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Citation: 2007TCC323
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Date: 20070607
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Docket: 2006-3743(IT)I
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BETWEEN:
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NADEEM FRANCIS,
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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
Bowman,
C.J.
[1] This appeal is from a reassessment made
under the Income Tax Act for the appellant’s 2004 taxation year in which
$24,000 was added to the appellant’s income. Penalties under
subsection 163(2) of the Act were imposed by reason of the
appellant’s failure to include the $24,000 in his income.
[2] The facts are a little unusual. In 2004 the appellant
was about 28 years old. He had a somewhat nondescript career. He had studied at
Acadia University but did not
finish his degree. He did odd jobs such as painting or carpentry. He was
married and his wife had a job in which she earned, in 2004, according to the
appellant, about $45,000 annually. Initially he declared about $8,000 in that
year as income from business and employment. He also testified that he and his
wife received some money from his father‑in‑law in Sri Lanka.
[3] In October 2004 he
attempted to send a package by FedEx overnight Courier to an address in Richmond, British Columbia. On October 25,
2004, the Integrated Proceeds of Crime Division of the Royal Canadian Mounted
Police intercepted and seized the package. It contained some toys, a thank you
card and $24,000 (Cdn) in cash.
[4] The $24,000 was
forfeited to Her Majesty on February 23, 2006 by an order of the
Honourable Hughes Randall. The appellant did not appear on the application before
the Provincial
Court
although he had been served. The Court stated in the order:
AND UPON being satisfied of the
following:
(1) that the
Property was seized pursuant to lawful authority;
(2) that the
Property was ordered detained under section 490(1) of the Criminal
Code;
(3) that the
continued detention of the Property is no longer required within the meaning
of section 490(5) of the Criminal Code; and
(4) that the
lawful owner or person who is lawfully entitled to possession of the
property is not known and cannot be ascertained.
I HEREBY
ORDER THAT the Property is forfeited to Her Majesty the Queen in Right of
Canada pursuant to s. 490(9) of the Criminal Code of Canada to be
disposed of as the Attorney General of Canada directs or otherwise in
accordance with the law.
It should be noted that the
forfeiture order was made on February 23, 2006, one month and ten
days after the assessment on January 13, 2006 for the 2004 taxation year by
which the Minister of National Revenue added the $24,000 to the appellant’s
income.
[5] The circumstances
leading up to the reassessment for 2004 deserve to be mentioned briefly. Several
meetings were held between Mr. Troy Grant of the Canada Revenue
Agency and Mr. Francis or his counsel, Mr. Tompkins. They came close
to signing an agreement whereby
(a) no net worth
assessment would be made;
(b) $7,000
would be added to the appellant’s income for each of 2002 and 2003;
(c) $24,000
would be added to the appellant’s business income for 2004;
(d) no
gross negligence penalties would be imposed;
(e) the
appellant would waive his right to object.
[6] This proposal was conveyed
in a letter from CRA dated November 16, 2005. In the result the deal did
not materialize. Mr. Francis’ reply to the proposal was as follows:
Nadeem Francis
3570 Windsor Street
Halifax NS B3K 5G8
December 9, 2005
PERSONAL AND
CONFIDENTIAL
Mr. Troy Grant
CRA, Investigations
PO Box 638
HALIFAX, NS B3J 2T5
Dear Mr. Grant:
Income Tax Returns –
2002-04
I refer to your letters
dated July 11 and November 16, 2005, to me. I have given to you details of my
financial situation relating to those years, and have estimated my income for
those years. I note that you have assured me that you are not conducting a
criminal investigation relating to my income tax liabilities, and, based on
that assurance, I have agreed to answer your questions and provide information
to you.
I have advised you
several times that I am not the owner of the $24,000 of cash that was seized from
FEDEX Courier on or about October 25, 2004. Further, I was not carrying on
any business during 2004 from which I made a profit of $24,000.
In your letter dated
November 16, 2005, to me, you suggest a conclusion to your audit that will
require me to accept ownership of this $24,000. As you know, there are other
legal proceedings in process that relate to the ownership of that money, and I
will not agree to a conclusion of the audit you are conducting in any way which
will prejudice my position concerning those, or any other Court proceedings. I
expect that those other Court proceedings will confirm my advice to you that I
was not the owner of the $24,000, and this will contradict your theory
concerning that money. As a result, I request that you postpone your audit
until the other Court proceedings relating to the ownership of the $24,000 are
concluded. A ruling in my favour in those proceedings should make an audit
unnecessary. As a result, I request that you postpone your audit until the
other Court proceedings are concluded.
Regardless, if you
proceed with any Notices of Assessment or Reassessment, I will file Objections
relating to those so that my actual taxable income can be determined. In these
circumstances, I suggest that you continuing the audit at this stage will cause
me unnecessary expense and stress; therefore, I suggest we review the situation
again by April 1, 2006. I await your response. Please confirm receipt
of this at your earliest convenience.
Yours truly,
Nadeem Francis
[7] The basis of the
reassessment of tax was the following as set out in paragraph 12 of the
Reply to the Notice of Appeal:
12. (g) prior
to the delivery of the package to FedEx and the subsequent seizure of the
package by the RCMP, the Appellant had care and control of the Funds;
(h) the
Appellant’s reported income was not sufficient to pay for his living expenses
and asset purchases;
(i) the
Appellant did not obtain the funds from a non-taxable source of income; and
(j) the
Appellant obtained the Funds from a taxable source of income.
[8] Mr. Francis
has maintained from the outset that the $24,000 was not his property and that
he did not know what was in the package. The determinative issue is whether I
believe him.
[9] The appellant was
asked on cross-examination if he was paid to deliver the parcel to FedEx. He
declined to answer because a criminal counsel whom he had retained had advised
him not to answer such questions. Mr. Tompkins referred to section 5
of the Canada Evidence Act and I ordered the appellant to answer. We have
become familiar with “taking the fifth” from watching American television but
it has no place in Canada. He testified that he was paid $100 or $200 to deliver the parcel to
FedEx. He has to date never been charged or accused of any criminal activity in
connection with the funds and it was neither assumed nor alleged on assessing
that the funds came from any illegal business. In fact, the nature of the
alleged business which generated the funds was not identified by the assessor.
[10] There are a number
of peculiarities about this case and a few unanswered questions. I was tempted
to ask the appellant a number of questions that occurred to me such as
(a) If it isn’t your
money who do you say is the owner?
(b) You
say you were paid $100 or $200 to deliver the package to FedEx. Who hired you
to do so? Did it not occur to you to ask why you were being paid such an amount
for so small a service?
(c) To
whom was the parcel addressed and from whom was the thank you note?
[11] I should have liked
to ask these and other questions but I am very strongly of the view that at
least where we have experienced senior counsel on both sides it is highly
inappropriate for a judge to descend into the forum and ask questions that he
or she thinks one or other counsel ought to have asked. Judges are not there to
fill in lacunae in either side’s case.
[12] I agree that we are
something more than mere referees in a boxing match but we are not continental
inquisitors either. In Corsaut v. Canada, 2005 TCC 112; [2005] T.C.J. No. 148
(QL), I said:
. . . While I believe that where a
litigant is unrepresented, it is permissible for the trial judge to intervene
more than he or she might where counsel are involved, there are limits. A judge
cannot and should not simply take over the case. It can in some cases create an
impression of bias. See James v. The Queen, 2001 DTC 5075, where the
Federal Court of Appeal allowed an appeal and ordered a new trial when the
trial judge intervened so excessively that he appeared to have taken on the
role of counsel. See also Jones v. National Coal Board [1957] 2 All E.R.
155; [1957] 2 Q.B. 55. In Thomson v. Glasgow Corporation, Reports‑1961,
Scots Law Times, 237, (The Lord Justice‑Clerk (Thomson), Lords
Patrick, Mackintosh and Strachan) said at pages 245‑6:
[. . .] It is an essential feature
of the judge’s function to see that the litigation is carried on fairly between
the parties. Judges sometimes flatter themselves by thinking that their
function is the ascertainment of truth. This is so only in a very limited
sense. Our system of administering justice in civil affairs proceeds on the
footing that each side, working at arms length, selects its own evidence. Each
side’s selection of its own evidence may, for various reasons, be partial in
every sense of the term. Much may depend on the diligence of the original
investigators, or on the luck of finding witnesses or on the skill and judgment
of those preparing the case. At the proof itself whom to call, what to ask,
when to stop and so forth are matters of judgment. A witness of great value on
one point may have to be left out because he is dangerous on another. Even
during the progress of the proof values change, treasured material is scrapped
and fresh avenues feverishly explored. It is on the basis of two carefully
selected versions that the judge is finally called upon to adjudicate. He
cannot make investigations on his own behalf; he cannot call witnesses; his
undoubted right to question witnesses who are put in the box has to be
exercised with caution. He is at the mercy of contending sides whose whole
object is not to discover truth but to get his judgment. That judgment must be
based only on what he is allowed to hear. He may suspect that witnesses who
know the “truth” have never left the witness room for the witness box because
neither side dares risk them but the most that he can do is to comment on their
absence.
A litigation is in
essence a trial of skill between opposing parties conducted under recognised
rules, and the prize is the judge’s decision. We have rejected inquisitorial
methods and prefer to regard our judges as entirely independent. Like referees
at boxing contests they see that the rules are kept and count the points.
[14] With respect, this
somewhat jaundiced view of the court’s role does not accurately reflect our
obligations as judges. Our courts do have an interest in determining the truth
because the determination of truth is an essential aspect of our commitment to
ensure that justice be done. That determination must however be made within the
rules and one of the rules is that we not descend into the arena. We are
certainly more than referees at a boxing match. The justification for the
adversarial system in our courts (as opposed to the inquisitorial system) is
that it is assumed that the truth will emerge from the confrontation of
opposing positions. The games theory expressed by the Scottish court implies
that the paramount consideration is how you play the game and justice and the
interests of the litigants are relegated to a subordinate position.
Lord Denning’s eloquent exposition in the Jones case of the role of
a trial judge is worth repeating ([1957] 2 Q.B. at 63).
No one can doubt that the
judge, in intervening as he did, was actuated by the best motives. He was
anxious to understand the details of this complicated case, and asked questions
to get them clear in his mind. He was anxious that the witnesses should not be
harassed unduly in cross-examination, and intervened to protect them when he
thought necessary. He was anxious to investigate all the various criticisms
that had been made against the board, and to see whether they were well founded
or not. Hence, he took them up himself with the witnesses from time to time. He
was anxious that the case should not be dragged on too long, and intimated
clearly when he thought that a point had been sufficiently explored. All those
are worthy motives on which judges daily intervene in the conduct of cases, and
have done for centuries.
Nevertheless, we are
quite clear that the interventions, taken together, were far more than they
should have been. In the system of trial which we have evolved in this country,
the judge sits to hear and determine the issues raised by the parties, not to
conduct an investigation or examination on behalf of society at large, as
happens, we believe, in some foreign countries. Even in England, however, a judge is
not a mere umpire to answer the question “How’s that?” His object, above all,
is to find out the truth, and to do justice according to law; and in the daily
pursuit of it the advocate plays an honourable and necessary role. Was it not
Lord Eldon L.C. who said in a notable passage that “truth is best discovered by
powerful “statements on both sides of the question”?: see Ex parte Lloyd.
And Lord Greene M.R. who explained that justice is best done by a judge who
holds the balance between the contending parties without himself taking part in
their disputations? If a judge, said Lord Greene, should himself conduct the
examination of witnesses, “he, so to speak, descends into the arena and “is
liable to have his vision clouded by the dust of conflict”: see Yuill v.
Yuill.
Yes, he must keep his
vision unclouded. It is all very well to paint justice blind, but she does
better without a bandage round her eyes. She should be blind indeed to favour
or prejudice, but clear to see which way lies the truth: and the less dust
there is about the better. Let the advocates one after the other put the
weights into the scales – the “nicely calculated less or more” – but the judge
at the end decides which way the balance tilts, be it ever so slightly. So
firmly is all this established in our law that the judge is not allowed in a
civil dispute to call a witness whom he thinks might throw some light on the
facts. He must rest content with the witnesses called by the parties: see In
re Enoch & Zaretsky, Bock & Co. So also it is for the advocates,
each in his turn, to examine the witnesses, and not for the judge to take it on
himself lest by so doing he appear to favour one side or the other: see Rex
v. Cain, Rex v. Bateman, and Harris v. Harris, by Birkett
L.J. especially. And it is for the advocate to state his case as fairly and
strongly as he can, without undue interruption, lest the sequence of his
argument be lost: see Reg. v. Clewer. The judge’s part in all this is to
hearken to the evidence, only himself asking questions of witnesses when it is
necessary to clear up any point that has been overlooked or left obscure; to
see that the advocates behave themselves seemly and keep to the rules laid down
by law; to exclude irrelevancies and discourage repetition; to make sure by
wise intervention that he follows the points that the advocates are making and
can assess their worth; and at the end to make up his mind where the truth
lies. If he goes beyond this, he drops the mantle of a judge and assumes the
robe of an advocate; and the change does not become him well.
Lord Chancellor Bacon spoke right when he said that: “Patience and gravity
of hearing is an essential part of justice; and an over‑speaking judge is
not well-tuned cymbal.”
Such are our
standards. They are set so high that we cannot hope to attain them all the
time. In the very pursuit of justice, out keenness may outrun our sureness, and
we may trip and fall. That is what has happened here. A judge of acute
perception, acknowledged learning, and actuated by the best of motives, has
nevertheless himself intervened so much in the conduct of the case that one of
the parties – nay, each of them – has come away complaining that he was not
able properly to put his case; and these complaints are, we think, justified.
[13] The point was made
very forcefully by the Federal Court of Appeal in James v. The Queen,
2001 DTC 5075, following Jones v. National Coal Board, [1957] 2 All E.R.
155. In James, the Federal Court of Appeal referred a case back for
re-hearing because the trial judge’s interventions were excessive and inappropriate.
I assume that the Federal Court of Appeal in Morley v. The Queen, 2006
DTC 6351 did not intend to overrule its decision in James. In Morley,
it was held that an extensive and lengthy cross-examination of witnesses by
the trial judge did not contravene the principle that a judge must not descend
into the forum. The Federal Court of Appeal decision in James was not
referred to in the oral reasons of the Federal Court of Appeal in Morley.
[14] For this reason,
despite the Federal Court of Appeal decision in Morley, I did not ask
questions that I might have asked had I been counsel. I believe very strongly
in the principles stated by the Federal Court of Appeal in James and by
Lord Denning in Jones. I assume that if senior counsel do not ask a
question they have a reason for not doing so.
[15] So I am back where I
started, with a question of credibility. In 9129‑9321 Quebec Inc. v. Canada, [2007] T.C.J. No. 23
(QL), the following passage from Faulkner v. M.N.R., 2006 TCC 239; [2006]
T.C.J. No. 173 (QL) was quoted:
[13] Where questions
of credibility are concerned, I think it is important that judges not be too
quick on the draw. In 1084767 Ontario Inc. (c.o.b. Celluland) v. Canada, [2002] T.C.J. No. 227 (QL), I
said this:
8 The
evidence of the two witnesses is diametrically opposed. I reserved judgment
because I do not think findings of credibility should be made lightly or,
generally speaking, given in oral judgments from the bench. The power and
obligation that a trial judge has to assess credibility is one of the heaviest
responsibilities that a judge has. It is a responsibility that should be
exercised with care and reflection because an adverse finding of credibility
implies that someone is lying under oath. It is a power that should not be
misused as an excuse for expeditiously getting rid of a case. The
responsibility that rests on a trial judge to exercise extreme care in making
findings of credibility is particularly onerous when one considers that a
finding of credibility is virtually unappealable.
[14] I
continue to be of the view that as judges we owe it to the people who appear
before us to be careful about findings of credibility and not be too ready to
shoot from the hip. Studies that I have seen indicate that judges are no better
than any one else at accurately making findings of credibility. We do not have
a corner on the sort of perceptiveness and acuity that makes us better than
other people who have been tested such as psychologists, psychiatrists or lay
people. Since it is part of our job to make findings of credibility, we should
at least approach the task with a measure of humility and recognition of our
own fallibility. I know that appellate courts state that they should show
deference to findings of fact by trial judges because they have had the
opportunity to observe the demeanour of the witness in the box. Well, I have seen
some accomplished liars who will look you straight in the eye and come out with
the most blatant falsehoods in a confident, forthright and frank way, whereas
there are honest witnesses who will avoid eye contact, stammer, hesitate,
contradict themselves and end up with their evidence in a complete shambles.
Yet some judges seem to believe that they can instantly distinguish truth from
falsehood and rap out a judgment from the bench based on credibility. The
simple fact of the matter is that judges, faced with conflicting testimony,
probably have no better than a 50/50 chance of getting it right and probably
less than that when their finding is based on no more than a visceral reaction
to a witness. Moreover, it is essential that if an adverse finding of credibility
is made the reasons for it be articulated.
[16] It behooves a trial
judge to approach questions of credibility with great humility, and with the
full knowledge that any finding of credibility has a chance of being wrong.
[17] In this case the difficulty
was compounded by at least one red herring. There was the forfeiture of the
funds by court order in 2006. If the money did not belong to the appellant and
did not arise from any business activity (legal or illegal) carried on by him
the forfeiture really has nothing to do with the appellant and is irrelevant to
this case. If the $24,000 did arise from a business carried on by the
appellant, the forfeiture is equally irrelevant because it does not reduce the
appellant’s income. In Neeb v. The Queen, 97 DTC 895, the following was said:
29 Here
we are dealing not with a penalty but with the forfeiture of a portion of the
appellant's inventory. There can be doubt that the cost of inventory is an
expense made or incurred to produce income and would normally be deductible in
computing income in the way in which the cost of inventory is deductible, as a
part of the cost of goods sold. As stated above, the loss of goods in inventory
would reduce the closing inventory and increase the cost of goods sold. I am
therefore faced squarely with the issue of public policy. The question whether
the forfeiture of drugs to the authorities is "an unavoidable incident of
carrying on the business" is susceptible of different answers in the
context of a case such as this one, depending on one's point of view.
Forfeiture is an unavoidable consequence of getting caught.
30 The
question of avoidability is not germane here. Mr. Neeb did get
caught and his marihuana and hashish were seized. I can see no reason why the
Canadian public should be expected to subsidize a drug dealer's loss through
forfeiture of illegal drugs, by allowing him to write-off the cost of drugs so
forfeited, even if that cost had been established. If public policy has any
role in fiscal matters it must deny such a claim.
2.
The seizure of cash. Apart from considerations of public policy there is,
however a further reason for denying the deduction. This is simply a
disposition of income, albeit involuntary, after it had been earned. The
principle is well settled: Mersey Docks and Harbour Board v. Lucas
(1883) 8 App. Cas. 891, followed in Fourth Conservancy Board v. IRC,
[1931] A.C. 540 and in Woodward's Pension Society v. Minister of National
Revenue, 59 D.T.C. 1253 at 1261,
aff'd 62 DTC 1002 at 1004.
See also Svidal v. The Queen,
[1995] 1 C.T.C. 2692.
[18] On reflection, I am
inclined to question, based on the Supreme Court of Canada decision in 65302
B.C. Ltd. v. The Queen, 99 DTC 5199, whether my reliance on public policy
considerations was as well founded as I evidently thought it was when I wrote Neeb.
[19] Despite
Ms. Frappier’s very able argument and Mr. Troy Grant’s
careful consideration of the assessment I think the better view is that the money
did not belong to the appellant and that he was a rather naive dupe who was
induced to take the parcel to FedEx for someone else for which he was paid a
couple of hundred dollars. I am not surprised that Mr. Grant made the
assessment as he did in light of the fact that Mr. Francis was less than
forthcoming.
[20] The appellant’s
failure to contest the forfeiture application is consistent with his assertion
that the money was not his property. It may well be consistent with other
hypotheses, for example that the $24,000 represented the proceeds from an
illegal activity by the appellant or someone else, but these hypotheses are
conjectural and have no evidentiary foundation.
[21] While several
conjectural hypotheses come to mind, the hypothesis that is most consistent
with all of the evidence, despite the unanswered questions, is that the $24,000
did not belong to the appellant and did not represent his income, business or
otherwise.
[22] The appeal is
therefore allowed with costs and the assessment for the appellant’s 2004
taxation year is referred back to the Minister for reconsideration and
reassessment on the basis that the $24,000 seized by the R.C.M.P. from FedEx
Courier on October 25, 2004 was not the property of the appellant and did not
represent income of the appellant. The deletion of the penalties should follow
automatically.
Signed at Ottawa, Canada, this 7th day of June 2007.
Bowman, C.J.
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