Citation: 2009 TCC 539
Date: 20091109
Dockets: 2007-1561(IT)G
2007-1665(GST)G
BETWEEN:
DAVID WHITE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Paris
J.
[1] The Appellant is
seeking an Order allowing his appeals and setting aside the income tax and goods
and services tax assessments in issue. The grounds for the motion are (i) that
the Respondent has failed and refused to make full and complete disclosure of
all relevant documents as ordered by this Court on January 21, 2009; and (ii)
that the officers of the Canada Revenue Agency have destroyed documents that
were relevant to the Appellant’s case.
[2] The Appellant alleges
in his Notice of Motion that he has been severely prejudiced by the Respondent’s
continuing failure to produce relevant documents, and by the destruction of
documents. He maintains that the actions of the Respondent and the officers of
the CRA violate the principles of natural justice and deny him procedural
fairness.
[3] The Appellant has
been assessed under section 227.1 of the Income Tax Act and subsection
323(1) of the Excise Tax Act as a director of two corporations (Norcoat
Powder Coating Ltd. and Norcoat Powder Barrie Ltd.) for income tax source
deductions and GST which the corporations failed to remit. The corporations’ liabilities
for which the Appellant has been assessed accumulated between 1992 and 2002. The
corporations went out of business in 2002, and the Appellant been unable to
obtain any documents relating to the corporations’ tax liabilities because their
books and records were lost, destroyed or misplaced when the corporations
ceased operating.
[4] As a result, the Appellant
has continuously sought copies of all communications between the Respondent and
the corporations during the period in which the arrears accumulated. Prior to
the commencement of these appeals, these requests were refused by the CRA, and subsequently
by counsel for the Respondent who advised the Appellant to make a request for the
documents under the Access to Information Act. At a status hearing in
these appeals held on February 20, 2008, the Court directed the Respondent to
provide the Appellant with the documents he was seeking. The Respondent has,
since that time, filed its List of Documents as well as a supplementary List of
Documents, and a second and third Supplementary List of Documents.
[5] According to the Appellant’s
affidavit, at the discovery of the Respondent’s nominee, Ms. Patricia Neville, on
December 14, 2008, he determined that:
‑ The production of the Respondent was incomplete and a number of
documents were missing.
‑ The document books prepared by the
Respondent were inconsistent and not identical.
‑ The document books prepared by the
Respondent had unnumbered pages and the pages were out of order which made it
impossible to effectively examine Patricia Neville.
[6] It appears that the
Appellant advised the Court of the lack of full disclosure of documents by the
Respondent at a further status hearing held on January 21, 2009. The Court then
ordered the Respondent to “make complete and full disclosure in an organized
fashion of all file notes, correspondence, memoranda, document, diary, e-mail
and all correspondence in these appeals. Although it is not clear from the
material before me, it appears that the Respondent produced additional
documents to the Appellant after that Order was made.
[7] In a continuation
of the examination of Ms. Neville in May 2009, however, Ms. Neville appeared to
indicate that no search for relevant documents had been made in three CRA
offices in which relevant documents might possibly have been located.
[8] As a result of the
information he obtained from Ms. Neville on discovery, the Appellant brought
this motion. Two days before the motion was heard, the Respondent filed an
affidavit of Ms. Neville in which she stated that she reviewed the relevant
physical and computer files held by the Agency and made inquiries of all other
Agency officers that may have had knowledge of relevant files and who were
still employed with the Agency. She stated in paragraph 3 of her affidavit that:
As a result of my investigations, I
verily believe that I have identified all relevant documents that are in the
possession of the Agency.
This evidence appears to correct
the answers that Ms. Neville gave on discovery that it was possible that
additional undisclosed documents might be located in offices of the CRA other
than her own.
[9] The Appellant did
not seek to cross-examine Ms. Neville on her affidavit nor did he take issue
with her evidence relating to her effort to identify all relevant documents,
and I accept that evidence. On this basis, I find then that the Appellant has
not shown that the Respondent is in breach of this Court’s Order regarding the
full disclosure of relevant documents. However, I would add that the
Respondent’s delay in providing the Appellant with this information is highly
regrettable and I agree with the Appellant that it is a relevant matter to take
into account in awarding costs.
[10] The second aspect of
the Appellant’s motion related to the destruction of documents that were at one
point contained in the collection’s file at the CRA. The particular documents
consisted of correspondence received from the other director of the
corporations, relating to the unremitted source deductions and GST. The
Appellant states that Ms. Neville provided the following information at her
examination for discovery on December 18, 2008:
- The Respondent had no formal document retention policy.
- Documents were randomly removed from the
file and destroyed by the Respondent’s officers using their own discretion with
no formal policy, direction or procedure.
- The Respondent provided its employees and
officers with no instructions, training or procedural manual in the use of
electronic diary and the removal and destruction of documents.
- Each and every officer of the Respondent
was permitted to remove and destroy documents at his or her own discretion.
- That many documents had been removed from
the Corporations’ files and it could only be assumed that these documents had
been removed and destroyed.
- Much of the correspondence between the
Respondent and the Corporations has been destroyed.
[11] The Appellant
alleges that the Respondent’s destruction of those documents amounts to a
breach of natural justice and severely prejudices his ability to respond to the
director’s liability assessment made against him. The Appellant says that the Respondent
had a duty to “protect the record”, given the special nature of a director’s
liability assessment, and that he, as a third party to assessments against the
corporation needs the protection of natural justice. The Appellant maintains
that the Respondent is negligent in operating without a document retention
policy that would ensure that a complete record is available where a derivative
assessment has been made. He said that in light of the Respondent’s inadequate
document retention policy, the random, unsupervised destruction of documents in
this case was tantamount to intention conduct, and was so egregious as to
warrant allowing the appeals.
[12] The Appellant
alleges that procedural fairness requires that the Respondent provide him with
a full record of correspondence between the corporations’ other director and
the CRA during the period over which the source deductions and GST arrears
accumulated since the Respondent is unable to do so, the Appellant says that he
is irremediably prejudiced in the presentation of his appeals, and that the
appeals should be allowed.
[13] The Appellant relies
on the decision of the Federal Court of Appeal in Alliance for Life v. The
Minister of National Revenue
as
support for the proposition that procedural fairness requires that the Respondent
provide a full record of the correspondence for the purposes of these appeal. The
Alliance for Life case was an appeal from the decision of the Minister
proposing to revoke the Alliance’s charitable registration. One of the grounds on which the Appellant
was challenging the decision was that it had been denied procedural fairness in
the process leading to the decision because the Minister had failed to disclose
the full case against it and had failed to give it a full and fair opportunity
to respond.
[14] While the Court in Alliance
for Life rejected the Appellant’s arguments, it noted in obiter that
a failure on the part of the Minister to comply with the requirements of
procedural fairness would not be cured by the appeal process that was provided.
The Court referred to its earlier decision in Re: Renaissance International
v. The Minister of National Revenue,
in which Pratte J.A. stated at page 866:
… I therefore conclude that the appeal created
by subsection 172(3) is what I would call an ordinary appeal which the Court
normally decides on the sole basis of a record constituted by the tribunal of
first instance. It follows, in my view, that the decision of the Minister to
send a notice of revocation under subsection 168(1) must be arrived at in a
manner enabling the Minister to create a record sufficiently complete to be
used by this Court in deciding the appeal. This presupposes, in my view, that
the Minister must follow a procedure enabling him to constitute a record
reflecting not only his point of view but also that of the organization
concerned.
[15] However, I find that
this holding is not applicable in the case before me because these appeals are
ones that will be decided after a full hearing at which the Appellant will have
the right to call evidence and make arguments. The requirement in the Alliance
for Life and the Re: Renaissance cases that the Minister provide a
“sufficiently complete record” arose because that record was the sole basis on
which the appeal was to be decided. Pratte J.A. recognized this distinction in Re:
Renaissance, saying at page 865:
… However, in this instance, the right of
appeal created by subsection 172(3) is a right of appeal to a Court which, it
is well known, normally decides appeals on a record created in the inferior
Court and accepts to receive further evidence only “on special grounds” (see
Rule 1102(1) [of the Federal Court Rules]). Moreover, when the
provisions of the Income Tax Act applicable to that appeal are
contrasted with those of section 175 governing the appeal to the Trial Division,
it becomes apparent that it was not intended that the appeal to this Court be
an appeal de novo like the appeal in the Trial Division. …
[16] I am not convinced
therefore that the Respondent has a duty to provide a complete record of the
correspondence sought by the Appellant. In my view, the Respondent’s duty of
fairness does not go beyond the production of those documents that are still in
its possession.
[17] The matter of the
destruction of documents by the Respondent does raise a possible issue of
spoliation. Spoliation occurs where:
18. … a party has
intentionally destroyed evidence relevant to ongoing or contemplated litigation
in circumstances where a reasonable inference can be drawn that the evidence
was destroyed to affect the litigation. Once this is demonstrated, a
presumption arises that the evidence would have been unfavourable to the party
destroying it. This presumption is rebuttable by other evidence through which
the alleged spoliator proves that his actions, although intentional, were not
aimed at affecting the litigation, or through which the party either proves his
case or repels the case against him.
[18] In this case, the Appellant
has not led any evidence to suggest that the destruction of the documents was
done intentionally by the Respondent. Nor has the Appellant shown that those
documents were relevant to any of the issues in appeal. In his affidavit, the Appellant
states that the documents would probably explain how the corporations were able
to convince the Respondent to permit the arrears to continue and accumulate
over a 10-year period, and that they would have assisted him in presenting his
due diligence defence. No basis for these statements is given. Without any
evidence as to the nature and contents of the documents that were destroyed, it
appears to me that the Appellant is only speculating as to their relevance to
his case. Furthermore, if the Appellant was misled by the corporations regarding
the arrears, the Appellant himself should be able to provide the best evidence
of what representations were made to him in that respect.
[19] Finally, it has not
been established at what point the documents were destroyed, in order to
establish that they were destroyed after litigation was first contemplated.
[20] On the material
before me, therefore, I am not satisfied that spoliation has occurred here.
[21] It is perhaps
helpful at this point to reiterate the finding of the Court in McDougall
that the issue of spoliation is best dealt with at trial. At paragraphs 27 and
28 of that decision, the Court said:
27 … There is, however,
one aspect of the law that Canadian courts appear to agree upon. Because
spoliation is primarily an issue of fact, and the remedies based on prejudice
(also a matter of fact), these are matters usually best left to a trial judge.
Thus, it would be rare for a claim to be struck pre-trial. The reasoning behind
this position was described by Clarke J. in North American Road Ltd. v.
Hitachi Construction Machinery Co. He was asked, on a pre-trial motion, to
grant access to privileged documents as a remedy for spoliation. His Lordship
denied the application, stating, at paras. 21-22:
I am satisfied that this is not
the appropriate time for the question of spoliation to be addressed. ...The
issue of spoliation is more appropriately raised at trial when all of the
evidence will be available to be considered by the trial judge. In addition,
the applicant does have other sources of evidence available to it that may be
helpful for its defence, other than the respondents’ privileged documents.
...Also, the applicant will have the opportunity through the discovery process
and production of expert reports to become more fully informed of the facts on
which the experts’ opinions are based.
At this point, the nature and
potential impact or effect of the respondents’ expert evidence is unknown. At
trial, the judge will be in a position to determine the existence and extent of
any prejudice that may have been caused to the applicant by the respondents’
failure to preserve the evidence. Accordingly, the trial judge will also then
be in a far more able position to determine what, if any, remedy would be
appropriate under the particular circumstances of this case.
28 Other courts have come to a similar
conclusion (see: Telenga v. Raymond European Car Services Ltd. (Ont. Gen. Div.); Cheung (Litigation
Guardian of) v. Toyota Canada Inc. (Ont. Sup.
Ct.); and Douglas v. Inglis Ltd. (Ont. Sup.
Ct.)), although in the latter two cases the court acknowledged that in
particularly egregious circumstances a pre-trial remedy might be available for
spoliation up to and including dismissal of the claim. On this subject, I would
add that it is important not to attempt to expand pre-trial remedies beyond
those already recognized by the court in its rules of procedure. Not all
litigation is equal. For example, it is not uncommon for accident scenes to be
cleared before any experts have had an opportunity to investigate, or only one
expert has been at the scene. The practice rules are designed to assure the
process of proceeding to trial is fair. Thus the rules are generally the
appropriate source of a pre-trial remedy. The concept of full pre-trial applications,
however, along with viva voce evidence to determine whether spoliation
(in the sense of intentional destruction) has occurred, should not be
encouraged. This issue should be left for trial.
[22] For the above
reasons, the Appellant’s motion is denied. Even though the Appellant has been
unsuccessful in this application, no costs will be awarded to the Respondent. Given
the late production of the affidavit of Ms. Neville, and given the difficulties
encountered by the Appellant in obtaining full disclosure of documents from the
Respondent, no costs are awarded.
Signed at Ottawa, Canada, this 9th
day of November, 2009.
“Brent Paris”
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