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Citation: 2005TCC250
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Date: 20050413
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Docket: 2003-3065(IT)G
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BETWEEN:
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DONALD NEIL MacIVER,
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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 ORDER
Hershfield J.
[1] A series of interlocutory notices
of motion were filed pursuant to the Tax Court of Canada Rules
(General Procedure) (the Rules) in respect of an
appeal of reassessments of the Appellant's taxation years
1992 through 1997 inclusive. These motions concern only the 1992
and 1994 years and were filed after the Notice of Appeal and
Reply were filed but prior to an Answer being filed and prior to
any pre-trial discoveries and examinations being scheduled. The
Reply, among other things, raises the question of issue estoppel
on the basis that the Appellant was convicted of tax evasion in
respect of unreported income amounts dealt with in the
reassessments ($400,000.00 in respect of 1992 and $3,000,000.00
in respect of 1994). The Respondent at paragraph 40 of the Reply
asserts that the Appellant "is estopped from appealing the
reassessments for the 1992 and 1994 taxation years in so far as
the reassessments include in the Appellant's income the
$400,000.00 and $3,000,000.00 respectively from CASIL as
fees". CASIL was the client of the Appellant in those years.
The amounts referred to are amounts received by the Appellant in
his capacity as a lawyer acting for CASIL.
[2] The first motion was filed by the
Appellant on February 17, 2004. It seeks to strike from the Reply
all paragraphs relating to his criminal prosecution including the
paragraph pleading reliance on issue estoppel and certain
assumptions drawn from information obtained or understandings or
inferences drawn from or during the course of his criminal
prosecution. The motion also seeks to strike paragraphs referring
to wilful default, fraud and making false statements. The grounds
relied on are that the impugned paragraphs are frivolous,
vexatious and embarrassing and may delay the fair trial of the
appeal. It is paragraphs 53(a) and (b) of the
Rules that are presumably relied on in the bringing of
this first motion which has a second part. The second part of the
motion seeks an extension of time to file an Answer to the Reply
pending disposition of the motion to strike. Section 12 of the
Rules permits the bringing of this part of the motion. I
will refer to these two parts of the first motion respectively as
the Appellant's motion to strike from the Reply and the
Appellant's motion to file an Answer.
[3] It is well settled that if the
Respondent wants to argue issue estoppel at the trial of the
appeal he must include the issue in the pleadings.[1] It is equally well
settled that the Respondent in tax cases must plead the
assumptions upon which it relies and, accordingly, he can and
should plead assumptions directly related to issues raised in the
appeal of the reassessment. Further, and regardless of the form
of pleadings in tax cases, once an issue such as issue estoppel
has been properly pleaded, facts asserted as supporting a
party's position as to the determination of that issue
properly form part of the pleadings.[2] On this basis that part of the
Appellant's first motion that seeks to strike paragraphs
relating to his criminal prosecution must fail unless the
Respondent is successful in these proceedings on its motion to
apply issue estoppel so as to make the impugned provisions in the
Reply redundant. Similarly, paragraphs referring to wilful
default, fraud and making false statements cannot be impugned as
frivolous or vexatious or as tending to embarrass or delay since
they are material assertions in respect of penalties assessed
under the reassessments as well as being material in respect of
the Respondent's issue estoppel motion and, potentially, time
limitations.[3]
Accordingly, the Appellant's motion to strike from the Reply
cannot be granted.
[4] The second motion was filed by the
Respondent on July 19, 2004. It is for:
An order that the Appellant is estopped from appealing the
reassessments for the 1992 and 1994 taxation years in so far as
the reassessments include in his income the amounts of $400,000
and $3 million respectively, received from the Community
Association of South Indian Lake. (i.e. CASIL)
[5] The grounds for the motion
are:
1. On August
24, 1998 an indictment was preferred by the Attorney General of
Canada in the Manitoba Court of Queen's Bench against the
Appellant, charging, in part, under the Income Tax Act
that:
Between January 14, 1992 and May 13, 1997, at or near the City
of Winnipeg in the Province of Manitoba, the Appellant did
unlawfully and wilfully evade the payment of taxes imposed by the
Act by failing to declare income in the amount of $3,000,000.00,
for any of the taxation years 1993, 1994, 1995 and 1996 thereby
evading the payment of federal taxes in the amount of
$913,771.80, more or less and did thereby commit the offence of
tax evasion contrary to the provisions of the Act and amendments
thereto ("Count 1");
Between January 31, 1991 and April 30, 1993, at or near the
City of Winnipeg in the Province of Manitoba, the Appellant did
unlawfully and wilfully evade the payment of taxes imposed by the
Act by failing to declare income in the amount of $400,000.00 for
the taxation year 1992 thereby evading the payment of federal
taxes in the amount of $127,020.00, more or less and did thereby
commit the offence of tax evasion contrary to the provisions of
the Act and amendments thereto ("Count 2");
Between January 1, 1994 and May 30, 1997, at or near the City
of Winnipeg in the Province of Manitoba, the Appellant did
unlawfully make, or participate in, assent to or acquiesce in the
making of false or deceptive statements in his returns of income
for the taxation years 1993, 1994, 1995 and 1996, filed by him as
required by the Act, by understating his taxable income in the
said taxation years in the amount of $3,000,000.00, thereby
evading the payment of tax in the amount of $913,771.80, more or
less, and did thereby commit the offence of making a false or
deceptive statement contrary to the provision of the Act and
amendments thereto ("Count 3").
2. The
Appellant was convicted of Counts 1, 2 and 3 by jury on
February 25, 1999 before MacInnes J. The convictions are in
respect to the unreported income the Appellant received from the
Community Association of South Indian Lake in the 1992 and 1994
taxation years of $400,000 and $3 million respectively.
3. As a
consequence of the Appellant's convictions on Counts 1, 2 and
3, issue estoppel applies.
4. In the
alternative, it would be an abuse of process to permit the
Appellant to appeal the reassessments for the 1992 and 1994
taxation years in so far as the reassessments include in his
income the amounts of $400,000 and $3 million respectively,
received from the Community Association of South Indian Lake.
[6] The motion states that the
Respondent relies on paragraph 53(c) of the Rules
in bringing the motion. This paragraph permits striking out or
expunging all or part of a pleading (with or without leave to
amend) on the ground that the pleading is an abuse of the process
of the Court. The Respondent argues that it is this provision in
the Rules which permits him to deal with the question of
issue estoppel on an interlocutory basis. It is also argued that
this provision has broader application than issue estoppel per
se. The argument would also extend to permit evidence by
affidavit as provided by section 71 of the Rules which
would not apply were the estoppel issue pursued, as pleaded, in
the normal course - at trial. I will refer to this part of the
Respondent's motion as the Respondent's issue estoppel
motion.
[7] The Respondent's motion also
seeks an Order to strike certain parts of the Notice of Appeal on
the ground that they seek relief in respect of two matters over
which this Court has no jurisdiction. The Respondent relies on
paragraph 58(3)(a) of the Rules in respect of
bringing this interlocutory motion pursuant to section 65 of the
Rules. The first matter over which the Respondent asserts
that this Court has no jurisdiction pertains to a jeopardy order
obtained against the Appellant. Jeopardy orders are provided for
in section 225.2 of the Act but jurisdiction over them
lies with the Federal Court as provided in that section. The
Appellant conceded the point at the hearing and agreed to the
issuance of the Order requested in respect of this matter. The
second matter over which the Respondent asserts this Court has no
jurisdiction pertains to the imposition of provincial penalties.
It is well established that this Court has no jurisdiction to
hear discrete appeals respecting the imposition of provincial
taxes and penalties that flow (or are asserted to flow) pursuant
to provincial statutes, from federal tax computations litigated
in this Court.[4]
The Appellant made no argument at the hearing in respect of this
matter. Accordingly, the Order requested in respect of this
matter will be granted as well.
[8] The third motion was that filed by
the Appellant on October 11, 2004. It seeks to strike portions of
an affidavit filed by the Respondent in respect of the
Respondent's issue estoppel motion. I will refer to this
motion as the Appellant's motion to strike from the
affidavit. The subject affidavit was made by an investigations
officer of the CRA on the basis of personal knowledge and on
information and belief informed of by personal attendances during
the criminal proceeding and by review of the record. The
affidavit relays the assessment history, the criminal charges,
excerpts of testimony at the criminal trial, excerpts of the
defence and prosecuting lawyers' closing arguments and the
judge's charge to the jury as well as material and documents
relating to appeals of his convictions and sentencing to the
Manitoba Court of Appeal. There is also reference to an
application for leave to appeal to the Supreme Court of Canada.[5]
[9] The Appellant objects to the
affiant setting out particulars, informed of by review of
records, of the reassessment history. The Appellant asserts that
the records speak for themselves and should be introduced in the
normal course of the appeal and not form part of the Affidavit.
This position begs the question as to whether such records should
be allowed to be introduced on affidavit evidence alone on an
interlocutory motion or whether they should be introduced at the
hearing of the appeal. This in turn begs the question as to
whether the Respondent's issue estoppel motion should be
brought before the judge hearing the appeal as opposed to being
brought as a preliminary interlocutory motion before a judge not
seized of the matter. Arguably bringing the issue estoppel motion
on an interlocutory basis may be to subject the Appellant to a
different evidentiary and procedural regime than would apply if
dealt with at the trial of the issue as anticipated in the Reply.
In the latter case there are examinations for discovery that
might bear to the record being relied on by the Respondent and
affidavit evidence may not be permitted as it is under section 71
of the Rules.[6] The Appellant relies on these differences to the
extent he argues that the Respondent's issue estoppel motion
should be dealt with at trial where he hopes to defeat its
application if he is not successful in defeating it in these
proceedings.
[10] The Appellant's objective to defeat
the application of the doctrine of issue estoppel either in this
proceeding or at the hearing of the appeal and his objections to
the references in both the Reply and the CRA officer's
affidavit to the criminal prosecutions, are founded in his firm
belief that he was wrongfully convicted of most if not all
charges for which he was indicted. He asserts for example that
ill health prevented him from testifying at his own trial and now
being able to testify, there is new evidence.[7] He asserts that he can bring
medical evidence on the point. He asserts the denial of leave to
appeal to the Supreme Court of Canada was grounded in his failure
to bring a timely application due to being in prison. He asserts
in essence that the Respondent's case for issue estoppel
forecloses his pursuing his position that he was wrongfully
convicted and of course it could do just that as that is its
purpose. That is, if issue estoppel applies, it applies on the
basis of meeting criterion for its application and on that basis
will ensure against the Appellant doing what he is attempting to
do. In establishing that the criterion for applying the doctrine
are met, the Respondent relies on the record of the prior
proceedings and properly so according to authorities. [8] That is, if the
Respondent's issue estoppel motion is not prematurely brought
as an interlocutory motion, it is entirely appropriate to include
in the Affidavit filed in support of the motion all particulars
that constitute the record upon which it relies. Such records are
material to the issue. If the motion is premature, such records
would go before the trial judge being material to the issue
estoppel determination sought in the Reply. That is, one pleading
of the record has to be allowed, either in the Reply in
anticipation of having issue estoppel decided at trial or in the
affidavit swearing to records produced if the issue is to be
dealt with on an interlocutory motion. It is simply a question of
which is the appropriate procedure in the circumstances and this
it seems turns in part at least on whether the evidentiary and
procedural regime associated with interlocutory motions is
prejudicial to the Appellant relative to the regime associated
with matters dealt with at trial.
[11] On this point I referred
Respondent's counsel to section 58 of the Rules which
I suggest is the normal Rule governing interlocutory
motions where a preliminary determination is requested to dispose
of all or part of the proceeding, or to substantially shorten the
hearing or save costs. As anticipated by subsection 58(2)
and as reflected by the authorities, that Rule permits
such motions only on questions that require no evidence.[9] Jurchison
confirms that section 58 is not intended as an easily
accessible alternative to a trial of a complex and contentious
dispute and McLarty confirms that preliminary motions
cannot be dealt with under paragraph 58(1)(a) if there is
any dispute as to a material fact. Determining from the record of
a criminal trial what facts have been determined is itself a
fact-finding mission.[10] There is a legitimate dispute in the case at bar as
to what facts have already been necessarily decided in the
criminal trial. That is, the Respondent's issue estoppel
motion requires consideration of a considerable amount of
evidence. The point then is that the Respondent should not be
able to slip into a preliminary motions forum by bringing the
motion under section 53 of the Rules as opposed to
section 58. While the Respondent relies on other authorities
(to which I will refer later in these Reasons) to distinguish
motions asserting abuse of process under section 53 of the
Rules, such authorities do not make a clear statement as
to when an application might more appropriately come before a
preliminary motions judge under section 53 as opposed to
section 58, particularly where reasons for dealing with the
asserted abuse at an early stage rather than later at trial is to
shorten the hearing and save costs which are the very concerns
addressed by paragraph 58(1)(a) of the Rules.
The reason for choosing to bring the motion under section 53
cannot in the circumstances of the case at bar be said to relate
primarily to preventing adverse perceptions of the administration
of justice as that perception can readily be addressed, and more
carefully addressed, on the hearing of the appeal.
[12] On the other hand the records upon
which the Respondent relies are transcripts from the criminal
proceedings an examination of which may prove sufficient
particularly since there is no question as to their authenticity.
That is, it is possible that those records speak for themselves
in the determination of those facts that should at law be
properly regarded as having been finally determined by the prior
proceedings and in that sense a pre-trial hearing might be
justified. The Respondent relies on that possibility as the basis
for its position that raising the issue estoppel on an
interlocutory motion is appropriate. After all, the point of
res judicata and issue estoppel is to avoid the
re-litigation of a matter already adjudicated which is to suggest
that affording the benefits of the trial process to the same
litigant a second time on the same issue might well be an abuse
of process. As such, I agree that the Court should not
automatically refuse to consider such issue on an interlocutory
basis. Indeed, the Respondent has produced a number of cases and
materials that support the view that issue estoppel is an issue
that can and should be dealt with as a preliminary matter.
[13] In Boehm v. R.[11] a motion to strike a Statement
of Claim filed with the Federal Court was considered by a
prothonotary of that Court. The motion was based on issue
estoppel and made under the umbrella of a provision of the
Federal Court Rules dealing with abuse of process. Such
Rule permitted affidavit evidence. But for the application
of such Rule, the rule under which the motion to strike
was brought would have allowed no evidence to be brought at all.
This case is cited as authority that motions to strike on grounds
of abuse of process are properly brought as preliminary or
interlocutory motions even where the underlying basis for the
motion is issue estoppel (a form of abuse of process).
[14] In Freedman et al. v. Reemark
SterlingI Ltd.[12] the finding of a motions judge that
issue estoppel or abuse of process bound a party to the
litigation was upheld by the Ontario Court of Appeal. The
inference is that the Ontario Court of Appeal approves that
motions judges can hear issue estoppel motions.
[15] In Bright v. Bright,[13]Willmer J.
remarked at page 278 that the proper way to deal with an
application to strike allegations of cruelty in a petition for
constructive desertion in a matrimonial proceeding which followed
a failed petition alleging cruelty and adultery would be to make
the application in chambers before the trial so as to get these
questions decided without waiting for the trial and without
incurring the expense of collecting the witnesses and making all
the other preparations for trial. That is, there is authority for
the Respondent's position that it is more appropriate than
not to make applications prior to the hearing of an appeal where
circumstances permit adjudication of whether the doctrine of
issue estoppel applies.[14]
[16] In Neebv. R.[15] an application to
strike all or part of an appeal based on the doctrine of issue
estoppel was considered where the appellant had been convicted of
tax evasion. The application was made on a preliminary motion,
however that preliminary motion was made at the beginning of the
trial before the judge assigned to hear the appeal. That is,
while it was dealt with as a preliminary motion, it does not
appear to have been dealt with as an interlocutory motion subject
to special evidentiary rules. Aside from the potential interest
in this case from a procedural point of view, I note that in
respect of the substantive issue the case is authority for saying
that prior criminal convictions for tax evasion should not,
generally speaking at least, create a barrier either under the
doctrine of issue estoppel or abuse of process to appellants
coming to this Court to appeal an assessment of income tax since
this is the only court that has exclusive jurisdiction to hear
and consider appeals from such assessments. I also note that this
case raises questions as to the identity of issues which is also
of concern in the case at bar. That is, the legitimate dispute in
the case at bar as to what facts have already been determined by
the prior proceedings raises questions as to the identity of
issues.
[17] In the case of Sarraf v.
M.N.R.[16] it
appears that Justice Bell granted a motion for an Order that
the Appellant be estopped from proceeding with appeals on the
basis of issue estoppel arising from a conviction for tax
evasion. In that case the Respondent adduced evidence through an
official of the Department of National Revenue as well as through
that official's affidavit. While the case does not deal with
evidentiary rules relating to the motion, it does appear,
nonetheless, to be authority for the Respondent's position
that it is appropriate to bring the subject motion to strike as a
preliminary motion in reliance on an affidavit.
[18] In Rogic et al. v. The
Queen[17]
Justice Bell heard a motion for a determination of a
question of law pursuant to paragraph 58(1)(a) of the
Rules as to the application of the doctrine of issue
estoppel. He allowed the appeals on the basis that issue estoppel
applied.
[19] While these authorities favour the
Respondent's position, they raise, but do not in my view
address, another problem associated with dealing with the
Respondent's issue estoppel motion on an interlocutory
motion. That is the problem of a motions judge purporting to bind
the judge yet to be assigned to hear the appeal as to a finding
of fact. Respondent's issue estoppel motion asks me to
preclude litigation before the trial judge on the finding of
material but disputed facts; namely, what facts the jury
necessarily relied on in convicting the Appellant in the prior
criminal proceedings. Respondent's issue estoppel motion asks
me to apply the doctrine of issue estoppel to limit findings of
fact as opposed to applying it to finally dispose of the appeal
which is to bifurcate the appeal. I see no need to do that in the
case at bar. I think, as a general rule, that it should be
avoided. Findings of fact including findings of previously found
facts are best left to the trial judge.
[20] That is, unless, on the preliminary
motion, the appeal can be finally disposed of by a finding that
issue estoppel applies so as to warrant the dismissal or
allowance of the appeal as occurred in Sarraf and
Rogic, it seems that applying issue estoppel does little
more than split an appeal so as to purport to tie the hands of
the judge yet to be assigned to hear the appeal. The better
approach in such cases is surely to allow the judge hearing the
appeal to make the determination as to the impact of the record
of a criminal proceeding on the findings of fact that may dictate
the outcome of the appeal. This can be seen in Schmidt v. The
Queen[18] where Justice Rip hearing the appeal
relied in respect of one reassessment on the criminal trial
record to dismiss the appeal and refused to rely on it in respect
of another reassessment. Such distinctions were made by Justice
Rip after all the evidence was in and considered. Similarly in
Mike Adams et al. v. The Queen[19] and Nick Adams v. The
Queen[20]
Bowman J. (as he then was) on hearing the appeals applied
issue estoppel in one case as the basis for dismissing the appeal
and in the other case as the basis to allow the appeal where both
applications relied on findings arising from criminal
convictions.
[21] At this point then it is important to
underline that the Respondent's estoppel motion is not for
the dismissal of the appeal. Rather it is for a finding that the
Appellant be estopped from denying certain facts. It asks that
the Appellant be estopped from appealing the reassessments
"in so far as" they "include in his income"
specified amounts in respect of a particular year which is to
prevent the taxpayer from asserting certain facts which a trial
judge may or may not find, on hearing all the evidence as a
whole, are issue estopped based on whether the requirements for
the application of issue estoppel such as identity of issues have
been met.[21]
Based on the reasoning that dictates against bifurcating the
fact-finding aspect of an appeal, even a clear record to support
the Respondent's particular requests would not, in my view,
generally warrant granting the Respondent's issue estoppel
motion. The case against doing so is even stronger in the case at
bar, as the record does not, in my view, clearly warrant the
granting of the motion on its terms given the dispute as
between the necessary findings to be drawn from the criminal
proceedings and the findings that the Respondent's motion
seeks to enforce. The hearing judge would be in a better position
to make this determination after considering the impact of such
things as expenses against receipts described as
"income" in the criminal proceedings or the impact of
the criminal charge relating to the failure to declare
$3,000,000.00 in "any of the taxation years 1993, 1994, 1995
and 1996".
[22] It is not necessary however for me to
come to any conclusions on such questions.
[23] Such questions will be for the trial
judge as I am denying the Respondent's issue estoppel motion
for all of the reasons set out above.
[24] Before concluding however I would like
to address the Respondent's argument that his reliance on the
doctrine of abuse of process affords me a wider discretion which
I am asked to exercise in the interests of maintaining the
integrity of the legal and judicial system. Respondent's
counsel relies on Toronto (City) v. Canadian
Unionof Public Employees[22]to support his position.
Respondent's counsel argues that the doctrine of abuse of
process can be applied with fewer constraints than the doctrine
of res judicata or issue estoppel which have strict
parameters and settled rules. This is acknowledged in
Toronto(City) at paragraph 38. Also at paragraph 42
of Toronto(City) Arbour J., speaking for the
majority, stated that the attraction of the doctrine of abuse of
process is that it is unencumbered by the specific requirements
of res judicata while offering the discretion to prevent
re-litigation essentially for the purpose of preserving the
integrity of the Court's process. Arbour J. remarks at
paragraph 43 as follows:
Critics of that approach have argued that when an abuse of
process is used as a proxy for issue estoppel, it obscures the
question while adding nothing but a vague sense of discretion. I
disagree. At least in the context before us, namely, an attempt
to re-litigate a criminal conviction, I believe that abuse of
process is a doctrine much more responsive to the real concerns
at play. In all of its applications, the primary focus of the
doctrine of abuse of process is the integrity of the adjudicative
functions of courts ... the focus is less on the interest of
parties and more on the integrity of judicial decision-making as
a branch of the administration of justice. In a case such as the
present one, it is that concern that compels a bar against
re-litigation, more than any sense of unfairness to a party being
called twice to put its case forward ...
[25] At paragraph 51 of Toronto
(City) Arbour J. notes that focusing on the integrity of
the adjudicative process permits three preliminary observations,
namely: there can be no assumption that re-litigation will yield
a more accurate result than the original proceeding; if the same
result is reached in the subsequent proceeding the re-litigation
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; and, that if the result in the
subsequent proceeding is different from the conclusion reached in
the first on the very same issue 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. At paragraph 54 she commends the use of abuse of
process to prevent re-litigation of a criminal conviction on the
basis that casting doubt over the validity of a criminal
conviction is a very serious matter. While the administration of
justice must equip itself with all legitimate means to prevent
wrongful convictions and to address any possibility of such
occurrence after the fact, collateral attacks and re-litigation
are not appropriate methods of such redress since they
inordinately tax the adjudicative process while doing nothing to
ensure more trustworthy results.
[26] While all these remarks and insights
support the application of the abuse of process doctrine on a
broader basis than that applied to the doctrine of issue estoppel
particularly in cases attempting to re-litigate criminal
convictions, they do not support condemning an approach which is
to defer the question to the judge hearing the appeal. I am not
persuaded that the integrity of the legal system and the
adjudicative function of the Courts are struck a blow by my
exercising my discretion not to grant the Respondent's issue
estoppel motion. I have left it to the trial judge to reconsider
the issue which will ultimately ensure that the integrity of the
judicial system is preserved without my compromising procedural
and evidentiary rules or the principles for the application of
issue estoppel and without taking the factual decision-making
process from where it belongs in a case like this - with the
judge hearing the appeal. The only extra re-litigation burden on
the system derives from the motion having been made on an
interlocutory basis and perhaps from my ponderous reasons for
denying it.
[27] For these reasons then:
(a) the Appellant's motion to
strike from the Reply is denied;
(b) the Appellant's motion to
strike from the Affidavit is redundant and denied;
(c) the Appellant's motion for an
extension to file an Answer is allowed. The Appellant shall have
60 days from the date of this Order to file an Answer;
(d) the Respondent's motion to
strike paragraphs 21, 22 and the last sentence of paragraph 39 of
the Notice of Appeal is granted; and
(e) the Respondent's estoppel
motion is denied.
[28] Each party shall bear their own
costs.
Signed at Ottawa, Canada, this 13th day of April 2005.
Hershfield J.
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