Date: 20111018
Docket: A-420-10
Citation: 2011 FCA 288
CORAM: EVANS
J.A.
LAYDEN-STEVENSON
J.A.
STRATAS
J.A.
BETWEEN:
DUNDURN STREET LOFFTS INC.
and ALEXANDER STREET LOFTS
DEVELOPMENT
CORPORATION INC.
Appellants
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
STRATAS J.A.
[1]
This
is an appeal from a judgment of the Tax Court of Canada (per Justice Favreau):
2010 TCC 553.
[2]
The
issue in this appeal is whether the appellants are barred under the doctrine of
issue estoppel from relitigating the quantum of net tax and penalties owing
under certain reassessments made under the Excise Tax Act, R.S.C. 1985,
c. E-15. The bar against relitigating quantum was said to arise from findings
of fact made in a criminal proceeding against the appellants. In that criminal
proceeding, the appellants were convicted for fraud concerning claims for input
tax credits. The input tax credits, found to be fraudulently claimed, fell
within the period covered by the reassessments.
[3]
The
Tax Court concluded that issue estoppel applied to bar the appellants from
relitigating. It also concluded that it would not exercise its discretion in
favour of allowing the appellants to relitigate.
[4]
As
there are no grounds on which these conclusions can be set aside, I would
dismiss the appeal with costs.
A. The
reassessments in issue
[5]
In
2000, the Minister issued reassessments against the appellants totalling
$702,646 in net tax and penalties. The basis of the reassessments was that the
appellants improperly claimed input tax credits from December 17, 1996 to
January 31, 1999.
B. The
earlier proceedings that are said to give rise to the bar
[6]
In
2004, the appellants and their director and officer, Mr. Stelmaszynski, were
charged with fraud and attempted fraud under section 327 of the Act.
Specifically, they were charged with fraudulently claiming or attempting to
claim refunds under the Act by claiming false input tax credits in their GST
returns.
[7]
After
a seventeen day trial in the Ontario Superior Court of Justice, the appellants
and Mr. Stelmaszynski were convicted.
[8]
Mr.
Stelmaszynski was sentenced to a period of imprisonment. The appellants and Mr.
Stelmaszynski were fined jointly a total amount of $702,646.59, the amount of
the fraud and attempted fraud alleged in the charge: R. v. Alexander Street
Lofts Development Corp., [2005] G.S.T.C. 141 (Ont. S.C.J.).
[9]
The
amount of the fine was in accordance with the specific formula set out in
paragraph 327(2)(a) of the Act: the fine was “100%...of
the amount of the tax or net tax that was sought to be evaded.”
[10]
The
amount of the fine, i.e., the amount of the tax sought to be evaded, is
the amount the Minister seeks in the reassessments presently before the Tax
Court.
[11]
The
appellants’ appeal from their conviction and sentence was dismissed: R. v. Alexander
Street Lofts Development Corporation Inc., 2007 ONCA 309. Leave to
appeal to the Supreme Court was dismissed: (2007), 248 OAC 398. The criminal
proceedings became final at that point.
C. The
later proceedings in the Tax Court
[12]
Following
their conviction, the appellants appealed the reassessments to the Tax Court.
Somewhat later, the respondent brought a motion in the Tax Court for an order
seeking to bar the appellants from relitigating the quantum of net tax and
penalties owing under the reassessments.
[13]
The
Tax Court granted that order. It found that the appellants were barred from
litigating the quantum of net tax and penalties owing under the reassessments
under the doctrine of issue estoppel. Issue estoppel is one of three doctrines aimed at preventing relitigation, the other
two being abuse of process and collateral attack: Danyluk
v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460
(issue estoppel); Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003]
3 S.C.R. 77 (abuse of process); R. v. Consolidated Maybrun Mines Ltd.,
[1998] 1 S.C.R. 706 (collateral attack).
[14]
The
Tax Court found that the preconditions for issue estoppel were met. This
finding was not seriously contested in this Court. The Tax Court committed no
reviewable error in making this finding:
● Same question. The question before
the Tax Court – the amount of the tax owing – was decided in the criminal
proceedings. As mentioned in paragraph 9, above, for the purposes of
calculating the fine under paragraph 327(2)(a) of the Act, the Ontario
Superior Court of Justice had to make a finding regarding the amount of tax the
appellants sought to evade.
● Finality. The criminal proceedings
culminated in the decision of the Supreme Court to refuse leave to appeal. The
proceedings are final.
● Identity of parties. The appellants
and the respondent, Her Majesty the Queen, are parties in both the criminal
proceedings and the Tax Court proceedings.
(see Danyluk,
supra at paragraph 25.)
[15]
The
Tax Court went on to consider whether, in its discretion, it should allow relitigation.
After examining the circumstances of this case, the Tax Court declined to
exercise its discretion in favour of relitigation.
D. The
main issue on appeal to this Court: the Tax Court’s decision not to exercise
its discretion in favour of relitigation
[16]
Argument
in this Court focused on the Tax Court’s decision not to exercise its
discretion in favour of relitigation. This is primarily a fact-based,
discretionary decision. For this Court to interfere, we must find that the Tax
Court’s decision was vitiated by palpable and overriding error. I see no such
error.
[17]
In
this Court, broadly speaking, the appellants suggest that the quantum of the
tax that was found to have been evaded was never actually calculated in the
Ontario Superior Court of Justice. This, they say, should have led the Tax
Court to exercise its discretion in favour of allowing the quantum of tax to be
relitigated.
[18]
The
appellants allege that the issue of quantum was withdrawn from the jury and was
never actually calculated by the presiding Justice in the criminal proceedings.
Instead, counsel representing the appellants and Crown counsel simply assumed that
the amounts of evaded tax in issue were as alleged in the charges. The
presiding Justice simply adopted that assumption as the basis of her decision
regarding the quantum of the fine.
[19]
The
appellants’ submission gains some force from observations made by the Court of
Appeal for Ontario. It noted that
the trail judge assumed the quantum of tax evaded and that it would have been
better if the trial judge had made a specific finding on this based on the
evidence before her: see paragraphs 30-32.
[20]
In
answer to this issue, the Tax Court found (at paragraph 24) that the amounts in
issue “formed an essential and integral element” in the criminal proceedings. Although
this is true in the sense that the amounts formed the basis for the fine, the
Tax Court’s answer does not directly address the appellants’ main concern, namely
that the amounts in issue were only assumed, not determined.
[21]
Nevertheless,
the Tax Court’s refusal to allow relitigation was amply supported by other
considerations it identified. Some of these considerations concerned Mr.
Stelmaszynski, who was not a party to the Tax Court proceedings but, as the
appellants’ officer and director, controlled their cases in the Tax Court. The
Tax Court found as a fact that Mr. Stelmaszynski had no interest in vindicating
any rights of the appellants concerning the amounts in issue. Instead, he was
using the Tax Court’s proceedings to relitigate the criminal case against him
and to clear his own name (at paragraph 26). Further, the Tax Court found that
the appellants were defunct, have no assets and had not yet even paid their
criminal fine (at paragraph 27). Finally, the Tax Court expressed concern about
judicial economy, possible consistency of outcomes between the criminal
proceedings and the Tax Court proceedings, and the integrity of the
administration of justice (at paragraph 27).
[22]
There
is one further consideration that strongly supports the Tax Court’s refusal to
allow relitigation. By the time of the criminal trial, the appellants already
had in hand the tax reassessments against them. They knew they could appeal
those reassessments on appeal to the Tax Court. With that knowledge and with a
real risk of a finding of issue estoppel in the Tax Court, the appellants chose
during the sentencing phase of the criminal proceedings not to seriously
contest the quantum of tax said to have been evaded. When the appellants made
that choice, they were represented by counsel. There is no evidence suggesting
that that choice was somehow accidental or mistaken. There is no evidence of
any attempt to reserve future rights. In my view, there is no ground for
relieving the appellants from the consequences of their choice.
[23]
Finally,
in order for the discretion to be exercised in favour of relitigation, the
circumstances favouring it must outweigh the important public policies against it.
These public policies include the need for finality, the avoidance of
duplicative litigation, the concern about potentially inconsistent results, and
the incurring of unnecessary costs: Danyluk, supra at paragraph
18. The Tax Court was not satisfied that the circumstances favouring
relitigation outweighed these important public policies. There is no ground to
interfere with that conclusion.
E. Proposed
disposition
[24]
Therefore,
I would dismiss the appeal with costs.
"David
Stratas"
“I
agree
John M. Evans J.A.”
“I
agree
Carolyn Layden-Stevenson J.A.”
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