Weinkauf v. The Queen, 85 DTC 5570, [1985] 2 CTC 354 (FCTD), briefly aff'd [1988] 1 CTC 231 (FCA)

Muldoon, J:—In order the better to conform with the rules and practices of this court, the style of cause in this action is amended to be that which is shown above.

The plaintiff resides in Saskatoon, Saskatchewan. He sues the defendant in tort, for damages which, he says, were caused by civil wrongs done to him by servants of the Crown employed in the Department of National Revenue, in relation to his 1977 income tax return and the tax due from him for that year.

In his statement of claim, by paragraph 4, the plaintiff alleges:

4. The Defendant, on February 3, 1981, served a third party demand on the Plaintiff’s employer, being Winnacott Bros Autobody Ltd [sic], of Saskatoon, Saskatchewan, in the amount of $3,834.81 at the rate of 40 per cent of each future gross payment. As a direct result of the third party demand, the Plaintiff lost his employment with the said company.

The allegations expressed in paragraph 4 are true. That being so, it raises the question of whether the employer, Winacott Bros, did the plaintiff an actionable wrong in discharging him. That subject will be dealt with later in these reasons.

In paragraph 5 of his statement of claim the plaintiff makes the following allegations:

5. The Plaintiff was unable to secure new employment for approximately 14 months. On June 2, 1982, the Defendant served a third party demand on the Plaintiff’s employer, being Precision Autobody Repair Ltd, Saskatoon, Saskatchewan, in the amount of $2,883.55 at the rate of 50 per cent of each future gross payment and 100 per cent on termination. This demand was withdrawn by the Defendant on June 9, 1982.

In reply to paragraph 5 above, the defendant, by her Deputy Attorney General, pleads:

5. In reply to paragraph 5 he [ie the Deputy Attorney General] admits that a third party demand was served upon Precision Autobody Repair Ltd but states that such step was taken pursuant to section 224 of the Income Tax Act, supra. Except as is hereinbefore expressly admitted he denies the allegations in said paragraph 5.

The plaintiff testified that he was paid by Winacott Brothers up to February 6, 1981, with his entitlement to holiday pay, as shown by exhibit 7, and that he next secured employment with Precision Autobody in March, 1982. The period of his unemployment cannot have been fully 14 months, as alleged, but, for lack of a precise date, ought to be considered as 13 months at most. This second third party demand is shown by exhibit 9. Exhibit 10 is a copy of the letter from the Department of National Revenue withdrawing the above-mentioned demand on third parties.

By their respective paragraphs 6 the parties plead as follow. First the plaintiff:

6. On June 29, 1982, the Defendant advised the Plaintiff by letter that he would be reassessed. [That letter is exhibit 11.] On or about July 26, 1982, the Plaintiff received notice of a reassessment from the Defendant, [exhibit 12] crediting the Plaintiff’s account in the amount of $3,274.41.

To the above, the Deputy Attorney General replies:

6. In reply to paragraph 6 he admits that on or about June 29, 1982 the defendant informed the plaintiff that he would be reassessed but adds by way of clarification that such reassessment was based on information provided during the month of June, 1982 by the plaintiff, his servants or agents to the defendant.

July and August were seemingly busy months for the Department of National Revenue in regard to the plaintiff, as indicated in exhibits 13, 14 and

15. Between July 29 and August 19, 1982, the Department claimed $1,497.92, but, after acknowledging a credit in an even larger sum on August 5, the Department finally calculated that the plaintiff had made an overpayment for his 1978 taxation year in the overall amount of $2, 758.34 and prepared to issue a cheque for that sum. The plaintiff alleges that the last action was taken after discussions with the Department, but the Defendant denies all of these allegations entirely without mentioning exhibits 13, 14 and 15.

The plaintiff says in his statement of claim that the Department of National Revenue, in serving the third party demand (which is a statutory, but non-judicial, garnishing order) on Winacott Brothers Ltd, “directly and intentionally interfered with the plaintiff's pecuniary interest and employment and the defendant is responsible for the resulting loss of income". He also complains that the Department “having a duty of care towards” him “was in serving the third part notice [sic] on Precision Autobody Ltd", but he was not discharged over that incident, briefly embarrassing as it may have been, before the demand's withdrawal vindicated him.

The plaintiff further complains that, alternatively, the Department “by its actions abused the legal process, trespassed the plaintiff's property and is responsible for the resulting damages”. Moreover he complains that the Department's actions have injured his reputation and caused him “unreasonable and unwarranted emotional and physical distress, pain and suffering". He claims “special damages as may be ascertained and proved at trial" and general damages, any other pertinent relief and costs of this action.

In 1977, the plaintiff was an owner and manager of Border City Autobody Limited of Lloydminster, Saskatchewan. He prepared and filed his Federal and Saskatchewan Individual Income Tax Return (exhibit 1) for 1977. On cross-examination ne acknowledged that his personal accounts and Border City's accounts were intermingled somewhat. A departmental auditor, one Eric Christianson, performed an audit of Border City between November 1978 and January 1979. As a result of his audit Mr Christianson looked into the plaintiff's personal tax return in regard to alleged discrepancies between the T-4 return and the plaintiff's own reporting of wages income. Adjustments were made for the plaintiff's 1977 return, resulting in alleged arrears of tax payment. Arrears were also claimed by the Department for 1978 because of the absence of proof of a decree nisi of divorce to support deductions for maintenance payments and the absence of documentation to support deductions for payments on a registered retirement savings plan claimed by the plaintiff.

Testifying at the call of the defendant was Mr Brian David Graves, a public servant, employed in the Department of National Revenue at Saskatoon as Chief of Source Deductions. Mr Graves had been the defendant’s nominee to be examined for discovery in this matter. Cross-examined by the plaintiff's counsel at trial, he explained the above-recited matters thus:

Q I see. And both of these issues arose at the time, or soon after the audit was done by Mr Christianson, is that correct?

A Okay, the adjustment made to the ’77 return, resulting in arrears for the ’77 adjustment that we spoke of there, that was made in the latter part of March 1979. The 1978 adjustments were processed in July of ’79, which, about the same time the Collections Officer first got the account in his hands. So somebody, in fact, in the District Office, the Collections Officer, when he got that particular card saying this taxpayer owes some money, he had two sources, or two reasons why, that was the ’77 return, as well as the 78 return, because there was tax arrears at that point.

Q Right. But as I see it, and correct me if I am wrong, it would seem to me, that an audit respecting Border City Auto Body, and what came out of that, would only raise issues concerning Mr Weinkauf’s personal income and wouldn't raise any issue concerning any alimony deductions or anything like that. That would be a separate issue, wouldn't it. What I am saying is this, by auditing Border City —

A Um hmm.

Q —one may look at the figures and say, well Weinkauf you actually made this, not this?

A Right.

Q But, no issue concerning maintenance or alimony payments would arise out of that. That would be something separate, that maybe didn't even arise at the time of that audit.

A Exactly, exactly. The items issued — I should say, the issues raised in the 1979 audit were strictly to deal with the increased wages to Mr Weinkauf for 1977. The Registered Retirement Savings Plan and alimony dealt with his '78 return, separate.

Q Right.

A But both created tax arrears for which a Collections Officer, when he got the card, basically they see X number of dollars owing and that is where they start.

Q It would be somebody from the auditors department that would give that information to the Collections, is that fair to say?

A Well, not really. It is processed — the adjustments are processed in Winnipeg on Mr Weinkauf’s personal returns, and then the statement of his return, or statement of his account comes to the District Office. There really is no communication between —

Q Different departments —

A — at that point, no.

Mr Graves said that the Department might have been alerted because Border City’s financial statements in 1976 “showed a bonus or directors' fees payable to the directors" and the amounts must be “subsequently reported on their T-4's".

On cross-examination, the plaintiff stated that demands for payment were first made after the audit. (It was completed by Mr Christianson in January 1979.) The plaintiff could not say for sure whether such demands preceded the crucial demand on third parties (exhibit 6) addressed to Win- cott Brothers, then his employer, in February, 1981. He did not think so.

Mr Graves, referring to the Department's “historic print-out’’, said that a reassessment for the 1977 taxation year was notified to the plaintiff, dated March 16, 1979. Although he did not have a copy of the very notice of reassessment issued to the plaintiff on March 16, 1979, Mr Graves said that the form of notice provided a brief explanation of the taxes and Canada Pension Plan payment as well as of the rights of appeal under subsection 165(1) — 90 days to file a notice of objection from the date of the assessment. The departmental records, according to Mr Graves, disclose no notice of objection having ever been filed by the plaintiff or anyone on his behalf.

Someone was indeed acting on the plaintiff's behalf in this matter, Mr Glenn E Smith, a chartered accountant, of Lloydminster, Alberta, but there is no evidence as to when exactly Mr Smith was engaged by the plaintiff. The liability, if any, of Mr Smith for that of which the plaintiff complains in this action will be dealt with later in these reasons, with that, if any, of Winacott Brothers Auto Body Ltd. In any event it was not contended by, or on behalf of the plaintiff, that he had ever filed a notice of objection.

However, tendered as exhibit 17 is an original letter from Glenn Smith, chartered accountant, dated May 7, 1979, addressed to the District Taxation Office, Saskatoon, which runs as follows:

Re: Gerald Weinkauf

SIN

We recently received your assessment concerning the above. Please find enclosed a reconciliation of Directors T-4 to Financial Statements from 1975 to 1977. Please note that the 1977 T-4 for Gerald Weinkauf should be $12,000.00 as the initial Return was filed as. We do not see how you arrived at a T-4 of $20,000.00

We hope you find everything to be in order.

Mr Graves could find no departmental reply to the above-recited letter. Indeed, between May 1979, and March 1982, no activities are recorded on the part of the Department of National Revenue in this matter, but that, Mr Graves cautioned, does not mean there were none, because by the time he sought the "historical print-out" most of the department's files and actual documentation regarding the plaintiff’s case would have been destroyed. They were destroyed, he suggested, because no notice of objection had been received.

Now, while Mr Smith's letter is dated more than a month after the date of the notice of (re)assessment to which it obviously refers, yet the 90-day period for filing a notice of objection after March 16, 1979, extended until Thursday, June 14, 1979. That is the date upon which the registered letter enclosing a notice of objection would have had to be postmarked. It is, however, not unreasonable that the chartered accountant would have expected some acknowledgement, if not a reasoned reply, to his letter (exhibit 17) dated May 7, 1979, before the expiry of the so-called appeal period. Unfortunately, Mr Smith, if still alive and well, was not called to testify at the trial. One is left with a strong inference from Mr Graves' testimony to the effect that Mr Smith never received the courtesy of a reply, or even an acknowledgement, although his letter (exhibit 17) bears a “Received — Revenue Canada, Saskatoon” stamp, dated May 14, 1979. It must also be remembered that the letter itself is not a notice of objection.

Although no activities regarding the verifying of the sums involved in the plaintiff's return for 1977 were recorded between May 1979 and March 1982, the department did make some efforts to collect whatever amount of arrears it thought to have been owing by the plaintiff. Efforts were made, according to Mr Graves, to collect what the department though were unpaid taxes, commencing in July, 1979. At least two form-letters had been sent to the plaintiff, indicating that money was owing by him, and also in 1979 the first round of demands on third parties was made on Border City Credit Union and on Border City Autobody, but nothing was owing by them to the plaintiff or, accordingly, recovered by the Department.

Exhibit 2 is a copy of a letter dated September 26, 1979, from Mr Smith addressed to the District Taxation Office in Saskatoon. That letter, together with an enclosed cheque in the amount of $2,149.30, “‘to cover the above 1978 tax owing", was received on October 12, 1979 according to Mr Graves. Mr Smith went on in that letter to explain about the T-4 problem in 1977, and further wrote that in "my letter of August 7, 1979, I sent a copy of the Court Decree [nisi] which should justify this deduction" [of maintenance payments]. So, Mr Smith was communicating on the plaintiff's behalf, but he seems not to have been receiving responsive, if any, replies. In turn, Mr Graves, from his print-out, could not say whether the Department ever responded to Mr Smith's letter (exhibit 2) dated September 26, 1979.

The reason for which the questions relating to the plaintiffs 1978 account is interwoven with the narrative of events is that the collections branch, according to Mr Graves, always sought to recover the global total thought to be owing by the taxpayer, without distinction as to the particular years from which component sums were claimed. So, the next item in the departmental record is an ambiguous note that accountant Smith “phoned” on January 3, 1980) (was he phoned, or did he phone?) on the subject of the divorce decree and other information which had not been from the plaintiff.

In 1980, the sum of money which, the plaintiff claims, was wrongfully converted, comes into the narrative. Exhibit 18 is a copy of a departmental transfer journal voucher. It reflects a withdrawal from the plaintiffs general ledger account and a corresponding credit to that of Border City Auto Body in the amount of $1,881.59. The plaintiff was irked that such a transfer was effected without his authorization. He was the author of his own irk.

Early in 1980 the Department was claiming that precise sum from Border City and so notified its owners, in writing. Exhibit 4 is a copy of the plaintiffs personal cheque #120, showing his Saskatoon address, drawn on the main branch of the Royal Bank in Saskatoon dated May 18, 1980, in favour of the Receiver General of Canada, in that exact amount of $1,881.59. What a coincidence! The plaintiff, on cross-examination, testified that he does not remember how he selected that precise sum but that he got it “from someone” at the taxation office, possibly in a telephone conversation. He said he did not direct that the payment be credited to Border City. It seems clear from the evidence that the plaintiff did not direct anything. He either delivered the cheque personally, or mailed it, on the eve of an overseas vacation in May 1980, and he expected too much of the Department when he complains that this sum was misdirected. The defendant claims that the transfer was effected “per request”, but the record, if any, was destroyed. The cheque was deposited on June 3, 1980, the initial transfer (exhibit 18) was effected in April 1981, and later, reversed. Some ordinary care on the plaintiff’s part would have avoided this whole misunderstanding about the sum of $1,881.59. In any event, there was no cost to the plaintiff for any interest or penalties and the interest on the sum offset any charges according to Mr Graves. The plaintiffs complaint in this regard is without merit.

In the meanwhile, the plaintiffs chartered accountant was soldiering on, because, on September 24, 1980, the solicitor had been contacted and warned that all the material requested of him must be received at the taxation office by October 25, 1980, or legal action would be commenced. In October, the plaintiff’s 1979 return was processed and the deadline was extended to December 12, 1980. There followed a new notice of assessment claiming tax arrears of $4,696.58, which even the chartered accountant found to be incomprehensible. Accordingly, Mr Smith wrote on November 5, 1980 (exhibit 3) and again on December 1, 1980 (exhibit 5), both to seek and to convey information and explanation. The information sought in exhibit 3 may have been furnished by the Department, for exhibit 5 refers to a departmental letter of November 24.

Obviously accountant Smith's explanation in exhibit 5 did not satisfy the taxing authorities for on January 2, 1981, according to Mr Graves’ card, a written warning was sent demanding the arrears within 15 days, failing which, legal action was threatened. Such action followed on February 3, 1981, in the form of the demand on third parties (exhibit 6) served on Wina- cott, the plaintiff's employer, citing a debt in the amount of $3,834.81. Con- sistency of amounts claimed was evidently not the hallmark of departmental demands. Exhibit 7 reveals that the Department recovered $761.54. The plaintiff was dismissed and alleges that he could not find suitable new remunerative employment for what must be a period of at least 13 months. Needless to say, the plaintiff was most displeased and depressed by this turn of events which was later followed by personal bankruptcy and health problems. Of course it was not only the Department who were garnishing the plaintiff’s wages and levying process on his assets. He had been defaulting on his maintenance payments. According to his own testimony, his life was in a state of chaos.

The plaintiff finally did obtain employment with Precision Auto Body Repair Ltd when on or after June 2, 1982, there came another third party demand (exhibit 9). His indebtedness was said to be in the amount of $2,885.55. Fortunately for the plaintiff the demand was withdrawn by letter (exhibit 10) dated June 9, 1982.

What caused this reversal of the plaintiff's misery in tax matters, at least? A member of the department's payroll audit division, Mr Clarence Sa- watsky, had begun to review the plaintiff's plight. Mr Sawatsky examined whatever material the plaintiff personally could provide and then, to Mr Sawatsky’s professional and moral credit, he took the time and trouble to journey to Lloydminster where he reviewed the plaintiff's accounts with Mr Smith. In fact he came to very different conclusions from those earlier formed by Mr Christianson. It seemed that Mr Smith was right, or at least right enough, all along. (See examination for discovery questions and answers nos 117, 118, 119, 120, 122, 123 and 133.)

On July 26, 1982, the regional tax centre in Winnipeg issued a new notice of reassessment (exhibit 12) showing, in its result, a credit of $3,274.41 for the plaintiff.

Were all these problems, anxieties and miseries caused by the defendant or her servants and agents? Assuredly they were, in the sense that if there were no Department of National Revenue, and no Income Tax Act, they would never have arisen. They were all based on Mr Christianson’s audit which was subsequently overridden, if not discredited. Thanks to Mr Sawatsky, the department did not persist in inflicting its errors on the plaintiff.

Causality is, however, not precisely coincident with responsibility, for the plaintiff himself, and perhaps (without deciding), his agent and his employer also bear a great burden of responsibility in this matter.

During the course of oral argument the plaintiff's counsel acknowledged that no allegation of malice is part of his case. It sounds in negligence. On the evidence, the principal, if not sole, negligence of any servant of the defendant would have been that of Mr Christianson in performing the audit of Border City's and the plaintiff’s respective income tax returns for the 1977 taxation year. Negligence may possibly be inferred because, once that audit was itself reviewed by Mr Sawatsky, it was abandoned or discredited by the Department of National Revenue. On the other hand, it might be a matter of a difference of expert opinion. That negligence, if any, however, was not the real and proximate cause of the plaintiff's damages, for after Mr Christianson had performed that audit a notice of reassessment, based on it, was sent on March 16, 1979, to the plaintiff. Mr Smith mentions it in his letter (exhibit 17) dated May 7, 1979, a time at which there was still more than a month left within which the plaintiff could have filed a notice of objection regarding that reassessment of March 16, 1979.

The plaintiff either did not trouble to discover what he could have done about that reassessment; or having engaged the services of a chartered accountant, the plaintiff was not advised properly; or being apprised of what he could do, he simply waived his right to counter that reassessment with a notice of objection and to have matters, including Mr Christianson's audit, examined very soon thereafter. The evidence before the Court does not serve directly to establish any of the foregoing three probabilities but, equally, it leaves no scope for any other reasonable inferences. Wherever the truth lies among the above-mentioned probabilities, each one fails to fix the defendant with liability for the ills of which the plaintiff complains.

Early cases under the Crown Liability Act, cited by counsel for the defendant are: Burton v The Queen, [1954] Ex CR 715, and Gaetz v The Queen, [1955] Ex CR 133. Certainly the plaintiff is on strong ground in his action for, if Mr Christianson were negligent, a matter of professional opinion for judicial determination as to which no evidence was led, he and the rest of the departmental personnel were, by irresistible inference, persons whose tortious conduct engages the defendant's liability. But even an inference of Mr Christianson's negligence will not assist the plaintiff here, because of his own later slip-up in not filing a notice of objection.

Obviously, since neither the plaintiff nor his chartered accountant invoked the clear statutory means of impugning the reassessment of March 16, 1979, the Department, while remarkably insensitive to the queries it was receiving, was legally justified in attempting by legal means to collect the sums thought to be owing. After all, the plaintiff failed to question the reassessment by the one significant means at his disposal, a notice of objection. The defendant is therefore not liable to the plaintiff for the wrongs and damages of which he complains, since the Department then merely invoked the legal means provided by the statute.

During the course of oral argument the plaintiff's counsel mentioned that, in his view, the onus should rest upon the defendant to obtain contribution from third parties. This raises the question, earlier postponed, about persons other than the defendant's servants having possibly wronged the plaintiff in this matter.

Commenting on the “lamentable” narrowness of this Court's jurisdiction in Pacific Western Airlines v The Queen, [1979] 2 FC 476 (upheld on appeal: [1980] 1 FC 86), Mr Justice Collier went on to formulate and attach to his reasons a list of cases on this subject. Subsequent jurisprudence is to be found in Nichols v The Queen, [1980] 1 FC 646 and Ingle v The Queen, [1984] 2 FC 57. Third party judicial proceedings (not the garnishing procedure earlier mentioned) aimed at recovering a contribution from a putative fellow tortfeasor whom the plaintiff has not sued in the Federal Court, requires a footing in valid and subsisting federal laws of Canada other than the Federal Court Act. That is established by the majority judgment in R v Thomas Fuller Construction, [1980] 1 SCR 695. Thus it appears that any apportionment of responsibility for the plaintiff’s damages ought truly to be effected as between his employer and his accountant, if the latter can be proved to have been negligent; but neither the plaintiff’s former employer nor his chartered accountant was, or in the circumstances could be, impleaded in the action in this Court.

Of all the heads of damages pleaded, the only one upon which there was any direct, credible evidence led, was the plaintiff’s loss of employment income. The evidence was the plaintiff's own testimony which is credible in this regard. At Winacott Brothers Auto Body Ltd his gross monthly pay was $3,000, as is confirmed by his detached cheque statement, exhibit 7. His unemployment endured for 13 months, and this is no evidence of any other income in those months, so his award of specific damages, if it were recoverable, would be $39,000. This could have been more helpfully pleaded in the statement of claim. There was no acceptable evidence, if any at all, concerning any loss of reputation nor any “unreasonable and unwarranted emotional and physical distress, pain and suffering” which engage the defendant's liability.

The plaintiffs counsel tendered through the plaintiffs testimony at trial a letter dated April 3, 1985, or only a week before the trial, and presumably composed by a certain Dr H J Renpenning, an ophthalmologist. Dr Renpen- ning was not called to testify. The physician's letter was marked “A” for identification, but in the circumstances neither it, nor its attachment, (a letter from a Dr H Singh of Regina), was admitted into evidence. The plaintiff himself cannot testify from any position of expertise upon the cause of his eye trouble. That being so, there is no imputation of liability on the defendant's part in this regard.

Therefore, the plaintiff’s total possible damages are assessed at $39,000; and if the defendant were at all liable for any of the damages, such liability could not be imagined to be attributable in excess of 20 per cent, or $7,800, but of course, the defendant is not legally liable at all. However, in the circumstances of insensitivity and failure on the Department's part to respond to and deal with the accountant's correspondence, there seems to be no compelling reason to award costs in favour of the defendant. Denying costs to the defendant is no adverse reflection on Mr Graves, Mr Sawatsky or the defendant's counsel whose professionalism is not in doubt here. Costs ought to follow the event, but are discretionary. The Court’s discretion here turns on the apparent failure of the Department to listen to the plaintiff's complaints or to his chartered accountant's explanations before Mr Sawatsky entered, and resolved, the dispute.

Accordingly, the plaintiff's action is dismissed but without costs against, or in favour of, either party.

Action dismissed.