Docket: 2007-4932(IT)G
BETWEEN:
JOHN KRISTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard
together with the Motions of John Mortensen (2008‑122(IT)G)
and Chris Mortensen (2007‑4935(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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____________________________________________________________________
ORDER
Upon Motion filed on November 26, 2009, counsel for
the Respondent asked the Court to make a determination on whether issue
estoppel or abuse of process will apply, in light of the criminal conviction of
the Appellant for tax evasion, based on failure to report unreported income for
the 1997, 1998 and 1999 taxation years. The unreported income was set out in Schedule
“1” of the Notice of Motion. 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 relitigage the
inclusion of the Unreported Income, with associated gross negligence penalties;
And upon Motion filed on December 14, 2009,
counsel for the Appellant specifically requested the following:
(a)
The Court to apply its
equitable jurisdiction and estopp the Respondent from selectively relitigating
the myriad findings and rulings of the Honourable Provincial Judge R.J. Wilkins
in his consideration of the facts, witnesses and documentation placed before him
by the Respondent;
(b)
That in the
alternative, the Appellant be allowed to present his case in regards to the
availability of precise, proper and allowable deductions before this Honourable
Court;
(c)
That the Appellant be
allowed to present his full defence to the subject Notices of Assessment;
(d)
That the Court allow
and direct the Respondent to present such affirmative facts as it can properly
adduce at Law to support its assessment of gross negligence penalties as
against the Appellant; and
(e)
The Court to strike
from the Respondent’s Notice of Motion and Affidavit dated November 26, 2009,
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);
And upon reading the pleadings filed herein
and upon hearing what was alleged by the parties in Calgary, Alberta on January
26, 2010;
The Motion filed by
the Respondent’s counsel is allowed and the Motion filed by the Appellant’s
counsel is partially allowed in accordance with the attached Reasons for Order.
Signed at Vancouver, British
Columbia, this 30th day of March 2010.
“L.M. Little”
Citation: 2010 TCC 178
Date: 20100330
Docket: 2007-4932(IT)G
BETWEEN:
JOHN KRISTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Little J.
A. FACTS
[1] The Appellant resides in Calgary, Alberta.
[2] During the relevant period, the Appellant was
an officer, director and shareholder of Kamor Furniture Ltd. (“Kamor”), now
known as Lifeform Furniture Manufacturing Inc.
[3] Kamor was founded
by the Appellant and his nephew, John Mortensen, in 1976. The Appellant is the
President of Kamor.
[4] The Appellant was
reassessed on February 3, 2003. In the Reassessments, a total of $155,660.00
was added to the Appellant’s income for the 1996, 1997, 1998 and 1999 taxation
years. In addition, penalties were imposed under subsection 163(2) of the Income
Tax Act (the “Act”).
[5] The Appellant filed
Notices of Objection to the Reassessments. The Reassessments were confirmed by
the Minister on July 3, 2007.
[6] The Appellant filed
Notices of Appeal with the Tax Court.
[7] On November 26,
2009, counsel for the Respondent filed a Notice of Motion. In the Motion,
counsel for the Respondent requested that the Court make a determination on:
…
a. Whether [issue
estoppel or abuse of process will apply], in light of the criminal conviction
of the Appellant for tax evasion, based on failure to report as taxable income
the amounts set out in the attached Schedule “1” for the 1997, 1998 and 1999
taxation years (the “Unreported Income”):
…
[8] Schedule 1 of the
Respondent’s Motion contains a summary of income and expenses that have been
claimed by the Appellant before the Tax Court and income and expenses that were
before Judge Wilkins of the Alberta Provincial Court.
[9] The amounts shown
in Schedule 1 may be summarized as follows:
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Income Amounts
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1997
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1998
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1999
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In the Tax Court
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$192.65
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$33,064.00
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$10,486.00
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In the Alberta Provincial Court
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--
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$11,984.00
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$10,486.00
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Expense Amounts
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1997
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1998
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1999
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In the Tax Court
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$46,632.81
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$26,140.75
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$10,831.22
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In the Alberta Provincial Court
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$19,599.62
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$5,693.56
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--
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[10] On December 14,
2009, counsel for the Appellant filed a Notice of Motion. The Motion
specifically requested the following:
1. The Court to
apply its equitable jurisdiction and estopp the Respondent from selectively
relitigating the myriad findings and rulings of the Honourable Provincial Judge
R.J. Wilkins in his consideration of the facts, witnesses and documentation
placed before him by the Respondent;
2. That in the
alternative, the Appellant be allowed to present his case in regards to the
availability of precise, proper and allowable deductions before this Honourable
Court;
3. That the
Appellant be allowed to present his full defence to the subject Notices of
Assessment;
4. That the Court
allow and direct the Respondent to present such affirmative facts as it can
properly adduce at Law to support its assessment of gross negligence penalties
as against the Appellant;
5. The Court to
strike from the Respondent’s Notice of Motion and Affidavit dated November 26,
2009, 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”);
…
B. ISSUE
[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. …
…
10.
The decision of the
Alberta Provincial Court in R. v. Mortensen 2004 ABPC 143 held that
John Kristensen [was guilty of income tax evasion as particularized in Count 14.]
…
11.
The amounts for which
John Kristensen was convicted are the same amounts upon which John Kristensen
was reassessed, and now appeals to the Tax Court.
12.
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.
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] In her Notice of
Motion, counsel for the Respondent stated in the grounds for the Motion that:
…
3. The Unreported
Income upon which the Appellant was convicted are the same amounts presently
under appeal (with associated gross negligence penalties).
…
[15] However, in her
argument, counsel for the Respondent agreed that the income and expense amounts
on which the Appellant was convicted by the Alberta Provincial Court Judge
(Judge R.J. Wilkins) were $19,599.26 for 1997, $17,677.56 for 1998 and $10,486.00
for 1999 (Transcript, page 28, lines 10-19).
[16] Counsel for the Respondent
said:
… the Crown is only seeking to apply the
issue estoppel to the amounts where it’s duplicated between … the criminal
conviction and the Tax Court appeal.
(Transcript, page 26, lines 23-25
and page 27, lines 2-3)
Counsel for the Respondent
continued:
… the Crown submits that
issue estoppel should be applied to the amounts indicated in Schedule 1 with
the associated gross negligence penalties. …
(Transcript, page 27,
lines 5-8)
[17] 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;
…
(Emphasis
added)
(Note: The decision of Justice Boyle in Golden
was upheld by the Federal Court of Appeal, 2009 FCA 86, 2009 D.T.C. 5079.)
[18] I have carefully
reviewed the decision of Judge R.J. Wilkins of the Alberta Provincial Court in R.
v. Mortensen, 2004 ABPC 143, [2006] 1 C.T.C. 202. In reviewing the decision
of Judge Wilkins, I have noted that he only dealt with a small portion of the
income and expenses.
[19] In other words, it
cannot be said that the decision of the Provincial Court of Alberta had decided
the same questions that are before the Tax Court.
[20] I must also deal
with the question of delay.
[21] 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).
[22] 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 2-5)
(Note: The Judgment of Judge
Wilkins indicates that the case was heard in May, June and July, 2004 and his
decision was rendered on August 24, 2004.)
[23] Mr. Shea continued:
The matter is not delayed in - - with all
due respect, Your Honour. ….
(Transcript, page 44, lines 5-6)
[24] I note that the
Minister confirmed the Reassessments on July 3, 2007.
[25] 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 who
did not issue a Notification of Confirmation until July 3, 2007.
[26] I have concluded as
follows:
(1)
The
Appellant is estopped from arguing that he had earned the following income or
incurred the following expenses in 1997, 1998 and 1999:
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1997
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1998
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1999
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Income
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--
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$11,984.00
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$10,486.00
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Expenses
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$19,599.62
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$ 5,693.56
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(2)
The
Appellant is not estopped from arguing before the Tax Court that he did not
earn the other income which was assessed in 1996, 1997, 1998 and 1999 or that
he incurred additional expenses in the 1996, 1997, 1998 and 1999 taxation years
in order to earn the income.
(3)
The
Appellant is not estopped from appealing the assessment of gross negligence
penalties on the unreported income.
[27] The Respondent’s
Motion is allowed and the Appellant’s Motion is partially allowed.
Signed at Vancouver, British Columbia, this 30th day of March 2010.
“L.M. Little”
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