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Citation: 2005TCC38
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Date: 20050117
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Docket: 2003-1171(IT)G
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BETWEEN:
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GEORGE CLIFFORD PEARCE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant, George Clifford
Pearce, has filed a Notice of Appeal in respect of the refusal of
the Minister of National Revenue to reconsider a 1996 business
loss claimed by Mr. Pearce and in relation to which, he filed a
Notice of Objection to a Notice of Reassessment issued by the
Minister on April 12, 2002. The Minister rejected the Notice of
Objection pursuant to subsection 165(1.2) of the Income Tax
Act on the basis that Mr. Pearce had signed a Waiver of
Objection Rights in respect of the 1996 business loss. The
Minister's position is that pursuant to subsection 169(2.2)
of the Act, Mr. Pearce may not appeal to this Court in
respect of that issue. Mr. Pearce admits that he signed the
Waiver but is challenging its validity on the ground that his
signature was obtained under duress as a result of a threat of
imprisonment made by a Canada Revenue Agency official, Mr. Brad
Anderson. His Notice of Appeal contains no information regarding
the merits of his claim for the 1996 business loss; at the
hearing, the only issue before the Court was the validity of the
Waiver.
[2] Subsection 169(2.2) reads as
follows:
169(2.2) Waived issues. Notwithstanding subsections (1)
and (2), for greater certainty a taxpayer may not appeal to the
Tax Court of Canada to have an assessment under this Part vacated
or varied in respect of an issue for which the right of objection
or appeal has been waived in writing by the taxpayer.
Facts
[3] Mr. Pearce, now retired, is a
former land developer who, between 1994 and 1997, was also
engaged in the purchase and resale of motor vessels including one
known as the Crown Jewel. In August 1997, his business
activities came under review regarding certain customs matters
not relevant to this appeal. That, in turn, led to a series of
investigations and audits by CRA, the only one relevant to this
appeal being Brad Anderson's inquiries into the
disposition of the Crown Jewel in 1996. After numerous
discussions with Mr. Pearce, in July 1999 Brad Anderson and
his colleague, Ken Anderson (not related) met with Mr.
Pearce and his lawyer, Mr. Scott, and administered to Mr. Pearce
a criminal caution regarding possible tax evasion charges arising
from his failure to report income for the taxation years 1994 to
1997. Mr. Pearce admitted at the hearing that he had not
reported income during these years. After the criminal caution,
Mr. Scott advised Mr. Pearce to say nothing more and the
meeting concluded. In the days that followed, however, settlement
discussions began and a second meeting occurred in late August
1999 at which were present Mr. Scott, Mr. Pearce and his
accountant Mr. Crofton, as well as the Messrs. Anderson from CRA.
Brad Anderson proposed for Mr. Pearce's consideration,
certain terms of settlement.
[4] Mr. Scott testified that
although Mr. Pearce had been a client of his firm for several
years, he personally had little involvement with the Pearce file
prior to July 1999 and that he had no particular expertise in tax
law. Mr. Crofton, on the other hand, was Mr. Pearce's
long-time tax advisor and had many years experience as a
Chartered Accountant. Accordingly, at the August 1999 meeting,
Mr. Crofton made notes of the CRA proposal and following the
departure of the Andersons, he reviewed its "pros and
cons" with Mr. Pearce and Mr. Scott. He then left them
to consider whether, from a legal perspective, Mr. Pearce would
accept the offer. On September 21, 1999, a final meeting occurred
between Mr. Pearce and Mr. Scott and the two Andersons from CRA.
Mr. Pearce and Mr. Brad Anderson, as the agent for CRA, signed
the Waiver duly witnessed by Mr. Scott and Mr. Ken
Anderson.
[5] Regarding the 1996 taxation
year, the Waiver contains a clause which reads:
1996 Taxation Year
A Business or Capital Loss on the disposition of the Motor
Vessel, Crown Jewel will not be allowed, [the Crown Jewel
loss].
Unreported mortgage interest of $15,671.00 will be reassessed
in 1996 as George Pearce failed to report this income.
At the end of the Waiver of Objection Rights appears the
following paragraph:
George Pearce acknowledges:
1) that the
provisions of subsection 165(1.2) of the Income Tax Act are
understood as they pertain to this document;
2) that
additional interest may result from the Department's reassessment
of the issues itemized above;
3) that the
impact of this document will be binding on the Taxpayer's heirs,
executors, trustees, successors, administrators and any other
person who might be liable for the tax and interest which will
ensue from the reassessment of the issues itemized above;
4) that this
document is being freely and voluntarily signed; and
5) that either
professional advice was obtained concerning the waiving of
objection rights pursuant to this document or an awareness of the
right to have done so.
[6] Mr. Crofton was aware that Mr.
Pearce "wasn't happy" when he signed the Waiver. In
spite of that and notwithstanding Mr. Crofton's evidence that
between 1999 and 2002 they discussed the Crown Jewel loss
"several times", at no time did Mr. Pearce instruct him
to file an objection to the June 2000 Notice of Reassessment
which gave effect to the terms of settlement in the Waiver. Had
he done so, Mr. Crofton testified, he would have reminded Mr.
Pearce that he waived his right to object to any reassessment
regarding the Crown Jewel loss when he signed the
Waiver.
[7] It then happened that on April 12,
2002, the Minister issued a new reassessment pertaining to
certain aspects of the 1996 taxation year not included in the
Waiver. Even though, as Mr. Pearce stated in paragraph 3 of his
Notice of Appeal, it was "... contrary to the terms of the
[Waiver], the Appellant claimed a business loss [for the Crown
Jewel transaction] of $139,703 for 1996 ..." in that
Notice of Objection. No mention was made in the Notice of
Objection of challenging the Waiver as having been signed under
threat of imprisonment. That allegation appears for the first
time in the Notice of Appeal. In any event, the Minister rejected
Mr. Pearce's Notice of Objection on the basis that he had
signed a Waiver in respect of the Crown Jewel loss and
pursuant to subsection 165(1.2)[1], no objection could be made in respect of that
issue.
Analysis
[8] Mr. Pearce's allegation that
Brad Anderson obtained his signature under threat is a serious
one and one which Mr. Anderson firmly denies. He testified that
while he had administered a criminal caution to Mr. Pearce at the
July 1999 meeting in relation to the possibility of prosecution
for tax evasion for having failed to report income, at no time in
any of his dealings with Mr. Pearce did he threaten him with
imprisonment to get his signature on the Waiver. In addition to
describing such behaviour as "contrary to his normal
practice", Brad Anderson's evidence was that once
serious settlement discussions were underway, CRA abandoned its
consideration of criminal prosecution and he had informed
Mr. Pearce's lawyer of that fact. Brad Anderson was a
credible witness who was unshaken in his position on
cross-examination by Mr. Pearce. His evidence was
corroborated by his colleague Ken Anderson.
[9] The evidence presented by Mr.
Pearce's witnesses, on the other hand, did not support his
allegation. Mr. Crofton was not present at the September meeting
when Mr. Pearce signed the Waiver. He testified, however, that he
had reviewed the terms of the Waiver with both Mr. Pearce and his
lawyer and put them into a format that could be used by the
less-experienced Mr. Scott in preparing the settlement document
ultimately signed on September 21, 1999. Further, although he was
made aware that Mr. Pearce had signed the Waiver, at no time was
he told anything about a threat having been made. On the
contrary, he was given the task of reviewing the June 2000
reassessment issued by the Minister to ensure that it was in
accordance with the terms of settlement in the Waiver. This leads
to the conclusion that Mr. Pearce was not only accepting of the
terms contained in the Waiver but acting in anticipation of their
implementation.
[10] Mr. Scott, Mr. Pearce's lawyer had
no clear recollection of the events of the September 1999
meeting. He had recorded almost nothing regarding the details of
the meeting in his file - certainly, nothing to support
Mr. Pearce's allegation. Had Brad Anderson uttered
threats of imprisonment to Mr. Pearce in Mr. Scott's
presence, one might reasonably expect his lawyer to have, at the
very least, made a small notation on the file or retained some
memory of such an extraordinary event, and protected his client
from waiving his rights under duress. Yet Mr. Scott, whose
professional competence and integrity was in no way impugned at
the hearing, did none of these things. The inference to be drawn
is that no such threat was made.
[11] Finally, there is Mr. Pearce's own
testimony. Mr. Pearce stated himself to be a business man of long
experience involved in at least one major land development
project, a 69-unit town house in Nanaimo. Around the same time,
he was buying and selling expensive yachts in the international
market. He had access to legal and accounting advice in his
business affairs. He had, over the years, numerous dealings and
experience with a range of government agencies and departments,
including CRA. At the hearing, he presented himself as one
unlikely to shrink from asserting his rights or expressing his
views. All this leads me to conclude that had his signature been
obtained by threat, Mr. Pearce would not have been one to sit
quietly by for several months before taking action. In his direct
evidence, Mr. Pearce had only vague memories of the events
between July and September 1999. He was in no way precise about
the content of the threat or where and when it had occurred. When
cross-examined about inconsistencies in his evidence, he
equivocated, refused to answer or merely resorted to bluster.
[12] The evidence shows that he was not a
happy man the day he signed the Waiver. His unhappiness, however,
was not the result of having been threatened. By his own
admission, many of his problems sprang from his own failure to
keep adequate records and to report income as required by the
Act. Only after numerous discussions with CRA officials -
especially Brad Anderson - and advice from his lawyer and
accountant did light begin to flicker at the end of the tunnel he
had dug for himself. The settlement proposed by CRA was reviewed
and reformatted by Mr. Pearce's own professional advisors.
After further discussions with them in the presence of his
lawyer, on September 21, 1999, he signed the settlement
agreement. Part of that settlement was the Waiver of his right to
object to the reassessment giving effect to the terms. By signing
the Waiver, he availed himself of the terms of settlement that
were to his benefit and accepted its obligations. The Minister,
for his part, lived up to his part of the bargain by reassessing
the 1996 taxation year in accordance with the terms of the
settlement. When he was reassessed in 2002, Mr. Pearce tried
to use that avenue to reopen the 1996 Crown Jewel loss. Of
course, subsection 169(2.2) precludes him from doing any such
thing. The validity of this limiting provision was considered and
accepted by the Supreme Court of Canada in 1977 in the
Smerchanski[2] decision:
Since it is not contested that a taxpayer may validly waive
his rights of appeal against a tax assessment and that no
question of public policy is involved to preclude such a waiver,
the only issue of importance in this appeal is whether the tax
authorities, seriously contemplating prosecution, and by
indictment as in the present case, are entitled to exact a waiver
of rights of appeal as a binding term of settling a clear tax
liability when overtures for settlement are made by the taxpayer
and, in consequence, to abandon their intention to prosecute.
As in the present case, the Appellant in Smerchanski
impugned the validity of the Waiver on the basis that he had
signed it under threat of criminal prosecution. Even though the
Appellant Smerchanski was able to show that criminal proceedings
would have been taken against him had he not settled, on the
particular facts of that case, the Supreme Court of Canada held
that that was not sufficient to invalidate the waiver of his
right to object. Mr. Pearce's position is far less
compelling than Smerchanski's in that he has not even been
able to satisfy this Court that any threat was ever made.
[13] As suggested (perhaps generously) by
counsel for the Respondent, time may have distorted, in Mr.
Pearce's memory, the criminal caution administered in respect
of possible tax evasion charges at the July 1999 meeting into a
threat of imprisonment to compel his signature on the Waiver in
September 1999. In any event, neither his testimony, nor the
evidence of Mr. Pearce's own witnesses leads to the
conclusion that he was threatened by Brad Anderson. I accept
Brad Anderson's evidence that at no time did he threaten Mr.
Pearce for the purpose of obtaining his signature on the Waiver.
I find that the Waiver of Objection Rights was freely signed by
Mr. Pearce and that it is valid.
[14] In the Respondent's Reply to the
Notice of Appeal, the "relief sought" is that the
appeal be dismissed. Given, however, that the combined effect of
subsections 165(1.2) and 169(2.2) is to deprive Mr. Pearce of any
right to appeal to this Court in respect of the 2002 Notice of
Reassessment, the Notice of Appeal is quashed, without costs.
Signed at Ottawa, Canada, this 17th day of January, 2005.
Sheridan, J.
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