Date: 20130710
Docket:
T-2037-12
Citation: 2013 FC 773
Edmonton, Alberta, July 10, 2013
PRESENT: the Honourable Mr. Justice Harrington
|
|
|
BETWEEN:
|
|
MINISTER OF NATIONAL REVENUE
|
|
Applicant
|
|
and
|
|
BLACK SUN RISING INC. AND
TIM RUSSELL BISCOPE
|
|
Respondents
|
REASONS FOR JUDGMENT AND JUDGMENT
[1]
In April of this year, Madam Justice Heneghan
issued a Show Cause Order. The Order required the respondents to appear in
Court to hear proof of the act of contempt with which they were charged, which
was that they had failed to comply with an Order of Mr. Justice O’Reilly dated
17 December 2012. In accordance with s. 231.7 of the Income Tax Act,
being satisfied that the Minister had requested information and documentation
from the respondents, which had not been provided, he ordered that they provide
them in support of an audit being carried out by the Minister. Madam Justice
Heneghan was satisfied that a prima facie case had been made out and so
the show cause order was issued.
[2]
Having heard the witness called by the Minister,
I dismissed the charge, without calling upon the respondents to offer any
defence. I said that reasons would follow. These are those reasons.
[3]
This is a case of civil contempt, not in the
face of the Court.
[4]
The first step is a show cause order. Rule
467(3) of the Federal Courts Rules only requires that a prima facie case
be made out.
[5]
The second is the hearing, normally in court
with live testimony. A person charged with contempt cannot be compelled to
testify. A finding of contempt must be based on proof beyond a reasonable doubt
(rules 468-470).
[6]
If a case of contempt is made out, the third
step is the penalty, which may be as much as five years incarceration less one
day.
[7]
The test for civil contempt was summarized by
the Ontario Court of Appeal in Prescott-Russell Services for Children and
Adults v G (N) (2006), 82 O.R. (3d) 686, at paragraph 27:
The criteria
applicable to a contempt of court conclusion are settled law. A three-pronged
test is required. First, the order that was breached must state clearly and
unequivocally what should and should not be done. Secondly, the party who
disobeys the order must do so deliberately and wilfully. Thirdly, the evidence
must show contempt beyond a reasonable doubt. Any doubt must clearly be
resolved in favour of the person or entity alleged to have breached the order.
[Citations omitted.]
[8]
Another case which offers considerable guidance
is the decision of the Federal Court of Appeal in Apple Computer, Inc v Mackintosh
Computer Ltd, [1988] 3 FC 277, [1988] FCJ No 237 (QL). That was a case,
unlike this, in which the evidence of both sides was by way of affidavit.
[9]
Mr. Justice Heald said:
To properly consider
the impact of the complete absence of viva voce evidence on this motion, I
think it important to keep in mind the context in which this deficiency took
place. This is a contempt of Court procedure. Lord Denning M.R. articulated the
proper approach succinctly in the case of In re Bramblevale Ltd., [1970]
1 Ch. 128 at 137:
A
contempt of court is an offence of a criminal character. A man may be sent to
prison for it. It must be satisfactorily proved. To use the time honoured
phrase, it must be proved beyond reasonable doubt .... Where there are two
equally consistent possibilities open to the Court, it is not right to hold
that the offence is proved beyond reasonable doubt.
[10]
Although satisfied that he would not interfere
with the finding of contempt by the motions judge on the basis of the balance
of probabilities, he was not prepared to hold that proof had been made beyond a
reasonable doubt.
[11]
Mr. Justice Heald also referred to the decision
of Ontario Court of Appeal in Regina v Jetco Manufacturing Ltd and
Alexander, 57 OR (2d) 776, per Brooke J.A. at page 780:
Thus, while civil procedures
are involved, because the allegation is that a public wrong was done and the
liberty of the subject is at stake, the proceedings are essentially criminal in
nature. The standard of proof governing the trial of criminal offences must be
satisfied. The appellants are entitled to the presumption of innocence, and the
onus is on the prosecution to prove their guilt beyond a reasonable doubt.
[12]
He also approved the comment by Mr. Justice
Rouleau in Selection Testing Consultants International Ltd v Humanex
International Inc, [1987] 2 FC 405, 9 FTR 72, 14 CPR (3d) 234 at page 238:
Whether contempt of
court proceedings are characterized as criminal or civil, the person charged
shall always be entitled to the unassailable bastion of Common Law, that is the
right to know the particulars of the accusation and the right to remain silent
until the accusor has met and discharged the onus.
THE EVIDENCE
[13]
The Minister called one witness, Michael
Pereira, an auditor with Canada Revenue Agency in Edmonton. He produced a book
of exhibits, which included his affidavits sworn 9 November 2012 and 13 March
2013, as well as his memo to file, which is a running contemporaneous chronology
of his involvement as set out on a document bearing Canada Revenue Agency’s
letterhead, which is known as form T-2020.
[14]
He was given Black Sun’s file to audit in
December 2010. A desk review indicated that income per T-5018 slips exceeded
the reported income. Black Sun is in the construction business, more
particularly scaffolding. Corporations in that line of business, who seek
business deductions, must issue T-5018 slips to their suppliers. It was also
noted that there had been a shareholder change in 2009.
[15]
Over the next several months, Mr. Pereira had
sporadic conversations or meetings with Tim Biscope, Black Sun’s principal, and
its accountant Tom Drinnan. Mr. Biscope’s stated position was always that he
was not personally responsible for any record keeping. His records were with
his accountant. Mr. Drinnan, in turn, said the records he had received were in no
particular order and that the client was disorganized. He asked for various
extensions and finally, by September 2011, provided a first batch of records. I
think it fair to say that Mr. Drinnan was giving Mr. Pereira the run-around.
[16]
Mr. Pereira was of the view that the records
were incomplete. There was no general ledger statement, bank statements for all
the years in question were incomplete, few supplier invoices were provided and
in no particular order. He waited the next batch of records, which were
promised by Mr. Drinnan. They were not forthcoming.
[17]
Consequently, he issued a notice to Black Sun
with respect to the audit for the period from 1 October 2006 to 30
September 2009. He referred to his authority under section 231.1 of the Income
Tax Act, which gave him the right to inspect records. “As of today’s date (i.e.,
18 June 2012) you have not fully complied with that request.” He listed 19
sources of information or documents to be made available.
[18]
A meeting was arranged with Mr. Drinnan. He
begged off on the grounds of medical reasons and asked for an extension. By the
end of August 2012, Mr. Drinnan repeated he still had health issues and did not
have records ready for review but he did provide some information.
[19]
Despite promises from Mr. Drinnan, nothing further
was forthcoming.
[20]
Consequently, the Department of Justice was
retained, and counsel Margaret McCabe wrote to Black Sun saying that if the
requested information and documentation was not provided, an application would
be made to the Federal Court for a compliance order.
[21]
This led to the hearing before Mr. Justice
O’Reilly. Although Mr. Pereira did not attend, his note to file indicates
that a Mr. Doug Forer appeared on behalf of the respondents and said that they
did not have documents for 2006. He was informed that Ms. McCabe had told Mr.
Forer that the taxpayer should have some documents and that at a meeting at
some point they would be able to assess the situation and determine if some
years where documentation is lacking would warrant a Net Worth approach.
[22]
However, by 5 April 2013 Mr. Forer wrote to Ms.
McCabe to send along copy of correspondence from the accountant, Mr. Drinnan,
in which he said: “Certain files and backup information is gone and cannot be
replaced, including the information referred to for Black Sun Rising Inc.” Mr.
Forer did include in that letter some information about bank accounts and
credit card information. In her email to Mr. Pereira, Ms McCabe said (privilege
obviously being waived):
Mr. Forer has
informed me that he suggested to Mr. Biscope that the latter should make a
request from TD for copies of bank statements and any other documents for the
material. I indicated I do not believe Mr. Biscope appreciates the seriousness
of this matter and that we would be taking this to the contempt stage and Mr.
Biscope will have to establish for the court that he is not in contempt of the
order by purging it and by producing all, or a goodly amount, of the requested
documents.
[23]
Part of Mr. Forer’s letter was pasted into Mr.
Pereira’s notes to file. The entire letter is in the court file as part of a
motion by the respondents for an order under rule 41(4) of the Federal
Courts Rules for a subpoena to compel the attendance of Mr. Drinnan, duces
tecum, a motion which was unopposed. In his letter, Mr. Drinnan stated that
in April 2011 he had to move his office due to the bankruptcy of his landlord.
Some old boxes were marked to be thrown out but it now appears that some Black
Sun documents were thrown out as well. He concluded:
For the above
reasons, certain files and backup information is gone and cannot be replaced
including the information referred to for Black Sun Rising Inc.
[24]
Nevertheless, Ms. McCabe appeared before Madam
Justice Heneghan and obtained a 9 July hearing date. According to Mr.
Pereira’s notes, she told him:
As a result of the
fact that Mr. Drinnan appears to have lost of the taxpayer’s information, I
have been informed that Mr. Biscope will now make efforts to obtain copies of
bank statements and whatever supporting documents he can obtained from the
banks and past clients and supplies. Mr. Forer inquired whether you would be
interested in a meeting with Mr. Forer and Mr. Biscope to discuss what type of
information they should “recreate” for the purposes of your audit. I would
obviously attend at that meeting, if you are interested in having such a
meeting. Please call me to discuss further.
[25]
Apparently, Mr. Pereira was not interested in
having such a meeting.
[26]
Finally, on Friday, 5 July 2013, Mr. Forer
delivered to Ms. McCabe a bundle of documents, which in turn were passed on to
Mr. Pereira. His preliminary assessment is that this bundle satisfies some, but
not all of his requirements. To be fair, however, he has not had sufficient time
to analyze the bundle in depth.
CHARGE OF
CONTEMPT DISMISSED
[27]
At the conclusion of the Minister’s evidence, I
informed Mr. Forer that it would not be necessary for him to call his two
witnesses: Mr. Biscope and Mr. Drinnan, as I was not satisfied that a case of
contempt had been made out.
[28]
Has the Minister established that Black Sun and
Mr. Biscope are poor record keepers? Yes, he has.
[29]
Has the Minister established that the
accountant, Mr. Drinnan, was unreliable and let Black Sun and Mr. Biscope down?
Yes, he has.
[30]
Has the Minister shown that Black Sun and Mr.
Biscope have deliberately and wilfully disobeyed Mr. Justice O’Reilly’s order?
No, he has not.
[31]
Does the Minister’s evidence show contempt
beyond a reasonable doubt? No, it does not.
[32]
The Minister seems to have taken the position
that all that had to be done was to show that the order of Mr. Justice O’Reilly
had not been fully complied with. Indeed, somewhat telling is the Minister’s
written submissions which are titled: Applicant’s Submissions as to Sentence,
not submissions on contempt.
[33]
A decision strongly relied upon by the Minister
is that of Mr. Justice Zinn in Canada (National Revenue) v Money Stop Ltd,
2013 FC 133, 2013 DTC 5043, [2013] FCJ No 143 (QL). That case is entirely
distinguishable on its facts. Playing the role of Mr. Justice O’Reilly, I
issued an order of compliance pursuant to s. 231.7 of the Income Tax Act.
As the respondents did not comply, Madam Justice Gleason issued a show cause
order. At the contempt hearing before Mr. Justice Zinn, they admitted that they
did not comply with my order. Based on that admission, and being satisfied that
all other requirements were met, Mr. Justice Zinn issued an order finding the
respondents in contempt, but gave them a further period to provide certain
information, failing which the Minister was at liberty to proceed with the
request that this Court issue a sentence for contempt.
[34]
The respondents having failed to comply, the
Court then proceeded to the sentencing stage. At the last minute, certain information
was provided. As Mr. Justice Zinn found at paragraph:
The respondents have
provided no evidence either through affidavit or oral testimony to dispute the
Minister’s evidence, which the Court therefore accepts. I remain
satisfied beyond a reasonable doubt that the respondents remain in
contempt.
[My Emphasis]
[35]
Although certainly not timely, evidence was
provided in this case before the contempt hearing, not at the sentencing stage.
Furthermore, on the Minister’s own evidence, there has been an effort to
comply, including an offer to meet which was not taken up.
[36]
Counsel submits that to avoid a finding of
contempt and to prevent the Minister from carrying out a proper audit, all one
need do is hire an incompetent accountant. That is simply not so. Mr. Justice
O’Reilly’s order remains in force, subject to a new timetable. If after
assessing the information provided, and the reasonableness of the explanations
as to why some documentation never existed, and while other documentation was
lost by the accountant, the Minister is at liberty to bring on a fresh show
cause order. It is one thing not to dance as quickly as the Minister would
like. It is quite another to put someone in jail for a maximum period of five
years less a day. It would be quite wrong to have that possibility hanging over
the respondents’ based on the evidence presented before me. The Minister has an
arsenal of options open to him. He can call upon third parties, such as the
accountant, and such as the purchasers of goods and services to provide
information. He has their names. He can also do a net worth assessment. Black
Sun may well rue its failure to maintain proper records.
[37]
The Minister is not satisfied that enough has
been produced, quickly enough. That is not the issue. The issue is whether it
has been proven beyond a reasonable doubt that the respondents deliberately and
wilfully disobeyed a court order. The evidence falls short. It would be
inappropriate, on the evidence before me, to have a contempt order hanging in
terrorem over the respondents’ heads.
[38]
In the circumstances, there shall be no order as
to costs.
Email this Content