Citation: 2010 TCC 414
Date: 20100804
Docket: 2007-4766(IT)G
BETWEEN:
ROBERT J. CRANSTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Lamarre J.
[1]
The respondent brought
a motion for an order quashing the appeals filed by the appellant before this
Court with respect to reassessments made by the Minister of National Revenue
(the “Minister”) for the 1999, 2000 and 2001 taxation years. The Respondent
relies on paragraph 53(c) of the Tax Court of Canada Rules (General
Procedure) (the “Rules”), which reads as follows:
53. Striking
out a Pleading or other Document – The Court may
strike out or expunge all or part of a pleading or other document, with or
without leave to amend, on the ground that the pleading or other document,
. . .
(c) is
an abuse of the process of the Court.
[2]
The reassessments under
appeal are based on the net worth analysis that was prepared by Steve Esseltine
of the Canada Revenue Agency (“CRA”). As a consequence of that analysis, the
Minister included in the appellant’s income unreported business income in the
amounts of $136,241, $545,756 and $79,261 for the 1999, 2000 and 2001 taxation
years respectively. He also assessed, for each of those years respectively, penalties
against the Appellant in the amounts of $18,880, $79,404 and $7,351,
pursuant to subsection 163(2) of the Income Tax Act (the “Act”),
for knowingly, or under circumstances amounting to gross negligence, having
made or participated in, assented to or acquiesced in, the making of a false
statement or omission in reporting his income by failing to report the
unreported business income with respect to which he was reassessed.
[3]
In the affidavit of
Ifeanyi Nwachukwu (the “Affidavit”) attached to the notice of motion, it
is stated at paragraphs 3(d) and following:
3. d) that on November 7, 2006, in the Ontario Court of Justice
in the matter of R. v. Robert Cranston, numbered 06 1828, Justice G.A.
Pockele entered the following convictions of Mr. Cranston:
i) three counts under paragraph 239(1)(a) of the Income
Tax Act for having made, or participated in, assented to or acquiesced in
the making of false or deceptive statements in a return made or required to
have been made under the Act by failing to report the Unreported Income
as net income from a business or a taxable source, and
ii) three counts under paragraph 239(1)(d) of the Act
for having willfully evaded or attempted to have evaded compliance with the Act
or payment of taxes imposed by the Act by failing to report the
Unreported Income as net income from a business or a taxable source;
Attached hereto
and marked Exhibits “A”, “B” and “C” to this my affidavit are
true copies of the Information and related court materials, the transcript of
Justice Pockele’s Reasons for Judgment and the transcript of the Proceedings on
Sentencing (which include Justice Pockele’s Reasons for Sentence),
respectively.
e) that in so convicting Mr. Cranston, Justice Pockele made
the following findings beyond a reasonable doubt:
i) that Mr. Cranston did something that avoided or
attempted to avoid paying tax, as “established through the income tax returns
filed and the documentation, which shows his access, which Mr. Esseltine
described as his net worth analysis – net worth statement, which I choose to
find is a valid indicator of the monies in the hands of Mr. Cranston at that
period of time.” (Exhibit “B”, page 22, lines 24 to 32, and page 23, lines 1
and 2);
ii) that Mr. Cranston knew that there was a tax imposed by
the Act, and specifically that “[d]ocumentation in his website and his
business model demonstrates familiarity with the Income Tax Act.” (Exhibit
“B”, page 23, lines 5 to 8);
iii)
that Mr. Cranston engaged in conduct for the
purposes if [sic] avoiding or attempting to avoid the payment of income tax,
such being “abundantly apparent from the transactions that were related to the
Court in the evidence.” (Exhibit “B”, page 23, lines 10 to 15);
iv)
that the increase in Mr. Cranston’s net worth
was attributable to a source of taxable income, the “Crown’s evidence here has
shown that all of these various transactions are the source, from where the net
worth springs. That is obvious and proven beyond a reasonable doubt.” (Exhibit
“B”, page 23, lines 17 to 27);
v)
that there were no explanations of Mr. Cranston
that are reasonably susceptible of being verified nor were any tendered by Mr. Cranston,
and that the “prosecution has investigated all the available evidence. They
have executed every search warrant. They have combed through every possible
document to show linkage. Nothing else is there for them to check.” (Exhibit
“B”, page 23, lines 29 to 32, and page 24, lines 1 to 6);
vi)
that the defendant did call defence witnesses,
and that if there had been any rebuttal evidence to the prosecution’s evidence
it was open to the defendant to present that to the Court (Exhibit “B”, page
22, lines 12 to 18);
vii)
that, with respect to the issue of whether the
Crown was required to prove beyond a reasonable doubt the precise amount of
Unreported Income to sustain the convictions, “in transactions such as these
where the tax payer has operated and advocated a total atmosphere of deception,
disguise and deceit, where he has done everything to provide no information
whatsoever, the evidence the Crown presents to me satisfies me beyond a
reasonable doubt because there is no contradictory evidence, whatsoever, to
suggest these calculations are invalid.” [emphasis added] (Exhibit “B”,
page 24, lines 24 to 32, and page 25, lines 1 to 9); and
viii)
that the evidence of Mr. Esseltine provides an “analysis
of incomes and monies available [to Mr. Cranston], not a net worth as perhaps
would be described in other litigation, but a document that satisfies to this
Court beyond a reasonable doubt.” (Exhibit “B”, page 26, lines 2 to 7);
f) that
on January 16, 2007, Justice Pockele sentenced Mr. Cranston by
i) conditionally staying the three counts under paragraph
239(1)(a) of the Income Tax Act (Exhibit “C”, page 52, lines 30 to 33);
and
ii) imposing a jail sentence of 14 months and a total fine
of $200,000 on the three counts under paragraph 239(1)(d) of the Act
(Exhibit “C”, page 64, lines 1 to 9, and page 54, line 21);
g) that in the course of the sentencing proceedings, Justice
Pockele made the following findings beyond a reasonable doubt:
i) that “[e]ach of these charges outlines an amount of net
income, a calculation of net income tax payable thereupon. They relate to three
separate consecutive taxation years. I am going to begin by dealing with the
question of a fine. The monetary fine that can be imposed for each of these
three counts is a fine in the range of 50 to 200 percent of the tax owed. With
calculation of the prosecution in this matter, that sum is around $209,000 – is
the tax that is owed.” (Exhibit “C”, page 53, lines 3 to 15);
ii) that “as to the amount that is alleged to be owed, I
made findings of fact in the trial. The prosecution filed a document that was
described as a net worth statement showing monies that flowed through Mr.
Cranston’s hands and were enjoyed by him and were used to his benefit. While
the document was titled a net worth statement, it wasn’t a pure net worth
statement in accordance with acceptable accounting standards. That was
critiqued by Mr. Hoare, a defence expert called on that issue. However, the
statement filed by Mr. Esseltine was a – and I use the colloquial version – was
a financial snapshot…of the monies that Mr. Cranston enjoyed, paying his day to
day expenses and enabled him to enjoy such luxuries as the use or construction
of an airplane…” (Exhibit “C”, page 53, lines 24 to 33, and page 54, lines 1 to
13);
iii)
that “the offence was not proven with the
exactitude of a calculation made with an electronic calculator…the prosecution
would ask me to deem the amount owed as being $209,000 and would ask that I
impose a 100 percent fine, I am going to impose a total fine of $200,000. Count
two, the fine will be $35,000. Count four, the fine will be $155,000 and count
six will be $10,000…That comes – and it reflects the fact that the amount
owed was not capable of being exactly calculated.” [emphasis added]
(Exhibit “C”, page 54, lines 14 to 27);
iv)
that, in responding to defence counsel’s
suggestion that Justice Pockele had not precisely determined the quantum of the
unpaid taxes in his reasons for judgment, “there was one area that was about a
$5000 potential problem one way or the other, and he was convicted on the
amounts that were indicated in the information, but I think there was maybe an
issue as to whether it was accurate within to that small range, but it wasn’t
much more…I convicted him on the information as indicated, but we may be
able to – with the 50 to 100 – 200 percent range, I think gives me some
latitude in there.” [emphasis added] (Exhibit “C”, page 15, lines 18 to 33,
and page 16, lines 1 to 8); and
v)
that in the course of the sentencing
proceedings, Justice Pockele sought to confirm defence counsel’s position in
respect of the quantum of the unpaid taxes and put to counsel that “I had your
calculation of the unpaid tax at $202,689” whereas the Crown’s position was
that the amount was $209,689 to which defence counsel conceded that “I was
mistaken, my two is a nine” (Exhibit “C”, page 42, lines 29 to 33, and page 43,
lines 1 to 10);
h) that Mr. Cranston appealed the convictions and sentence
to the Ontario Superior Court of Justice, appeal numbered 597;
i) that the Ontario Superior Court of Justice dismissed Mr. Cranston’s appeal per the judgment
of Justice R.J. Haines dated April 17, 2009. Attached hereto and marked Exhibit
“D” to this my affidavit is a true copy of the Judgment of Justice R.J.
Haines;
j) that Mr. Cranston appealed his conviction on three
grounds, including that Justice Pockele erred in
i) allowing Mr. Esseltine to be qualified as an expert in
accounting, and
ii) convicting
him on the basis of a “net worth” statement;
(Exhibit “D”,
paragraph 2);
k) that Mr. Cranston did not appeal his conviction on the
basis of there being any fresh evidence;
l) that Justice R.J. Haines disturbed none of the findings
of fact of the trial judge, and specifically found that “there was ample
evidence to support his findings notwithstanding certain shortcomings in the
net worth analysis.” (Exhibit “D”, paragraph 14); and
m) that Justice R.J. Haines noted that despite the trial
judge’s acceptance of the defence expert witness’s views that the net worth
analysis was not a personal net worth (Exhibit “D”, paragraph 14), he did
observe the following conclusions of the trial judge:
The various
documents for all practical purposes showed Mr. Cranston was, in the case of
trusts, the first trustee and settler; in the case of the various corporate
accounts was the individual in control of the accounts; in the event of trusts,
he was also the beneficiary of the trust. For all practical purposes, Mr.
Cranston was the person in control of all monies flowing into and out of these
accounts.
(Exhibit “D”,
paragraph 20).
[4]
In court, counsel for
the respondent argued that it would be an abuse of process for the appellant to
relitigate by way of the present appeals the very same matters that have been
decided in the criminal proceedings. Counsel relied on the doctrines of issue
estoppel and abuse of process to ask this Court to exercise its discretion to
estop or bar the appellant from relitigating matters that have already been
judicially decided.
[5]
In Golden v. The
Queen, 2008 TCC 173, 2008 DTC 3363, confirmed by the Federal Court of
Appeal, 2009 FCA 86, 2009 DTC 5814, Boyle J. of this Court sets
out the preconditions for the application of issue estoppel as follows, at
paragraphs 20, 23, 24, and 25:
[20] It is
open to this Court to apply the doctrine of issue estoppel to prevent
relitigation of matters already decided in another court proceeding. The
Federal Court of Appeal has confirmed that issue estoppel can apply in a civil
proceeding in the Tax Court where the issue estoppel is based on a conviction
in a criminal case: Van Rooy v. M.N.R., 88 DTC 6323.
. .
.
[23] The
preconditions for the application of issue estoppel are:
1. the earlier
court decision must have decided the same question that is before this Court,
and the question was fundamental to the earlier court’s decision;
2. the earlier
court decision must be final; and
3. there must be
a mutuality of parties in the proceedings, that is, the parties to the earlier
judicial decision or their privies need be the same persons as the parties in
this proceeding or their privies.
[24] The doctrine
of issue estoppel is not to be applied automatically or inflexibly once the
preconditions are established. It remains for this Court to decide whether, as
a matter of discretion, issue estoppel ought to be applied or if its
application would be unfair in these particular circumstances.
[25] The
doctrine of issue estoppel should only be applied in a tax appeal in this Court
in respect of a prior criminal tax evasion conviction in clear cases. It should
not be applied indiscriminately once the preconditions are met. The Court
should be satisfied that the issue of quantum in each particular taxation year
was decided in the criminal proceedings.
[6]
Boyle J. also discusses
abuse of process at paragraphs 29 and 30:
[29] Abuse
of process is also a doctrine that should only be applied in the Court’s
discretion and requires a judicial balancing with a view to deciding a question
of fairness. However, it differs somewhat from a consideration of the possible
application of issue estoppel in that the consideration is focused on
preserving the integrity of the adjudicative process more so than on the
status, motive or rights of the parties.
[30] Relitigation
should be avoided unless it is in fact necessary to enhance the credibility and
effectiveness of the adjudicative process. This could be the case where (1) the
first proceeding is tainted by fraud or dishonesty; (2) fresh new evidence,
previously unavailable, conclusively impeaches the original result; or (3) when
fairness dictates that the original result should not be binding in the new
context.
[7]
In counsel’s view, the
issues decided in the prior criminal proceedings were in fact the same issues as
those that are now being raised by the appellant in his Notice of Appeal herein.
Indeed, the appellant argued in his pleadings before this Court that the
statement of personal net worth has no grounds or facts to support its
conclusions, that the assessments were made without an audit, without review
and without investigation, and that there is no evidence of earned income in
any of the schedules. In his response to a request for particulars, the appellant
said that he did not earn any personal income and that the assets belonged to a
corporation, not to him.
[8]
The Information whereby
the charges were laid in the criminal proceedings (Exhibit A of the motion record),
shows that the amounts of unreported income with regard to which Pockele J. of
the Ontario Court of Justice convicted the appellant were the same as the
amounts of unreported income at issue in the present appeals.
[9]
At pages 25-26 of his
judgment, Pockele J. states that since no contrary evidence was adduced, the
evidence presented by the Crown in the course of an eight-day trial satisfied
him that the Minister’s calculations were valid:
...But in
transactions such as these where the tax payer has operated and advocated a
total atmosphere of deception, disguise and deceit, where he has done
everything to provide no information whatsoever, the evidence the Crown
presents to me satisfies me beyond a reasonable doubt because there is no
contradictory evidence, whatsoever, to suggest these calculations are invalid.
I make the
finding that the mens rea has been demonstrated through the actions of
the accused, through the website and that the offence has been proven by the
activities and the evidence that has been heard in this matter.
While I have
been making reference throughout this matter to the summaries of evidence
provided by counsel, in this matter I have had the opportunity to review all of
the evidence in this matter: The numerous witnesses who were called upon to
testify, all of whom I accept their evidence as being entirely accurate; the
evidence of Mr. Esseltine and the weight I give to those elements of his
evidence, I integrate in this matter; the evidence of the citizens, Mrs.
Calvo, Ms. Antolini; the evidence of Mooney (sic), Mahon, Bodo Grahl, Chris
Gallant, Fayyez Ahmad who helped establish the source of incomes, the sale,
Barb Dressel and Mr. Burt. All of these witnesses testified in this matter were
of some assistance. Mr. Hoare’s evidence was helpful, but perhaps not
particularly applicable to the unique situation in this prosecution. I would
again describe Mr. Esseltine’s evidence in Court as providing an analysis of
incomes and monies available, not a net worth as perhaps would be described in
other litigation, but a document that satisfies to this Court beyond reasonable
doubt.
[10]
Further, in his Reasons
for Sentence, Pockele J. relied on the calculation of tax payable agreed upon
by both defence counsel and the prosecution in that matter. He convicted the appellant
on the basis of the amounts set forth in the Information laid in the criminal
proceedings, which are the very same amounts as those that are at issue in the
appeals before this Court.
[11]
The appellant
unsuccessfully appealed his convictions to the Ontario Superior Court of
Justice, which confirmed the Ontario Court’s decision on the basis that there
was ample evidence to support Pockele J.’s findings.
[12]
In the motion herein,
counsel for the respondent argued that the appellant did not present any fresh
new evidence that would impeach the result arrived at by Pockele J. Further,
counsel argued that it would not be unfair for this Court to exercise its
discretion to apply the doctrines of issue estoppel or abuse of process. On the
contrary, this Court’s not applying them would adversely affect the credibility
and the integrity of the judicial system in that we might have a multiplicity
of proceedings on a matter that has already been decided. There would also be
the risk of divergent decisions of this Court and the Ontario Court of Justice.
[13]
I agree. The appellant
stated at the end of the respondent’s presentation that he agreed with
everything the Crown had stated. His Notice of Appeal raises no new issue;
there is no new, previously unavailable evidence, and there is no allegation
that the criminal proceedings were tainted by fraud or dishonesty. The
appellant’s position before this Court is exactly the same as his position before
the Ontario Court of Justice with respect to the same net worth analysis, and
the latter court reached a conclusion based on the unreported amounts of income
that are the basis of the assessments under appeal. In my view, this is a case
in which the doctrines of issue estoppel or abuse of process may be applied,
bearing in mind, however, that they should be applied very restrictively (see Neeb
v. R., [1997] 2 C.T.C. 2343).
[14]
As for the penalties,
they were assessed on the basis of the unreported income amounts with respect
to which the appellant was convicted.
[15]
In Golden, Boyle
J. stated at paragraph 49:
I also find that
issue estoppel applies to Mr. Golden with respect to the gross negligence
penalty assessed in respect of the $34,000 of his undeclared income. Mr.
Golden’s criminal mens rea and wilfulness was an integral and
fundamental component of the jury’s guilty verdicts. Mens rea was
established beyond a reasonable doubt. Proof of criminal mens rea beyond
a reasonable doubt satisfies the onus on the Crown under the subsection 163(2)
gross negligence penalties of the Income Tax Act to establish Mr.
Golden’s under-reporting was wilful or in circumstances amounting to gross
negligence.
[16]
Pockele J. came to a
similar conclusion in entering the appellant’s convictions (see Affidavit,
subparagraph 3(d)(i)).
[17]
For the reasons set out
above, I will grant the motion and the appeals will be quashed, with costs to
the respondent.
Signed at Ottawa, Canada, this 4th
day of August 2010.
“Lucie Lamarre”
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