Hirex Holdings Ltd. v. R., [1997] 1 CTC 103

Muldoon J.: - This proceeding is situated within an action wherein the plaintiff applies, under rule 474, for the determination of questions of law in the affirmative, and the defendants, designated above in the metaphysical singular, would argue for negative answers. The motion is supported by the plaintiffs counsel’s affidavit, in defiance of a long and emphatic line of jurisprudence, and it ought to have been struck out, but for the defendant’s counsel’s forbearance.

The plaintiff’s notice of motion sets out five substantive questions expressed somewhat inelegantly, but clearly enough in the form of the plaintiff’s assertions, rather than interrogatives. They are, as expressed:

1) The issue of the plaintiffs entitlement to receive federal sales tax refunds under section 68.2 of the Excise Tax Act is res judicata;

2) The defendant is estopped from assessing taxes, overpayments, penalties and/or interest against the plaintiff;

3) The defendant is bound by the findings and decision of His Honour Judge Page of the Provincial Court of British Columbia on the interpretation of section 68.2 of the Excise Tax Act as it affects the plaintiff;

4) The defendant is bound by the findings and decision of His Honour Judge Page of the Provincial Court of British Columbia on the acquittal of the plaintiff on the issue of its intention to make false or deceptive statements or wilfully attempt to evade or defeat federal sales tax as it was alleged by the Crown;

5) The defendant’s decision to assess taxes, overpayments, penalties and/or interest against the plaintiff ought to be set aside.

At the beginning of the hearing, the plaintiff’s counsel stated to the Court that the matter is resolved by a simple point: do the Provincial Court’s findings of fact in acquitting the plaintiff estop the Crown now from assessing and collecting the subject taxes? The prosecution in the Provincial Court was initiated on the sworn information of a National Revenue investigator who charged the plaintiff and one or mostly two individuals of forty-five counts of making false or deceptive statements, in applying for refunds, including one count of federal sales tax evasion in the aggregate amount of $84,206.85 contrary to sections 97(2) and 108 of the Excise Tax Act, R.S.C. 1985, Chap. E-15, as amended. The offences were alleged to have been committed at or near Coquitlam, between October 23, 1984 and November 14, 1988.

Exhibit “D” is an agreed statement of facts in the Provincial Court of British Columbia purportedly pursuant to section 655 of the Criminal Code made by the accused’s (the plaintiff’s) counsel, for the purpose of dispensing with the proof thereof. The admitted facts track each count in the information’s first forty-four counts. Exhibit “E” is a copy of the reasons and disposition pronounced in the Provincial Court by His Honour Judge K.D. Page on February 18, 1992, totally acquitting the accuseds. The Crown appealed the acquittals to and in the Supreme Court of British Columbia on March 4, 1992 as shown in Exhibit “G”, on these grounds.

a) That the learned trial Judge erred in law in construing Sections 50 and 68.2 of the Excise Tax Act, R.S.C. 1985, Chapter E-15, to be ambiguous in their application.

b) That the learned trial Judge erred in finding as a fact that the accused, Relkie, lacked the requisite intent with respect to those counts with which he was charged.

c) Such other grounds as counsel may advise.

A few days later, however, the Crown, as shown in exhibit “H”, withdrew its appeal.

A few passages from Judge Page’s reasons ought to be considered. They are:

…] find as a fact that the accused Bruce Relkie was the “directing mind” of the company respecting the filing of refund applications, in accordance with the identification theory of liability set out by the Supreme court of Canada in Canadian Dredge and Dock Company Ltd. v. R., 19 C.C.C., (3rd) page 1.

Mr. Relkie was ably and thoroughly cross-examined on each aspect of his evidence. After considering his evidence in chief and under cross-examination, I found him to be a credible witness who honestly believes that he did not at any time wilfully breach the provisions of the Excise Tax Act.

The Crown in this case must prove beyond a reasonable doubt that the accused made false or deceptive statements as alleged to obtain federal sales tax refunds and did so with the intent to attempt to evade or defeat federal sales tax (at pages 6 and 7.

The Crown submits that the Excise Tax Act is unambiguous and that only new goods are exempt from tax if they fall within Sections 51(1) and Schedule 3, Part 13 of the Act. The Crown concedes that there is no express provision in the Act which prohibits a claim for refunds on previously used goods, nor on goods sold or leased to a tax exempt customer financed by a leasing company, however submits that this is implicit upon a careful reading of the Act (at page 7.

Regarding interpretation of the relevant sections of the Excise Tax Act, I have read them not once but several times throughout the course of this trial and preparation of these Reasons.

There is no express provision which states that the provisions for refunds apply in the case of new goods only. Section 68(2) is the section which sets out the law with respect to refunds. As I read this section, it is capable of various interpretations, partly because of the use of the word “subsequently” without further definition of that term. The plain meaning of that word is “following an event in time”, the “event” in this case being the payment of federal sales tax under Section 50(1) of the Act. A refund of that tax may be claimed at any time if goods are resold depending on the nature of the purchaser, the use to which the goods are to be put or both. It is the end use of the goods which is the significant feature allowing an applicant to claim refunds.

I find that there is nothing in the section which clearly limits the use to which goods may be put before becoming disqualified for federal sales tax refunds under the section. This failure to limit use in my view renders the section ambiguous on this point. Insofar as this prosecution is concerned, I hold the Excise Tax Act to be penal in nature and I accept the law set forth in Colet v. R., a Supreme Court of Canada decision found at page 57, C.C.C., (2nd), which provides that:

Penal acts are to be strictly construed and any ambiguity found therein resolved in favour of the accused.

In the event that I have erred in this interpretation of the Excise Tax Act, having carefully considered the whole of the evidence with respect to each accused and on each count, I am not satisfied that it has been proved beyond a reasonable doubt that any of the accused intentionally made false or deceptive statements or wilfully attempted to evade or defeat federal sales tax as alleged.

Accordingly, the charges are dismissed.

There are two bases for Judge Page’s disposition. The first is the strict construction of ambiguous penal law exacted by the Supreme Court of Canada in R. v. Colet, [1981] 1 S.C.R. 2, 57 C.C.C. (2d) 105, cited by Judge Page. The second basis is lack of proof, beyond a reasonable doubt, of intentionally made false or deceptive statements, or of wilful attempts to evade or defeat federal sales tax as alleged. As the plaintiff’s counsel asked orally, do the above findings estop the Crown herein?

The plaintiff now contests the defendant’s reassessment on the ground that the rebates were legitimate and the issue has become res judicata. The plaintiff asserts that the acquittal of Hirex (or “Nissan Forklift”) and the individual directors from the charges of providing false and misleading statements, and tax evasion, should bar any reassessment, because the issue was effectively decided by the acquittals.

The very same issue has been already discussed by this Court’s Appeal Division in the case of Van Rooy v. Minister of National Revenue, (sub nom. Minister of National Revenue v. Van Rooy) [1988] 2 C.T.C. 78, 88 D.T.C. 6323. There, William Van Rooy had been convicted of income tax evasion, and was subsequently reassessed. He contested that reassessment, and in the Tax Court the Minister contended that, by virtue of issue estoppel, the reassessment could not be challenged. The Tax Court judge, however, decided that issue estoppel could not apply in civil proceedings when the issue was based on the finding of a criminal proceeding. The Court of Appeal nevertheless disagreed, and found that issue estoppel could be invoked when based on a conviction of a criminal offence. In his reasons in Van Rooy, Mr. Justice Urie also considered whether the same conclusion could be drawn from an acquittal.

An acquittal on the charge of tax evasion in this case would have meant that the Crown had failed to prove beyond reasonable doubt that the accused “did wilfully evade payment of taxes imposed by the Income Tax Act...”. The element of “wilfulness’’, for example, in the alleged evasion of tax had to be proven beyond reasonable doubt as did each of the other ingredients of the offence. On the other hand, on the reassessment, no proof of “wilfulness” is required. The burden is to establish on a balance of probabilities that the respondent failed to report certain income in his tax return. Had there been a requirement to prove wilfulness it would, as I see it, be “deemed to have been found conclusively in favour of the accused” -the situation foreseen by Lamer, J. in the passage from Grdic quoted above.

In Morin v. National S.H.H. Review Committee, [1985] 1 F.C. 3 MacGuigan, J. at page 29 said: “It would be hard to disagree with the proposition that a criminal acquittal cannot be a bar to a subsequent civil action arising out of the same facts....”

While the above quoted passage is obiter, since the facts in Van Rooy involved a conviction of tax evasion, the difference in the burden of proof is more significant in an acquittal than in a conviction. The latter requires proof of guilt beyond a reasonable doubt, a much higher, more stringent than the proof on a balance of probabilities in a civil case. If an issue be proved beyond a reasonable doubt in a charge of criminal misconduct, that same issue must a fortiori be proved on the mere probabilities required in a civil case. So while res judicata or issue estoppel may well apply in the case of a conviction of a crime or offence, it will not apply with respect to an acquittal and especially an acquittal grounded on lack of mens rea, lack of intent.

Application of issue estoppel must conform with the requirements set out by the Supreme Court of Canada in Angle v. Minister of National Revenue, [1975] 2 S.C.R. 248, 28 D.T.C. 6278: that the same question has been decided; that the judicial decision which is said to create the estoppel is final; and that the parties to that decision (or their privies) are the same as the parties (or their privies) to the proceedings in which the estoppel is asserted. Here, the latter two requirements seem to be satisfied, but what about the first?

The learned Provincial Court judge identified two species of issues. The first being proof or inference of intent or mens rea beyond a reasonable doubt is not a common issue; it is unique to the trial of the charged offences in the Provincial Court. It has nothing to do with the reassessment.

The other issue was that of the ambiguity, or not, of the Excise Tax Act. The learned judge found, among other difficulties, that “section 68(2) [sic]...is capable of various interpretations, partly because of the use of the word “subsequently” without further definition of that term.” His reasons are erudite on this issue, and he cited a Supreme Court of Canada judgment, Colet v. R. (above) holding that penal statutes are to be strictly construed and ambiguity found therein must be resolved in the accused’s favour. One might add that the same principle for taxation statutes was stated by the Supreme Court (Estey, J.) in Johns Manville Canada Inc. v. R., (sub nom. The Queen v. Johns-Manville Canada Inc.) [1985] 2 S.C.R. 46, [1985] 2 C.T.C. Ill, 85 D.T.C. 5373, at page 126.

However, the learned Provincial Court judge in meticulously performing his duties in adjudicating the prosecution before him, did not consider or say he declined to consider a) the notion of resorting to Hansard to solve the ambiguity of the designated provisions, b) resort to departmental policy for refunds set out in Memorandum ET 309 mentioned in the impugned reassessment of June 30, 1992. Admittedly, neither option a) nor b) is of statutory authority, but they are employed as means of interpretation sometimes by Courts with jurisdiction in matters of taxation per se, as distinct from Courts with jurisdiction over alleged taxation infractions.

In any event, the degree of ambiguity needed to erode proof beyond a reasonable doubt is surely different from that which would displace the balance of probabilities even taking into account the Johns Manville decision and its ilk.

In the civil case regarding the reassessment, the essential issues which attract a lesser burden of proof are merely: a) what are the facts, and b) is money owing? A taxpayer who finds the tax Act to be ambiguous, can always seek guidance from National Revenue, and if it seems to be unpalatable or wrong, it can be contested, that which is happening here in regard to the reassessment. (Surely the parties could agree on extension of time for a taxpayer’s notice of objection, if needed?)

It may be noted that the Minister’s reassessment of plaintiff, exhibit “I”, raises issues which were not before the Provincial Court under subsections 81.1(1), 81.39(1) and 72(6) of the Excise Tax Act. It seems that the only circumstance under which issue estoppel or res judicata could have been applied here, would have been that in which the learned judge had found the statutory provisions to be unambiguous and the plaintiff/accused’s interpretation of them to be correct.

According to Dickson, J. (as he then was) in Angle “The Question out of which the estoppel is said to arise must have been fundamental to the decision arrived at in the earlier proceedings”, quoting Lord Radcliffe in Medical Officers of Health Society v. Hope, [1960] A.C. 551 (H.L.). As noted above, what is at issue in the contested reassessment is whether Hirex was legally entitled to the rebates. In the prosecution, at issue was whether certain statements were “made” or “assented to”, and in the tax evasion charge, whether the individual accuseds “wilfully attempted to evade the federal sales tax”. Those issues may be said to intertwine, but they are not so intimate as to be, or be regarded as, the same fundamental issue.

As to the Provincial Court’s interpretation being binding on this Court, it was stated in Mitchell v. Minister of National Revenue, [1993] 3 F.C. 267, that the only decisions which bind the Trial Division are those of this Court’s Appeal Division and of the Supreme Court of Canada, a posture which does not detract from the authority and dignity of the Provincial Court in its own proper sphere.

This judge is not unfavourably disposed to the notion of res judicata or of issue estoppel in this circumstance. It would make good sense not to importune the plaintiff again. However, the jurisprudential authorities are otherwise disposed. The respondent’s counsel suggested that the real importunity would have been in pressing ahead with the respondent’s appeal from the learned judge’s acquittal of the accusseds. Maybe so. The respondent chose the other form but did not like the result.

This Court perceives, and was apprised, of no special reasons to award costs, and so pursuant to rule 1618, even although this case is not strictly speaking one of judicial review, no costs are awarded to either party.

The questions posed to this Court in the plaintiff’s notice of motion are accordingly answered, thus:

1) It is not res judicata.

2) The defendant is not so estopped.

3) The defendant is not so bound on the interpretation of section 68.2 of the Act as it affects the plaintiff.

4) Negative, beyond the sphere of prosecution, i.e. autrefois.

5) Negative.

6) The statement of defence is not to be struck out.

Application dismissed.