of the British Columbia Business
Corporations Act. The Respondent’s argument was based on the fact that the
Appellant was a director of the Corporation when it incurred an outstanding tax
liability. The Appellant did not adduce credible and cogent evidence that would
demolish the Minister’s assumption that the Appellant remained a director. For
example, the evidence of the Appellant and his two witnesses was speculative
and did not demolish the Minister’s assumptions.
[19]
The crux of the Respondent’s argument was that
the Appellant was not a credible witness because of his failure to disclose
that a resignation existed until after the director’s liability assessment
against him. It is improbable that the Appellant would omit to inform CRA that
he had resigned, especially when he knew that his wife had escaped director’s
liability by resigning in 2002.
[20]
The Respondent relied on the decision of Moll
v The Queen, 2008 TCC 234, 2008 DTC 3420, and Campbell v The Queen,
2010 TCC 100, 2010 DTC 1090, to support its theory that the Resignation was not
authentic because the Appellant would have disclosed this critical piece of
information had he, in actual fact, resigned.
Analysis
[21]
The initial onus, in a tax appeal of this
nature, is on an appellant to “demolish” the
Minister’s assumptions by making out a prima facie case on a balance of
probabilities. In House v The Queen, 2011 FCA 234, 2011 DTC 5142, the
Federal Court of Appeal, at paragraph 57, explained a prima facie case
as follows:
… In Amiante Spec
Inc. v. Canada, [2009 GTC 1022] 2009 FCA 139, 2009 FCJ No. 603 (QL), our Court,
at paragraph 23, explained a prima facie case in the following terms:
[23]
A prima facie case is one “supported by evidence
which raises such a degree of probability in its favour that it must be
accepted if believed by the Court unless it is rebutted or the contrary is
proved. It may be contrasted with conclusive evidence which excludes the
possibility of the truth of any other conclusion than the one established by
that evidence” (Stewart v. Canada, [2000] T.C.J. No. 53,
paragraph 23).
[22]
If an appellant “demolishes”
the Minister’s assumptions, the onus then shifts to the Minister to rebut the prima
facie case and to prove the assumptions. If the burden shifts to the
Minister but the Minister adduces no evidence, the taxpayer will be entitled to
succeed (Hickman Motors Ltd. v Canada, [1997] 2 SCR 336).
[23]
The Appellant relied on the decision in LeCaine,
specifically paragraphs 31 to 33, to argue that there will be a heightened onus
where one party makes an unusual allegation, such as the allegation in these
appeals, of backdating the Resignation. I not only disagree with this
interpretation, but I conclude that the Appellant’s extraction of these three
paragraphs to support his proposition is blatantly incorrect. These specific
paragraphs are part of a comprehensive analysis by Justice Webb on the burden
of proof in this Court:
[31]
In The Continental Insurance Company v. Dalton Cartage Company Limited,
[1982] 1 S.C.R. 164, Chief Justice Laskin stated as follows:
Where there is an allegation of conduct that is
morally blameworthy or that could have a criminal or penal aspect and the
allegation is made in civil litigation, the relevant burden of proof remains
proof on a balance of probabilities. So this Court decided in Hanes v.
Wawanesa Mutual Insurance Co., [1963] S.C.R. 154. There Ritchie J.
canvassed the then existing authorities, including especially the judgment of
Lord Denning in Bater v. Bater, [1950] 2 All E.R. 458, at p. 459, and
the judgment of Cartwright J., as he then was, in Smith v. Smith and Smedman,
[1952] 2 S.C.R. 312, at p. 331, and he concluded as follows (at p. 164):
Having regard to the above authorities, I am of
opinion that the learned trial judge applied the wrong standard of proof in the
present case and that the question of whether or not the appellant was in a
state of intoxication at the time of the accident is a question which ought to
have been determined according to the "balance of probabilities".
It is true that apart from his reference to Bater
v. Bater and to the Smith and Smedman case, Ritchie J. did not
himself enlarge on what was involved in proof on a balance of probabilities
where conduct such as that included in the two policies herein is concerned. In
my opinion, Keith J. in dealing with the burden of proof could properly
consider the cogency of the evidence offered to support proof on a balance of
probabilities and this is what he did when he referred to proof commensurate
with the gravity of the allegations or of the accusation of theft by the
temporary driver. There is necessarily a matter of judgment involved in
weighing evidence that goes to the burden of proof, and a trial judge is
justified in scrutinizing evidence with greater care if there are serious
allegations to be established by the proof that is offered. I put the matter in
the words used by Lord Denning in Bater v. Bater, supra, at p.
459, as follows:
It is true that by our law there is a higher standard
of proof in criminal cases than in civil cases, but this is subject to the
qualification that there is no absolute standard in either case. In criminal
cases the charge must be proved beyond reasonable doubt, but there may be
degrees of proof within that standard. Many great judges have said that, in
proportion as the crime is enormous, so ought the proof to be clear. So also in
civil cases. The case may be proved by a preponderance of probability, but
there may be degrees of probability within that standard. The degree depends on
the subjectmatter. A civil court, when considering a charge of fraud, will naturally
require a higher degree of probability than that which it would require if
considering whether negligence were established. It does not adopt so high a
degree as a criminal court, even when it is considering a charge of a criminal
nature, but still it does require a degree of probability which is commensurate
with the occasion.
I do not
regard such an approach as a departure from a standard of proof based on a
balance of probabilities nor as supporting a shifting standard. The question in
all civil cases is what evidence with what weight that is accorded to it will
move the court to conclude that proof on a balance of probabilities has been
established.
(emphasis
added)
[32]
In Hickman Motors Limited v. The Queen, [97 DTC 5363] [1997] 2 S.C.R.
336, Justice L'Heureux-Dubé stated as follows:
92 It is trite law that in taxation the standard of
proof is the civil balance of probabilities: Dobieco Ltd. v. Minister of
National Revenue, [65 DTC 5300] [1966] S.C.R. 95, and that within balance
of probabilities, there can be varying degrees of proof required in order to
discharge the onus, depending on the subject matter: Continental Insurance
Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; Pallan v. M.N.R., 90
D.T.C. 1102 (T.C.C.), at p. 1106.
[33]
In the recent decision of the House of Lords of In re Doherty, [2008]
UKHL 33, Lord Carswell stated as follows:
25. The phrase "degree of probability" was
picked up and repeated in a number of subsequent cases -- see, for example, In
re Dellow's Will Trusts [1964] 1 WLR 451, 455, Blyth v Blyth [1966]
AC 643, 669 and R v Secretary of State for the Home Department, Ex p Khawaja
[1984] AC 74, 113-4 - and may have caused some courts to conclude that a
different standard of proof from the balance of probabilities or a higher
standard of evidence was required in some cases. In so far as such
misunderstanding has occurred, it should have been put to rest by the
frequently-cited remarks of Lord Nicholls of Birkenhead in In re H (Minors).
Immediately after the passage which I have quoted from his opinion, he went on
at pages 586-7:
When assessing the probabilities the court will have
in mind as a factor, to whatever extent is appropriate in the particular case,
that the more serious the allegation the less likely it is that the event
occurred and, hence, the stronger should be the evidence before the court
concludes that the allegation is established on the balance of probability.
Fraud is usually less likely than negligence. Deliberate physical injury is
usually less likely than accidental physical injury. A stepfather is usually
less likely to have repeatedly raped and had non consensual oral sex with his
under age stepdaughter than on some occasion to have lost his temper and
slapped her. Built into the preponderance of probability standard is a generous
degree of flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not
mean that where a serious allegation is in issue the standard of proof required
is higher. It means only that the inherent probability or improbability of
an event is itself a matter to be taken into account when weighing the
probabilities and deciding whether, on balance, the event occurred. The more
improbable the event, the stronger must be the evidence that it did occur
before, on the balance of probability, its occurrence will be established...
No doubt it is this feeling which prompts judicial comment from time to time
that grave issues call for proof to a standard higher than the preponderance of
probability.
...
27. Richards LJ expressed the proposition neatly in R (N)
v Mental Health Review Tribunal (Northern Region) [2005] EWCA Civ 1605,
[2006] QB 468, 497-8, para 62, where he said:
Although there is a single civil standard of proof on
the balance of probabilities, it is flexible in its application. In particular,
the more serious the allegation or the more serious the consequences if the
allegation is proved, the stronger must be the evidence before a court will
find the allegation proved on the balance of probabilities. Thus the
flexibility of the standard lies not in any adjustment to the degree of
probability required for an allegation to be proved (such that a more serious
allegation has to be proved to a higher degree of probability), but in the
strength or quality of the evidence that will in practice be required for an
allegation to be proved on the balance of probabilities.
In my opinion this paragraph effectively states in
concise terms the proper state of the law on this topic. I would add one small
qualification, which may be no more than an explanation of what Richards LJ
meant about the seriousness of the consequences. That factor is relevant to the
likelihood or unlikelihood of the allegation being unfounded, as I explain below.
28. It is recognised by these statements that a
possible source of confusion is the failure to bear in mind with sufficient
clarity the fact that in some contexts a court or tribunal has to look at the
facts more critically or more anxiously than in others before it can be
satisfied to the requisite standard. The standard itself is, however,
finite and unvarying. Situations which make such heightened examination
necessary may be the inherent unlikelihood of the occurrence taking place (Lord
Hoffmann's example of the animal seen in Regent's Park), the seriousness of the
allegation to be proved or, in some cases, the consequences which could follow
from acceptance of proof of the relevant fact. The seriousness of the
allegation requires no elaboration: a tribunal of fact will look closely into
the facts grounding an allegation of fraud before accepting that it has been
established. The seriousness of consequences is another facet of the same
proposition: if it is alleged that a bank manager has committed a minor
peculation, that could entail very serious consequences for his career, so
making it the less likely that he would risk doing such a thing. These are all
matters of ordinary experience, requiring the application of good sense on the
part of those who have to decide such issues. They do not require a different
standard of proof or a specially cogent standard of evidence, merely
appropriately careful consideration by the tribunal before it is satisfied of
the matter which has to be established.
(emphasis
added)
[24]
There is no indication, either expressed or
implied, within these paragraphs that could support the proposition that, in
cases where there is an unusual allegation, the onus on the party that asserts
it will be higher. First, the decision of the Supreme Court of Canada in The
Continental Insurance Company v Dalton Cartage Company Limited, referred to
in paragraph 31 of the LeCaine case, does not support the Appellant’s
assertion. Instead, the excerpt addresses the relationship between the scrutiny
of the evidence and the gravity of the allegation. Where the gravity of an
allegation is greater, then the standard of the balance of probabilities will
require clear and convincing evidence, although the standard remains the same.
Prior to the decision in LeCaine, Rothstein J. in F.H. v McDougall,
2008 SCC 53, [2008] 3 S.C.R. 41, at paragraph 30, interprets Chief Justice
Laskin’s rejection of the “shifting standard” in Continental
Insurance in the following manner:
30 However, a “shifting standard” of probability has not been
universally accepted. In Continental Insurance Co. v. Dalton Cartage Co.,
[1982] 1 S.C.R. 164, Laskin C.J. rejected a “shifting standard”. Rather,
to take account of the seriousness of the allegation, he was of the view that a
trial judge should scrutinize the evidence with “greater care”. At pp. 169-71
he stated:
Where there is an allegation of conduct that is
morally blameworthy or that could have a criminal or penal aspect and the
allegation is made in civil litigation, the relevant burden of proof remains
proof on a balance of probabilities. . .
. . .
There is necessarily a matter of judgment involved in
weighing evidence that goes to the burden of proof, and a trial judge is
justified in scrutinizing evidence with greater care if there are serious
allegations to be established by the proof that is offered.
. . .
I do not regard such an approach (the Bater
approach) as a departure from a standard of proof based on a balance of
probabilities nor as supporting a shifting standard. The question in all civil
cases is what evidence with what weight that is accorded to it will move the
court to conclude that proof on a balance of probabilities has been
established.
Justice Rothstein
does not interpret this passage to conclude that there is a heightened onus on
the individual making the allegation, as Chief Justice Laskin was clearly of
the view that a trial judge must scrutinize the evidence with “greater care” where the allegation is more serious.
[25]
Second, it is apparent that the Appellant places
reliance for his proposition on a few paragraphs that have been extracted from
a line of jurisprudence. In extracting portions from the reasons of Justice
Webb in LeCaine, Appellant Counsel lifted it out of context and
misinterpreted it in an effort to support an incorrect proposition. After
Justice Webb provided a review of the relevant jurisprudence in LeCaine,
his summary referred only to the probability or improbability of an event as a
factor to be considered by a judge in assessing the evidence but not to any
degree of heightened onus within the standard of the balance of
probabilities itself, as Appellant Counsel proposed. At paragraph 36, Justice
Webb stated:
[36]
It seems to be that these cases are consistent and the issue in a civil case
(which will include the current appeal) will be whether the evidence as
presented is sufficient to satisfy the trier of fact, on a balance of
probabilities, that the person who has the burden of proof has established what
is required of him or her. In analyzing the evidence that has been presented,
the probability of improbability of the event that is in issue is a factor that
can be taken into account. The more improbable the event the stronger the
evidence that would be required. Conversely it would also seem to me that a
person may be able to establish, on a balance of probabilities, that a highly
probable event occurred based on weaker evidence than would be required to
establish that an improbable event had occurred.
By narrowly
focussing only on paragraphs 31 to 33 of LeCaine, Appellant Counsel
missed the big picture and, consequently, misconstrued Justice Webb’s reasons.
[26]
Third, there is no legal rule that exists
respecting the impact of the inherent probability of an event. A trial judge
must carefully scrutinize the relevant evidence in considering whether an
allegation is inherently improbable or probable within the assessment and
weight to be accorded to the evidence. At paragraph 48 of McDougall,
Justice Rothstein stated:
Some
alleged events may be highly improbable. Others less so. There can be no rule
as to when and to what extent inherent probability must be taken into account
by a trial judge. As Lord Hoffman observed at para. 15 of In re B:
… Common sense,
not law, requires that in deciding this question, regard should be had, to
whatever extent appropriate, to inherent probabilities.
It will be for the
trial judge to decide to what extent, if any, the circumstances suggest that an
allegation is inherently improbable and where appropriate, that may be taken
into account in the assessment of whether the evidence establishes that it is
more likely than not that the event occurred. However, there can be no rule of
law imposing such a formula.
[27]
In summary, there is no heightened onus on a party
asserting an unusual allegation as Appellant Counsel proposed. Rather, the
probability of an event is dependent upon the circumstances and it is then
incumbent upon the trial judge to decide to what extent the probability of an
event should be taken into consideration when assessing the evidence. The
standard of proof, therefore, in civil cases remains a balance of probabilities.
[28]
With respect to LeCaine, the Respondent
argued that, based on paragraph 36, the decision stands for the proposition
that facts that tend to be more improbable must be more closely scrutinized.
The Respondent may have based this conclusion on Justice Webb’s use of the
phrase “in analyzing the evidence.” However, I
believe it is a mischaracterization of the decision in LeCaine to propose
that the probability of the event impacts the level of scrutiny a judge should
afford the evidence. At paragraph 36 of LeCaine, Justice Webb
highlighted that the probability or improbability of an event speaks to the
assessment of the evidence to determine if the balance of probabilities has
been met, not to the degree of scrutiny. Justice Rothstein, at paragraph 45 of McDougall,
made it clear that there is only one legal rule in all cases and that is “… evidence must be scrutinized with care by the trial
judge.” (Emphasis added).
[29]
I do not believe that the alleged backdating of
the Resignation is an improbable event as Appellant Counsel has characterized
it. Documents of convenience are often part of the evidence in tax appeals.
Even if I accepted Appellant Counsel’s interpretation of LeCaine, which
I do not, backdating of a document is not an event that I would characterize as
a highly unusual allegation.
[30]
There was no documentary evidence to corroborate
the Appellant’s Resignation and no expert evidence in respect to the ink dating
of the document. I have only the testimony of the witnesses and, consequently,
credibility plays a key role in this appeal.
[31]
The decision in Springer v Aird & Berlis
LLP, 96 OR (3rd) 325, highlights that the most satisfactory “judicial test of truth” is in the harmony or lack of
harmony with the balance of probabilities disclosed by the facts and
circumstances unique to each case. Perfection in testimonies is not expected
and evidence that is too consistent may even be an indication that it is
artificially constructed.
[32]
Justice V.A. Miller, at paragraph 23 of Nichols
v The Queen, 2009 TCC 334, 2009 DTC 1203, sets out several criteria that
can be used in assessing credibility:
[23]
In assessing credibility I can consider inconsistencies or weaknesses in the
evidence of witnesses, including internal inconsistencies (that is, whether the
testimony changed while on the stand or from that given at discovery), prior
inconsistent statements, and external inconsistencies (that is, whether the
evidence of the witness is inconsistent with independent evidence which has
been accepted by me). Second, I can assess the attitude and demeanour of the
witness. Third, I can assess whether the witness has a motive to fabricate
evidence or to mislead the court. Finally, I can consider the overall sense of
the evidence. That is, when common sense is applied to the testimony, does it
suggest that the evidence is impossible of highly improbable.
[33]
In Chow v The Queen, 2011 TCC 263, 2011
DTC 1196, Justice V.A. Miller encouraged the application of common sense to the
testimony to determine whether the evidence is possible, impossible, probable
or highly probable.
[34]
The Appellant’s testimony was, for the most
part, consistent with the testimonies of the other witnesses. For example, the
Appellant’s testimony was consistent with Ted Hawthorne’s evidence that they
had several conversations about director’s liability and resigning. The
testimony of the Appellant and his wife regarding the typing and filing away of
the Resignation was consistent.
[35]
However, there was a significant inconsistency
with respect to the Appellant’s explanation for not disclosing his Resignation
to the CRA. He stated that he was not sure what effect such disclosure would
have. This was inconsistent with his admission that Mr. Bocking informed the
Appellant that his wife would not be liable as a director because she had
previously resigned. Based on this information, the Appellant should have known
the crucial impact of resignation for a director. His other explanation for
failing to inform the CRA that he had resigned was that he assumed that the CRA
had access to his records. It is apparent that the Appellant certainly had a
monetary motive to manufacture evidence. He has been involved in a number of
corporations over the years, many of them unsuccessful.
[36]
Ted Hawthorne suffered from the lack of a clear
recollection of events. There were no inconsistencies in his evidence but he
could speak only in generalities as to how his office dealt with advising
clients respecting liability as directors and consequences of resignations.
[37]
Mrs. Bekesinski had almost no independent recall
of the circumstances surrounding either the Appellant’s Resignation or her own
resignation in 2002 and her evidence was based primarily on speculation.
Her testimony was consistent with the Appellant’s evidence respecting what
generally should have occurred. However, she had no actual memory of the
events. She was adamant that she would have typed the Resignation and that she would
not “fudge around” with the date of the
Appellant’s Resignation as she did not like confrontation. Despite having a
motive to fabricate the evidence, she still admitted that she did not have an
independent memory of typing the Resignation.
[38]
Although Appellant Counsel attempted to put in
issue portions of Ms. Barlow’s testimony because there was either no
corroborating evidence or the evidence was not consistent with her testimony,
he failed to do so. For example, he attempted in cross-examination to demonstrate
that there may have been no specific conversation between the CRA and the
Appellant respecting his director’s liability. However, since the Appellant
himself admitted in his cross‑examination that he received numerous
letters between 2005 and 2011, advising him of the possibility of a
director’s liability assessment, I am unsure of exactly what Appellant Counsel
was trying to demonstrate. In addition, I failed to see the relevance of
whether or not Ms. Barlow herself conducted the corporate searches contained at
Exhibit R-4.
[39]
The Respondent placed a great deal of reliance
on the fact that the Appellant did not disclose the Resignation to the CRA or
to any of his creditors. The Respondent relied on the two decisions in Campbell
and Moll to argue that a lack of disclosure to the CRA or to third party
creditors of a resignation will affect its authenticity. The present appeals
can be distinguished from the decision in Moll, as the latter turned on
the conclusion that the taxpayer held himself out as a director after allegedly
resigning and he did not inform anyone, including third party creditors, that
he was no longer a director. The Appellant in the present appeal testified that
he did not inform his creditors because he had personally guaranteed the corporate
loans and he was therefore liable personally to the creditors. This fact also distinguishes
the present appeal from the Campbell decision where it was in the
taxpayer’s interest to inform third party creditors concerning his directorship.
[40]
The Respondent did not introduce any independent
evidence concerning third party creditors that might have impeached the
Appellant’s credibility. I had no evidence before me that indicated that there
were any creditors pursuing the Corporation. Also, the Appellant stated that he
believed he was responsible for events in the past regardless of resigning from
the company.
[41]
The decision in Campbell can also be
distinguished from the present appeal because there were contradictory
statements made during discoveries respecting where the resignation was kept
and how it surfaced. The present appeal is absent any such inconsistency.
Although I am of the view that Respondent Counsel could have pressed this point
with the Appellant’s wife in her cross-examination, the Respondent did not
press Mrs. Bekesinski beyond the fact that she had no independent memory of the
event.
[42]
The fact that the Appellant did not inform
anyone at the CRA that he had resigned as a director of the Corporation over a
lengthy period is suspect. The Appellant’s explanation was that he assumed the CRA
had access to his records and that he believed he was responsible in any event
for past liabilities. This contradicts the Appellant’s admission that the CRA
informed him that his wife would escape liability for past debts because she
had resigned. However, the Appellant provided a plausible explanation by
stating that, as he had already been dealing with the CRA, he thought he was
responsible for the tax liabilities incurred in the past and that resigning as
a director would only insulate him from future events.
[43]
In cross-examination of the Appellant’s
witnesses and in direct examination of Ms. Barlow, Respondent Counsel attempted
to highlight the Appellant’s potential awareness of the connection between the
tax liabilities and his capacity as director. Thus, the Respondent argued that,
if the Appellant had actually resigned in 2006, he would have informed the CRA
in order to escape potential liability. Although this was meant to undermine
the Appellant’s credibility, it was Ms. Barlow’s evidence that the CRA
would not have asked the Appellant if he resigned because they did not want to
tip him off concerning his status as a director.
[44]
There is a significant lack of memory recall of
the events surrounding the Resignation. However, there were no significant
inconsistencies or contradictions among the witnesses. Ted Hawthorne testified
that he advised the Appellant of the potential liabilities of being a director.
The Appellant stated that this advice from Ted Hawthorne, his long-time
corporate solicitor and friend, influenced him to resign when the Corporation
was winding down. This is consistent with Ted Hawthorne’s practice of ensuring that
his former clients avoided such potential liabilities.
[45]
Applying the comments from the reasons in Springer
and the criteria provided by Justice Miller in Nichols regarding
credibility, I conclude that the Appellant’s testimony is generally
corroborated by the other witnesses called by the Appellant. The explanations
are plausible and possible, even if weak due to the passage of time and the
lack of specific recollection. There are no glaring inconsistencies with the
evidence of the witnesses. On the whole, the Appellant has provided plausible
explanations for certain choices that I might otherwise have characterized as
questionable. In all likelihood, the Appellant backdated the Resignation, but
without expert evidence respecting the ink dating of the document and without
apparent gaps and contradictions in the evidence, I must conclude that the
Appellant has successfully met the onus of refuting the Respondent’s assumption
of fact that the Appellant was a director of the Corporation.
[46]
This shifts the burden to the Respondent. The
Respondent’s position is that the Resignation was backdated to 2006 and that it
is therefore not an authentic document. On a balance of probabilities, the
Respondent has not been able to successfully rebut the Appellant’s evidence.
There was no independent evidence introduced by the Respondent which would undermine
the Appellant’s credibility or demonstrate that the Resignation was backdated.
The Respondent relied on circumstances to undermine the Appellant’s
credibility. More specifically, reliance was placed on the lack of exact recall
of events and the failure to advise the CRA and creditors of the Resignation.
However, the Respondent failed to demonstrate, on a balance of probabilities,
that the Resignation was backdated and therefore fraudulent or that the
Appellant remained a director of the Corporation after the Resignation.
[47]
I believe that the Minister’s assumptions of
fact lacked clarity and precision. The five assumptions of fact that the
Respondent pleaded were:
a) the facts stated and admitted above;
b) the Appellant was the sole director of DM;
c) DM was duly incorporated under the laws of British Columbia;
d) DM was involved in the trucking industry; and
e) a certificate in the amount of $477,546.08 and pertaining
to DM’s failure to remit source deductions was registered with the Federal
Court pursuant to section 223 of the Act and execution for that amount
was returned unsatisfied in whole.
The initial
burden on the Appellant was therefore specifically to “demolish”
the assumption that he was a director of the Corporation and nothing more.
[48]
These pleadings are sloppy and inadequate and
detrimental to the Respondent’s success. Because of the advantage that the
Respondent receives from the practice of pleading facts that are assumed to be
true, jurisprudence has established that those assumptions must be accurate and
precise so that the taxpayer knows exactly the case to be met. The assumptions
omit those very facts upon which the Respondent’s position is based, that is,
that the Resignation had been backdated and was not authentic. Nor was there
any reference to due diligence on the part of the Appellant. Had those facts
been included, the onus would have been on the Appellant initially to demolish
those facts. However, the critical assumption was only that the Appellant was a
director of the Corporation. The Appellant would have had a much more difficult
case to meet, had the Respondent paid more attention to its pleadings. The
Appellant’s responsibility was to adduce sufficient evidence to demolish the
assumed fact that he was a director of the Corporation. It is not the
Appellant’s obligation to adduce evidence to demonstrate that the Resignation
was not backdated. When the burden shifted to the Respondent, the Respondent
was unable to prove, on a balance of probabilities, that the Resignation was
backdated and the Appellant remained a director.
Conclusion
[49]
The Notice of Assessment is dated October 15,
2010. The evidence supports that the Appellant ceased to be the director of the
Corporation on the date of his Resignation, July 20, 2006. Since the assessment
was issued more than two years after the Resignation, the Appellant will not be
liable for the unpaid taxes and remittances.
[50]
The outcome of these appeals was dependent upon
the authenticity of the Resignation. Although the testimony of Angelika
Bekesinski and Ted Hawthorne provided no specifics concerning the Resignation,
there were no glaring inconsistencies or contradictions in their testimony with
the testimony offered by the Appellant. The evidence was, for the most part,
consistent and there was nothing to undermine their credibility.
[51]
The initial onus, which is upon the Appellant,
does not require him to prove his case with complete certainty but only to
demonstrate, on a balance of probabilities, that he was not a director of the
Corporation at least two years prior to the Notice of Assessment being issued.
Consequently, the Resignation is sufficient to demolish the Minister’s
assumption that the Appellant “was the sole director”
of the Corporation. Despite the Respondent’s allegation of backdating, the
Respondent failed to produce evidence that would prove, on a balance of
probabilities, that the Resignation is not authentic. Although the Respondent
had intended to rely on expert evidence, for the reasons set out in my interim ruling,
the Expert Report was excluded. The Respondent did not produce any other
independent evidence, except to question the actions of the Appellant and the
witnesses in an attempt to undermine the Appellant’s credibility. However, this
did not produce the desired result of showing, on a balance of probabilities,
that the Resignation had been backdated.
[52]
I question the authenticity of the Resignation
but, without the appropriate evidence before me, I must allow the appeal. The
Respondent made a series of litigation choices which have resulted in my
conclusion. The assumptions of fact contained in the Reply lacked the clarity
and precision that may have better stated the facts specific to the
Respondent’s position, that is, that the Resignation had been backdated and was
not an authentic document. Due to the lack of precision, the onus on the
Appellant was limited to showing he was not a director of the Corporation
during the relevant period. Incorrect choices were then made respecting the
content of the proposed Expert Report on ink dating that was to be used to
support the Respondent’s position that the Resignation had been backdated. Some
of the exhibits also lacked relevancy to the specific issue. For example,
copies of corporate searches, (Exhibit R-4) had been conducted outside the
taxation years in question. In addition, as pointed out during
cross-examination of the Respondent’s witness, none of the documentation,
supporting Ms. Barlow’s testimony that the Appellant was advised in writing
that he could be facing director’s liability, was introduced into evidence.
[53]
In the end, I must deal with what is before me
in evidence, despite my belief that the Resignation has been backdated.
[54]
Although I am allowing the appeal, I am not
giving costs in this matter. It was experienced counsel before me in this
appeal, so I cannot make exceptions that I might ordinarily make for newer
counsel. Appellant Counsel has in the past viewed things from both sides of the
table, having worked for the Crown in the earlier part of his career. In cherry-picking
several paragraphs to inappropriately support its position, and without
apparent reference to other relevant jurisprudence, Appellant Counsel made
blatantly incorrect propositions.
[55]
For these reasons, the appeal is allowed, but
without costs.
Signed at Summerside, Prince Edward Island, this 28th day of July 2014.
“Diane Campbell”
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