Date: 20061109
Docket: T-1750-06
Citation: 2006
FC 1358
Vancouver, British
Columbia, November 9, 2006
PRESENT: The Honourable Madam Justice Mactavish
BETWEEN:
HARPREET
MANN
Applicant
and
THE
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER AND ORDER
[1]
Harpreet
Mann moves to set aside a ‘jeopardy order’ issued on an ex parte basis
by this Court on August 28, 2006. This order permitted the Minister of National
Revenue to seize $129,000 that had previously been held by the Royal Canadian
Mounted Police as the suspected proceeds of crime.
[2]
Mr. Mann
asserts that the affidavit material relied upon by the Minister in support of
the request for ex parte order was misleading. Having failed to meet the
level of full and frank disclosure required in the circumstances, Mr. Mann
says, the order granted in reliance on that material should be set aside.
[3]
Mr. Mann
further asserts that the evidence now before the Court does not support a
finding that the payment of the monies that he allegedly owes for unpaid taxes
is in jeopardy. As a consequence, he submits that the Court should decline to
extend the order.
[4]
For the
reasons that follow, I am of the view that the jeopardy order should be
confirmed.
Did the Minister Make Full and Frank
Disclosure?
[5]
There is
no question that there is an obligation on a moving party seeking ex parte
relief in a case such as this to make full and frank disclosure: see Adobe
Systems Inc. v. KLJ Computer Systems Inc., [1999] 3 F.C. 621, 166 F.T.R.
184.
[6]
Mr. Mann
has identified four areas in which he says that the disclosure made by the
Minister was deficient. Each of these will be considered in turn.
Was Mr. Mann in Default of his Obligation
to File a 2005 Tax Return?
[7]
In
identifying the various ways in which Mr. Mann had conducted his affairs in an
unorthodox manner, the August 23, 2006 affidavit of Brian Fowles relied upon in
support of the Minister’s ex parte motion states that Mr. Mann had
failed to file an income tax return for 2005.
[8]
The
affidavit of Mandeep Singh Brar, Mr. Mann’s accountant, was filed by Mr. Mann
in the review proceedings. This affidavit states that Mr. Mann’s 2005 tax
return was filed “well before August 2006”, although Mr. Brar cannot indicate
when precisely it was that the return was filed.
[9]
Mr.
Fowles’ subsequent affidavits indicate that he based his August 23 statement on
a search of the Canada Revenue Agency’s computer database. A subsequent search
revealed that Mr. Mann’s 2005 income tax return was filed on August 28, 2005. A
copy of that return was produced by Mr. Fowles in his November 1, 2006
affidavit. The return bears a date stamp indicating that it had been filed
“overcounter” on August 28, 2005.
[10]
I prefer
the evidence of Mr. Fowles on this point to that of Mr. Brar. Mr. Brar’s
evidence was vague and imprecise, and the document appended to his affidavit
does not establish when it was that Mr. Mann’s tax return was actually filed.
In contrast, Mr. Fowles’ evidence is supported by documentary proof of the fact
that Mr. Mann was indeed in default of his obligations under the Income Tax
Act, R.S.C. 1985 c. 1 (5th supp.) at the time that Mr. Fowles’ swore his
original affidavit on August 23, 2006.
[11]
As a
result, Mr. Mann has failed to persuade me that there was any material
non-disclosure on the part of the Minister in this regard.
The Outcome of the Criminal Charges
Against Mr. Mann
[12]
In
further support of the Minister’s claim that Mr. Mann had conducted his affairs
in an unorthodox manner, Mr. Fowles stated in his August 23, 2006 affidavit
that Mr. Mann had been charged with seven criminal offences including
Possession of a Controlled Substance for the Purpose of Trafficking, Possession
of Prohibited Weapons, and Possession of Explosive Substances.
[13]
In
addition to attaching a copy of the Information laid against Mr. Mann, Mr.
Fowles also attached a copy of an Order issued by the British Columbia Supreme
Court, wherein Mr. Mann forfeited over $90,000 to Her Majesty the Queen in
Right of Canada pursuant to the provisions of the Controlled Drugs and
Substances Act, S.C. 1996, c. 19.
[14]
Mr. Mann
deposes that five of the seven charges against him were withdrawn by the Crown,
upon his agreeing to plead guilty to charges of Uttering a Threat and
Possession of a Prohibited Weapon. This evidently took place well before Mr.
Fowles swore his August 23, 2006 affidavit.
[15]
According
to Mr. Mann, the failure of the Minister to disclose that the charges relating
to the ‘enterprise’ crimes that he had been charged with had been withdrawn
amounts to a material non-disclosure.
[16]
Mr. Fowles
swears that he did not know what had happened to the other charges that Mr.
Mann faced when he swore his August 23, 2006 affidavit. While it would have
been preferable had Mr. Fowles followed up on the outcome of the criminal
proceedings against Mr. Mann, I am not persuaded that, in the circumstances of
this case, the fact that he did not do so resulted in the failure on the part
of the Minister to provide full and frank disclosure of material evidence.
[17]
The fact
is that Mr. Mann was convicted of two criminal offences. Moreover, as part of
his plea arrangement, Mr. Mann consented to an order under the provisions of
the Controlled Drugs and Substances Act forfeiting a sizeable amount of
money, which he admitted were the proceeds of crime. In these circumstances, I
am not persuaded that the fact that Mr. Mann had not actually been convicted of
any drug offences was sufficiently material as to justify setting aside the
Court’s August 28, 2006 Order.
The Ownership of the Disputed Properties
[18]
The third
area in which Mr. Mann asserts that the August 23, 2006 affidavit of Mr. Fowles
was deficient related to the ownership of two properties in the Vancouver area.
[19]
In his
August 23, 2006 affidavit, Mr. Fowles deposes that according to R.C.M.P.
documents, the R.C.M.P. suspected that Mr. Mann is the beneficial owner of two
properties registered in the names of Mr. Mann’s parents. Mr. Mann says that
Mr. Fowles failed to disclose that the R.C.M.P. Integrated Proceeds of Crime
Unit had conducted a detailed investigation into whether Mr. Mann was the
beneficial owner of the properties in question, and had concluded that he was
not.
[20]
There is
no indication in Mr. Mann’s affidavit as to the source of his information, and
accordingly, this portion of his affidavit fails to comply with the
requirements of subsection 225.2(4) of the Income Tax Act, which
requires that statements on information and belief in affidavits filed in the
context of these types of proceedings must identify the grounds for that
belief.
[21]
Moreover,
there is no evidence before the Court to indicate that the fact that these
properties were not seized means that the Crown and the R.C.M.P. accepted that
Mr. Mann was not their beneficial owner.
[22]
In these
circumstances, I am not persuaded that there was any material non-disclosure on
the part of the Minister in this regard.
The Illegal Source of the Monies in Issue
[23]
The final
area in which Mr. Mann asserts that the August 23, 2006 affidavit of Mr. Fowles
was deficient relates to Mr. Fowles’ statement that the $129,000 in issue in
this proceeding is “believed to be illegally obtained”.
[24]
Mr. Mann
asserts that the affidavit is deficient, as Mr. Fowles failed to identify the
source of his belief in this regard. Moreover, he says that this statement is
misleading, as Mr. Fowles failed to disclose that the Crown did not seek
forfeiture of these monies in the course of the criminal proceedings. Not only
this, Mr. Mann says, at the time that the forfeiture application was heard, the
Crown Attorney involved in his case confirmed in Court that the Crown stated
that it took “no issue that Mr. Mann is the lawful owner of all of the items
seized”.
[25]
I am not
persuaded that there has been a lack of compliance with the requirements of
subsection 225.2(4) of the Income Tax Act in relation to Mr. Fowles’
assertion that the monies in question are believed to have been obtained
illegally. The introductory paragraphs of Mr. Fowles’ affidavit identify the
source of his information, and affirm his belief that the statement relied upon
in the affidavit are true.
[26]
I am also
not persuaded that the failure of Mr. Fowles to refer to the statement of the
Crown Attorney amounts to a material non-disclosure. A review of the transcript
of the forfeiture hearing discloses that what the Crown actually said was that
“having regard to the Crown’s facts in possession, that we take no issue that
Mr. Mann is the lawful owner of all of the items seized”.
[27]
It must be
kept in mind that to be entitled to an order of forfeiture, the Crown must
prove its case beyond a reasonable doubt. It is clear that in this case, the
facts in the possession of the Crown did not prove beyond a reasonable doubt
that the funds in dispute were illegally obtained.
[28]
The fact
that the Crown could not prove this beyond a reasonable doubt does not call
into question the bona fides of the authorities’ belief that the funds
were illegally obtained.
Conclusion on the Issue of Non-Disclosure
[29]
For these
reasons, Mr. Mann has not persuaded me that there was any material
non-disclosure on the part of the Minister that would justify the setting aside
of the ex parte order granted by this Court on August 28, 2006, without
an examination of its merits.
[30]
The
question then remains as to whether the jeopardy order should be continued,
based upon the evidence that is now before the Court. This issue will be
considered next.
Should the Jeopardy Order be Continued?
[31]
The
question for the Court is whether there are reasonable grounds to believe that
the collection of the income tax debt owed by Mr. Mann (estimated to be
$149,823.95 to the end of 2004) would be jeopardized by a delay in the
collection of the $129,000 that was seized by the R.C.M.P.: see subsection
225.2(2), Income Tax Act.
[32]
In this
regard, the burden is on Mr. Mann to show that there are reasonable grounds to
doubt that the test under subsection 225.2(2) has been met. That is, the burden
is on the taxpayer to provide a factual basis that casts doubt on the
allegation of the Minister that collection would be jeopardized by delay: see Canada
(Deputy Minister of National Revenue) v. Quesnel, 2001 BCSC 267, 2001
D.T.C. 5602, at ¶ 5, and Canada v. Satellite Earth Station Technology Inc.,
30 F.T.R. 94, 89 D.T.C. 5506.
[33]
When the
taxpayer meets this initial burden, the onus will then shift to the Minister to
justify the jeopardy order: see Canada (Minister of National Revenue) v. Services M.L. Marengère
Inc., 176
F.T.R. 1, at ¶ 63. See also Quesnel, above, at ¶ 25.
[34]
The
standard of proof in this regard is that of the balance of probabilities: Services
M.L. Marengère Inc., at ¶ 63.
[35]
Mr. Mann
has raised several arguments as to why the August 28, 2006 jeopardy order
should not be continued, based upon the new evidence that is now before the
Court. Each of these will be addressed in turn.
The
Inconsistency of the Minister’s Position With Respect to Mr. Mann’s Ownership
of the Disputed Properties
[36]
The first
argument raised by Mr. Mann is the inherent inconsistency in the Minister’s
position with respect to the ownership of the disputed properties. On the one
hand, Mr. Mann’s alleged ownership of these properties was relied upon in the
net worth assessment of his income tax liability. On the other hand, the
Minister asserts that the $129,000 should be seized immediately, as it is Mr.
Mann’s only exigible asset.
[37]
According
to Mr. Mann, the Minister cannot have it both ways. Either he does own the
properties, in which case there are other assets available to satisfy his
income tax indebtedness, or he does not own the properties, in which case, the
net worth assessments are seriously flawed.
[38]
It is
clear that the propriety of the net worth assessments is not a question for
this Court, but should instead be dealt with through the reassessment process,
and, ultimately, by the Tax Court. It remains to be seen whether the Crown will
be able to establish that Mr. Mann is indeed the beneficial owner of the
properties in question in the face of Mr. Mann’s denials.
[39]
Insofar as
this proceeding is concerned, however, the Minister asserts that the $129,000
sum is Mr. Mann’s only known asset. Mr. Mann himself states that he does not
own the disputed properties, and has acknowledged that he has few other assets
available to satisfy his tax debt. As a consequence, his argument in this
regard does not cast doubt on the Minister’s allegation that collection of Mr.
Mann’s income tax debt would be jeopardized by a delay in collection.
Mr. Mann’s Explanation as to the Source
of the Funds
[40]
Mr. Mann
deposes that the monies in issue were primarily received by him as wedding
gifts, and were not obtained by illegal means.
[41]
Strictly
speaking, whether the funds in question were obtained by legitimate or
illegitimate means is not the point – the question is whether there are
reasonable grounds to believe that the collection of the income tax debt owed
by Mr. Mann would be jeopardized by a delay in the collection.
[42]
That said,
I do not accept Mr. Mann’s explanation as to the source of the funds. He
provides no information in this regard, beyond the bare assertion that the
funds were wedding gifts. Not only does he provide no indication as to who any
of the donors were, he doesn’t even indicate when it was that he got married.
[43]
Moreover,
the way in which the funds were stored is not consistent with their having a
legitimate source. The sum of $118,000 in cash was found in a safety deposit
box, whereas $11,100 in cash was found in a filing cabinet in Mr. Mann’s house.
A further $1,100 was found in a pocket in a house coat.
Mr. Mann’s Plan to Invest the Funds
[44]
Mr. Mann
also says that he intends to invest the monies in issue in a contracting
business, and has produced a letter from his proposed business associate
confirming this arrangement. According to Mr. Mann, not only will the funds
generate additional income which would then be available to satisfy the tax
debt, the funds themselves will also remain available to satisfy the debt.
[45]
I do not
accept this submission. The contract that Mr. Mann has produced with respect to
his proposed involvement in the contracting business is between a third party
and a numbered company, and not with Mr. Mann himself. In addition, the
building project was evidently conditional on a number of approvals having been
obtained by the end of August. There is no evidence that any of these approvals
have yet been obtained.
[46]
Moreover,
should the project actually go ahead, there is no indication as to how much Mr.
Mann himself will earn through these endeavours.
[47]
Finally,
Mr. Mann says that he will use the monies to purchase building materials to
construct the houses. In my view, investing the disputed monies in buildings
owned by a third party would only serve to put them further out of reach of the
Minister.
[48]
As a
result, this argument does not cast doubt on the Minister’s allegation that
collection of Mr. Mann’s income tax debt would be jeopardized by a delay in
collection.
Why the Jeopardy Order Should be
Continued
[49]
Not only
has Mr. Mann not given me reasonable grounds to doubt that the test under
subsection 225.2(2) has been met, I am satisfied that the evidence before the
Court demonstrates that there are good reasons to believe that the collection
of the income tax debt owed by Mr. Mann would indeed be jeopardized by a delay
in collection.
[50]
The
jurisprudence establishes that unorthodox behaviour which raises a reasonable
apprehension that it would be difficult to trace funds or recover them to
satisfy a tax debt may provide reasonable grounds for believing that the
collection of a tax debt would be jeopardized by a delay in the collection: see
Quesnel, above, at ¶ 27.
[51]
I am satisfied
that Mr. Mann has conducted his affairs in a most unorthodox manner, which
raises serious concerns with respect to the ability of the Minister to collect
the monies owing by him, should the jeopardy order not be continued.
[52]
Mr. Mann’s
income tax returns indicate that he has earned little or no money for the last
decade. At the same time, he has been able to accumulate more than $200,000 in
cash. Mr. Mann’s reported income is not sufficient to account for this asset
accumulation.
[53]
A
substantial portion of these monies are admittedly the proceeds of crime, and
Mr. Mann has not provided an acceptable explanation as to the source of the
other funds.
[54]
Moreover,
Mr. Mann has not been compliant with his obligations under the Income Tax
Act. In this regard, even Mr. Mann’s own counsel conceded that the more
than $90,000 forfeited to the Crown should perhaps have been declared as income
by Mr. Mann, and was not.
[55]
Mr. Mann
has admittedly been involved in serious criminal activity. He has consented to
a forfeiture order under the provisions of the Controlled Drugs and
Substances Act, which suggests his involvement in the drug trade leading to
his accumulation of assets.
[56]
Moreover,
in the agreed statement of facts filed in support of the request for the
forfeiture order, Mr. Mann acknowledged that eight and a half pounds of
cannabis had been seized at his residence.
[57]
Mr. Mann
also has no current source of income which could be attached to satisfy his
income tax debt, and he himself acknowledges that he has few other assets
available for this purpose. Moreover, his evidence with respect to his proposed
plans for the money raises more questions than it answers.
[58]
Finally,
the monies in question, being liquid in nature, would be easily put beyond the
reach of the Minister.
Conclusion
[59]
In these
circumstances, I am satisfied that it is more probable than not that the
ability of the Minister to collect Mr. Mann’s tax indebtedness would be
jeopardized by a delay in the collection of the $129,000 that was seized by the
R.C.M.P. As a consequence, in accordance with the provisions of subsection
225.2(11) of the Income Tax Act, Mr. Mann’s motion to have the jeopardy
order set aside is dismissed, and the jeopardy order issued by this Court on
August 28, 2006 is confirmed.
ORDER
THIS COURT ORDERS that Mr. Mann’s motion
is dismissed. The Order of Justice Nöel pronounced on August 28, 2006, in Court
File T-1535-06, is confirmed.
“Anne
Mactavish”
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