Date: 19971113
Docket: 91-1946-IT-G
BETWEEN:
GEOFFREY D. BELCHETZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
D. Hamlyn, J.T.C.C.
[1] The taxation years in question are 1986, 1987 and 1988.
The appeals in this matter relate to the disallowance by the
Minister of National Revenue (the "Minister") for
losses, interest expenses, and fees paid by the Appellant in
respect of his participation in S/Y Close Encounters Limited
Partnership, one of a series of limited partnerships promoted by
Overseas Credit and Guaranty Corporation ("OCGC"). The
limited partnership was created to acquire, own and participate
in the operation of an eighty foot luxury sailing yacht as one of
a syndicate of limited partnerships of which OCGC would be the
general partner. The Appellant asserts he was participating in a
legitimate business. The Minister asserts there was no source of
income, the Appellant was defrauded by the general partner OCGC
and its officers Einar Bellfield ("Bellfield") and
Osvaldo Minchella ("Minchella").
[2] The motions in this matter arise from the Appellant's
assertion that the Respondent has unduly delayed filing a Reply
to the Appellant's Notices of Appeal, and has not acted in
accordance with an Order of this Court dated October 30, 1991. As
such, the Appellant submits the Respondent's conduct amounts
to an abuse of process of this Court and the Appellant is
entitled to relief. This motion hereinafter is called the
"Delay" motion.
[3] The Appellant further alleges the Respondent has obtained
and used without the Appellant's knowledge and consent the
entire litigation file of the Appellant's former solicitors
Shibley Righton. As a result, the Appellant submits the
Respondent has violated his right to be protected from
unreasonable search and seizure and his right to privacy, and as
a consequence the Appellant is entitled to relief. This motion
herein is entitled the "Seizure" motion.
[4] The atmosphere during the hearing of the motions
especially on the second day was highly charged and emotive.
[5] The allegations of misconduct abound on both sides,
including allegations by the Appellant of alleged threats and
intimidation by the Respondent's officials before and during
the course of this proceeding and concerns about professional
conduct with respect to the Respondent's counsel in relation
to the Seizure matters. Allegations from the Respondent included
those that the Appellant brings this proceeding as a means to
encourage contributions to the "war-chest" to fund his
appeals.
[6] Normally, the conduct and atmosphere of the motion would
be of no consequence. However, the strength of feeling
necessitated this hearing being spread over two days and the
perceived need to file an incredible amount of documentation, of
affidavits and of exhibits that leads to a conclusion the
animosity between the parties affected the efficient and
expeditious presentation of these motions.
THE MOTIONS
FACTS
[7] The taxation years in issue are 1986, 1987 and 1988.
[8] The Notices of Assessment were dated November 2, 1990. On
November 12, 1990 the Appellant filed his Notices of
Objection. The assessments were confirmed by Notice of
Confirmation dated June 14, 1991. On September 6, 1991 the
Appellant filed Notices of Appeal with this Court.
[9] By consent order dated October 30, 1991, this Court
ordered the following:
It is ordered, pursuant to subsection 44(2) of the Tax
Court of Canada Rules (General Procedure), that the time
within which the Respondent may file and serve a reply to the
notice of appeal be extended 60 days from the receipt of the
decision of the Federal Court of Canada in the matter of
William Dixon v. The Queen.
[10] The Dixon case (file number T-3109-90) was chosen
as a test case to govern several cases including the
Appellant's.
[11] The Dixon case never went to trial. After several
negotiation and settlement attempts between 1991 and 1996, the
Dixon matter was finally resolved. The taxpayer William
Dixon accepted the Respondent's offer to settle in December
1996. Mr. Dixon signed a Notice of Discontinuance backdated to
September 30, 1996. However, further problems in relation to
other tax matters of Mr. Dixon prevented full completion of the
matter until the Spring of 1997. In May 1996, the Respondent
wrote to the Appellant to determine if he wished to settle on the
basis of Dixon or did he wish to go on to trial. The
Appellant did not respond. A Notice of Discontinuance was signed
and filed by the Respondent in the Dixon matter on July
21, 1997.
[12] In December 1994 and January 1995 charges were laid under
the Criminal Code of Canada (the "Criminal
Code") against two former officers of OCGC, Bellfield
and Minchella, who held positions of President and Director of
Investment Development. The charges allege that Bellfield and
Minchella defrauded the limited partners of OCGC limited
partnerships and the Government of Canada. In May 1997, both
individuals were committed to trial.
[13] On April 23, 1996 a third person also connected with
OCGC, Pierre Rochat, plead guilty to a charge under subsection
239(1)(a) of the Act and was sentenced to
imprisonment.
[14] After the collapse of OCGC, the law firm of Shibley
Righton, who represented the Appellant amongst others
"purchased" from Bellfield a number of boxes of records
for use in pursuing the appeals and notices of objection of the
Shibley Righton clients.
[15] On April 11, 1995 materials which included the Bellfield
records were seized under the Criminal Code from the
offices of Shibley Righton. By Order dated May 23, 1995, Moldaver
J. of the Ontario Court of Justice (General Division) (the
"Ontario Court") ordered that the individual investors
of OCGC Limited Partnerships be served with notices of hearing to
determine the claims of solicitor-client privilege asserted with
respect to the Shibley Righton materials. The Appellant Belchetz
did not appear at the appointed hearing. At the hearing the
existence of additional boxes in the hands of Shibley Righton was
revealed. Mr. Justice O’Driscoll found after three
days of hearing that all of the Shibley Righton materials,
including the additional boxes, were not protected by
solicitor-client privilege. The documents were turned over to the
police.
[16] Thereafter in an ex parte application under
subsection 490(15) of the Criminal Code, the Respondent in
this proceeding obtained access to the seized material. This
Order from the Ontario Court was dated November 21, 1996.
[17] The Appellant asserts some of the seized material
includes all the legal opinions, research, evidence,
solicitor's work product and other privileged material
assembled or prepared by Shibley Righton for the purposes of the
Appellant's appeals before this Court.
[18] From the cross-examination of the Appellant on the
Seizure motion, it would appear the Appellant relies, inter
alia, to support his motion, that his solicitor-client
privileges were breached, upon the basis that the inventory
record of Corporal Trendell as to the purported contents of the
seized boxes reveals solicitor-client documents, a statement made
by the Respondent's counsel on the prior examination of
September 17, 1997 about what documents they (the Respondent) had
access to, and a letter from Shibley Righton titled “Dear
Investor” dated April 27, 1994, was produced to the
Appellant on the aforesaid cross-examination.
The Appellant's Posed Questions
[19] The Appellant poses three questions:
1. Should the Reply filed by the Respondent be expunged
pursuant to Rule 53 and Rule 63 of the Tax Court of Canada
Rules (General Procedure) (the "Rules") on
the basis that it was filed late or is otherwise an abuse of the
process of the Court;
2. Does the fact that the Reply was filed after the Respondent
obtained access by way of Court Order (Ontario Court) without
notice to the Appellant to all of the litigation files of the
Appellant amount to an abuse of the process of this Court;
and
3. If the answer to either or both questions 1 and 2 is Yes,
what remedy should the Court provide to the Appellant.
The Appellant's Argument - Delay
[20] Delay in the prosecution of an action can have a
deleterious effect on the administration of justice. In this case
a delay of six years is unprecedented. A delay of this nature
runs contrary to the Rules of this Court. A delay cannot
be for strategic reasons. The Respondent's delay in filing
the Notice of Discontinuance in Dixon was improper and
abuse of the process of this Court. The Respondent had an onus to
move the Dixon appeal forward in accordance with the Order
of this Court in this matter. The Appellant's delay in
proceeding with these appeals is an abuse of the process of this
Court. Such delay calls for exceptional relief. The Respondent
has violated implicit undertakings to proceed with the
Dixon case in the Federal Court of Canada and to keep this
Court informed of any changes in circumstances. The Appellant
cannot assure this Court that these appeals will be heard before
the conclusion of the Bellfield prosecution. The prejudice
suffered by the Appellant of the Respondent's cumulative
delay is substantial, continuing and uncontradicted.
Seizure
[21] The Shibley Righton tax litigation files are still the
subject of solicitor-client privilege. The Appellant did not
intend to waive this privilege in this civil proceeding. The
intention of the Appellant in relation to the Seizure matter
before Mr. Justice O’Driscoll was to waive
solicitor-client privilege in relation only to the criminal
proceeding against Bellfield and Minchella. The solicitor-client
privilege attached to the specific boxes of documents seized as
the Appellant maintains those boxes were his litigation files in
this proceeding. The Appellant ought not to be penalized for not
opposing the seizure in relation to the Bellfield prosecution as
it would be unfair to deprive the Appellant of his
solicitor-client privilege.
[22] The conduct of the Respondent before Madam Justice Dunnet
(the hearing under subsection 490(15) of the Criminal
Code) by proceeding without notice to the Appellant,
misstated the nature of its disclosure obligations in this
proceeding. The consent to the application of the Respondent in
this case to the application under subsection 490(15) of the
Criminal Code, not advising this Court of the nature of
the materials secured and using the materials after discovering
they were solicitor-client materials was improper.
[23] The intrusion of the Respondent into the solicitor-client
confidences violates a standard of propriety and the violation is
unprecedented. The conduct has tainted these appeals and can not
be remedied. The conduct is such that the administration of
justice is brought into disrepute.
[24] As a result of this argument the Appellant submits the
appeals should be allowed pursuant to Rules 53 and
63(2)(c) or, in the alternative, direct that the appeals
proceed on the basis that the facts alleged in the Notices of
Appeal are presumed to be true pursuant to Rules 53 and
63(2)(c) or, in the further alternative, remove the
Department of Justice from these appeals and preclude new counsel
from any form of communication with the Department of Justice or
officials of Revenue Canada involved in these appeals to
date.
The Respondent's Argument - Delay
[25] In the Dixon matter, the Appellant Dixon chose the
venue of the Federal Court of Canada. The Respondent had no
influence over the choice of venue. The Order of this Court was
obtained with the Appellant's consent to delay the
Appellant's appeals pending the decision by the Federal Court
of Canada in Dixon. The Appellant never had the intention
to proceed alone. Shibley Righton attempted settlement
discussions and these settlement discussions broke down. No steps
were taken to proceed with the Dixon case. The Appellant
left the group that was represented by Shibley Righton and took
no steps to proceed with his appeals. Further attempts were made
at settlement and failed. A final offer of settlement was made in
May 1996 and this offer included the Appellant. The Appellant
rejected this settlement and did not communicate an intention to
the Respondent in relation to these appeals.
[26] In the Dixon matter, settlement was not completed
until September 30, 1996. Through problems of miscommunication
and wrong documentation the matter was not resolved until
December 1996 when a Notice of Discontinuance was signed and
backdated to September 1996. Because of other non related
problems, the Respondent did not sign and file the Notice of
Discontinuance until July 21, 1997.
[27] The Respondent filed and served a Reply to the Notices of
Appeal in this matter on September 12, 1997.
[28] The Notice of Discontinuance is not a decision within the
Federal Court of Canada's legislation or rules. The Federal
Court - Trial Division never rendered a decision in the
Dixon matter, and as such the Respondent has validly filed
a Reply in this matter within sixty days from the filing of the
Notice of Discontinuance.
[29] As to the relief sought, the Respondent states a Reply
was filed and served in accordance with Rule 63(1)(c). The
Respondent also submits there is no basis for expunging the Reply
within Rule 53, and that under a motion it is the pleading that
is the subject of scrutiny not the facts relating to the
litigation.
Seizure
[30] There is no evidence to support the assertion the
Respondent used the solicitor's work product of Shibley
Righton. There is no evidence the Shibley Righton documents
contain information that may have been the subject of a claim for
privilege. That determination can not be made from a review of
the inventory of Corporal Trendell.
[31] The Appellant did not exercise his right to litigate the
matter at the O’Driscoll hearing. Mr. Belchetz had notice
that a hearing was being held to determine solicitor-client
privilege in regards to the seized materials, and yet he did not
appear. Mr. Justice O’Driscoll exercised his
jurisdiction in accordance with the Criminal Code. After
hearing from two investors, O'Driscoll J. found
solicitor-client privilege does not attach to any of the seized
materials. The Respondent maintains this finding from a Superior
Court of Record cannot be collaterally attacked in proceedings
before the Tax Court of Canada. The Respondent concedes to the
extent that a residual right to claim solicitor-client privilege
might exist in the course of the proceedings before the Tax Court
of Canada, but that right must be claimed before the trial
judge.
[32] The Respondent maintains his right to the documents as
the Respondent has a legal interest in the detained
documents.
[33] The Order of Dunnett J. confirmed that the Respondent had
the requisite interest and an Order was made under subsection
490(15) of the Criminal Code.
[34] The Appellant has the onus to establish his Canadian
Charter of Rights and Freedoms (the
"Charter") rights have been violated, and this
has not been done.
ANALYSIS - DELAY
[35] I find the lengthy delay in this matter was consented to
by both parties. The Respondent has explained why it took so long
to sign the Notice of Discontinuance. The test case approach and
the several attempts at settlement were not unilateral. Beyond
this step, I can not find that the Appellant was proactive in the
pursuit of his appeals other than this motion now before the
Court. Upon reading Rule 406 of the Federal Court of Canada
Rules regarding discontinuance, it is apparent that the
discontinuance of the Dixon matter was not final until the
Respondent gave his consent. The Order of this Court was not
violated in spirit although not all the appropriate
contemplations were found within the Order. I conclude the Reply
has been filed within the limits prescribed by the Order.
ANALYSIS - SEIZURE
[36] In this motion the Appellant has asked this Court for it
to grant a remedy under subsection 24(1) of the Charter
for the alleged breach that has occurred to
Mr. Belchetz’s solicitor-client privileged documents
through the Respondent’s access granted under subsection
490(15) of the Criminal Code. In considering what remedy
is appropriate under subsection 24(1) it is instructive to
consult the commentary of Bowman, J. of this Court in
O’Neill Motors Limited v. The Queen, 96 DTC
1486. In O’Neill the question before the Court was
what, if any, remedy was available to the Appellant under section
24 of the Charter because of the Minister’s breach
of section 8 of the Charter in its illegal search and
seizure of documents. Although the decision before this Court
concerns whether there was in fact a breach of Charter
rights, and then a consideration of what remedy is appropriate
under subsection 24(1), Bowman J. stresses in
O’Neill that detailed consideration must be given to
the evidence of the breach and a balancing of concerns between
the rights of the subject and the maintaining of the integrity of
the self-assessing taxation system. As Bowman J. states at page
1496:
I would not want my conclusion in this case to be taken as a
wholesale sanctioning of the vacating of all assessments where
some component of the Minister’s basis of assessment was
unconstitutionally obtained information. Other cases may arise in
which a simple exclusion of evidence is sufficient, others in
which the evidence is of little or no significance in the making
of the assessments or where its introduction would not bring the
administration of justice into disrepute, or still others in
which Suarez[1] solution will commend itself. In the exercise of
the discretion vested in the court under section 24 of the
Charter one must be vigilant in balancing, on the one hand, the
rights of the subject that are protected under the Charter, and
on the other, the importance of maintaining the integrity of the
self-assessing system. As each case arises these and, no doubt,
other factors will play a role and all factors must be assigned
their relative weight. In the circumstances of this case I have
concluded that the most appropriate exercise of my discretion is
to vacate the assessments.
[37] One of the important differences between these appeals
and O'Neill is that Judge Bowman considered the
O’Neill decision in context of a trial with full
benefit of the available evidence and factual considerations,
whereas in this case, a motion, there are only affidavits and
cross-examination on affidavits, and from that and a review of
the filed materials I conclude not all the relevant evidence was
before the Court.
[38] The jurisprudence of Att. Gen. of Can. v. Inuit
Tapirisat et al., [1980] 2 S.C.R. 735 (S.C.C.),
Erasmus et al. v. The Queen, 91 DTC 5415 (F.C.T.D.),
and Enterac Property Corporation v. The Queen, 95 DTC 391
(T.C.C.), all serve to set out the principle that to strike out
any claims or to dismiss an action, it must be plain and obvious
that such a remedy is warranted, and that the Court is satisfied
that such is the case beyond doubt.
[39] In Inuit Tapirisat, Estey J. speaking for the
Court states at page 740:
On a motion such as this a court should, of course, dismiss
the action or strike out any claim made by the plaintiff only in
plain and obvious cases and where the court is satisfied that
“the case is beyond doubt”.
[40] In Erasmus, Pinard J. used this principle in the
consideration of a motion under subsection 419(1) of the
Federal Court of Canada Rules (which is similar to Rule 53
of the Tax Court of Canada Rules (General Procedure)) to
find at page 5416 that:
In so far as the motion is based on the other paragraphs of
Rule 419(1), counsel for the defendant has also failed to meet
the heavy burden of showing that it is clear and obvious that the
plaintiff’s proceeding or portions thereof are scandalous,
frivolous or vexatious, or may prejudice, embarrass or delay the
fair trial of the action, or otherwise are an abuse of the
process of the Court.
[41] This principle is further supported by Bell J. in
Enterac where he found because he could not conclude that
the impugned paragraphs sought to be struck were not relevant,
the Respondent had not made it clear and obvious that a fair
hearing of the appeal would be prejudiced or delayed, and so the
impugned paragraphs should not be struck.
[42] The Appellant asks this Court to make a finding
inferentially that the Appellant's solicitor-client
privilege rights have been breached but with little conclusive
hard evidence to go on.
[43] Under Rule 72 of the Tax Court of Canada Rules
(General Procedure) it states:
An affidavit for use on a motion may contain statements of the
deponent’s information and belief, if the source of the
information and the fact of the belief are specified in the
affidavit.
[44] This Rule is comparable to the Federal Court of Canada
Rules, Rule 332(1) which states:
Affidavits shall be confined to such facts as the witness is
able of his own knowledge to prove, except on interlocutory
motions on which statements as to his belief with the grounds
thereof may be admitted.
[45] In dealing with the interpretation of Rule 332(1),
Thurlow A.C.J. in The Queen v. A. & A. Jewellers Ltd.,
[1978] 1 F.C. 479 (F.C.T.D.), stated at 480 regarding the
plaintiff’s affidavit evidence:
Moreover, in my view, it is not admissible under Rule
332(1)... It says nothing as to why, if the named person had
knowledge, he did not make the affidavit himself.
...
It seems to have become a common practice in preparing
material for use in interlocutory applications to ignore the
first clause of this Rule and to use the second clause as a
device to avoid the swearing of an affidavit by a person who
knows the facts in favour of putting what he knows before the
Court in the form of hearsay sworn by someone who knows nothing
of them. This is not the object of the Rule. The Court is
entitled to the sworn statement of the person who has personal
knowledge of the facts when he is available. The second part of
the Rule is merely permissive and is for use only when the best
evidence, that is to say the oath of the person who knows, is for
some acceptable or obvious reason not readily obtainable.
[46] The affidavit evidence of the Appellant goes beyond
information and belief. It further appears there was better
evidence available than the hearsay statements Mr. Belchetz
relied on. In particular, the source of the statements would be a
better deponent than Mr. Belchetz reciting the statements. This
factor materially affects the evidentiary burden.
[47] This Court does not know specifically what was seized nor
does Mr. Belchetz know if his litigation file was part of
the seizure. He simply asserts that it was. On review, the
inventory record of Corporal Trendell of the R.C.M.P. does not
help sufficiently enough to make a determination that the
materials seized were indeed from the litigation file of
Mr. Belchetz, or that the materials seized were such that
Mr. Belchetz's solicitor-client privilege attached to them
(see exhibit Q - Motion Record, Volume 3). Mr. Belchetz did
not appear at the hearing before Mr. Justice
O’Driscoll, although notified of its existence. Mr.
Belchetz does say that Shibley Righton had assured him that
"they would be protecting solicitor-client insofar as it
pertains to our matter, notwithstanding the fact that they no
longer acted for me, because the responsibility and the
obligation on solicitor-client privilege supersedes the ending of
the retainer".[2] As to who gave this advice or when it was given the
Appellant could not recall. It is clear from the Ontario Court
proceeding that Mr. Justice O'Driscoll found there was no
solicitor-client privilege in terms of what was before him and
from the materials filed in this Court at least one investor
aside from the representations of Shibley Righton did contest the
matter on his own behalf. The possession of the Respondent to
certain documents acquired by way of Court Order prior to the
filing of a Reply as such does not amount to an abuse of process
of this Court.
[48] This evidence of possession and the extensive
Appellant's submission does not convince me a
solicitor-client privilege breach clearly exists at this point in
the litigation in relation to this Appellant.
[49] In order to invoke the Charter remedy, a rights
violation must be clear and unambiguous. Thus, in large measure
it may be this particular motion is premature. After the
litigation process continues in this matter including document
discovery, examination for discovery and other pre-trial
procedures, the situation may be somewhat clearer and as a matter
of evidence or as a Charter issue of alleged
solicitor-client privilege breach, if still considered
appropriate by counsel, may be brought to the trial judge.
CONCLUSION
[50] The Reply of the Respondent is filed in accordance with
the Order of this Court.
[51] The Seizure documents in the possession of the Respondent
have not been shown to be part of the Appellant's litigation
file as such. It has not been shown that a solicitor-client
privilege was attached to whatever materials were seized. The
alleged Charter violation has not been made out.
DECISION
[52] The motions are dismissed. The costs of the motions are
to be costs in the cause subject to the discretion of the trial
judge.
"D. Hamlyn"
J.T.C.C.
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