Date: 20091126
Docket: T-671-08
T-672-08
Citation: 2009 FC 1216
Ottawa, Ontario, November 26, 2009
PRESENT: The Honourable Mr. Justice Barnes
Docket: T-671-08
BETWEEN:
MINISTER
OF NATIONAL REVENUE
Applicant
and
RON KOCSIS
Respondent
Docket: T-672-08
BETWEEN:
MINISTER OF NATIONAL REVENUE
Applicant
and
KOCSIS TRANSPORT LTD.
Respondent
REASONS FOR ORDER AND ORDER
[1]
These are motions for
contempt brought by the Minister of National Revenue (Minister) against the
Respondents, Ron Kocsis and Kocsis Transport Ltd. The Minister alleges that
the Respondents are in contempt of two Orders issued by Justice Judith Snider
on September 15, 2008 which required production of information and
documentation pertaining to the financial and payroll affairs of Kocsis
Transport Ltd. One of those Orders was directed to Mr. Kocsis in his capacity
as an officer and director of that Company. The other Order was directed to
Kocsis Transport Ltd. Except for the requirement to produce a current list of
corporate accounts receivable, the Orders do not overlap. It was agreed by the
parties that these motions were so closely related that they should be heard
and dealt with as one. In the result, this single set of Reasons will apply to
both motions and will be included within each file.
[2]
The Order of Justice
Snider in docket number T-671-08 dated September 15, 2008 required Mr. Kocsis
to produce the following information or documents within 30 days of service of
the Order:
(a) Forms TD1,
Employee’s tax deduction declaration, completed by the employees;
(b) Payroll records,
showing wages paid, tax and Canada Pension deductions and Employments Insurance
premiums for the period January 1, 2006 to July 31, 2007 inclusive;
(c) Pay sheets for the
period January 1, 2006 to July 31, 2007 inclusive and copies of the 2006 T4
supplementaries;
(d) All cancelled
cheques and bank statements for all bank accounts for the period January 1,
2006 to July 31, 2007 inclusive;
(e)
Forms PD7A
receipts for remittances;
(f)
Any other
books and records maintained in conjunction with its recording of wages,
remuneration and benefits;
(g)
Details
and amounts to contract drivers and or leased operators for the periods January
1, 2006 to July 31, 2007 inclusive; and
(h)
Current
list of Accounts Receivable.
[3]
The Order of Justice
Snider in docket number T-672-08 dated September 15, 2008 required Kocsis
Transport Ltd. to produce the following information or documents within 30 days
of service of the Order:
(a) A current, aged
listing of all Accounts Receivables of Kocsis Transport Ltd. detailing the
amounts due, legal name of the receivable, address, telephone number and
payment terms;
(b) A complete listing
of all corporations, businesses and individuals from whom Kocsis Transport Ltd.
received remuneration for the period of January 1, 2007 to October 31, 2007;
(c) Copies of all bank
statements pertaining to accounts operated or controlled by, for, or on behalf
of Kocsis Transport Ltd. including any and all accounts operating in joint
names with Kocsis Transport Ltd. and another or others covering the period
January 1, 2007 to October 31, 2007;
(d) A listing of makes,
models, serial numbers, and years of production of all trucks, trailers and
automobiles owned by Kocsis Transport Ltd. and/or Ron B. Kocsis;
(e) A copy of a current
balance sheet of Kocsis Transport Ltd.; and
(f) Detail of all
drawings, dividends and or loan proceeds paid to or on behalf of Ron B. Kocsis
by Kocsis Transport Ltd. or any other corporate entity to which Ron B. Kocsis
is a shareholder over the period of November 1, 2006 to October 31, 2007.
[4]
The hearing of these
motions was held at Saskatoon,
Saskatchewan on August 11 and 12, 2009. The hearing
was adjourned to September 25, 2009 at the request of Mr. Kocsis to allow
him to properly subpoena a defense witness. When the hearing resumed by video-conference
on September 25, 2009, Mr. Kocsis failed to appear and it was evident that
he had failed to subpoena the witness. I therefore heard argument from counsel
for the Minister and reserved decision. In the meantime, Mr. Kocsis has
provided no explanation for his failure to appear on September 25th nor
has he requested that the hearing be reopened to allow further evidence to be
called.
[5]
I am, of course,
mindful of the legal principles that apply to a finding of contempt under Rule
466(b), Federal Courts Rules, SOR/98-106 (Rules). Specifically, the Applicant has the
burden of proving all of the elements of contempt beyond a reasonable doubt
including the existence of the Court Order, knowledge of the Order by the
person alleged to be in contempt and knowing disobedience of the Order: see Canada
(Minister of National Revenue) v. Bjornstad, 2006 FC 818, 295 F.T.R. 277.
[6]
In accordance with
Rule 470 of the Rules, evidence in these proceedings was given orally. As an
unrepresented party, Mr. Kocsis was advised that he was not required to call
evidence or to testify, but he elected to do both.
[7]
There is no issue
with respect to service of the two Orders that are in issue in these proceedings.
Proof of personal service has been provided and Mr. Kocsis readily acknowledged
that fact. There is also no issue that there has been a failure by both
Respondents to fully comply with the above Orders. What is in issue is whether
there is a lawful excuse or defense for that failure.
[8]
I
am satisfied beyond a reasonable doubt that Mr. Kocsis and his Company have wilfully
failed to comply with the terms of the Orders issued previously by Justice
Snider of this Court to produce the information and documentation lawfully
demanded by the Minister under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). Mr. Kocsis did not deny that he had failed to
produce all of the records required nor did he deny their existence. His
explanations for the failure to produce this material included a lack of staff
support and an inability to access the records because of alleged mould
contamination.
[9]
I
accept that Mr. Kocsis
made some efforts to comply with the Minister’s demands, but for whatever
reason those efforts diminished as time wore on and the business was suspended.
There are a number of outstanding obligations and I accept the evidence of Messrs.
Larry Langeman and Jim Yaremko in that regard. I also note that Mr.
Kocsis did not seriously challenge their evidence about what had and had not
been produced.
[10]
Specifically,
I am satisfied beyond a reasonable doubt that Mr. Kocsis failed to produce any
of the items listed in paragraphs (a), (d), (g) and (h) of Justice Snider’s
Order in docket number
T-671-08 and he has produced only partially the items listed
in paragraphs (b), (c) and (e). Item (f) is not sufficiently particularized to
support a finding of non-compliance. With respect to the second Order of
Justice Snider, I am satisfied beyond a reasonable doubt that the Company has
failed to produce any of the items listed in paragraphs (b), (e) and (f) and it
has produced only partially the items listed in paragraph (a). The banking
information listed in paragraph (c) and the vehicle information listed in
paragraph (d) are no longer required by the Minister having been obtained from
third party sources and no finding is required with respect to those items.
[11]
As
the sole director, shareholder and officer of the Company, Mr. Kocsis is the
person responsible for effecting compliance with the Order of Justice Snider
directed to the Company. He provided no evidence to the contrary and, indeed,
his testimony confirmed that the failure by the Company to comply with that
Order was the direct result of decisions he made. I am satisfied that he has
throughout aided and abetted the Company in failing to meet the obligation
particularized above: see
Manufacturers Life Insurance Co. v. Guaranteed Estate Bond Corp., 95 A.C.W.S. (3d) 352,
[2000] F.C.J. No. 172 (QL) (F.C.T.D.).
[12]
There is
no question that during the relevant period Mr. Kocsis faced some hurdles in
the conduct of his business affairs, but I do not accept that those setbacks
constitute a lawful or meritorious excuse for failing to fulfill these
disclosure obligations. It is a fundamental corporate obligation to maintain
accurate and complete business records and to be particularly scrupulous with
respect to the maintenance of payroll and remittance documentation. It is not a
legal excuse that the administrative burden was too onerous for Mr. Kocsis to
search out the records demanded by the Minister and subsequently ordered to be
produced by this Court.
[13]
I
am satisfied that the Minister required the records demanded for the legitimate
purpose of determining what the Company owed for its tax, CPP and EI employee
remittances and, latterly, in the efforts to collect amounts deemed owing.
[14]
Unfortunately,
the history here is one of a failure by Mr. Kocsis to deal with the
Minister and with the Court Orders in a responsible and wholly responsive way. Instead,
the evidence indicates a history of considerable evasion of responsibility and
delay.
[15]
Mr. Kocsis testified that during
renovations to the Company premises in June 2008 black mould was discovered. He
produced several photographs depicting black mould within the exterior wall
cavities of the office and fairly extensive renovations to those areas. At
least two photographs depict interior portions of the office covered in plastic
sheeting.
[16]
Mr. Kocsis testified that the mould
was the result of water leakage into the exterior wall of the building. This
necessitated the removal of the contaminated gyproc and insulation and the
sealing off of the affected area from other parts of the building. When asked
about how these issues related to the documents he had been ordered to produce,
Mr. Kocsis stated:
THE COURT: My concern here
is - - I mean, that material, is there anything in there that would help
explain why the records that CRA were seeking were not produced? I’m having a
little bit of difficulty understanding the relationship between these problems
which you experienced, which appear quite significant, and why the records, the
cancelled cheques and things of that sort weren’t produced. That’s the key
issue for me.
MR. KOCSIS: Right, and I
understand. That’s where, again, everything was at the point - - like, once the
reports that we, again, is the - - one which I wanted to produce was the - -
again, we had taken steps based on the information we had received from Dr.
Figley and the research we’ve done and on proper practices and handling, I
would say, materials or documents within this type of environment. It’s not a
situation where once the building has been deemed in that state of mould
infestation, like, we could not safely have - - first of all, we couldn’t have
staff in the building. That was - - so basically the building was shut down, we
couldn’t operate, that was the biggest thing. And for removal, that proper
steps had been taken in regards to HEPA-Vac’ing the documents and relocating
after things were all kind of put down as a wrap. Things were wrapped down as
tight and then to send - - hiring accounting staff to send them in, it just was
not an option. It was not recommended to do so, to send accounting staff into
an environment of that, just the liability issues of sending somebody in; but,
secondly, the documents themselves have to be treated. They have to be handled,
they have to be HEPA vacuumed and so forth. You just couldn’t take them out and
take them to the neighbouring - - take them offsite and start utilizing
documents. They had to be treated.
THE COURT: What’s the basis?
What’s the factual basis for that point that you’ve just made? I mean, you
brought documents here from the building this morning and there is a box full
of them.
MR. KOCSIS: Actually, I had to
take those out and I actually blew them off here this morning because those are
the ones that were - - these documents here were not part of the - - these were
actually in the boardroom - - anything shoved into a closet and sealed off. So
when I found these here yesterday, actually late afternoon in the cart, I blew
them all off here this morning. I guess - -
THE COURT: The rest of them,
I take it, are in the trailer that we heard testimony - -
MR. KOCSIS: I had to take them
out in June. I had them boxed, we had them blown off by - - had the guys
wearing the masks. And then on removal from the trailer, we were going to have
them HEPA-vac’d because we don’t have a HEPA vacuum in our possession. We were
going to have a cleaning firm, Service Master or First General, do the
appropriate cleaning.
THE COURT: So those
documents that are in the trailer, which presumably contain some of the
information CRA is looking for - -
MR. KOCSIS: Right.
THE COURT: - - were moved in
June of this year into the trailer - - from the building into the trailer?
MR. KOCSIS: Correct.
THE COURT: By who?
MR. KOCSIS: By myself and I hired
just - - we wore the masks and stuff.
Mr. Kocsis offered additional justification
for his unwillingness to handle the corporate records in the form of a number
of internet articles attesting to the health and environmental problems
associated with mould contamination. He also spoke of a lack of communication
with Canada Revenue Agency (CRA) officials, although that point was not pressed
as a justification for failing to produce the required records.
[17]
The
fundamental problem with Mr. Kocsis’ explanation about mould contamination of the
documents is that it is unproven and, in many respects, contradicted by his own
conduct. He produced no evidence whatsoever that the records in question were
actually contaminated by mould or that they could not be safely handled. Although
he said that air quality testing had been carried out in the building, he
provided no evidence of those findings. He acknowledged, as well, that he was
frequently in the building during the renovations with no protective clothing
or apparatus. Mr. Kocsis also asked for an
adjournment of the proceeding to allow him to properly subpoena an expert
witness who would, he said, speak to the document-contamination issue. That
request was granted over the objection of the Crown. When the hearing was
resumed by video-conference on September 25, 2009, it became clear that Mr. Kocsis had not subpoenaed the
witness. Mr. Kocsis also failed to appear
despite being advised that the hearing would proceed.
[18]
Mr. Kocsis’ explanations for
failing to abide by the Orders of this Court are not believable. He was first
ordered to produce these records in August 2007 and later in November 2007. Through
the remainder of 2007 and into 2008 he had extensive contact with CRA officials
about what was required. All of this was well before any issue of mould
contamination was evident. Even when he first raised this issue in his
communications with the CRA, he only claimed that the office was shut down and
was to be moved into a temporary space. At no time did he advise anyone that he
had personally moved the records into the adjacent trailer for storage or that
they were believed to be contaminated.
[19]
Mr. Kocsis also acknowledged under
cross-examination that none of the internet material he had tendered in
evidence had been provided to the CRA. If Mr. Kocsis honestly believed that
the records required of him could not be safely accessed or handled one would
reasonably expect him to have so advised the CRA particularly when these
proceedings were initiated.
[20]
I reject Mr. Kocsis’ explanations for
failing to abide by the Orders of this Court. He was an evasive witness. Much
of his testimony was either non-responsive to the issues or was designed to
obfuscate. Mr. Kocsis also failed to produce
evidence that could corroborate his testimony despite having sought and
obtained adjournments to make that supposed evidence available to the Court. Mr. Kocsis’ failure to appear for
the conclusion of the hearing of this matter merely confirms my belief that he did
not entertain an honest belief that these records could not be safely handled
and even if there was a legitimate health issue, it would not excuse Mr.
Kocsis’ failure since 2008 to deal with it by taking the decontamination
measures that he said were necessary.
[21]
I find Mr. Kocsis’ environmental
explanation to be an after-the-fact attempt to create a legal justification for
what, at the time, was a deliberate evasion of his obligation to abide by the Orders
of this Court. I find beyond a reasonable doubt that he is in contempt of those
Orders.
[22]
I intend
to deal with the issues of sentencing and costs by way of a video-conference
hearing. Counsel for the Applicant and Mr. Kocsis should advise the Winnipeg Registry Office of their
availability on any of January 12, 14 or 15, 2010 for a hearing of up to two
(2) hours in duration. If no indications of availability are provided, the
hearing will be set down on one of the above dates at a time convenient to the
Court. If Mr. Kocsis chooses to retain legal counsel, representations on his
behalf are acceptable.
ORDER
THIS COURT ORDERS and finds that
the Respondent, Ron Kocsis, is in contempt of the
Order of Justice Judith Snider dated September 15, 2008 in docket number T-671-08.
THIS COURT FURTHER
ORDERS and finds that the Respondent, Kocsis Transport Ltd. and Ron
Kocsis are in contempt of the Order of Justice Judith Snider dated September
15, 2008 in docket number T-672-08.
THIS COURT FURTHER
ORDERS that argument on sentencing and costs will be heard, unless
otherwise ordered, by video-conference at the Federal Court, 520 Spadina
Crescent East, Saskatoon, Saskatchewan with the parties to advise the Winnipeg
Registry Office of their respective availability on any of January 12, 14 or 15, 2010 by no later
than Wednesday, December 2, 2009 failing which the date will be fixed by
the Court.
“ R. L. Barnes ”
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