Michel Gravel v. Minister of National Revenue, [1992] 1 CTC 2521, 92 DTC 1935

Lamarre Proulx, T.C.C.J.:—The appellant appeals from a reassessment by the respondent, the Minister of National Revenue (the "Minister"), for 1985. This reassessment is dated March 12, 1990.

The main issue is whether the appellant was acting as a mandatary in receiving certain sums of money which he admits having received or whether these sums were a payment for services. In other words, the issue is whether he received these sums on his own behalf or on behalf of another.

There is another issue relating to a penalty imposed under subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act").

The facts on which the respondent relied in making his reassessment are described in paragraph 3 of the reply to the notice of appeal, as follows:

[Translation]

3. In issuing the notice of reassessment dated March 12, 1990, in respect of the appellant's 1985 taxation year, the respondent relied, inter alia, on the following presumptions of fact:

a. while he held office as a Member of the House of Commons in Ottawa, the appellant solicited, accepted and received various unlawful gratuities during his 1985 taxation year;

b. among his unlawful gratuities, the appellant actually received money totalling $40,000 in cash, which was delivered to him by hand by various businessmen pursuant to promises made by the appellant that various government contracts would be granted;

c. out of the $40,000 in cash he received, the appellant incurred expenses totalling $5,000 for holding a reception at his home on or about July 10, 1985;

d. the net sum of $35,000 which the appellant received in cash is duly taxable;

e. the appellant has not established that he incurred other expenses against this source of income;

f. the appellant has not established that he was acting as a mandatary on behalf of another person or that this sum of $35,000 was delivered to another person;

g. in filing his 1985 tax return, the appellant knowingly, under circumstances amounting to gross negligence, made a false statement or omission in his return by failing to include in his income the duly taxable sum of $35,000 referred to above, which justifies a penalty calculated in accordance with section 163(2) of the Income Tax Act;

In his Notice of Appeal, the appellant refers to the facts and reasons alleged in his Notice of Objection, which are as follows:

[Translation]

The sum of $35,000 added under the heading" other income" was never cashed by the taxpayer, as indicated in his Affidavit of August 24, 1989, submitted to Revenue Canada. The taxpayer did receive a sum of $35,000, but that entire sum was delivered to the Honourable Roch Lasalle, then Minister of Public Works of the Government of Canada.

In the aforementioned affidavit, the appellant acknowledges that he received sums amounting to $40,000 and explains what he did with these sums as follows:

[Translation]

(3) The sums described in paragraph 2 above, totalling $40,000, were used as follows,

(a) the sum of $5,000 for the expenses of a reception held on July 10, 1985 at my home, located at 12,073 6e avenue, Rivière-des-Prairies, to cover the costs of caterers and payments made to the Société des Alcools du Québec;

(b) the sum of $35,000, which was delivered in cash by the undersigned to the Honourable Roch Lasalle, then Minister of Public Works of the Government of Canada, on two occasions:

(i) a first payment of $15,000 at his office located in the Confederation

Building in Ottawa, probably during the month of June 1985;

(ii) a second payment of $20,000 at my home at the aforementioned address, at the beginning of July 1985;

(4) I therefore did not benefit in any way from all or part of the sums described in this Affidavit;

The facts

The following facts emerged from the appellant's testimony. He is a graduate of the Hautes Études Commercials of the Université de Montréal, specializing in accounting. In September 1984, he was elected as a Member of the House of Commons for the riding of Gamelin, an urban riding on Montréal Island. At that point the appellant became acquainted with Mr. Lasalle, who was a Member of Parliament at the same time as the appellant, and whose office was located on the same floor near his.

At the beginning of the summer of 1985, friends of the appellant asked him to organize a reception so that they and certain other interested people could meet the ministers responsible for the lists of suppliers of services and materials to the government. Mr. Roch Lasalle was the Minister of Public Works at the time. The reception took place on July 10, 1985, at the appellant's home in Rivière-des-Prairies. The cost of the party came to $4,000 or $5,000. The caterers were paid in cash.

The appellant apparently organized this party after discussing it with Mr. Lasalle, and telling him what sum of money this might bring in for him (Stenographic notes, examination of Michel Gravel, page 6.) The fee for attending had been set at $5,000 per person.

[Translation]

Q. And so, what day was it when Mr. Lasalle had you come in his office to ask you to collect money for him?

A. At the point when I "was talking about doing a party at our home, at that point, Mr. Lasalle said to me: “Are you going to collect money?" I said: "Of course, 1’ll collect money." I said: "We collect $5,000.” Then I said: “The people who pay, they want to be sure that with these sums of money you will put them on a "short list" and that you will give them the opportunity to get contracts, you will intercede on their behalf.”

Q. Did you go to see Mr. Lasalle, or did Mr. Lasalle go to see you?

A. Well, I can't tell you which of us went to see whom. I met with him frequently, when I got off the elevator I was in his office.

Q. I am going to ask you something. Before the party you are referring to, did Mr. Lasalle on his own initiative go to see you and ask you to collect funds in cash for him?

A. I cannot tell you whether he asked me specifically, but he asked me how much it would bring in (Stenographic notes, cross-examination of Michel Gravel, pages 38-39).

The sums were paid in cash to the appellant and no receipts were issued. Apparently, during the month of June, the appellant delivered $15,000 to Mr. Lasalle, at his Parliamentary office. The week-end preceding the Rivière-des- Prairies party, Mr. Lasalle apparently went to the appellant's home to get the $20,000 balance. The money was delivered in cash and there were no witnesses (Ibid., page 101).

Mr. Lasalle apparently told him, when charges under the Criminal Code had been filed against the appellant, in respect of the facts in question: [Translation] If you don't say a word, don't talk about it, then I will arrange everything, you won't have any problem and you won't go to prison, and income tax you won't have any. Plead guilty’ (Ibid., page 83). For the first time in April 1990, the appellant mentioned Roch Lasalle's name as being the person to whom he had delivered the $35,000.

The following people were called to testify for the appellant: Roger Chaput, Frank Majeau, Raymond Bérubé, Michel Leduc, André Rivest and Roger Ma- jeau.

Roger Chaput

Roger Chaput was Roch Lasalle's driver. He confirmed that he had driven Mr. Lasalle to the appellant's home on two occasions.

Frank Majeau

Frank Majeau stated that he had known Mr. Lasalle for 35 to 40 years, that Mr. Lasalle was a friend of his and a friend of his family. He stated that in July or August 1985, Mr. Lasalle told him, during a golf game, in passing and without further detail: [Translation] Yes, that's right, Michel gave me $35,000” (Stenographic notes, Frank Majeau, pages 155-56). However, a little later in his testimony, the witness states: [Translation] "When the case of Mr. Gravel was raised, I did not know Mr. Gravel, I had never seen him. I did not know him at all’ (Ibid., page 184).

Raymond Bérubé

Raymond Bérubé is an officer of the Royal Canadian Mounted Police, and in 1986 he undertook an investigation which led to the charges laid against Mr. Gravel on May 25, 1988. As a result of statements made by Mr. Gravel in June 1990 before the Ordre des Architectes du Québec, in which the appellant implicated Mr. Lasalle for the first time, the investigation was reopened. Mr. Bérubé states that at a dinner on May 5, 1991, at La Paysanne restaurant in Repentigny, at which Frank Majeau, Michel Gravel, himself and one of his colleagues were present, Mr. Majeau made the following comments to him:

[Translation]

During the supper, Mr. Majeau told me, to my great surprise I might add, because I had met him several times, that he could testify or provide support for Mr. Gravel's statements, in testimony that he could give. However, he did not give me any details as to the nature of the testimony (Stenographic notes, Raymond Bérubé, pages 20 and 85).

Mr. Bérubé also states that he did not get any corroboration from the people who had given $5,000 concerning Mr. Gravel’s allegations that the amounts were collected for Mr. Lasalle. Mr. Bérubé did not obtain any statement from the people who paid to attend the party that they had given money to Mr. Gravel with a mandate to deliver it to Mr. Lasalle. The participants paid this money to the appellant because he gave them the opportunity of meeting the ministers whom they wished to meet (Ibid., pages 76-78 and 87-88).

Mr. Bérubé questioned Mr. Lasalle on two occasions, first in 1986 and then at the end of 1990 or beginning of 1991 :

[Translation]

. . . And after that, he was asked the question whether he had received the $35,000 from Mr. Gravel. That was direct, and he told us no. Then after that, he was asked whether he had received money from anyone else concerning Mr. Gravel, other than the $35,000, and he again told us no.

After that, he was asked the question whether he had ever been to Mr. Gravel's home, and he told us that on two occasions . . .

Q. What were those two occasions?

A. One occasion was the party, naturally, on July 10.

Q. Yes?

A. And another occasion, which he believed might have been after the party, but he was not too, too certain, when he had stopped at Mr. Gravel's home to get a claim that Mr. Gravel had for him, from Frank Trinci, the Hull contractor (Ibid., pages 29-30.)

Michel Leduc

Mr. Leduc, an auditor with the Department of Revenue, explained that he had begun his investigation around May 1989. After a brief examination of the appellant's assets, he concluded that the appellant had probably not received more than $40,000 in additional unreported income earned during the time he held office as a Member of Parliament.

[Translation]

. . . l knew that the money had gone to Mr. Gravel. Mr. Gravel admitted to me that he had received the money. As well, I did balance sheets, but it was really just rough. I thought, in other words, if he received $40,000, he might have received $150,000 too. And so I did the balance sheets solely to see whether it might balance out, roughly, but without going into detail. In other words, I did not go into detail, trying to reconstruct the $40,000 and all the income Mr. Gravel reported. It was just rough, to get an idea, to see whether the person is reporting $100,000 and then we find he received income of $250,000, it was a rough calculation. Then at that point I saw nothing abnormal. Expenses, everything corresponded approximately to what might have been reported plus the $40,000, those things. Nothing actually came out of it.

Q. And so nothing was. . . .

A. And so in terms of net assets, in terms of the rough outline of net assets, the balance sheets and all that, I dropped it and I just looked at what had been received, at what the witnesses had told me, and what Mr. Gravel had told me, that is, that he had indeed received $40,000 (Stenographic notes, Michel Leduc, page 208).

André Ri vest

In 1984, André Rivest was in charge of Roch Lasalle's election campaign. Mr. Lasalle then appointed him as riding secretary for the riding of Joliette, which position he held until July 1986. Roger Majeau was his assistant.

In 1986, Roch Lasalle’s friends wanted to celebrate his twenty years in politics. The main organizers of the twentieth anniversary celebration were Mr. Rivest, as the chairperson, Roger Majeau, as the secretary, Frank Majeau and Gervais Desrochers. Tickets cost $150, and there were 1,000 to 1,100 people present in the Jolosium, a hall in Joliette. The witness could not say the exact total of the money collected but he mentioned $150,000 to $180,000 (Stenographic notes, André Rivest, page 15).

Mr. Lasalle had not himself requested that a party in his honour be organized, but he was pleased with it because it was an opportunity to collect a lot of money for the Progressive Conservative Party riding association for the riding of Joliette (the"Association") The witness asked Mr. Lasalle what he would like as a gift and he replied a Cadillac. [Translation] "That's perfect, we’ll buy a Cadillac. If we have the money you will get a Cadillac, and if we don't, you'll get a Volkswagen! That is what I told him, word for word. He started laughing" (Ibid., page 16).

Thereafter, Mr. Rivest learned that giving a Cadillac could not be done as it would not have been well perceived by the party or the public. It was suggested that he be given the equivalent in cash at a meeting of the organizing committee (Ibid., page 22). However, the witness added that if they could not give him a car, giving him the equivalent in cash was no better. Accordingly, two bank accounts had to be opened: one which was used for the administration of the celebration, and the other where certain sums of money would be deposited which the organizing committee thought it would not need for the celebration, and which could be used for the gift. The signing authorities for the latter account were André Rivest and Roger Majeau. No one other than the four persons referred to above were aware of this special bank account (Ibid., page 17). The bank accounts were kept at the National Bank, Place Bourget, in Joliette (Ibid., page 18). Neither the bankbooks nor any statements were entered into evidence.

The celebration took place in May 1986. At the reception Mr. Lasalle was given a caricature having a value of $400 to $500, and golf clubs having a value of $1,200 to $1,300. Mr. Rivest states that on July 26, at L'Escale restaurant in Joliette, he gave Mr. Lasalle an envelope containing fifty $1,000 bills (Ibid., pages 19 and 23, 24). According to him, the envelope was delivered without the knowledge of the other guests, in an isolated spot. The Association also received $50,000, which was deposited in the bank in a savings account for which Mr. Lasalle was responsible (Ibid., page 21).

Roger Majeau

Roger Majeau also testified for the appellant with respect to the $50,000 gift. He stated that one of the bank accounts was for collecting the $50,000 for Mr. Lasalle, and the other was for collecting money for the Association and paying the expenses. This meant that after paying the expenses, there was about $50,000 to $55,000 remaining in the account, which was paid to the Association. The signing authorities for the two bank accounts were Roger Majeau and André Rivest, jointly.

The witness said that they proceeded as follows in taking funds out of the account and delivering the money in question to Mr. Lasalle: Mr. Rivest asked him to sign a blank cheque and then he never heard about it again. Mr. Lasalle never told him that he had received the $50,000 (Stenographic notes, Roger Majeau, pages 78-79).

Roch Lasalle

Mr. Lasalle testified at the request of the respondent. He stated that he went to Mr. Gravel's home for the celebration on July 10 and another time in September or October 1985, to get a document relating to a claim by a contractor in the Outaouais region against the Department of Public Works (Stenographic notes, Roch Lasalle, pages 107-108).

With respect to the celebration of his twentieth anniversary in politics, Mr. Lasalle stated that he was not in charge of that celebration and that those in charge had to make a report and were required to deliver the report to the Association and not to the Member of Parliament (Ibid., page 102). He con- firmed that $50,000 had been delivered to the Association after the celebration (Ibid., page 101). With respect to the Cadillac, he says it was a joke (Ibid., page 105). He denied having received $50,000 as a gift after this celebration (Ibid., page 101).

Under section 12 of the Canada Evidence Act (R.S.C. 1985, c. C-5), the appellant's convictions were filed into evidence.

The charges are dated May 25, 1988. The appellant pleaded guilty on December 7, 1988 to fifteen (15) counts, nine (9) of which were under paragraph 119(1)(a) of the Criminal Code (paragraph 108(1)(a) in 1988) and six (6) of which were under subparagraph 121(1)(a)(ii) of the Criminal Code (subparagraph 110(1)(a)(ii) in 1988). Judgment was rendered on February 6, 1989. The aforementioned paragraphs of the Criminal Code read as follows:

119. (1) Every one who

(a) being the holder of a judicial office, or being a member of Parliament of Canada or of the legislature of a province, corruptly

(i) accepts or obtains,

(ii) agrees to accept, or

(iii) attempts to obtain,

any money, valuable consideration, office, place or employment for himself or another person in respect of anything done or omitted or to be done or omitted by him in his official capacity. . ...

is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.

121. (1) Every one commits an offence who

(a) directly or indirectly

(i) gives, offers, or agrees to give or offer to an official or to any member of his family, or to any one for the benefit of an official, or

(ii) being an official, demands, accepts or offers or agrees to accept from any person for himself or another person,

a loan, reward, advantage or benefit of any kind as consideration for cooperation, assistance, exercise of influence or an act or omission in connection with

(iii) the transaction of business with or any matter of business relating to the government, or

(iv) a claim against Her Majesty or any benefit that Her Majesty is authorized or is entitled to bestow,

whether or not, in fact, the official is able to co-operate, render assistance, exercise influence or do or omit to do what is proposed, as the case may be;

Incidentally, it emerged from the evidence that the individuals who had given money to the appellant were also convicted of corruption under one or more provisions of the Criminal Code.

Solicitor for the respondent referred to the following case law and doctrine:

M.N.R. v. Eldridge, [1964] C.T.C. 545, 64 D.T.C. 5338; The Queen v. Poynton, [1972] C.T.C. 411, 72 D.T.C. 6239; Violi v. M.N.R., [1980] C.T.C. 2228, 80 D.T.C. 1191; Venne v. The Queen, [1984] C.T.C. 223, 84 D.T.C. 6247; Cloutier v. The Queen, [1978] C.T.C. 708, 78 D.T.C. 6485; J. Sopinka, S. N. Lederman, The Law of Evidence in Civil Cases (Toronto: Butterworths, 1974) at pages 527-35.

Analysis

Income from illicit activities

Counsel for the appellant did not submit, and rightly so in view of the case law, that moneys received from unlawful activities were not income, as a ground for dismissing the appeal. Nonetheless, Counsel for the respondent dealt with this question and referred the Court to two of several decisions on this point to establish that earnings from unlawful activities are subject to the Act.

In Eldridge, cited above, at page 5342, Mr. Justice Cattanach of the Exchequer Court makes the following comments in respect of the taxation of income from unlawful sources:

At this point I would mention it is abundantly clear from the decided cases that earnings from illegal operations or illicit businesses are subject to tax. The respondent, during her testimony, remarked that she expressed the view to the officers of the Taxation Division that it was incongruous that the government should seek to live on the avails of prostitution. However, the complete answer to such suggestion is to be found in the judgment of Rowlatt, J. in Mann v. Nash, [1929-1932] 16 T.c. 523, where he said at page 530:

It is said again: “Is the State coming forward to take a share of unlawful gains?" It is mere rhetoric. The State is doing nothing of the kind: they are taxing the individual with reference to certain facts. They are not partners; they are not principals in the illegality, or sharers in the illegality; they are merely taxing a man in respect of those resources. I think it is only rhetoric to say that they are sharing in his profits, and a piece of rhetoric which is perfectly useless for the solution of the question which I have to decide.

In Poynton, cited above, Mr. Justice Evans of the Ontario Court of Appeal shared that opinion, at page 6332:

The question is what quality must be attached to a profit, gain or benefit before it can be characterized as "income" for the purpose of taxation? There is no doubt that the word “income” in the Income Tax Act is sufficiently wide to include money other than that received from bona fide transactions. The fact that profits are derived from an illegal business does not make them immune to taxation (Minister of Finance v. Smith, [1927] A.C. 193 [1 D.T.C. 92]) and courts have been equally consistent in allowing, as deductions from income, expenses which are tainted with illegality. In ascertaining the net profits of a business, items of expense which are of an illegal nature are nonetheless deductible if they come within the provisions of the Act as payments made wholly, exclusively and necessarily for the purpose of earning the income sought to be taxed. (Espie Printing Company Ltd. v. M.N.R., [1960] Ex. C.R. 422, [1960] C.T.C. 145, 60 D.T.C. 1087).

Mandate agreement

In order to establish that these sums were received not on his own behalf, but on behalf of another, the appellant attempted to establish that there was an agreement in the nature of a mandate between himself and Mr. Lasalle, or between himself and the people who paid to attend the party in question, with respect to the sums which he admits having collected in 1985. If this were the case, these sums would not be included in computing his income for the 1985 taxation year. On this point, I cite the following passage from the reasons of Pigeon, J. in Victuni:

Any mandatary, apparent or covert, who holds property on another's behalf is required to report to the tax authorities what he receives on his mandator's behalf, but he is not liable for the tax (Victuni v. Minister of Revenue (Que), [1980] 1 S.C.R. 580, at p. 585).

In civil law, a mandate must be given for a lawful object to be valid (Civil Code of Lower Canada, Art. 1701). However, in tax law, for the purposes of taxing the income derived from illicit activities, such agreements are taken into account in order to determine which person benefited from the income and who should be taxed (On this point, see The Queen v. Poynton, cited above. See also Halsbury's Laws of England, vol. 23, 4th ed., (London: Butterworths, 1991) at page 128; Minister of Finance v. Smith (1926), [1927] A.C. 193.)

In order to show that it was plausible that such an agreement existed with Mr. Lasalle, the appellant introduced in evidence a supposedly similar situation that occurred in 1986.

The respondent submits that the sums received by the appellant were in payment for his services and therefore received on his own behalf.

The appellant argues that there was an agreement in the nature of a mandate between himself and Mr. Lasalle, who was then Minister of Public Works of the Government of Canada. The appellant would have been acting as the agent or mandatary for Mr. Lasalle when asking certain individuals for sums of money in return for putting the names of their firms on the federal government's lists of suppliers of materials and services. The appellant would have delivered these sums to Mr. Lasalle.

The appellant further submits that he would have been acting as an intermediary, in the nature of a delivery person with respect to the sums of money given by the participants. These participants would have given the sums of money to the appellant so that he would in turn give them to Mr. Lasalle on their behalf.

Let us now examine the testimonial evidence, the first testimony having come from the appellant himself. In his testimony, the appellant did not, in my view, describe circumstances indicative of a mandate. If there had been a mandate given by Mr. Lasalle, the circumstances and the terms and conditions of the matter would have been those established by Mr. Lasalle. He would have explained to Mr. Gravel exactly what he wanted him to do, as a mandatary. He would have given him specific instructions. In the words of the Civil Code, a mandator commits a business to the management of the mandatary. This would have been a special mandate for a particular business. However, this is not at all what we find in the appellant's testimony. The party was organized on the initiative of the appellant and of some of his friends. It is the appellant who set the admission fee for the reception, who organized and planned it, and who invited certain people to his home, promising them certain things. The appellant did not describe any instructions given him by the mandator. The appellant states that Mr. Lasalle asked him how much it would bring in. The asking of that question does not constitute instructions. At most, it could establish Mr. Lasalle's desire to participate in the appellant's business. I have reached the conclusion that the appellant's activities such as he described them do not constitute the activities of a person executing a mandate but rather those of a person carrying on business.

Nor does his testimony describe a mandate of delivery which would have been given to him by the participants. It does not describe the acts of a delivery person. A person acting as a delivery person would have described what he did with the envelopes containing the money while waiting to deliver them and how he delivered them to the intended recipient. What the appellant described were not the activities of a delivery person.

The appellant's allegations that he received the money in question not for his services, but for Mr. Lasalle, were not proved by his own testimony.

The testimony of Frank Majeau was quite vague and quite belated. Even if we assume that what Mr. Majeau alleges was said to him by Mr. Lasalle was actually said to him, there is nothing to prove that these were the same sums as those received to organize the celebration in July 1985 in Rivière-des-Prairies. The witness stated that he did not know Mr. Gravel at that time. Nor does he seem to have been aware of the celebration on July 10 in Rivière-des-Prairies. It was only in 1991 that Mr. Majeau mentioned the possibility of this testimony. He had never mentioned it before to anyone. Moreover, this testimony amounts to hearsay. In view of the vague and belated nature of this testimony which amounts to hearsay, I cannot give it any probative force.

Counsel for the appellant argued that the appellant could only have been acting as an intermediary, because the individuals in question would certainly not have paid the sums of money in question in order to meet him, and therefore that he was not the person who was paid. Neither the evidence nor economic reality supports the argument that the services of an intermediary are not remunerated. Many intermediaries are paid as intermediaries: for instance, lobbyists, brokers, even lawyers. The people who pay them are interested in the results which these people can get and it is for their services that payments are made.

With regards to this argument, it must first be noted that the appellant did not call any of the participants to testify. Their testimony was crucial in describing the circumstances, conditions and reasons for the payments and hence the nature of the agreement leading to such payments.

The appellant could have called on them to testify; he did not. On this point, I wish to quote from the reasons of Pigeon, J. in the Supreme Court of Canada judgment Levesque v. Comeau et al. ([1979] S.C.R. 1010, at page 1012).

In my opinion, the rule to be applied in such circumstances is that a court must presume that such evidence would adversely affect her case.

I can only presume that the payments were made to the appellant in return for his services in obtaining certain results as provided by the agreements between him and the participants. The evidence showed nothing else.

Similar fact

What about the similar fact evidence, that is, the evidence of the delivery and acceptance of a sum of $50,000 at a benefit dinner honouring Mr. Lasalle’s twenty years in politics? This fact was subsequent to the main fact, and was led in evidence either to impeach the testimony of Mr. Lasalle or to demonstrate his character and thus make the mandate agreement possible.

According to the author Royer, evidence of a subsequent similar fact may sometimes be admitted if it is relevant.

[Translation]

. . . Generally speaking, there has been no clear statement by the courts or the authors that an act subsequent to an event should be excluded for reasons of public interest. The inadmissibility of evidence of a subsequent act has no real legal basis. Thus the decisions which admit such circumstantial evidence when it is relevant are more justified (J.-C. Royer, La preuve civile, (Montréal: Les Editions Yvon Blais Inc., 1987) at page 356).

With respect to the relevance of evidence, the same author states:

[Translation]

The limitation on evidence based on relevance is found in both French law and common law. The Quebec courts rely primarily on the English doctrine and case law, even in civil matters which fall under provincial jurisdiction, because our rules of evidence taking have been heavily impregnated by English law. The lack of a formal definition of relevance, the subjective assessment of relevance by the same courts, sitting sometimes in federal matters and other times in provincial matters, and the practical usefulness of establishing uniform standards have accentuated the preponderant influence of the common law.

Relevance is used to restrict the very great freedom which the accusatory and adversarial system grants to the parties in the conduct of a trial. This limitation on the evidence prevents a litigant from proving facts which have no real connection with the litigation or which has no probative force, and which at the same time might create confusion, drag out the argument, or cause unnecessary prejudice to his or her adversary (Ibid., page 343).

Lack of relevance is generally argued either because a fact has no connection with the litigation or because it has no probative force (Ibid., page 344).

For one fact to be relevant to another, there must be a connection or nexus between the two which makes it possible to infer the existence of one from the existence of the other. One fact is not relevant to another if it does not have real probative value with respect to the latter (Cross, On Evidence, 4th ed, at p. 16) (Ibid., page 346).

In criminal cases, the exclusion of evidence with little probative force is justified when it is motivated by a desire to preserve the reputation of an accused who is presumed innocent. However, the test of probative force must not be used excessively to prevent an accused or a party to a civil matter prematurely from presenting valid evidence. Greater confidence must be placed in lawyers who, at the outset of the trial, have more complete knowledge of the facts in issue than the judge.

A judge who is hearing a motion to strike irrelevant statements or who must rule on an objection to evidence on the basis that it is of little probative force must deal with it differently from a judge who is assessing the merit of evidence adduced after an inquiry (Ibid., pages 346-47).

Evidence of a similar act or omission is admissible in theory, if it is relevant (Ibid., page 352).

In the circumstances of this appeal, it must be noted that this is not a similar fact because it concerns the secret delivery and acceptance of a gift. This is not the legal situation asserted by the appellant in the present case. If he were claiming to have given Mr. Lasalle gifts, in particular to ensure his co-operation, the appellant should in any event have included the sums received from the participants, in computing his income, and sought a deduction for the money expended to earn this income, with supporting evidence. (See Espie Printing Co. Ltd. v. M.N.R., [1970] C.T.C. 145, 60 D.T.C. 1087, at pages 1092-93 (Exch. Ct).)

All of this character evidence is irrelevant since it does not relate to juridical acts in the nature of a mandate. In any event, given the denial by the alleged recipient, it would have no probative force. We would have had to see the financial statements of the celebration and the bank accounts, hear the teller who gave out the fifty $1,000 bills, know whether the numbers on those bills were noted and where these bills wound up.

Such a long fight

Counsel for the appellant also argues that the appellant would not have put up such a long fight for some political revenge. Counsel did not define the nature of the argument that the appellant would not have put up such a long fight if he had not truly delivered all or part of the sums received. Is it a legal presumption? Is it subjective speculation? In my view, we risk falling into [Translation] "an impossible comparison of motivational factors" (Dugas v. Pepper, [1988] Q.A.C. 150, at page 154). Such speculation certainly cannot compensate for the lack of evidence.

Appellant's estate and the sums received

She also stated that the respondent's auditor had not found any trace of the $40,000 in Mr. Gravel's estate. That last statement contradicts the auditor’s evidence. The auditor stated that, the appellant's financial statements appeared to him to be correct when taking the $40,000 into account and that he did not consider it necessary to do a more detailed and systematic investigation of net assets to determine whether larger sums might have been received and not reported by the appellant.

Article 1233 of the Civil Code of Lower Canada

The evidence adduced in this case was testimonial evidence. We might ask whether the ordinary rules of evidence in civil law might not apply. This is indeed a question of agreements with an unlawful object. However, as noted earlier, in tax law, income from unlawful activities is normally taxed by taking the nature of the agreements into account as if they were valid. We might then believe that they should be proved in accordance with the rules of evidence relating to agreements between individuals. On this point, I consider it appropriate to recall these rules.

A juridical act is different from a juridical fact, and is proved in a different manner from a juridical fact:

[Translation]

A juridical act is a manifestation of individual will with the direct and immediate purpose of producing legal effects: to create, modify, extinguish, transfer, confirm or recognize a right. This definition covers bilateral and unilateral contracts, but also unilateral acts such as wills, renunciation of a right, payment, a promise to purchase or sell, and even a unilateral undertaking arising under an offer or acceptance. It includes constitutive acts, declaratory acts and translatory acts, and acts of conservation, of administration and of disposition.

A juridical fact is a fact to which the law attributes effects without such effects having been voluntarily intended. This definition includes events which occur independently of human will and which produce legal effects, such as birth, the age of majority, force majeure. It also covers acts done by a person, whether voluntary or not, which result in legal consequences, which were not desired by the actor. This is the case for quasi- contracts, offences, quasi-offences or facts which establish that the conditions which are necessary for a contract to be valid do not exist. Thus even if an offence is done voluntarily, it is a juridical fact, since the consequences thereof were not intended by the actor.

The limitations on testimonial evidence set out in Articles 1233 to 1235 of the Civil Code of Lower Canada relate only to juridical acts. Juridical facts are generally established by a witness, and as an exception by written documents (supra, note 29, page 50).

Québec civil law has adopted the legal theory of contractual freedom. Except in exceptional cases, any person may create, modify or extinguish a subjective right without being subject to any formality. The manifestation of the will to create the right may be expressed orally. On the other hand, a creditor who wishes to compel a debtor to fulfil his or her obligation must establish the existence and substance of the juridical act which created the creditor's right. The Civil Code of Lower Canada contains significant limitations on oral evidence of a juridical act (Ibid., page 465).

Article 1233 C.C. is motivated both by public interest and by private interest. The Prohibition on testimonial evidence was first enacted with the aim of reducing perjury and obtaining greater certainty of the truth of a disputed fact. (Ibid., p. 469).

[Emphasis added.]

The limitation on testimonial evidence imposed by Article 1233 C.C. applies to any party to a juridical act who wishes to prove it against a third person (Ibid., p. 471).

Article 1233 of the Civil Code of Lower Canada reads as follows:

Proof may be made by testimony:

1. Of all facts concerning commercial matters;

2. In all matters in which the principal sum of money or value in question does not exceed $1,000;

3. In the case of a lease by sufferance as provided in article 1634;

4. In cases of necessary deposits, or deposits made by travellers in an inn, and in other cases of a like nature;

5. In cases of obligations arising from quasi-contracts, offences and quasioffences, and all other cases in which the party claiming could not procure proof in writing;

6. In cases in which the proof in writing has been. lost by unforeseen accident, or is in the possession of the adverse party or of a third person without collusion of the party claiming, and cannot be produced;

7. In cases in which there is a commencement of proof in writing.

In all other matters proof must be made by writing or by the oath of the adverse party.

The whole, nevertheless, subject to the exceptions and limitations specially declared in this section, and to the provisions contained in article 1690.

Counsel for the respondent did not make a general objection to the testimonial evidence intended to establish that there was an agreement of mandate between the appellant and Mr. Lasalle. On this point, I wish to refer to the decision of Justice Claude Larouche of the Superior Court of Quebec in Dugas v. John Pepper, S.C. Montreal 500-05-008515-858, 1987-01-28, in which an objection of that sort was made at the beginning of a trial in which the appellant wished to adduce testimonial evidence to prove that there was a verbal partnership agreement. The judge reserved decision on the objection and the evidence was adduced nonetheless. At pages 20 and 21, the judge concluded there was no commencement of proof in writing and therefore no right to adduce testimonial evidence because the defendant did not contradict himself nor did he admit anything:

[Translation]

The defendant denies. It might be concluded that he is hiding something on one or two important points, as solicitor for the plaintiff suggested. When confronted, the defendant did not modify his statements, and persisted in his denial.

We find in the defendant's testimony none of the confusion, evasions, inconsistencies or half-truths attributed to him by the plaintiff. His testimony is categorical and positive.

A detailed written analysis of the evidence would be necessary in order to dispose of the question of the probability of the promise of partnership which the plaintiff claims.

Such a study or analysis is pointless since the first two conditions laid down by the Supreme Court of Canada have not been met: the defendant has admitted nothing and accordingly there is no admission which“ "emanated" from him.

Our conclusion therefore appears quite clear. No "commencement of proof in writing” arises from the defendant's testimony.

The general objection of the defence seeking to exclude testimonial evidence of a promise of partnership by the defendant must therefore be upheld.

This decision was appealed to the Quebec Court of Appeal, and on March 21, 1988, Bisson, McCarthy and Philippon, JJ. A., of that Court, affirmed the decision of the trial court (supra, note 36).

With respect to a commencement of proof in writing, Royer states:

[Translation]

The commencement of proof in writing, in the broad sense, is obtained during the trial and results either from an admission in a written pleading by the adverse party or from testimony given by that party or its agent. In certain circumstances, the testimony of a party who is asserting that there was a juridical act or of a third party, which deals with clearly established objective external facts, may amount to a commencement of proof. The rules relating to origin and probability are similar to the rules set out earlier in respect of commencement of proof in writing in the strict sense. Probability may, moreover, arise solely from the conduct of the adverse party who is called as a witness (supra, note 29, page 494).

In order to liberalize further the admissibility of evidence, the case law expanded the concept of commencement of judicial proof in writing. Such proof may arise solely from the manner in which the adverse party or its representative testifies. If it appears that the witness is acting in bad faith and attempting to hide the truth, his or her evidence will constitute a commencement of proof in writing, even if it contains no acknowledgement of a fact relating to the juridical act in dispute. More specifically, this is the case when the adverse party is reticent, hesitant, evasive or has a surprisingly weak memory, or when his or her answers are ambiguous, confused, improbable or inconsistent (Ibid., page 495).

The only possibility of proving commencement of proof in writing would have been found either in inconsistencies in Mr. Lasalle's testimony at the hearing and in the answers he gave to officer Bérubé, or in the testimony of the participants to the party in question. As noted earlier, the participants did not testify. In addition, it is of interest to note that Mr. Lasalle was not called as a witness by the appellant. The respondent called him to testify although he could have chosen not to. In any event, in his testimony, Mr. Lasalle did not contradict himself, did not contradict his earlier explanations and made no admissions. Accordingly, the appellant would not have succeeded under the ordinary rules of evidence in proving a verbal agreement of mandate between himself and Mr. Lasalle or between himself and the participants.

The Penalty

With respect to the penalty, counsel for the respondent argued, first, that the appellant, is a person who is trained as an accountant and was an auditor for businesses for many years, and second, that this was income which was received and not reported, and that in these circumstances subsection 163(2) of the Act applies. That subsection reads in part as follows:

Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a“ return") filed or made in respect of a taxation year as required by or under this Act or a regulation, is liable to a penalty.

Under subsection 163(3) of the Act, the Minister has the burden of proving the facts which justify the assessment of such penalties. That subsection reads as follows:

163.(3) Where, in any appeal under this Act, any penalty assessed by the Minister under this section is in issue, the burden of establishing the facts justifying the assessment of the penalty is on the Minister.

I am of the opinion that the respondent has discharged his burden of proof. It has been proved that the sums in question were paid in cash to the appellant for his services. The appellant was under an obligation under the Act to include these sums in his income. If the appellant did deliver all or part of the sums collected to Mr. Lasalle, for whatever business reason, he did so without any witness and with nothing in writing. In both situations, this was the behaviour of an individual who was deliberately trying to conceal income. Accordingly, the only evidence before me is that the appellant received certain sums of money and knowingly did not include them in his income. He is therefore subject to the penalty.

The appellants reassessment was made outside the three-year limitation period provided in subsection 152(4) of the Act, as is permitted by subparagraph 152(4)(a)(i) where there has been misrepresentation that is attributable to neglect or wilful default. This point was not raised by the appellant. It was raised by the respondent, for the Court's information, and in view of the circumstances of the reassessment it seems clear that it was possible for the assessment to be made outside the three-year limitation period.

In conclusion, given that the appellant did not prove that he received the sums in question on behalf of another, and given that the penalties were correctly assessed, the appeal is dismissed.

Appeal dismissed.