Date:
20130604
Dockets: T-473-06
T-474-06
Citation:
2013 FC 597
BETWEEN:
Docket:
T-473-06
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ALLAN JAY GORDON
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Plaintiff
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and
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HER MAJESTY THE QUEEN IN
RIGHT OF CANADA
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Defendant
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Docket: T-474-06
AND BETWEEN:
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JAMES A. DEACUR AND ASSOCIATES
LTD.
AND JAMES ALLAN DEACUR
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Plaintiffs
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and
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HER MAJESTY THE QUEEN
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Defendant
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REASONS FOR ORDER
HUGHES
J.
[1]
The
Defendant in each of these two actions, Her Majesty the Queen in Right of
Canada (the Crown) has brought an appeal, by way of a motion, from a decision
of Prothonotary Aalto wherein, among other things, he refused to strike certain
portions of the Amended Statement of Claim in each of these two actions. His
decision is dated October 26, 2012, and the Reasons are cited as 2012 FC 1247. The
Reasons were supplemented by a transcript of a special sitting before
Prothonotary Aalto dated March 13, 2013, however the parties are agreed that
what is contained in the transcript is irrelevant to the issues before me.
[2]
For
the reasons that follow, I find that the appeal is dismissed with costs.
[3]
These
actions were both commenced in 2006 and deal with activities based on an
investigations and other activity conducted by the predecessor of the Canada
Revenue Agency (CRA) conducted in the period between 1993 and 1997. The facts
were summarized by Prothonotary Aalto at paragraphs 2 to 6 of his Reasons:
[2] Not only are these actions over six years
old, the facts giving rise to the actions occurred in December, 1997 which in
turn was based on an investigation carried out by the predecessor of Canada
Revenue Agency (CRA) between 1993 and 1997 relating to Research and Development
tax credits (RD’s). The individual Plaintiffs are chartered accountants and
the corporate Plaintiff an accounting firm. The Plaintiffs had developed a
methodology (the Deacur Methodology) for claiming RD credits on behalf of
clients. In 1997 numerous fraud related charges were laid against Mr. Deacur
and Mr. Gordon, and the corporation. The criminal cases against them carried
on for almost seven years until the charges were stayed in September, 2004 at
the request of the Crown. This action was commenced in 2006 and has not
proceeded very far except that production is underway. No discovery has yet
taken place. Suffice it to say that part of the delay is related to many
logistical issues which have arisen in the course of production.
[3] While the Statements of Claim (the Claims)
in each action are dressed up with several causes of action as described below,
the case in its simplest form is that CRA improperly concluded that the actions
of the Plaintiffs in using the Deacur Methodology in filing RD’s for their
clients amounted to fraud. As a result the Crown pursued criminal charges
against the Plaintiffs which were ultimately dropped after many long years.
The actions of the Crown, so claim the Plaintiffs, amount to misfeasance, abuse
of authority, negligence and engaging in a fraudulent scheme against the
Plaintiffs for which they seek compensation. The compensation relates to loss
of income, loss of clients, together with general and punitive damages. While
the lengthy Claims refer to much more, this brief description encapsulates the
nature of the Claims.
[4] The Defendant now seeks to strike substantial
portions of the Claims and argue that the motion has been brought at this
juncture in the proceedings because of a “seismic change in the landscape” in
the last few years arising from new case law from the Supreme Court of Canada and from the Court of Appeal for Ontario. This case law, it is argued, undermines or
completely negates many of the causes of action alleged in the Claims.
[5] The Claims are not identical but are
substantially similar. Deacur and his company are represented by counsel and
have provided the Court with an amended statement of claim in an effort to
reflect some of the challenges of the Defendant to the various causes of
action. Gordon, who appears on his own behalf, has not altered his Claim in
response to this motion and very forcefully argued why all of the causes of
action are supportable. Although, to be fair, Gordon concedes that what
appears to be a cause of action is really some factual background to support
the cause of action. The Claim is very detailed and contains much factual
background.
[6] In any event, the Crown has brought this
broad motion on a wide range of issues. The Crown’s view is that if these
causes of action are struck then production will not be as extensive and the
action should move faster towards trial. Trial time will also be shortened as
the parties have indicated that the current estimate for trial is in excess of
100 days.
[4]
In
his Order, Prothonotary Aalto struck out some of the claims without leave to
amend; other claims were struck out, but with leave to amend. The balance of
the motion to strike other claims was dismissed. The Crown is appealing in
respect of two of the claims that were not struck out; one is “intentional
interference with contractual relations”; the other is “negligence” as against
the CRA.
[5]
It
is important to determine exactly what pleadings were before Prothonotary
Aalto. They are referred to generally by the Prothonotary at paragraphs 3 to 6
of his reasons above, as “the Claims”. In discussions with Counsel and Mr. Gordon
at the hearing before me, it appears that the pleadings at issue were the
Amended Statement of Claim of the Plaintiffs James A. Deacur and Associates
Ltd., and James Allan Deacur (collectively Deacur) in Court File T-474-06 dated
May 24, 2006; and the Amended Statement of Claim of Allan Jay Gordon in Court
File T-473-06; also dated May 24, 2006. A draft of a further Amended Statement
of Claim on behalf of Deacur was also said to be before the Prothonotary. A
copy was provided to me but it is not in the Record so I will have no regard to
it. At that time, both Deacur and Gordon were represented by the same
solicitor. Deacur continues to be represented by that solicitor; Gordon is
self-represented. It appears that both Statements of Claim had been amended by
the Plaintiffs following initial discussions with Counsel for the Crown in
order to meet at least some of the concerns raised by the Crown.
[6]
The
Crown has filed a Defence to the Amended Statement of Claim in each action.
[7]
Gordon
had filed an Amended and Further Amended Statement of Claim dated November 26,
2012 in action T-473-06 as a self-represented litigant. This pleading was not
before Prothonotary Aalto and was filed after he made the Order at issue here,
apparently in an attempt by Gordon to comply with that Order, as well as to add
further “particularization”. I will not consider this Further Amended Statement
of Claim, as it was not before the Prothonotary.
[8]
Given
that the Crown’s motion before me focused on two “issues”; namely, intentional
interference with contractual relations, and negligence; rather than any
specific paragraphs or portions of the Amended Statement of Claim in either
action - and the Plaintiffs responded in a similar vein - I will direct my
reasoning and Order in the same manner.
ISSUES
[9]
The
issues before me are:
1.
What
is the standard by which the Prothonotary’s decision is to be considered on
this appeal?
2.
Given
the appropriate standard, should that Order stand, or should this Court set it
aside or make a different Order?
ISSUE
#1: What
is the standard by which the Prothonotary’s decision is to be considered on
this appeal?
[10]
There
are two hurdles that the Crown must overcome in a motion such as this. The
first is in respect of an Order made by a Prothonotary that is not dispositive
of an action or issue in an action. The jurisprudence is summarized in Merck
& Co v Apotex Inc [2004] 2 FCR 459 at paragraph 19, where Decary JA,
for the majority, wrote:
Discretionary orders of Prothonotaries ought not to
be disturbed on appeal to a judge unless:
a. the questions raised
in the motion are vital to the final issue of the case; or
b. the orders are clearly
wrong, in the sense that the exercise of discretion by the Prothonotary was
based upon a wrong principle or upon a misapprehension of the facts
[11]
Where
a Prothonotary has struck out an action or an issue, this is a vital matter and
must be considered by a judge on a de novo basis; however, where the
Prothonotary did not strike out an action or issue, the matter is not vital to
an issue since the matter surmises, for determination at trial or at some
pre-trial process, deference is afforded to the Prothonotary’s decision except
where the Prothonotary proceeded on a wrong principle or misapprehended the
facts. [e.g. Merck & Co., Inc. v. Apotex Inc., 2012 FC 454 at
para 9]
[12]
The
second hurdle is that respecting the circumstances in which a Court should or
should not strike out an action or issue on a motion to strike. This question
has been considered by the Supreme Court of Canada on several occasions, the
most recent being R v Imperial Tobacco Canada Ltd, 2011 SCC 42. The
judgment of this Court was delivered by the Chief Justice. She wrote at
paragraphs 17, 21 and 25:
17 The parties agree on the test applicable on a
motion to strike for not disclosing a reasonable cause of action under r.
19(24)(a) of the B.C. Supreme Court Rules. This Court has reiterated the test
on many occasions. A claim will only be struck if it is plain and obvious,
assuming the facts pleaded to be true, that the pleading discloses no
reasonable cause of action: Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3
S.C.R. 263, at para. 15; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at p.
980. Another way of putting the test is that the claim has no reasonable prospect
of [page67] success. Where a reasonable prospect of success exists, the matter
should be allowed to proceed to trial: see, generally, Syl Apps Secure
Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Odhavji Estate;
Hunt; Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R.
735.
. . .
21 Valuable as it is, the motion to strike is a
tool that must be used with care. The law is not static and unchanging. Actions
that yesterday were deemed hopeless may tomorrow succeed. Before Donoghue v.
Stevenson, [1932] A.C. 562 (H.L.) introduced a general duty of care to one's
neighbour premised [page68] on foreseeability, few would have predicted that,
absent a contractual relationship, a bottling company could be held liable for
physical injury and emotional trauma resulting from a snail in a bottle of
ginger beer. Before Hedley Byrne & Co. v. Heller & Partners, Ltd.,
[1963] 2 All E.R. 575 (H.L.), a tort action for negligent misstatement would
have been regarded as incapable of success. The history of our law reveals that
often new developments in the law first surface on motions to strike or similar
preliminary motions, like the one at issue in Donoghue v. Stevenson. Therefore,
on a motion to strike, it is not determinative that the law has not yet
recognized the particular claim. The court must rather ask whether, assuming
the facts pleaded are true, there is a reasonable prospect that the claim will
succeed. The approach must be generous and err on the side of permitting a
novel but arguable claim to proceed to trial.
. . .
25 Related to the issue of whether the motion
should be refused because of the possibility of unknown evidence appearing at a
future date is the issue of speculation. The judge on a motion to strike asks if
the claim has any reasonable prospect of success. In the world of abstract
speculation, there is a mathematical chance that any number of things might
happen. That is not what the test on a motion to strike seeks to determine.
Rather, it operates on the assumption that the claim will proceed through the
court system in the usual way - in an adversarial system where judges are under
a duty to apply the law as set out in (and as it may develop from) statutes and
precedent. The question is whether, considered in the context of the [page70]
law and the litigation process, the claim has no reasonable chance of
succeeding.
[13]
I
distil from these comments that a Court should be cautious before striking out
a claim on the basis that it fails to disclose a cause of action, on a
preliminary motion to strike, before the Court is sufficiently seized with all
the relevant facts and arguments.
[14]
I
add further that the Court will not, as a general rule, strike out a claim for
failure to disclose a cause of action where a defence has been filed. (e.g. MacLennan
v Risley Manufacturing Ltd, 2005 FC 363). Here, the Crown has filed a
defence in each of these two actions. The Crown argues that it may,
nonetheless, maintain this motion, as Rule 221 of this Court permits such a
motion at any time, and that this motion is based on a correct interpretation
of legal principles and not on facts or particularization of facts that may or
may not be contained in the pleadings.
[15]
I
find that, nonetheless, the Crown faces a formidable task in persuading this
Court that the portions of the Order of Prothonotary Aalto, where he refused to
strike out two claims at this stage of the proceedings, ought to be reversed.
Where the matter rests simply on legal principles, I will consider the matter de
novo; but if the matter is factual or mixed fact and law, the
Prothonotary’s decision will be given deference.
ISSUE#
2: Given
the appropriate standard, should that Order stand, or should this Court set
it aside or make a different Order?
a) Intentional
Interference with Contractual Relations
[16]
The
parties do not dispute that the Prothonotary correctly set out the elements
required to prove a cause of action respecting the tort of intentional
interference at paragraph 66 of his Reasons:
[66] The essential
elements of this tort are:
1. Existence
of a valid business relationship or business expectancy between a plaintiff and
another party;
2. The defendant has knowledge of the
business relationship;
3. Intentional interference which induces or
causes a termination of the business relationship or expectancy;
4. The interference must be by unlawful
means;
5. The interference must be the proximate
cause of the termination of the business relationship; and,
6. There is a resultant loss to the
plaintiff.
[see, for example, 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc. [1998] O.J. No. 121 (C.A.)]
[17]
The
Prothonotary described this portion of the Plaintiffs’ actions as “more
tenuous” at paragraph 64 of his Reasons, and disposed of the matter by allowing
the claim to remain. He wrote at paragraph 67 to 69:
[67] In this case several of these elements can
be imputed even if not pleaded directly. For example, the contract is the
business relationship between the Plaintiffs and their clients of which the Defendant
would have had knowledge by virtue of the CRA investigation. The harm is the
alleged loss of the clients and fees which would have been earned. The
investigation and the manner it was carried out which is described in detail in
the Claim, and must be accepted as true on this motion, is the proximate cause
of the interference with accountant/client relationship. On this latter point,
the Plaintiffs argue that the reading of the “rights” was part and parcel of
the interference.
[68] Gordon argues that the elements of the
cause of action are all pleaded. In particular, he argues that the CRA
officials did not administer the ITA properly and instead of reviewing the
individual tax returns in accordance with the ITA they pursued criminal charges
and by so doing they deliberately set about to destroy the business of the
Plaintiffs (see paragraphs 156 – 171 of Gordon’s Memorandum of fact and Law).
In furtherance of this scheme, CRA officials, who are named in the claim are
alleged to have made false statements knowing they were false which resulted in
Gordon losing his clients. Further, it is alleged that CRA officials
threatened clients with fraud charges if they did not cooperate.
[69] In all, there is sufficient facts pleaded
to ground a cause of action in interference with contractual relations when the
Claim is read in its totality without parsing each paragraph as a stand alone
allegation. Further, it must be remembered that the Crown has already pleaded
to this cause of action and since the inception of the claim there has been no
“seismic” change in the law.
[18]
The
Crown’s Counsel argued before me that this portion of the Plaintiffs’ claims
was, in reality, a collateral attack upon the assessments made by the CRA
respecting research and development claims (SR&ED) of various clients of
the Plaintiffs. Counsel argued that section 152(8) of the Income Tax Act,
1985, RSC, c.1 (5th Supp) as amended, stipulates that, subject to
being varied or vacated on an objection or an appeal, and subject to reassessment,
is deemed to be valid. Counsel cites decisions such as Roitman v R, 2006
FCA 266 and Canada v Addison & Leyen Ltd, 2007 SCC 33, to argue that
a collateral attack upon an assessment cannot be made by way of an action
initiated against the Crown.
[19]
The
basis of the claim made by the Plaintiffs in this regard can be illustrated
with reference to paragraphs 22, 45 to 47 and 55 to 57 (JAD refers to the
Plaintiff Deacur and Associates) of the Gordon Amended Statement of Claim:
22. During this period, approximately two
hundred R&D based claims were prepared and submitted by JAD on behalf of
its clients. Because of the high value of the tax incentives, JAD provided its
services on a contingency basis, and expected to be paid out of the tax benefit
realized by its clients. The average anticipated revenue to JAD from each
filing was in excess of $10,000.00. This revenue stream was also expected to be
continuous for the life of the R&D program, such that the client’s filings
would result in a total profit of $1,050,000 for each year of the life of the
incentive program.
. . .
45. Northey began investigating JAD
methodologies in December 1995. As noted previously, Northey was rated at an
AU2 level and should not have been in charge of the investigation of an AU4
case. Northey knew or ought to have known that she was not capable of handling
the investigation.
46. Northey never provided notice to JAD that
it was being investigated. CRA policy, written by Ron Moore, obligates
investigators to provide a 30-day letter”. At the preliminary hearing
Northey testified that a “30 day letter” was not required in this case.
However, Ron Moore testified at the preliminary hearing that he was the author
of the “30 day letter” policy, and that such a A notice letter was
required in the JAD case and, indeed, all cases. Northey’s failure to provide
such a letter constitutes a breach of CRA policy, as well as a breach of the
principles of fairness and natural justice.
47. Northey’s theory of the case included the
premise that only R&D wages and management fees actually paid during the
fiscal period that was the subject of the claim could be claimed. Northey
gave sworn evidence at the preliminary hearing in the Criminal Case that her
investigation had proceeded based on that underlying assumption. However,
such a requirement would have been contrary to the legislation and also
contrary to generally accepted accounting principles. In fact, handwritten
notes made by Praulins of the Budget Plan tabled in the House of Commons, who
was being updated on the Deacur case, indicated that the The
Management fee amount did not have to have been paid in order to form the
subject of a claim. Northey therefore knew or ought to have known that the
fundamental basis for her investigation was unsupportable In spite of this,
Northey proceeded, and Praulins allowed her to proceed, with a baseless
investigation. A qualified lead investigator would have known that this theory
was an unacceptable basis for pursuing an investigation.
. . .
55. In early 1996 SI investigators under
Northey’s direction commenced interviewing many of JAD’s clients and employees.
In the course of these interviews, Northey or investigators acting under her
direction intentionally conveyed to the clients and employees that JAD’s
practices were fraudulent. In fact, some of JAD’s accountants were not only
interviewed but were also ‘read their rights’ in the presence of clients. This
was calculated to leave the unmistakable impression that not only JAD but also
its individual employees were frauds and criminals. These actions scared off
clients and employees, drastically reducing the number of both, and Northey
knew or ought to have known that pre-judging the outcome of the investigation
and advertising that outcome to clients and employees would have exactly that
effect. This oppressive conduct had no role in furthering the investigation,
but rather served exclusively to defame Gordon and JAD in front of employees
and clients.
56. Further, although clients were advised
that JAD methodologies were fraudulent, they were not instructed as to which
specific activities were fraudulent and which were not. The result was that
many clients ceased making applications under the R&D system altogether.
57. Similarly, during the course of her investigation
Northey interviewed and questioned auditors who had been processing JAD
submitted claims. In so doing Northey clearly and intentionally conveyed to the
auditors that the JAD methodology was illegal. In so doing she begged the
outcome of the investigation, and converted it from an investigation into an
internal propaganda exercise. As a direct result of this misfeasance, and in
reliance on Northey’s opinions, front line auditors began denying JAD claims
without adequate review, contrary to law, and resulting in many valid claims
being denied.
[20]
Plaintiffs’
Counsel and Gordon argue that the Crown has mischaracterized their argument.
They say that they are not seeking to attack the assessments; rather, their
claim rests in the manner in which the CRA conducted investigations into their
clients’ businesses and that word of such investigations may have precluded
potential clients from dealing with them. The situation, they say, is like
those considered by the Courts in Leroux v Canada (Revenue Agency), 2012
BCCA 63 and Ereiser v R, 2013 FCA 20, in which latter case Sharlow, JA,
for the Court, in dealing with a motion to strike wrote at paragraphs 16 and
38:
16 The decision of a judge to grant or refuse a
motion to strike is discretionary. This Court will defer to such a decision on
appeal in the absence of an error of law, a misapprehension of the facts, a
failure to give appropriate weight to all relevant factors, or an obvious
injustice: see, for example, Collins v. Canada, 2011 FCA 140 at paragraph 12,
Domtar Inc. v. Canada, 2009 FCA 218 at paragraph 24, Apotex Inc. v. Canada
(Governor in Council), 2007 FCA 374 at paragraph 15, Elders Grain Co. v. M.V.
Ralph Misener (The), 2005 FCA 139, [2005] 3 F.C.R. 367 at paragraph 13, Mayne
Pharma (Canada) Inc. v. Aventis Pharma Inc., 2005 FCA 50 at paragraph 9.
. . .
38 It may be that in this case, the
reassessments under appeal will be found to be valid and correct. In that case,
they will represent a correct statement of Mr. Ereiser's statutory obligations
under the Income Tax Act, and they will not be vacated as part of the statutory
appeal process for income tax appeals. However, they will be vacated if they
are found to be invalid or entirely incorrect. If they are found to be
incorrect in part, they will be vacated and referred back to the Minister for
reassessment. But regardless of the outcome of Mr. Ereiser's income tax appeal,
it will remain open to him to seek a remedy in the Federal Court or the
superior court of a province, depending upon the circumstances, if he has a
tort claim or an administrative law claim arising from the wrongful conduct of
one or more tax officials.
[21]
At
this stage of the proceedings, I do not view the Plaintiffs’ claim for
intentional interference with contractual relations as seeking to reopen or
collaterally attack tax assessments made upon their customers or potential
customers. I view the claim as being one wherein the CRA investigations are
alleged to have frightened off customers and potential customers of the Plaintiffs,
which customers would otherwise have used the Plaintiffs’ services and paid
them a fee for so doing. I cannot, at this stage, find that the claim is one
that ought to be struck out.
b) Negligence
as Against the CRA
[22]
Counsel
for the Crown argues that the claim in negligence made against the Crown is
“doomed” since there is no duty of care owed by the Crown to the Plaintiffs.
[23]
Both
parties agree that a cause of action in respect of negligence in these
circumstances is to be examined on the basis of what is described as the Anns/Cooper
test. That test originated in the House of Lords decision of Anns v Merton
London Borough Council, [1978] AC 728 and was further developed by the
Supreme Court of Canada in Cooper v Hobart, [2001], 3 SCR 537. The test
may be succinctly stated as a two-stage test where, if the answer to the first
question is yes, then the Court must move on to consider the second question;
but, if the answer to the first question is no, then there is no need to
consider the second question. The questions are:
1.
Is
there a sufficient proximity between the party alleged to have been negligent
and the party alleged to have been injured so as to create a duty of care? If
the answer is yes, then:
2.
Are
there policy considerations which would negate the creation of a duty of care
in the circumstances of the case?
[24]
As
to the first question, McLachlin CJ and Major J for the Supreme Court in Cooper
wrote at paragraph 35:
35 The factors which
may satisfy the requirement of proximity are diverse and depend on the
circumstances of the case. One searches in vain for a single unifying
characteristic. As stated by McLachlin J. (as she then was) in Canadian
National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, at
p. 1151: “[p]roximity may be usefully viewed, not so much as a test in itself,
but as a broad concept which is capable of subsuming different categories of
cases involving different factors” (cited with approval in Hercules
Managements, supra, at para. 23). Lord Goff made the same point in Davis v.
Radcliffe, [1990] 2 All E.R. 536 (P.C.), at p. 540:
. . . it is not desirable, at least in the present
stage of development of the law, to attempt to state in broad general
propositions the circumstances in which such proximity may or may not be held
to exist. On the contrary, following the expression of opinion by Brennan J in
Sutherland Shire Council v Heyman (1985) 60 ALR 1 at 43-44, it is considered
preferable that ‘the law should develop categories of negligence incrementally
and by analogy with established categories’.
[25]
As
to the second question, they wrote at paragraph 37:
37 This brings us to
the second stage of the Anns test. As the majority of this Court held in
Norsk, at p. 1155, residual policy considerations fall to be considered here.
These are not concerned with the relationship between the parties, but with the
effect of recognizing a duty of care on other legal obligations, the legal
system and society more generally. Does the law already provide a remedy?
Would recognition of the duty of care create the spectre of unlimited liability
to an unlimited class? Are there other reasons of broad policy that suggest
that the duty of care should not be recognized? Following this approach, this
Court declined to find liability in Hercules Managements, supra, on the ground
that to recognize a duty of care would raise the spectre of liability to an
indeterminate class of people.
[26]
The
Prothonotary set out this test as paragraph 97 of his Reasons and concluded his
Reasons in respect of this negligence issue at paragraph 105:
[97] The Crown
argues at length that no negligence against the Crown for the manner in which
it carried out the investigation can be asserted based on the allegations in
the Claim. The Crown argues that no “duty” is pleaded and the tests as set out
in the well known cases of Anns v. Merton London Borough Council, [1978] A.C.
728 (H.L.) and Cooper v. Hobart, 2001 SCC 27 (the Anns/Cooper Test) are not
met. The Anns/Cooper analysis requires a consideration at the first stage of
the forseeability of harm and the proximity of the parties which would give
rise to a duty of care. If part one is not met then under part two the court
should consider whether there are policy considerations which may give rise to
a duty of care.
. . .
[105] Thus, in my view, the first part of the
Anns/Cooper Tests has been met (forseeability and proximity) and therefore
there is no need to consider the policy considerations of part two.
[27]
Counsel
for the Crown submits, and I agree, that the Prothonotary got it wrong. He
erred in saying at paragraph 97 that if the answer to question 1 is no, then
the Court should consider question 2. He also erred in saying at paragraph 105
that if the answer to question 1 is yes, there is no need to answer question 2.
The correct view of the law is that, if the answer to question 1 (is there a
duty) is yes, then the Court must consider question 2 (is there public policy
negating the duty).
[28]
In
respect of question 1 - whether there was a duty - the Prothonotary found that
based on the allegations in the pleadings, there was a duty. He wrote at
paragraphs 101 to 104:
[101] In dealing with this issue, as with the
others, the allegations in the Claim must be accepted as true. The Claim does
set out conduct which could be construed as negligence in the descriptions of
how various of the CRA officials conducted the investigation. It asserts
negligence in the failure to appoint a competent investigator, negligent
supervision of those conducting the investigation, negligent investigation etc.
[see, for example, paragraphs 37, 43, 45, 46, 47 and 68 among several others in
the Deacur Claim, which paragraphs are adopted by Gordon]. Did they owe a
private law duty of care to the Plaintiffs? In my view, at this juncture of
the proceeding the allegations are not bereft of any chance of success and
should not be struck.
[102] The Plaintiffs were specifically targeted by
CRA for criminal investigation. Notably, in Hill v. Hamilton-Wentworth
Regional Police Board, 2007 SCC 41, the Court noted:
. . . the targeted suspect has a critical personal
interest in the conduct of the investigation. At stake are his freedom, his
reputation and how he may spend a good portion of his life. These high
interests support a finding of a proximate relationship giving rise to a duty
of care. [para. 34]
[103] These Plaintiffs are in exactly the same
situation. They had a critical interest in the conduct of the investigation,
their personal freedom was at stake as well as their reputations. It can
hardly be said that the Claims are bereft of any likelihood that there is no
proximate relationship giving rise to a duty of care. Elder and Edwards and
other cases cited by the Crown are very different on their facts and do not
revolve around a criminal investigation of the type initiated in this case.
[104] It is clearly pleaded that the CRA officials
knew that there investigation would have an affect on the Plaintiffs in their
business and reputation. Gordon also points to a document entitled the
Taxpayer Bill of Rights as creating a duty of care. As this is a motion to
strike, extraneous evidence is not generally admissible. While Gordon may
choose to raise this at trial, for purposes of this motion, the Court has not
considered this document. The approach set out in Hill sufficiently
establishes the proximity necessary to permit the negligence claim to stand.
There are other cases referred to by the parties which have been considered but
for the purposes of disposing of this issue the cases referred to are
sufficient.
[29]
The
Prothonotary should have then considered question 2 respecting public policy.
He did not.
[30]
Counsel
for the Crown argues that the Income Tax Act does not create a duty as
between the CRA and the Plaintiffs. I agree; no statutory duty is established
in the circumstances of this case. Counsel for Deacur argues that there is a
private law duty of care, possibly previously unrecognized, that exists apart
from any statutory duty and points to the Supreme Court of Canada decision in Hill
v Hamilton-Wentworth Regional Police Services Board, [2007], 3 SCR 129,
particularly at paragraph 70, where the Court suggested that standards imposed
by a statute (Police Services Act) while not creating a duty, may prove
instructive in establishing a non-statutory duty of care owed by public
officials such as police officers.
[31]
Crown
Counsel has drawn the attention of the Court to a recent decision of the
British Columbia Supreme Court in Leighton v Canada (Attorney General), 2012
BCSC 961, where the Court, Fisher J, canvassed most of the current authorities
and applied the Anns/Cooper test specifically. I am unaware as to any
appeal in respect to allegations of negligence made by a taxpayer against the
CRA. Justice Fisher wrote at paragraphs 54 to 58:
54 These cases demonstrate that proximity is not
established where statutory duties are owed to the public. The income tax
system relies on self reporting by taxpayers and the Income Tax Act gives the
Minister and his delegates broad powers in supervising the scheme of assessing
and auditing taxpayers. CRA and taxpayers have opposing interests. The
relationship is not one where CRA auditors should be responsible for protecting
taxpayers from losses arising from their assessments. In these circumstances,
policy considerations would militate against a finding of proximity between CRA
and individual taxpayers: see 783783 Alberta Ltd. at paras. 45-46; Syl Apps
Secure Treatment Centre v. B.D., 2007 SCC 38 at para. 32.
55 In Leroux, the question was whether
negligence in the course of the administration or enforcement of the Income Tax
Act and the Excise Tax Act could give rise to a private law remedy. The
chambers judge refused to strike the claim under Rule 9-5(1)(a) and the Court
of Appeal was not persuaded that he was "plainly wrong" to leave the
question of whether there was proximity sufficient to establish a prima facie
duty of care for consideration following a trial. However, there were material
facts pleaded and the court directed that the pleading be reformulated in a
further amended statement of claim.
56 I do not consider that Leroux prevents me
from assessing this pleading and this potential amendment to the pleading and
determining whether it discloses a reasonable claim. Neither Canus, Jones nor
783783 Alberta Ltd. were considered. Moreover, this case involves consideration
of a duty of care, not to a taxpayer directly but indirectly to the shareholder
of a corporate taxpayer.
57 In my view, there is simply no basis to
establish any proximity of relationship in these circumstances. I agree with
the submissions of the defendants that it is plain and obvious that no
proximity exists between the CRA and its employees and Mr. Leighton, and
therefore there can be no private law duty of care.
58 It is not necessary to consider the second
stage of the Anns-Cooper test. However, it is my view that there are residual
policy considerations that would militate against recognizing a duty of care in
this case, one example being that the effect of recognizing a duty of care
would conflict with the CRA's broad duties under the Income Tax Act to ensure
that all taxes lawfully owing are correctly assessed and collected.
[32]
Counsel
for the Crown also relies on the decision of Patterson J of the Ottawa Superior
Court of Justice in McCreight v Canada (Attorney General), 2012 ONSC
1983. That case dealt with a claim by members of an accounting firm against the
CRA in respect of audits conducted upon several of their clients. The case is
not too dissimilar to the one before me. Patterson J wrote at paragraph 85:
85 In the present case, there is no recognized
cause of action for negligent misrepresentation by a CRA investigator. There is
no legal duty of care on a CRA investigator. The imposition of such a duty
would be inconsistent with the scheme of the Income Tax Act which expressly
provides that taxpayers cannot, for example, rely on errors or omissions. Also,
there is no special relationship between the CRA investigators and McCreight
and Skinner.
[33]
I
am advised that an appeal has been taken, and the matter has been argued before
the Court of Appeal. A decision has not yet been rendered.
[34]
Plaintiffs’
Counsel and Gordon argue that theirs is not a case where they are alleging
negligence in respect of any audit upon them. They are alleging negligence in
respect of investigations, which may or may not include audits - allegedly
conducted negligently - respecting their customers and potential customers.
[35]
At
this state of these actions, I cannot say that the Plaintiffs’ claim in respect
of question 1 of the Anns/Cooper test has no reasonable prospect of
success. In this respect, I agree with, as well as give deference to, the
decision of the Prothonotary.
[36]
The
Prothonotary should have, but did not, consider the second question raised by
the Anns/Cooper test as to whether there is public policy that would
exclude a duty of care. I will.
[37]
Counsel
for the Crown’s argument in respect of this question is more or less a
repetition of the argument in respect of the first question. Counsel argues
that the Income Tax Act creates no statutory duty. I agree. Counsel
argues that Hill does not establish that there is a private duty.
[38]
In
Leighton, supra, Fisher J, in obiter, found that there were
policy considerations that would militate against recognizing a duty of care. I
have previously set out paragraph 58 of the Reasons in this regard.
[39]
I
recognize that the allegations of negligence and application of the Anns/Cooper
test - even at this stage - may seem tenuous. I am reluctant, however, to
strike the claim at this time. The case law is clearly evolving in this area,
and the last word has yet to be written by an appellate court. The continuation
of this claim at this stage of the proceedings is not unduly burdensome. The
matter is proceeding in any event, and the relevant facts will have to be
established and considered in dealing with other of the claims. I decline to
strike this claim at this stage of the actions.
CONCLUSION AND
COSTS
[40]
As
a result, I will dismiss the two appeals. It should be made clear that there
may be an appropriate opportunity at a later stage in these actions, or at
trial, to reconsider these matters. My decision does not preclude such a
re-consideration. However, this should not be viewed as an invitation to
revisit the matters until an appropriate factual basis is established, and
possibly one or more appellate courts have ruled on the cases put before me as
authorities.
[41]
As
to costs, I note that Prothonotary Aalto, at paragraph 107 of his Reasons,
advised that each party should bear its own costs. This was appropriate, as
success before him was divided. I do not propose to change that Order. My Order
will deal only with costs related to this appeal.
[42]
Each
of the Plaintiffs was successful and is entitled to costs. The Plaintiff Gordon
is self-represented, and therefore is entitled to reasonable disbursements. I
estimate that those disbursements are in the order of $500.00, and fix them at
that amount. The Plaintiffs Deacur, collectively, were successful, and were
represented by Counsel. This appeal was more difficult than most, and is
deserving of an award of costs higher than the usual modest amounts provided for
in our Rules. I fix the costs of Deacur at $5,000.00.
“Roger
T. Hughes”
Toronto, Ontario
June 4, 2013
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