Pedro Ferretti v. Roger Glen Johnson, [1992] 2 CTC 307

Thackray, J.:— The issue is whether this Court should send its reasons to the Attorney General with respect to the perjury that may have been committed by the plaintiff and whether or not the Court should report to Revenue Canada the plaintiffs failure to file income tax returns.

As to the matter of possible perjury, it is something that I would have dealt with if the case had gone to judgment. I would have made findings in that regard and would have commented upon the credibility of the plaintiff. This opportunity did not arise in that the parties reached a settlement.

The credibility of the plaintiff was no doubt taken into account in the settlement. That being the case, and the Court having been excluded from the final judgment process, I do not think that the Court should take any further steps with regard to the conduct of the plaintiff during the examination or trial processes.

I am more troubled by the income tax situation. Mr. Ferretti said he had not filed income tax returns yet was claiming a loss of income past and prospective. Both counsel have submitted that it would be inappropriate for the Court to take any steps to report the plaintiff to Revenue Canada.

Counsel for the defendant said:

The Court's role is to arbiter disputes brought before it by litigants, whether they be private litigants, public bodies, or the Crown. It has a right to do what it can to ensure that its process, designed to enable it to resolve disputes, is not abused.

In applying the test suggested above to the situation presented here, the defendant submits that any failure on the part of the plaintiff to file income tax returns did not adversely affect the administration of justice by the Court. To the extent that the absence of copies of filed income tax returns would make more difficult the plaintiff's establishing a record of employment, it would be the plaintiff who would suffer the consequences by way of a diminished award for income loss. The absence of the returns, viewed in this light, would not necessarily make it more difficult for the Court to assess income loss.

It may also be that the Court should decline to actively encourage investigation of any potential income tax offence on the ground that the parties before the Court should be encouraged to give their evidence with candor. Litigants might be less forthright about admitting in Court past abuses concerning income tax if they are concerned that the Court might cause there to be an active investigation of a possible offence.

I appreciate the above comments but remain troubled. No one should be rewarded for telling the truth. That is expected. Nor do I accept that people should turn a blind eye to apparent dishonest conduct. This includes the courts. I tend to the opinion that most right-thinking people would find it most quizzical that the courts, the institution charged with dispensing justice, should remain mute.

On the other hand, I am aware of the difficulties that would emanate from a Court policy of reporting apparent income tax frauds or breaches. It would impose upon the courts the necessity to determine whether or not there was conduct that, at least on the face, was worthy of investigation. Where to draw the line would be most difficult. For instance, would the obligation go so far as to require reporting a possible failure to report all "tips" received by a waiter or waitress?

Of most importance is the separation of powers in our system. The courts jealously guard their role as being a judicial power, as distinct from executive and legislative. Even the simple act of reporting potential income tax evasion might be seen as invading the executive functions of government.

The importance of judicial independence from the executive was emphasized in the following statement by Chief Justice Nemetz in A.M. Linden, The Canadian Judiciary (Toronto: York University, 1976) at page 13:

I have observed at first hand the judicial processes in Russia, China and Yugoslavia. In these countries the courts are, by and large, adjuncts of the executive arm of government, carrying out the programmes and wishes of the executive. . . If one examines the Swedish system, one is struck by the fact that even in so liberal a country the judges are not considered independent in the sense of the common law term. In fact, the judges in Sweden, although independent minded, are considered by many. . .to be a variety of civil servants without the independent status attending the British, American or Canadian jurist which stems from the separation of powers. The basis of our system stems from the equal and coordinate nature of the three branches of government, the legislature, the executive and the judges.

There does not appear to be a statutory requirement for any person to report a suspected case of tax evasion. On the other hand, Revenue Canada has extensive powers of investigation and enforcement. The judiciary has an important role to play in safeguarding the taxpayers' rights from the abuse of those powers. Thus, the Court must be especially careful not to do anything which might compromise, or appear to compromise, its independence from the taxation enforcement authority. Judicial reporting of suspected tax evasion appears to run counter to this principle.

The Anglo-Canadian principles of judicial objectivity and abstinence from prejudgment are long-standing. As long ago as the seventeenth century, Lord Hale set out these rules for judicial guidance (quoted in G.R. Winters, Handbook for Judges (Evanston, III.: American Judicature Society, 1975) at page 274):

That I suffer not myself to be prepossessed with any judgment at all, till the whole business and both parties be heard.

That I never engage myself in the beginning of a cause, but reserve myself unprejudiced till the whole be heard.

Of course those principles are directed to the judicial responsibility during the course of a trial. However, they appear to have some bearing on the issue at hand. The Court's role is that of an objective observer throughout all steps of a judicial proceeding. Apart from a very few matters, particularly contempt, the Court is not the initiator of any cause. The reporting of apparent tax evasion is not only an initiating procedure, but would be done by the very body that might exercise the ultimate judicial decision.

I have concluded that the general principles enunciated above are persuasive and I will take no further steps in this regard.

Order accordingly.