Citation: 2007TCC109
Date: 20070222
Docket: 91-509(IT)G, 91-1816(IT)G
91-1946(IT)G, 2004-2787(IT)G
BETWEEN:
LINDA LECKIE MOREL,
GEOFFREY D. BELCHETZ
and ALLAN GARBER,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
BowieJ.
[1] The appellants in these three appeals and the respondent have agreed that it is appropriate to have a determination before trial, pursuant to Rule 58(1)(a) of the Tax Court of Canada Rules (General Procedure), of the following questions that arise out of amendments made on April 20, 2006 to the Replies to the Notices of Appeal.
1) Where convictions have been entered, does the doctrine of abuse of process prevent the Appellant from alleging that Einar Bellfield and Osvaldo Minchella together with OCGC, Neptune Marine Resources S.A. and Starlight Charters S.A. did not unlawfully, by deceit, falsehood or other fraudulent means, defraud the public of tax revenues owing to Her Majesty in right of Canada by making false claims to Revenue Canada in relation to approximately $100,000,000.00 in losses claimed on behalf of thirty six limited Partnerships, including the S/Y Close Encounters Limited Partnership, managed by the said OCGC?;
2) Where convictions have been entered, does the doctrine of abuse of process prevent the Appellant from alleging that Einar Bellfield, and Osvaldo Minchella together with OCGC, Neptune Marine Resources S.A. and Starlight Charters S.A. did not unlawfully, by deceit, falsehood or other fraudulent means, defraud investors, including Belchetz, in thirty-six limited Partnerships managed by the said OCGC, of cash deposits paid, the value of promissory notes, interest payments paid in respect of the said promissory notes to the said OCGC in respect of units purchased by the investors, including Belchetz, in each of the said limited Partnerships?;
3) Where convictions have been entered, does the doctrine of abuse of process prevent the Appellant from alleging that Einar Bellfield and Osvaldo Minchella together with OCGC, Neptune Marine Resources S.A. and Starlight Charters S.A. did not, knowing that documents were forged, unlawfully cause or attempt to cause Her Majesty n right of Canada to use, deal with, or act on said documents, namely limited Partnership financial statements, invoices and other documentation relating to thirty-six limited partnerships, including the S/Y Close Encounters Limited Partnership, managed by the said OCGC as if they were genuine?;
4) Where convictions have been entered, does the doctrine of abuse of process prevent the Appellant from alleging that Einar Bellfield and Osvaldo Minchella together with OCGC, Neptune Marine Resources S.A and Starlight Charters S.A. did not, knowing that documents were forged, unlawfully cause or attempt to cause investors including Belchetz, to use, deal with or act on said documents, namely limited Partnership financial statements, invoices and other documentation relating to thirty-six limited partnerships, including the S/Y Close Encounters Limited Partnership, managed by the said OCGC as if they were genuine?;
5) Does the doctrine of abuse of process prevent Belchetz from asserting in this appeal facts contrary to the findings of fact made by the trial judge in the prosecution of Bellfield and Minchella which findings form part of her Reasons for Sentence?;
6) If the answer to any of 1), 2), 3), 4) or 5) is yes, should the appeal be dismissed as an abuse of process?; and
7) If the answer to any of 1), 2), 3), 4) or 5) is yes but the answer to 6) is no, what is the appropriate remedy, if any, respecting the hearing of the appeal?
I so ordered on September 15, 2006, and the parties filed an Agreed Statement of Facts that formed the foundation on which the questions were then argued. The following are those agreed facts.
1. Overseas Credit Guarantee Corporation ("OCGC") was incorporated on May 11, 1984, as an Ontario corporation. Einar Bellfield, which is the alias used by Einar Bjellebo, was the president, controlling and sole shareholder of OCGC.
2. Between November 28, 1984 and January 27, 1986, OCGC, acting as the General Partner, registered 79 partnerships with the Ontario Ministry of Consumer and Commercial Relations in the Province of Ontario as limited Partnerships. In its filings, OCGC represented the purpose of the partnerships was to carry on charter operations.[1]
3. During 1985, 1986 and 1987, OCGC, either directly or indirectly through Enterprises, sold 36 "limited partnerships to approximately 600 individual investors.
Background to the Belchetz Appeal
4. Belchetz is a businessman residing in the City of Toronto, in the Municipality of Metropolitan Toronto, in the Province of Ontario.
5. In the 1986 taxation year, Belchetz entered into an arrangement with OCGC by which he acquired 1 unit in the "S/Y Close Encounters Limited Partnership".
6. Belchetz's claim arises in connection with the disallowance by the Minister of National Revenue (the "Minister") in respect of the 1986, 1987 and 1988 taxation years, of certain deductions from his income arising from his participation as one of the 25 limited partners in the S/Y Close Encounters Limited Partnership. The deductions were disallowed by Notices of Reassessment dated November 2, 1990 in respect of the 1986, 1987 and 1988 taxation years.
7. By Notices of Objection dated November 12, 1990 for the 1986, 1987 and 1988 taxation years, Belchetz objected to the Notices of Reassessment.
8. By Notice of Confirmation dated the 14th day of June 1991, the Minister confirmed the reassessments.
9. Belchetz appealed by Notice of Appeal dated September 6, 1991. Attached hereto as Exhibit "A" to this Agreed Statement of Facts is a true copy of the Notice of Appeal.
10. The Respondent duly replied to the Notice of Appeal on September 12, 1997. On April 20, 2006, the Respondent filed an Amended Reply to the Notice of Appeal. Attached hereto as Exhibit "B" to this Agreed Statement of Facts is a true copy of the Amended Reply.
Background of the Garber Appeal
11. Garber is a businessman residing in the City of Markham, in the Region of Peel, in the Province of Ontario.
12. In the 1984 taxation year, Garber entered into an arrangement with the OCGC by which he acquired 1 unit in the "S/Y Garbo Limited Partnership", which he held in trust for himself, Stacy Mitchell and David Sugarman..
13. Garber's claim arises in connection with the disallowance by the Minister of National Revenue (the "Minister") in respect of the 1984, 1985, 1986 and 1987 taxation years, of certain deductions from his income arising from his participation in the S/Y Garbo Limited Partnership. The deductions were disallowed by Notices of Reassessment dated July 28, 1989 in respect of the 1984, 1985, 1986 and 1987 taxation years.
14. By Notices of Objection dated October 1989 for the 1984, 1985, 1986 and 1987 taxation years, Garber objected to the Notices of Reassessment.
15. Garber appealed by Notice of Appeal dated June 28, 2004. Attached hereto as Exhibit "C" to this Agreed Statement of Facts is a true copy of the Notice of Appeal.
16. The Respondent duly replied to the Notice of Appeal on July 28, 2004. On April 20, 2006, the Respondent filed an Amended Reply to the Notice of Appeal. Attached hereto as Exhibit "D" to this Agreed Statement of Facts is a true copy of the Amended Reply.
Background to the Leckie-Morel Appeals
17. Leckie-Morel is a doctor who, at all material times, resided in the City of Scarborough, in the Municipality of Metropolitan Toronto, in the Province of Ontario.
18. In the 1985 taxation year, Leckie-Morel entered into an arrangement with OCGC by which she acquired 1 unit in the "S/Y Midnight Kiss Limited Partnership".
19. Leckie-Morel's claim arises in connection with the disallowance by the Minister of National Revenue (the "Minister") in respect of the 1985, 1986, 1987 and 1988 taxation years, of certain deductions from her income arising from her participation as one of the 25 limited partners in the S/Y Midnight Kiss Limited Partnership. The deductions were disallowed by Notices of Reassessment dated September 7, 1989 in respect of the 1985 and 1987 taxation years, May 23, 1990 in respect of the 1988 taxation year and Notice of Assessment dated September 7, 1989 in respect of the 1986 taxation year.
20. By Notices of Objection dated November 20, 1989 for the 1985 and 1987 taxation years, and August 7, 1990 for the 1988 taxation year, and Notice of Objection for the 1986 taxation year, Leckie-Morel objected to the Notices of Reassessment. The Minister reassessed Leckie-Morel's 1986 taxation year by Notice of Reassessment dated December 22, 1989.
21. Leckie-Morel appealed by Notice of Appeal dated August 16, 1991, in respect of the 1985, 1987 and 1988 taxation years and by Notice of Appeal dated March 21, 1991, in respect of the 1986 taxation year. Attached hereto as Exhibits "E" and "F" to this Agreed Statement of Facts is a true copy of the Notices of Appeal dated August 16, 1991 and March 21, 1991, respectively.
22. The Respondent duly replied to the Notice of Appeal dated August 16, 1991, on September 12, 1997, and to the Notice of Appeal dated March 21, 1991, on May 10, 1991. On April 20, 2006, the Respondent filed an Amended Reply to the Notice of Appeal dated August 16, 1991 and a Fresh as Amended Reply to the Notice of Appeal dated March 21, 1991. Attached hereto as Exhibits "G" and "H" to this Agreed Statement of Facts is a true copy of the Amended Reply and Fresh as Amended Reply, respectively.
The Prosecution and Convictions of Bellfield and Associates
23. In 1995, following an investigation by the R.C.M.P. and Revenue Canada Investigations, Bellfield and his associates, Osvaldo Minchella and Pierre Rochat were each charged with two counts of fraud contrary to section 380(1)(a) of the Criminal Code and two counts of uttering forged documents contrary to section 368(1) of the Criminal Code.
24. In April of 1996, Rochat pled guilty to an offence of making false entries in the books and records of OCGC contrary to paragraph 239(1)(c) of the Income Tax Act and was sentenced to two years imprisonment.
25. In December of 1999, following a trial comprised of a judge and jury, Bellfield and Minchella were convicted on all counts. In particular, Bellfield and Minchella were convicted of charges that, together with OCGC, Neptune Marine Resources S.A. and Starlight Charters S.A.:
a) they unlawfully did, by deceit, falsehood or other fraudulent means, defraud the public of tax revenues owing to Her Majesty in right of Canada by making false claims to Revenue Canada in relation to approximately $110,000,000.00 in losses claimed on behalf of thirty-six limited Partnerships, including the S/Y Garbo Limited Partnership, the S/Y Close Encounters Limited Partnership, and the Midnight Kiss Limited Partnership, managed by OCGC.
b) unlawfully did, by deceit, falsehood or other fraudulent means, defraud investors in thirty-six limited Partnerships, including S/Y Garbo Limited Partnership, the S/Y Close Encounters Limited Partnership, and the Midnight Kiss Limited Partnership, managed by the said OCGC, of cash deposits paid, the value of promissory notes, and interest payments paid in respect of the said promissory notes to the said OCGC in respect of the said promissory notes to the said OCGC in respect of units purchased by investors in each of the said limited Partnerships.
c) knowing that documents were forged, unlawfully did cause or attempt to cause Her Majesty in right of Canada to use, deal with, or act on said documents, namely, limited Partnership financial statements, invoices and other documents relating to thirty-six limited Partnerships, including the S/Y Garbo Limited Partnership, the S/Y Close Encounters Limited Partnership, and the Midnight Kiss Limited Partnership, managed by the said OCGC as if they were genuine; and
d) knowing that documents were forged, unlawfully did cause or attempt to cause investors in thirty-six limited Partnerships, including the S/Y Garbo Limited Partnership, the S/Y Close Encounters Limited Partnership, and the Midnight Kiss Limited Partnership, to use, deal with, or act on said documents, namely, limited Partnership financial statements and other documentation, as if they were genuine.
Particulars of the Charges, Crown and Defence Theories and Charge to Jury
26. Particulars of the charges against Bellfield and Minchella are set out in the indictment dated November 16, 1999. Attached hereto as Exhibit "I" to this Agreed Statement of Facts is a true copy of the indictment dated November 16, 1999.
27. The Crown theory of the case against Bellfield and Minchella is reflected in the opening and closing addresses of Crown counsel. Attached hereto as Exhibit "J" to this Agreed Statement of Facts is a true copy of the transcript of Crown counsel's opening address. Attached hereto as Exhibit "K" to this Agreed Statement of Facts is a true copy of Crown counsel's closing address.
28. The Defence theory of the case against Bellfield and Minchella is reflected in the closing addresses of Mr. Silver, counsel for the Accused Bellfield, and that of Mr. Kostopoulos, counsel for the Accused Minchella. Attached hereto as Exhibit "L" to this Agreed Statement of Facts is a true copy of the transcript of Mr. Silver's closing address. Attached hereto as Exhibit "M" to this Agreed Statement of Facts is a true copy of Mr. Kostopoulos' closing address.
29. In her charge to the jury, the trial judge summarized the evidence and the applicable law. Attached hereto as Exhibit "N" to this Agreed Statement of Facts is a true copy of the trial judge's charge to the jury.
Sentencing and Reasons for Sentence of the Trial Judge and Related Findings of Fact
30. Upon the conviction of Bellfield and Minchella, the trial judge imposed the following sentences. Bellfield was sentenced to a period of 10 years imprisonment in the penitentiary on count 1; on count 2, he was sentenced consecutively to pay a fine in the amount of $1 million to Her Majesty in right of Canada, or in default of payment, to 2 years imprisonment consecutive to any other sentence; on counts 3 and 4, he was sentenced to 4 years in the penitentiary on each count to be served concurrently with each other and count 1. Minchella was sentenced on count 1 to a term of years (sic) in the penitentiary; on count 2 to a term of 7 years to be served concurrently with count 1; on counts 3 and 4 to a term of 3 years on each count to be served concurrent with each other and to the sentence on count 1.
31. In determining the appropriate sentences for Bellfield and Minchella, the trial judge, pursuant to section 74 of the Criminal Code, made certain findings of fact. These findings of fact are set out in the Reasons for Sentence. Attached hereto as Exhibit "O" to this Agreed Statement of facts is a true copy of the Reasons for Sentence.
Appeal from Conviction and Sentence
32. On October 14, 2003, the Ontario Court of Appeal subsequently dismissed the appeals of Bellfield and Minchella both as to conviction and sentence. Attached hereto as Exhibit "P" to this Agreed Statement of Facts is a true copy of the Reasons for Judgment dismissing the appeal.
33. Applications for leave to the Supreme Court of Canada by Bellfield and Minchella on April 29, 2004 and May 14, 2004 were each subsequently dismissed. Before the Supreme Court of Canada, the Attorney General of Canada brought a motion to disqualify counsel for Bellfield on the basis of an alleged conflict of interest. In response to the motion, counsel for Bellfield filed an Appellant's Response to the Motion to Disqualify Aird & Berlis. Attached as Exhibit "Q" to this Agreed Statement of Facts is a copy of the Appellant's Response to the Motion to Disqualify Aird & Berlis.
34. The Appellants were not parties to the criminal proceedings involving Rochat, Bellfield or Minchella, were not represented by counsel in the criminal proceedings and, although aware of the criminal proceedings, were not given formal notice.
I shall not reproduce the 17 Appendices to the Agreed Statement of Facts.
[2] The position of the respondent is that the result of the criminal trial of Bellfield and Minchella, together with the appeals therefrom, should be conclusive for the purposes of this litigation of the facts that were essential to establish their guilt of the offences of which they were convicted, and of the facts found by the trial judge in the process of passing sentence upon them. While recognizing that there is not the identity of parties between the criminal proceedings against Bellfield and Minchella and the income tax appeals before this Court that would be required to invoke the doctrine of issue estoppel, the respondent seeks to invoke the developing doctrine of abuse of process by relitigation to support the proposition that the appellants in this Court are precluded from advancing their view that they, along with Mr. Bellfield and Mr. Minchella, were, during the years under appeal, engaged in a genuine business enterprise that gave rise to the losses that they seek to deduct from their other income of those years.
[3] The doctrine of abusive process of litigation has a considerable history in England. In Hunter v. Chief Constable of the West Midlands Police,[2] several individuals accused of murder attempted unsuccessfully to have their confessions excluded on the grounds that they had been obtained by threats and by force. Following their convictions they brought civil actions against the police claiming damages for the same assaults that they had alleged at their criminal trials. Their statements of claim were struck out by the Court of Appeal, reversing the judge below, and that judgment was upheld on appeal to the House of Lords. Lord Diplock described the principle that the respondent now relies on in this Court in this way at page 541:
The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made.
In the course of his speech, Lord Diplock quoted the following words of Lord Halsbury L.C. in Reichel v. Magrath:[3]
... I think it would be a scandal to the administration of justice if, the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again.
That too was a case in which no estoppel would lie, as there was no unanimity of parties, but the statement of defence was struck out as the issue raised in it was the same one that the defendant had unsuccessfully raised as plaintiff in an earlier action against a different party.
[4] Two recent decisions of the Supreme Court of Canada make it clear that, while abuse of process by relitigation has become part of the law of Canada, it and issue estoppel are both discretionary remedies, and their application is subject to consideration of the peculiar facts of each case, and in particular to considerations of fairness and justice. In Danyluk v. Ainsworth Technologies Inc.[4] the dispute concerned the plaintiff's employment and a claim for unpaid wages and commissions. The employee began proceedings under the Employment Standards Act,[5] where she claimed unpaid wages and commissions. While the process under that statute was underway, she began an action for wrongful dismissal, claiming damages and also the unpaid wages and commissions. When the officer under the Employment Standards Act awarded her only two weeks wages in lieu of notice, the employer moved successfully to strike out the monetary claim in the wrongful dismissal action. In reversing this decision, the Supreme Court noted that the prerequisites to issue estoppel were all present. The same issue had been decided in the proceeding under the Employment Standards Act, the decision of that tribunal had become final, and there was unanimity of parties in the two proceedings. Nevertheless, the administrative tribunal had committed procedural errors in arriving at its decision that would make it unfair to apply that decision as a basis for barring the plaintiff's claims. In rejecting the application of issue estoppel, the Court said this:
(g) The Potential Injustice
80 As a final and most important factor, the Court should stand back and, taking into account the entirety of the circumstances, consider whether application of issue estoppel in the particular case would work an injustice. Rosenberg J.A. concluded that the appellant had received neither notice of the respondent's allegation nor an opportunity to respond. He was thus confronted with the problem identified by Jackson J.A., dissenting, in Iron v. Saskatchewan(Minister of the Environment & Public Safety), [1993] 6 W.W.R. 1 (Sask. C.A.), at p. 21:
The doctrine of res judicata, being a means of doing justice between the parties in the context of the adversarial system, carries within its tenets the seeds of injustice, particularly in relation to issues of allowing parties to be heard.
Whatever the appellant's various procedural mistakes in this case, the stubborn fact remains that her claim to commissions worth $300,000 has simply never been properly considered and adjudicated.
[5] In Toronto(City) v. Canadian Union of Public Employees (C.U.P.E.) local 79,[6] a city employee had been convicted of a sexual assault, following which he was dismissed. His union grieved the dismissal, and before the adjudicator it successfully contested the issue of the sexual assault. The Plaintiff was reinstated. On appeal to the Divisional Court this ruling was quashed, and appeals to the Court of Appeal and the Supreme Court of Canada were dismissed. Although it was the union rather than the individual that contested the earlier conviction, this lack of unanimity of parties did not prevent the conclusion that the conviction could not be attacked collaterally in the arbitration proceeding. Arbour J. said at paragraphs 51-2:
51 Rather than focus on the motive or status of the parties, the doctrine of abuse of process concentrates on the integrity of the adjudicative process. Three preliminary observations are useful in that respect. First, there can be no assumption that relitigation will yield a more accurate result than the original proceeding. Second, if the same result is reached in the subsequent proceeding, the relitigation will prove to have been a waste of judicial resources as well as an unnecessary expense for the parties and possibly an additional hardship for some witnesses. Finally, if the result in the subsequent proceeding is different from the conclusion reached in the first on the very same issue, the inconsistency, in and of itself, will undermine the credibility of the entire judicial process, thereby diminishing its authority, its credibility and its aim of finality.
52 In contrast, proper review by way of appeal increases confidence in the ultimate result and affirms both the authority of the process as well as the finality of the result. It is therefore apparent that from the system's point of view, relitigation carries serious detrimental effects and should be avoided unless the circumstances dictate that relitigation is in fact necessary to enhance the credibility and the effectiveness of the adjudicative process as a whole. There may be instances where relitigation will enhance, rather than impeach, the integrity of the judicial system, for example: (1) when the first proceeding is tainted by fraud or dishonesty; (2) when fresh, new evidence, previously unavailable, conclusively impeaches the original results; or (3) when fairness dictates that the original result should not be binding in the new context. This was stated unequivocally by this Court in Danyluk, supra, at para. 80.
(Emphasis added)
I note that these three latter factors that may justify relitigation are stated disjunctively by Arbour J.
[6] In the present case, there is no suggestion before me that the trial of Bellfield and Minchella was in any way tainted. The appellants were not called to give evidence, nor did they have the opportunity to do so had they so wished, but they may do so on their tax appeals before this Court. Most importantly, however, considerations of fairness dictate that the appellants should not be bound in this litigation by the convictions of Bellfield and Minchella. The appellants do not seek to relitigate anything. The validity of the assessments against them has never been litigated, except in these appeals. They did not litigate the guilt or innocence of Bellfield and Minchella, nor could they have done so. They are quite different parties from the accused persons, and their purpose is not to impeach the convictions but simply to be heard in their own income tax appeals. In my view, it would not be fair in this context to deny the appellants the opportunity to be heard as to the issue whether the partnerships in question in these appeals qualify as sources of income for the purpose of section 3 of the Income Tax Act, although that is the result that the respondent contends would flow from affirmative answers to the first five questions.[7] It is noteworthy in this connection that in those cases where the doctrine of abuse of process has been applied to prevent relitigation, it is invariably the party that lost the first litigation that seeks to gain through the relitigation. In the Toronto case, the union was the nominal grievor, but it grieved on behalf of the convicted employee, and his reinstatement was the goal.
[7] The Appellants claim, and they are entitled to, the benefit of paragraphs 1(a) and 2(e) of the Canadian Bill of Rights:[8]
1 It is hereby recognized and declared that in Canada there have existed and shall continue to exist without discrimination by reason of race, national origin, colour, religion or sex, the following human rights and fundamental freedoms, namely,
(a) the right of the individual to life, liberty, security of the person and enjoyment of property, and the right not to be deprived thereof except by due process of law;
...
2. Every law of Canada shall, unless it is expressly declared by an Act of the Parliament of Canada that it shall operate notwithstanding the Canadian Bill of Rights, be so construed and applied as not to abrogate, abridge or infringe or to authorize the abrogation, abridgment or infringement of any of the rights or freedoms herein recognized and declared, and in particular, no law of Canada shall be construed or applied so as to
...
(e) deprive a person of the right to a fair hearing in accordance with the principles of fundamental justice for the determination of his rights and obligations;
Those provisions entitle the appellants to a hearing at which they may testify as to all matters that may affect the outcome of their income tax appeals. I do not wish to comment on the merits of the appellants' case, but it is certainly pertinent to note that counsel for the respondent takes the view that if the first five questions are answered in the affirmative then that is fatal to the appeals and they should be dismissed summarily. Any such disposition of the income tax appeals would certainly be inconsistent with the appellants' right to a fair hearing in accordance with the principles of fundamental justice to determine the extent to which they are obliged by law to surrender their property to the tax collector. A fair hearing includes the right to give evidence on their own behalf.[9] That right, in my view, outweighs in these cases the considerations of cost and finality. Credibility of the judicial system is of course an important factor, but the credibility of the system would not be enhanced by denying these appellants the right to call evidence in respect of the core issue in their appeals.
[8] I accept that there are good reasons to favour finality in litigation, and to avoid the potential for there to be conflicting decisions of different courts where it is possible to do so while still doing justice. In my view, this is a case in which the quasi constitutional rights of the appellants to a fair hearing must take precedence over finality and the potential for conflicting results. Consequently, I answer the questions that are before me as follows:
Question 1 - No.
Question 2 - No.
Question 3 - No.
Question 4 - No.
Question 5 - No.
Questions 6 and 7 - No answer is required.
[9] The costs of this motion will be in the cause.
Signed at Ottawa, Canada, this 22nd day of February, 2007.
"E.A. Bowie"
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