Docket: 2007-4935(IT)G
BETWEEN:
CHRIS MORTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard
together with the Motions of
John Kristensen (2007-4932(IT)G) and John Mortensen
(2008-122(IT)G) on January 26, 2010 at Calgary, Alberta
Before: The Honourable Justice L.M.
Little
Appearances:
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Counsel
for the Appellant:
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James
G. Shea
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Counsel for the Respondent:
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Marla Teeling
Kim Palichuk
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____________________________________________________________________
AMENDED ORDER
Upon Motion filed on November 26, 2009, counsel for
the Respondent asked that the Court apply the doctrine of issue estoppel or
abuse of process to prevent the Appellant from relitigating the matter, in
light of the criminal conviction of the Appellant for tax evasion, based on
failure to report as taxable income the amounts of $5,398.52 and $48,000.00 for
the 1997 and 1998 taxation years. Counsel for the Respondent specifically
requested the following:
(a) The Appellant is
estopped from relitigating the inclusion of the unreported income;
(b) The Appellant is estopped
from appealing the assessment of gross negligence penalties upon the unreported
income; and
(c) In the alternative,
the Appellant is abusing this Court’s process by attempting to relitigate the
inclusion of the unreported income, with associated gross negligence penalties;
And upon Motion filed on December 14, 2009,
by counsel for the Appellant, counsel for the Appellant specifically requested
the following:
(a)
The Respondent is
estopped from rejecting the unclaimed lawful deductions of the Appellant;
(b)
The Appellant’s proper
and legally available deductions can offset the unreported income alleged by
the Respondent for the 1997 and 1998 taxation years;
(c)
To strike from the
Respondent’s Notice of Motion and Affidavit dated November 26, 2009, all
paragraphs relating to the Appellant’s criminal prosecution including the
paragraph pleading reliance on issue estoppel and abuse of Court process pursuant
to Rules 53(a) and (b) of the Tax Court of Canada Rules
(General Procedure) (SOR/90-688a) (“Rules”); and
(d)
To strike off all the
reliefs sought by the Respondent in its Notice of Motion and Affidavit dated
November 26, 2009 under Rules 58(2)(a);
And upon hearing what was alleged by the
parties in Calgary on January 26, 2010 and upon reading the
pleadings filed herein;
The Motion filed by the Appellant is partially
allowed and the Motion filed by the Respondent is partially allowed
in accordance with the attached Reasons for Order.
Signed at Toronto,
Ontario, this 14th day of
September 2010.
“L.M. Little”
Citation: 2010 TCC 164
Date: 20100914
Docket: 2007-4935(IT)G
BETWEEN:
CHRIS MORTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR ORDER
Little J.
A. FACTS
[1] The Appellant resides in Calgary, Alberta.
[2] During the relevant period, the Appellant
was employed by Kamor Furniture Ltd. (“Kamor”), now known as Lifeform Furniture
Manufacturing Inc., and Oggo Furniture Inc. (“Oggo”).
[3] Kamor was founded
by John Kristensen and his nephew, John Mortensen, in 1976. The Appellant is
the son of John Mortensen.
[4] By Notices of
Reassessment dated January 21, 2003, the Appellant’s income for the 1997 and
1998 taxation years was increased by the amount of $53,399.00 and a penalty was
issued under subsection 163(2) of the Income Tax Act (the “Act”).
The Notices of Reassessment were issued on the following basis:
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Additional
Income
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1997
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-
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$ 5,398.52
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1998
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-
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$48,000.00
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Total
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$53,398.52
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[5] The Appellant filed
Notices of Objection and on April 2, 2007, the Reassessments were confirmed.
[6] The Appellant filed
a Notice of Appeal to the Tax Court on December 7, 2007. In his Notice of
Appeal, the Appellant maintains that he has unclaimed deductions which offset
the alleged unreported income.
[7] The Minister of
National Revenue (the “Minister”) filed a Reply on June 26, 2008.
[8] On November 26,
2009, counsel for the Respondent filed a Notice of Motion. In the Notice of
Motion counsel notes that the income under appeal was the same income involved
when the Appellant was found guilty of tax evasion. Counsel for the Minister said
in her Motion:
…
i. the Appellant
is estopped from relitigating the inclusion of the Unreported Income;
ii. the Appellant
is estopped from appealing the assessment of gross negligence penalties upon
the Unreported Income;
iii. in the
alternative, the Appellant is abusing this Court’s process by attempting to
relitigate the inclusion of the Unreported Income, with associated gross
negligence penalties;
…
[9] On December 14,
2009, counsel for the Appellant filed a Notice of Motion. Counsel for the
Appellant specifically requested the following:
…
a.
The Respondent is estopped from rejecting the
unclaimed lawful deductions of the Appellant;
b.
The Appellant’s proper and legally available
deductions can offset the unreported income alleged by the Respondent for the
1997 and 1998 taxation years;
2.
To strike from the Respondent’s Notice of Motion
and Affidavit dated November 26, 2009, all paragraphs relating to the
Appellant’s criminal prosecution including the paragraph pleading reliance on
issue estoppel and abuse of Court process pursuant to Rules 53(a) and (b)
of the Tax Court of Canada Rules (General Procedure) (SOR/90-688a) (“Rules”)
3.
To strike off all the reliefs sought by the
Respondent in its Notice of Motion and Affidavit dated November 26, 2009 under
Rules 58(2)(a)
…
[10] Counsel for the
Appellant maintains that the Appellant should be entitled to deduct the
expenses incurred by him in calculating his taxable income.
B. ISSUES
[11] Does issue estoppel
or abuse of process apply in this situation?
C. ANALYSIS AND DECISION
[12] Counsel for the
Respondent said that the doctrines of issue estoppel and abuse of process exist
and are used to aid judicial economy, consistency, finality and the
administration of justice. Counsel for the Respondent noted that they are
available to prevent relitigation of matters already decided in another court
proceeding.
[13] In her Factum,
counsel for the Respondent said:
…
2.
The Appellants in
these matters are attempting to relitigate matters already decided in another
court proceeding. The Crown takes the position that the Appellants should be
precluded from doing so, and seeks the Court’s ruling in relation to same
pursuant to Rule 58.
3.
… the Appellants have
been convicted, in the Provincial Court of Alberta, of criminal charges based
on failure to report taxable income. …
4.
The decision of the Alberta Provincial Court in R. v. Mortensen 2004 ABPC
104 held that Christopher Mortensen failed to report $5,398.52 in commission
cheques in 1997; and $48,000 in commission cheques in 1998. …
5.
The amounts upon
which Christopher Mortensen was convicted are the same amounts upon which
Christopher Mortensen was reassessed, and now appeals to the Tax Court.
6.
The decision by the Alberta Provincial Court was final. …
…
13.
The Crown takes the
position that the Appellants should be precluded from relitigating these same
amounts, on the basis of issue estoppel or, alternatively, abuse of process,
and seeks the Court’s ruling in relation to same pursuant to Rule 58.
Issue Estoppel
14.
It is open to the court
to apply the doctrine of issue estoppel to prevent relitigation of matters
already decided in another court proceeding. According to the Federal Court of
Appeal in the Van Rooy case [Van Rooy v. M.N.R., 88 D.T.C.
6323] 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.
15.
Issue estoppel can be
decided on a motion prior to hearing evidence at trial. In this case, the Crown
has brought a motion under Rule 58, and has filed a supporting affidavit sworn
by Scott Quon.
16.
In deciding whether
or not issue estoppel applies, the Court should look at the realities of the
criminal proceedings in order to determine what those proceedings determined.
17.
The case law sets out
the preconditions for the application of issue estoppel:
a.
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;
b.
The earlier court
decision must be final;
c.
There must be a
mutuality of parties in the proceedings; and
d.
In light of the three
foregoing criteria, whether issue estoppel ought to be applied to ensure
justice is done on the facts of a particular case.
18.
In tax appeal cases,
the doctrine of issue estoppel should be applied in respect of a prior criminal
tax evasion where the Court is satisfied that the issue of quantum in each
particular taxation year was decided in the criminal proceedings. For example,
in Holub v. Canada [[1996] T.C.J. No. 1784] the Tax Court applied the
doctrine of issue estoppel in a case where the appellants had been convicted of
failing to report income, but then appealed a reassessment that included those
same amounts in their income. The Court held the appellants were estopped from
relitigating the information amounts, and could proceed with their action only
as it related to the balance of the reassessment.
…
Abuse of Process
21.
The doctrine of abuse
of process is also available to the Court to prevent relitigation of matters
already decided in another court proceeding. Generally, this doctrine is
available to preclude relitigation where the strict requirements of issue
estoppel, namely privity and mutuality are not met, but where allowing the
litigation to proceed would nonetheless violate such principles as judicial
economy, consistency, finality and the administration of justice.
22.
Relitigation should
be avoided unless it is in fact necessary to enhance the credibility and
effectiveness of the adjudicative process. Examples of when relitigation might
be appropriate would be where:
a.
The first proceeding
is tainted by fraud or dishonesty;
b.
Fresh new evidence,
previously unavailable, conclusively impeaches the original result; or
c.
Fairness dictates the
original result should not be binding in the new context.
…
[14] James Shea, counsel
for the Appellant, said that the Appellant agrees that he received the funds in
the amounts of $5,398.52 and $48,000.00 in the 1997 and 1998 taxation years.
However, Mr. Shea said that the Crown is seeking to take away from Chris
Mortensen the right to deduct appropriate expenses incurred in relation to the
earning of that income.
[15] Counsel for the
Respondent relied upon a number of Court decisions in support of her motion.
Counsel referred to the decision of Justice Boyle in Golden et al. v. The
Queen, 2008 D.T.C. 3363. At paragraphs 22 and 23 of the Golden
decision, Justice Boyle said:
[22] In considering whether or not issue estoppel applies,
it is open for the Court to look at more than the certificate of criminal
conviction. This Court should look at the realities of the criminal proceedings
in order to determine what was decided by it.
[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;
…
(Note: The decision of Justice Boyle in Golden
was upheld by the Federal Court of Appeal, 2009 FCA 86, 2009 D.T.C. 5079.)
[16] I have carefully
reviewed the decision of Justice C.L. Daniel of the Alberta Provincial Court in R. v. Mortensen,
2004 ABPC 104, [2004] 4 C.T.C. 335. In reviewing the decision, I have noted
that Justice Daniel did not consider or deal with any of the expenses that may
have been incurred by the Appellant when he earned the commission income in
1997 and 1998.
[17] In other words, it
cannot be said that the decision of the Provincial Court of Alberta had decided
the same question that is before the Tax Court.
[18] Counsel for the
Respondent also said that it is the Crown’s position that in the interest of
finality, consistency and economy of judicial resources, that issue estoppel
should simply apply to prevent the relitigating of amounts now 13 years old
(Transcript, page 21, lines 24-25 and page 22, lines 1-5).
[19] In connection with
delay, Mr. Shea said:
… The full forces of the Queen did not
issue prosecution against him until 2003. It went to trial in 2003, appealed in
2004. …
(Transcript, page 44, lines 2-4)
(Note: The Judgment of Justice
Daniel indicates that the case was heard on May 3 and 4, 2004 and his
decision was rendered on June 18, 2004.)
[20] Mr. Shea continues:
The matter is not delayed in - - with all
due respect, Your Honour. ….
(Transcript, page 44, lines 5-6)
[21] At page 44 of the
Transcript, I said:
Justice: … I
notice that the reassessments under appeal were issued on April 2nd, 2007.
(Transcript, page 44, lines 13-14)
[22] In my opinion, based
upon the above dates and circumstances, it is my opinion that counsel for the
Respondent has no basis to blame the delay on the Appellant. Most of the delay
in this case seems to have been caused by the Provincial Crown before and during
the criminal prosecution and by the officials of the Canada Revenue Agency.
[23] I have concluded as
follows:
(1)
The
Appellant is estopped from arguing that he did not receive the amounts of $5,398.52
in commission in the 1997 taxation year and $48,000.00 in commission in the
1998 taxation year.
(2)
The
Appellant is not estopped from arguing before the Tax Court that he incurred expenses
in the 1997 and 1998 taxation year in order to earn the commissions.
(3)
The
Appellant is not estopped from appealing the assessment of gross negligence
penalties on the unreported income.
(4)
The
Respondent is not required to strike any comments made in the Notice of Motion
and Affidavit as requested by the Appellant in his Notice of Motion.
[24] The
Respondent’s Motion is partially allowed and the Appellant’s Motion is
partially allowed.
Signed at Toronto, Ontario, this 14th day of September
2010.
“L.M. Little”
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