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Citation: 2003TCC715
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Date: 20031003
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Docket: 96-4749(IT)G
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BETWEEN:
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NORMAND LASSONDE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
LamarreProulx, J.
[1] This is a preliminary motion to
quash the assessment and cancel or waive the interest for
unreasonable delay and oppression, based on sections 1, 2,
7, 8, 11a, 11b, 11d, 12, 15(1), 24(1), 26 and 32(1) of the
Canadian Charter of Rights and Freedoms
(the "Charter").
[2] The reassessment at issue is dated
September 7, 1993, and relates to the 1989 taxation
year. It was issued inside the normal assessment period set forth
in subsections 152(3.1) and 152(4) of the Income Tax
Act (the "Act"); the initial assessment dated
to October 24, 1990. The reassessment was due to the
Appellant's interest in the Société en
recherches expérimentales en télématique
enr. (or "SRET"). This is a general partnership
for which the Appellant was sponsor.
[3] The Appellant asserts unreasonable
delay because it is now 2003 and the Supreme Court of Canada
allegedly ruled that such a delay is unreasonable. According to
the Appellant, the Askov decision (R. v. Askov,
[1990] 2 S.C.R. 1199) is such that if, after three
years, in individual has not had a hearing, procedures must be
stayed.
[4] The Appellant asserts bad faith
and oppression by the Department of National Revenue for various
reasons: the Department of National Revenue allegedly initially
focused on major partnerships; a manager allegedly promised to
allow him to meet with officials at Headquarters in Ottawa;
because of that promise, he asked investors to sign the waiver of
the limitation period; a series of suspensions of his case over a
10-year period-a list of the suspensions is included at
pages 27 to 30 of the motion and the most important of
which are examined in these reasons-as well as the late
introduction of the notion of a sham. Counsel for the Respondent
indicates that a reason in support of the assessment was added to
the Reply to the Notice of Appeal, which has nothing to do with
the delays in pursuing the case. As she is right in this regard,
we will not examine this further.
[5] At the beginning of the hearing,
the Appellant indicated that he would probably call
Jacques Carle and Réal Turgeon to testify. The
Appellant indicated that Mr. Turgeon was the managing
partner of SRET at the end of 1989. Jacques Carle was
Vice-President of Geyser Informatique Inc. We will see in
the description of the facts that this information regarding
Mr. Turgeon is surprising.
Appellant's Testimony
[6] The Appellant began his testimony
by providing an overview of his training. He is trained in
economics. The Appellant is a graduate of the Canadian Securities
Institute. He was a journalist for some ten years, Director of
economic information with La Presse and Director of
stock market information with the publication
Les Affaires newspaper. He became interested in
informatics in the early 1980s, when the first personal computers
appeared on the market. He made considerable use of them in his
role as Director of economic information. He acquired knowledge
in two specialties, i.e., artificial intelligence and expert
systems.
[7] He stated that, from 1984 to 1988,
he created research companies. They were limited partnerships in
which investors invested in various projects and were entitled to
tax credits.
[8] In 1988, the Act was
amended, which the witness said made limited partnerships almost
useless for scientific research and experimental development
("SR & ED"). The only means remaining was a general
partnership. He created one in 1988. There were approximately
350 investors. The amount collected was in the order of
3.5 million dollars. There were no new investments in 1988.
The two-year project was continued in 1989 with considerably more
funds and the number of members in the partnership increased to
1,014.
[9] However, a general partnership
implies the concept of member participation. He asked officials
at Revenue Québec if he could obtain guidelines or
criteria regarding member participation so that they would not be
considered specified members, i.e., what a member must do to not
be a specified member. He was allegedly told that there were no
criteria. With people from Geyser, he wrote a document entitled
"Les mécanismes de participation des
associés".
[10] According to the Appellant, Revenue
Canada did not give advance rulings.
[11] In December 1988, he signed a
marketing contract with Bell Canada. Bell Canada was the
contractor and the partnership was the contractee. In December
1988, a first prototype was placed on the Alex network for
marketing. Others followed in 1989. In 1989, there were some
fifty researchers working at Geyser.
[12] As regards the fact that Revenue Canada
initially took an interest in partnerships with the most members,
he refered to the April 13, 1995 report entitled
"Review of the General Partnerships in Quebec used as
SR & ED Tax Shelters" (P-51 or I-32), at
page 5:
With the number of partnerships growing, audits were started
first on the major ones, including a partnership with over
1,100 members . . .
[13] The second element of bad faith
asserted is an event that allegedly took place in 1993, an
alleged broken promise. The Appellant allegedly had two meetings
with Mr. Boucher and Mr. Beauregard of Revenue Canada
on February 11 and 18, 1993. At the first meeting,
he was accompanied by Jacques Carle and at the
second, Réal Turegeon. He allegedly asked
Mr. Boucher to obtain a declaratory judgment from the
Superior Court regarding the notion of participation.
Mr. Boucher instead allegedly offered to have him meet with
the Legislation Division in Ottawa. However, [translation]
"for the meeting to take place, there is a condition. You
must ask all SRET members to sign a waiver of the limitation
period, as we are behind." "Why not send
the letter to the members?"
"Mr. Lassonde, I do not have the moral
authority. If the Department sends the letter, no one will reply,
no one will waive." (Page 41 of the
transcript)
[14] He refered to Exhibit P-80
to read the notes that he took after these meetings with
Mr. Boucher and Mr. Beauregard. He could tell members
[TRANSLATION] "You must sign the waiver. I have a promise
that I will be able to make representations in
Ottawa." However, he was never invited to the
meeting. The meeting was never held, while he had obtained a
waiver from 1,300 individuals.
[15] Another instance of oppression:
Mr. Boucher also allegedly told him: [TRANSLATION]
"The research directors will not be assessed as specified
members" yet he was assessed as such.
[16] Once he was assessed,
Jean-Maurice Gagné wrote the Notice of
Objection. That notice is dated November 3, 1993.
Mr. Gagné had been Mr. Lassonde's lawyer
since 1988.
[17] A suspension: on
December 3, 1993, he received a letter from
Pierre Dextraze of the Appeals Division informing him that
his file was suspended Exhibit P-29. A copy was sent
to the Appellant's lawyer:
...
[translation]
Please be advised that:
1 - We have received
your Notice of Objection for processing.
2 - As the audit of
the Société de Recherches Expérimentales en
Télématique Enr. was conducted by the
Montréal District Office, we are suspending your file
while awaiting a decision in a similar case from the Appeals
Division of said Montréal District Office.
3 - We will, of
course, abide by the decision rendered by the Appeals Division
and you will be advised when it is known.
4 - Although the law
permits payment to be withheld until your objection is resolved,
interest accumulates on said unpaid taxes.
...
[18] Exhibit P-33 is a letter
dated April 5, 1995, from the Deputy Minister at
Revenue Canada to the President of the association of taxpayers
who participated in research and development projects, indicating
that the notices of objection would be put on hold, another
suspension. The settlement offer was made on
June 30, 1995 (Exhibit P-32).
[19] One obstruction is described at
paragraph 169 of the motion, which reads as follows:
[translation]
At the preliminary hearing on February 13, 1997,
before the Tax Court of Canada at Montréal,
Daniel Verdon, Counsel for the Respondents, delayed the
hearing into the Applicant's case while awaiting an amendment
to the Act and, by so doing, bumped the McKeon case ahead of that
of the Applicant in SRET.
Simon Beauregard's Testimony
[20] Mr. Beauregard is an auditor with
the Canada Customs and Revenue Agency (the "CCRA"). He
began working on the files in question in April 1992.
[21] Exhibit P-19 includes two
documents, a cover letter dated May 22, 1991 to
Normand Lassonde at Geyser Informatics Inc. and a copy
of the RS & ED project eligibility report dated
April 15, 1991 regarding SRET. Although the letter was
prepared by Carl Deslonchamps, it was signed by
Mr. Beauregard. The witness explained that he was in the
same group as Mr. Deslonchamps and that the latter had asked
him to give the letter to Mr. Lassonde, who would pick it up
at the office that day. The scientific report was signed by the
scientific advisor, Georges Husson. The amount indicated was
15 million dollars.
[22] The witness explained that the
scientific advisor checked the scientific aspect of the project,
and the auditor the accounting aspect. The amount of
15 million dollars indicated in the scientific report is
based on the applicants' initial applications. It has no
relationship to the eligibility of the deduction. The amount
identifies the scope of the expenses to be audited by the
auditor.
[23] Exhibit P-97 is a letter
dated March 12, 1992, signed by Mr. Lalonde,
prepared by Carl Deslonchamps and sent to an SRET investor.
The same letter was sent to some thirty investors. The letter
states that the Minister of National Revenue (the
"Minister") intended to consider him as a specified
member and that he had 30 days to report activities in which
he had taken part. This led him to believe he was not a specified
member.
[24] Mr. Beauregard took over the SRET
audit file in late April 1992. On May 10, 1992, he
sent a letter to Mr. Lassonde (Exhibit P-114).
The letter informed Mr. Lassonde that Revenue Canada would
soon begin an audit of SRET.
[25] I quote the second paragraph:
[translation]
To this end, you are asked to make available to us the
company's books and records, all supporting documents
(invoices, etc.) and all documents listed in the appendix.
[26] In late December 1992,
Mr. Beauregard requested the assistance of the scientific
advisor, as there were two major expenses related to the SRET
file for which he wanted more information. These expenses were
for software and electronic equipment. It was thus that
Mr. Husson received another mandate. It was not possible for
the latter to visit the site. He produced an addendum to the
scientific report (Exhibit P-107) on
February 1, 1993.
[27] Mr. Beauregard confirmed the
meetings with the Appellant, Réal Turgeon,
Jacques Carle and Mr. Boucher on February 11
and 18, 1993. For Mr. Beauregard, the subject of
the discussions was the tax implications following his letter
dated February 4, 1993 (P-75), advising
Mr. Lassonde of the proposed assessment.
[28] In order to continue to study the
disputed issues at the request of Mr. Lassonde, the witness
explained that Revenue Canada asked that the notice of waiver be
provided, as the limitation period was approaching. According to
his memory, the discussion dealt with submitting the points
raised to the main office, nothing more. He does not remember any
promise to allow the Appellant to go to Ottawa to defend his
position on specified members. The witness stated that if he had
not received the waivers, he would have sent the files to the
assessment office immediately.
[29] However, on
February 26, 1993, Michel Lambert of the Ottawa
office asked him to go to Ottawa to explain the file and to bring
all documents to date. The meeting took place on March 1.
Mr. Boucher and Mr. Beauregard were at the meeting.
This emergency meeting in Ottawa was the result of complaints
that the Appellant had sent to the Prime Minister and another
minister on February 16, 1993
(Exhibit I-14).
[30] The letter from the Minister of
National Revenue, Otto Jelinek, in response to
Mr. Lassonde's letters was filed as Exhibit P-45.
It is dated April 22, 1993.
[31] In response to a question from the
Appellant, Mr. Beauregard confirmed that he went to the
offices of the Commission des valeurs mobilières du
Québec("CVMQ") in 1993 to consult decisions
regarding SRET. It was Mr. Lassonde who had advised him of
his differences with the Commission.
[32] On May 11, 1993
(Exhibit P-86), Mr. Beauregard sent a letter to
the Appellant advising him that SRET members would be reassessed
based on the information in the letter.
[33] He finalized the file by sending a
letter to all members on June 4, 1993
(Exhibit P-83), advising them of changes to the
taxpayers' income tax returns. The reassessments followed.
Mr. Beauregard did not take part in any other SRET audit
activity.
[34] Of the documents that
Mr. Beauregard had brought with him following the subpoena,
the Appellant filed one, as Exhibit A-1. This was
minutes of the meetings held on February 11
and 18, 1993, prepared by Mr. Beauregard. There is
no mention of any promise or, for that matter, the request for
waivers.
[35] In cross-examination, Counsel for
the Respondent asked Mr. Beauregard questions regarding the
documents that he had brought following the subpoena, filed
jointly as Exhibit I-1. These documents regard the
purchase of software. On September 24, 1992, there was
a request for an international audit regarding the acquisition of
software in France by Gestion Tecktel Inc. from Challenge
S.A. at a cost of $5,300,000. This amount was paid in
Tecktel shares.
[36] Revenue Canada received a letter from
the attaché for fiscal affairs at the French embassy on
September 1, 1993, particularly indicating that
[translation] "The invoicing and accounting of
Challenge S.A. indicates that it provided no benefit that
could be associated with the sale of software and sold no
products or electronic or computer material to Gestion Tecktel
Inc. or any other company". The letter accompanied
an investigation report.
[37] Mr. Beauregard indicated that
there was also a claim for the cost of a purchase of electronic
equipment from Russia at a cost of $1,728,000. Adding the cost of
the software, this equalled approximately 50 % of the
expense claimed.
[38] As regards the electronic equipment for
which expenses were claimed, the witness explained that there is
no agreement with Russia, so the auditor requested information
from the special investigations department, a department that can
contact Canada Customs to check if parts were received if they
cleared customs. There was no trace of such.
[39] Mr. Beauregard stated that
Réal Turgeon had not invested in SRET in 1989 and is
not included in the list of members.
Jean-Marc Boucher's Testimony
[40] Jean-Marc Boucher is
currently a Manager, Large Business Audit, at CCRA. In 1992, he
was the manager in charge of audits of scientific research and
experimental development businesses. He held that position until
June 1998.
[41] M. Boucher had brought very few
documents following the request in the subpoena
duces tecum. He produced a letter dated
March 27, 1992, addressed to Mr. Lassonde and
signed by Mr. Boucher. This letter was filed as
Exhibit A-2. The letter followed up on the proposed
assessments sent on March 12, 1992, mentioned in
paragraph 23 of these reasons. It indicated that measures
related to the investors were stayed pending examination of SRET
representations.
[42] The witness explained the few documents
that he had brought by the fact that he was not the auditor in
the file. He was the manager. For instance, he does not have the
documents that Mr. Beauregard may have had in his
possession. The documents that he has regarding the company are
mostly interventions by the Appellant and complaints that he
received from the Appellant regarding managers. He did not write
reports regarding the meetings that were held.
[43] Mr. Boucher stated that his
division had taken a position long ago, but that there were still
interventions by the Appellant. He suggested presenting the case
to Headquarters. The Appellant attached importance to Mr.
Boucher's promise to allow him to attend that presentation.
Mr. Boucher responded that that was absolutely false. The
Appellant may have asked to attend the meeting, he could not
formally commit to him being present at the meeting, as Mr.
Boucher does not decide such things.
[44] However, during that time on
February 16, 1993, Mr. Lassonde sent a complaint
to the Minister responsible for Quebec and to the Prime minister
regarding the decisions that Mr. Boucher wanted to make.
Mr. Lassonde had not inform Mr. Boucher, That complaint
was sent to the Rulings Directorate in Ottawa for response.
Mr. Boucher received a telephone call from the Directorate
on February 27. On March 1, he went to Ottawa to meet
with officials at the branch. He may have spoken of the
Appellant's wish, but the Directorate must have deemed that
it would not be of any use to have the Appellant present.
[45] The witness explained the purpose of
the waivers: [translation] "If there is no waiver of the
limitation period, assessment will be made as soon as possible,
before the years are prescribed. The idea of specified
member had long been clear for them and it applied to the members
of SRET."
[46] As regards the fact that it was
Mr. Lassonde who sent the waiver forms to the various
members, the witness stated that that is normal. It is the
responsibility of the partnership official to contact members.
What happened was that they suggested to the Appellant that the
file be submitted to Ottawa and, in return, the delegated member
agreed to ask the members to sign waivers. [translation]
"Anyone who does not sign the waiver will be assessed
immediately."
[47] He stated that it did not help the
Department at all. It simply delayed the assessment time, as the
Department was trying to issue them as soon as possible.
[translation] "It does not help the Department; it helps
the Applicant to continue making representations."
[48] In cross-examination, the witness
produced a background of the main steps in the SRET audit as
Exhibit I-2, and a background of the written
interventions by Normand Lassonde as Exhibit I-3.
The effect of Mr. Lassonde's interventions was to extend
the audit period. The witness stated, with some emotion, that,
the interventions included attempts at intimidation, complaints,
false statements and threats. Exhibits I-9 to
I-29 were filed as evidence of this claim.
[49] In response to a question from Counsel:
[translation] "In all the communication that you had with
Mr. Lassonde, was there any indication at any time that he
might have ceased being the delegated member or that he had
dissolved SRET? Never." According to
Exhibit P-1, on November 27, 1989,
Mr. Lassonde dissolved SRET at the office of the
Prothonotary of the Superior Court. He indicated that he was the
only person in the business. The same day, SRET was registered by
Réal Turgeon, who also indicated he was the only
person in the business.
Josée Rodrigue's Testimony
[50] Josée Rodrigue is currently
an appeals officer with CCRA. She was the objections officer in
the SRET matter. However, she did not make any decisions in the
file, as the file was transferred to the main office in
Ottawa.
[51] Exhibit P-48 is a letter
from Ms. Rodrique to Jean-Maurice Gagné
dated April 14, 1994, requesting that he make
representations as soon as possible. The Appellant showed her a
letter from Mr. Gagné dated
October 21, 1994, Exhibit P-50, in response
to her letter. She did not remember receiving the letter, because
she believes that the file had been transferred.
Carl Deslonchamps' Testimony
[52] Carl Deslonchamps works in the
private sector. At the time, he was an auditor with Revenue
Canada. He allegedly began working on the SRET file in
February 1991. At the time, there were a lot of research
partnerships with members were claiming tax credits. The purpose
of the audit was to ensure that taxpayers claiming tax credits
were entitled to them.
[53] He remembered having visited
Mr. Lassonde accompanied by Mr. Husson. The latter was
an external consultant specializing in informatics who worked for
the Department to provide advice on the scientific eligibility of
projects. He believed that Mr. Beauregard probably
accompanied him because he was moving to another section.
[54] The Appellant referred the witness to
the letter dated May 22, 1991
(Exhibit P-19). That letter presents the scientific
report. The report was prepared by Mr. Husson.
[55] The witness stated that he remained on
the file until probably March 12, 1992, the date of the
proposed assessment of some SRET members
(Exhibit P-97). Those proposals were temporarily
suspended following a letter signed by Mr. Boucher on
March 27, 1992 (Exhibit P-65
or A-2).
[56] He did not remember having conducted
even a limited audit of SRET activities. Mr. Husson had
access to the scientific documents, made his report and the file
was then taken over by Mr. Beauregard. Just because a
project is eligible does not mean that the expenses should not be
examined. It must be determined which expenses and activities
were actually incurred and undertaken for the research
project.
Michel Lambert's Testimony
[57] Michel Lambert was the next
witness. He is currently a senior rulings officer. His main role
is to make advance rulings. He also analyzes files at the request
of tax services offices. He may provide opinions, work on
interpretation bulletins and provide information to the Minister.
This is the Income Tax Rulings Directorate of the Policy and
Planning Branch.
[58] He became involved in the file
following Mr. Lassonde's complaint as delegated member to
the Prime Minister and the Minister responsible for Quebec on
February 16, 1993 (Exhibit I-14).
[59] He asked Mr. Boucher to forward or
bring him the documents relating to the file. What he
remembers is indicating that he wanted to take the time to study
all documents and determine if more interviews or documents were
needed. The documents provided were sufficient to allow him to
prepare a response to be signed by the Minister of Revenue,
Mr. Otto Jelinek (Exhibit P-45
or I-15). The last paragraph of the Minister's
letter was his opinion based on the documents at the time.
[60] Exhibit I-18 is a letter
dated November 30, 1992, from Mr. Lassonde to the
Rulings Directorate regarding the interpretation of the
expression [translation] "take an active role in the
partnership's activities". On May 3, 1993,
he received a long explanatory letter prepared by
Michel Lambert for the Director of the Manufacturing,
Corporate and Trust Industry Division
(Exhibit I-19).
[61] In March or April 1995, he took
part in the two working groups created by the Deputy Minister of
Revenue regarding complaints by taxpayers who had been
reassessed.
[62] In cross-examination, in response
to a question by Counsel for the Respondent, he answered that he
had spent two days going through the archive of advance rulings
to verify whether or not a ruling had been requested or granted
for SRET. There was none.
[63] He stated that Revenue Canada never had
a policy of not issuing advance rulings for investment projects
in the research and development field. He also stated that
requests for advance rulings are handled on a priority basis.
[64] Exhibit I-30 is a memo to
Robert Roy, who was the Assistant Deputy Minister for
audits. The memo, dated February 24, 1993, was signed
by Denis Lefebvre, the Assistant Deputy Minister, was
prepared by Michel Lambert. The letter states, inter
alia:
[translation]
We have reviewed our research files and have found no advance
rulings in this matter. However, we have identified a request for
advance rulings regarding Geyser Informatique Inc., SRET
sub-contractor. That request was withdrawn on
July 25, 1990, because the decisions that we made were
unfavourable.
[65] In this regard, the Appellant presented
Exhibit A-7, which included three invoices from the
Ernst and Young accounting office regarding the Astrobotix
project that began in February 1990 and ended on
April 28, 1990. He stated that it was probably this
project that was not continued.
Serge Huppé's Testimony
[66] Serge Huppé was the next
witness. He is currently Team Leader at the Appeals Branch at
Headquarters in Ottawa. In 1992, he was an appeals officer
with the Appeals Branch at Headquarters.
[67] He explained the background that led
federal officials to propose a settlement to taxpayers who had
invested in SR & ED partnerships and who had been reassessed in
late 1993. The reassessments were made to disallowed tax
deductions.
[68] There were 176 general
partnerships that were scientific research tax shelters. These
were partnerships with many investors. One partnership had more
than 1,100 investors, some 200 and others 500.
[69] Most assessed taxpayers filed a notice
of objection and may also have sent letters to their MPs, to the
Minister of Revenue and to the Prime Minister.
[70] Taxpayer representatives wanted to meet
with people from Headquarters and that is how the latter became
particularly involved. The meeting was held in October 1994
in Ottawa.
[71] Following that meeting, the Appeals
Branch in Ottawa decided to look at the matter more closely and
asked that all appeals divisions at the tax services offices
suspend activities related to examination of objections. It asked
that regional offices forward all representations that they had
received regarding the objections. A study group was also
created.
[72] The members of the executive of the
taxpayers' association created by these taxpayers and their
tax lawyer requested a meeting with the Deputy Minister. That
meeting took place in March 1995. Exhibit P-33 is
the letter dated April 15, 1995 from
Pierre Gravelle to Bernard Dupont, president of the
association of taxpayers who participated in the research and
development projects.
[73] That letter stated, inter
alia:
[translation]
I am aware of the investors' concerns and wish to ensure
you that the files of all taxpayers who took part in these
research projects are the subject of in-depth examination.
The various representations received and all relevant elements
will be taken into full consideration.
As I have explained to you, the Department must deal with
these files in a fair and equitable manner, based on the facts
and the applicable statutory provisions. In this respect, equity
legislation that permits interest to be cancelled or waived in
certain situations will be fully considered.
Once we have completed our study, your Association and the
other investor representatives will be informed of the results. I
assure you that your association and all investor representatives
will have the opportunity to submit other information, if needed,
before a final decision is made.
Until then, as agreed, all notices of objection in this regard
will be put on hold. In light of such things as the prescription,
the audits for the 1991 and later taxation years will continue
normally and the reassessment process will be maintained in order
to protect the interests of all parties. Taxpayers who receive a
reassessment may simply file a notice of objection.
[74] Following this meeting, Deputy Minister
Pierre Gravelle created a working group to study the matter.
The working group was made up of assistant deputy ministers from
Revenue Canada's technical branches.
[75] The study group produced a report on
April 13,1995 (Exhibit I-32 or P-51).
An addendum was produced on April 21, 1995
(Exhibit P-31). The matter put before the study group was
whether, in addition to being passive members, investors were
limited partners. The finding was they were all limited partners.
The study group used a sampling of partnerships, including
SRET.
[76] On May 12, 1995, the report
by the working group was submitted to the Deputy Minister of
National Revenue (Exhibit P-103 or I-33).
The proposed settlement was presented on June 30, 1995
(Exhibit P-32).
[77] The settlement proposed a business loss
for investors in the actual amount of their shares in the year in
which their shares were disposed of. This settlement applied to
the 1989 to 1993 taxation years for projects that had
obtained a tax shelter number.
[78] Thus, for a taxpayer with an investment
of $10,000, which was bought back for $5,000, the settlement
provided a business loss of $5,000. In addition, for those
who had borrowed money to invest, an interest expense was
granted.
[79] For investors who were not promoters,
interest was cancelled or waived from the date on which the tax
return was filed to October 31, 1995. There was no
cancellation or waiving of interest for promoters.
[80] According to the witness, the
settlement was the same, whether or not partnerships conducted
eligible research. Based on the elements in the file, it was
determined that these investors were limited investors and that
the Act states that a limited partner, whether or not the
research is eligible, is not entitled to any investment tax
credit for scientific research, nor any tax deduction for
scientific research expenses. They are limited partners.
[81] Most taxpayers, i.e., 85 %,
accepted the settlement offer. Settlements took place until
February 1997, with some later in special cases. In
February 1997, the specific study began of files for
taxpayers who had not accepted the settlement and who believed
that their cases were different (Exhibit P-40).
[82] In early September 1997,
600 notices of appeal were received at the Tax Court of
Canada before the assessments were approved by the Minister. They
used paragraph 169(1)(b) of the Act, which
allows them, to appeal directly to the Tax Court of Canada after
90 days have elapsed after service of the notice of
objection.
[83] The witness explained that the letter
cited in paragraph 17 of these reasons referred to a test
case of the Appeals Division, not the Tax Court of Canada.
Following this letter, there was a reassessment and then the
objections were taken over by Headquarters in Ottawa.
[84] As regards the proposed settlement,
Mr. Gagné received a copy. He met with Revenue Canada
agents in July 1995 in Montréal.
[85] Exhibit P-34 is a document
prepared in 1995 by Mr. Huppé for the planned
meetings with representatives. It was not distributed. The las
part deals with a second group of investors who allegedly
invested from 1992 to 1994. These partnerships did not
have a tax shelter number. The settlement did not apply to them.
Revenu Québec audited this group. The main group was made
up of 6,300 taxpayers and the second of 1,700.
[86] According to Mr. Huppé,
Mr. Gagné did not want to proceed with SRET as a test
case in this Court.
[87] Exhibit P-50, a letter from
Mr. Gagné to Ms. Rodrigue dated
October 21, 1994, was sent to the Ottawa office. A
response was sent to him in April 1995.
[88] The Appellant asked: [translation]
"When a taxpayer files an income tax return on
April 30, what is the normal period for a Notice of
Assessment?" Mr. Huppé replied that the
service standard is six weeks, that the taxpayer should thus
receive a Notice of Assessment in late June or early July, unless
there are problems.
[89] There was no other testimony. The
testimonies of Jacques Carle and Réal Turgeon,
announced by the Appellant at the start of the hearing, did not
occur. According to the Appellant, the testimony by
Réal Turgeon and Jacques Carle would have been
useful in confirming that there had been a promise at the
meetings in February 1993, meetings in which they had
participated. The Appellant felt that the evidence was provided
by the other witnesses and that their testimony was not
necessary.
[90] The judgment by the Chief Justice of
this court in McKeown (McKeown v. the
Queen, 2001 DTC 511) was handed down on
March 12, 2001, and there was correction in
September 2001. According to Counsel for the Respondent, the
Respondent was then awaiting the position of
Mr. Gagné. The latter left the case in
September 2002 (Exhibit I-40). Once
Mr. Gagné withdrew from the case, the Court summoned
Mr. Lassonde. The case resumed on
October 3, 2002.
The Subpoenas
[91] Michel Beaudry was summoned
because he had signed a memorandum to the Rulings Directorate in
Ottawa, dated April 16, 1996, requesting an
interpretation of the expression "specified member"
(Exhibit P-85). Counsel for the Respondent indicates
that this letter was requested regarding a promoter in another
series of partnerships.
[92] As regards the subpoena to
Pierre Gravell, Counsel for the Respondent indicates that he
is no longer employed at CCRA. The subpoena was received by fax
at CCRA. Mr. Gravelle was never served the subpoena. Counsel
also indicated that, one the one hand, he did not receive the
subpoena and, on the other, he could not reveal any facts that
have not already been provided to the Court. The Court heard the
witnesses and received the reports.
[93] As regards the subpoena to
Roy Shultis, Counsel indicates that he was not at the office
when the subpoenas arrived and is still out of town. He is on
vacation until August 18. Mr. Shultis has been a Deputy
Assistant Commissioner at the Income Tax Rulings Directorate
since 1993 or 1994. He has no personal knowledge of the
Appellant's file. Mr. Lambert hascompared the two
subpoenas; the requests are quite similar. The documents
requested were identical those requested from
Mr. Michel Lambert. M. Shultis would not have been
able to provide any further information.
[94] As regards the subpoena to
Claude Lamarche, Counsel explained that he was not aware of
facts specific to the assessment of the Appellant.
[95] As regards the subpoena sent to
Alan Neimark, the Commissioner of the Canada Customs and
Revenue Agency, the content of the subpoena was similar to Mr.
Huppé's, except the first article. Mr. Neimark could
not have provided any documents beyond those provided by
Mr. Huppé because, when Mr. Gravell, the Deputy
Minister of Revenue at the time, left Revenue Canada, he sent all
documents related to SR & ED tax shelters to the Appeals
Branch.
[96] As regards the subpoena to
Pierre Cossette and Daniel Verdon, Counsel for the
Respondent indicated that all requests on the subpoena fall under
solicitor-client privilege.
[97] Representations were made by a
student-at-law with Revenu Québec. The
Appellant's motion indicated the Quebec Government as
Respondent. She asked that this indication be struck out. It was.
She also asked that the subpoenas regarding Diane Jean,
Deputy Minister at Revenu Québec,
Léonid Cloutier and Hélène Jobin
be quashed.
[98] These subpoenas were quashed during the
hearing on the grounds that the presence of these witnesses would
not be necessary in order to understand the background of the
motion. These individuals had no personal knowledge of the
Appellant's assessment. Having them testify would have been a
waste of the Court's time and an abuse of process. As regards
Counsel for the Respondent, there are the grounds of
solicitor-client privilege.
[99] As regards the documents produced by
the Appellant, the exhibits for which Counsel for the Respondent
objects as to the relevance are: Exhibits P-3, a
response from Revenu Québec; P-23, the
September 2, 1993, notice of reassessment from Revenu
Québec; P-39, the settlement offer reminder from
Revenu Québec; P-44, the report from the Protecteur
du citoyen du Québec; P-45, an opinion from the
Minister (Revenue Canada); P-56, the definition of
"limited partner" from Revenu Québec;
P-72, an excerpt from the Larousse dictionary, P-85,
the document regarding another file; P-92; P-93;
P-96 (no document); P-104; P-113; P-122
and P-125, all irrelevant documents. I do not see the need
to rule on this matter for the purposes of this motion.
Cross-Examination of the Appellant
[100] Counsel for the Appellant referred to
Exhibit P-9, a standard contract entitled
"Contrat ALEX entre Bell Canadaet le
fournisseur de services". Where the supplier's name
is to be indicated, we find the name of Geyser Informatics Inc.
Counsel asked the Appellant if he had conducted research for
Bell, to which he answered in the affimative. The service
provider contract was allegedly this research contract. This
agreement is dated December 8, 1988.
[101] On August 29, 1989, Bell Canada, through
its lawyers, sent a cease and desist letter to
Normand Lassonde, President of Geyser Informatics Inc.
because he was infringing on Bell Canada trademarks in an
unacceptable fashion (Exhibit I-35).
[102] According to that cease and desist letter, the
document filed as Exhibit P-5, entitled
"L'ère du videotext" and
published by Geyser Informatics Inc. for its investors, gave the
impression that the brochure was authorized by Bell Canada. The
brochure was to be totally revised.
[103] Again according to the cease and desist letter,
the Geyser Informatics Inc. publication Alex was to be
immediately withdrawn from circulation, as it infringed on the
trademark. This brochure was filed as
Exhibit I-36.
[104] Another letter, dated October 25, 1989,
from Bell Canada's lawyers, was filed as
Exhibit I-37. The letter reads states, inter
alia:
[translation]
In any event, the fact that you are a service provider in no
way authorizes you to use material produced by our client or its
trademarks to for public promotion of tax shelters.
As a participant in the ALEX service, close co-operation
between you and Bell Canada is required. However, such
co-operation certainly cannot interfere with Bell
Canada's copyright or use of its trademarks in general. It
seems clear to us that a promotional brochure prepared by Bell
Canada, explaining the ALEX service, could be used with potential
users, but definitely not to promote your personal interests or
those of companies with which you may be associated, particularly
to draw investors to research and development projects offering
tax benefits. The fact that the source of the brochures and
trademarks is clearly identified in no way changes the situation.
Our Client, Bell Canada, has at no time given you authorization
or consented in any way to being associated with the investment
programs that you are offering to the public.
We have therefore been instructed by our client to ask that
you cease and desist immediately from directly or indirectly
associating Bell Canada or suggesting that it is associated with
the research and development projects that you are promoting,
personally or through other persons, companies, partnerships or
corporation on your behalf, and that you cease using our
client's material, documents and trademarks for this purpose
or any purposes other than the sole promotion of the ALEX
service.
[105] The counsel for the Respondent filed another cease
and desist letter as Exhibit I-38, this one from the
Centre for Research on Information Technologies
("CRIT"):
[translation]
We have recently learned of a document entitled
"Alex" that is allegedly distributed by Geyser
Informatics Inc. ("Geyser"), which includes an excerpt
from a CRIT explanatory booklet and a letter deated
May 26, 1989 signed by the President of CRIT,
Mr. Pierre Coulombe.
Please be advised hereby that you have not obtained
authorization to use the aforementioned documentation.
Furthermore, the leaflets entitled "Cas types" refer to
the CRIT without authorization from our client.
Our client recognizes that you are a member of CRIT, but this
status does not entitle you in any way to use of the name of the
Centre for Research on Information Technologies for the purpose
of fundraising among potential investors, who may conclude that
Geyser and CRIT are partners in such solicitation.
Accordingly, we hereby call upon you to immediately cease all
use of CRIT documents or the CRIT name for fundraising
purposes.
[106] The Appellant explained that, in both cases, with
Bell Canada and the CRIT, the action was undertaken by the
Commission des valeurs mobilières du Québec.
[107] Counsel then referred to Exhibit P-1:
"On the first page, on June 29, 1998, you
registered SRET as a company name, At that time, you indicated
that you had no associates. On the third page, you produce a
notice of dissolution of SRET dated November 27, 1989.
Why did you to that?" The Appellant explained that there
was a ruling against him in which the Commission des valeurs
mobilières du Québec was a party. The CVMQ had
challenged the research mandate. He claimed that it was the
prothonotary who told him proceed in that manner. It was
Mr. Réal Turgeon, his
brother-in-law, who re-registered the partnership on
the same day as sole member. Mr. Turgeon became the
delegated member.
[108] "In the instrument of dissolution, you
state that you are the only person in the business. Where are the
1,103 members? Mr. Beauregard testified that
Mr. Turgeon had not invested in SRET, that he is not on the
list of investors. How can he be the delegated member? In what
role, then, did you make representations to Revenue
Canadaduring those years?" She then referred
to Exhibit I-14, a letter to
Mr. Pierre Blais, the Minister. The letter is signed
"Normand Lassonde, Delegated
Member". All the letters are signed as "delegated
member". On some letters, 1988-1999 is added.
[109] The counsel for the Respondent asked him if he had
sent a letter to the 1,103 investors advising them that he was no
longer SRET's delegated member, that it was now
Mr. Réal Turgeon.
[110] The counsel for the Respondent questioned him
regarding the expenses of software purchases in France. He first
denied that these expenses were challenged. The company
"Gestion Tecktel" claimed an expense of $5,290,000 for
the purchase of software from S.A. Challenge, a company owned by
the Appellant's brother-in-law,
Mr. Bernard Fromageau. Mr. Fromageau owns a travel
agency in France. The Appellant stated that, to his knowledge,
there were two companies, a computer company associated with
France Télécom and a travel agency.
[111] The investigation report by the Direction
nationale d'enquêtes fiscales, filed as one of the
documents in Exhibit I-1, indicates that S.A.
Challenge did not have the expertise ormeans to carry out these
operations:
[translation]
Nonetheless, Bernard FROMAGEAU admitted to having, in the
summer of 1989, signed an agreement dated
August 1, 1988 between his company, SA CHALLENGE and
GESTION TECKTEL INC. This agreement set forth the framework for
an exchange of telematics software developed and owned by SA
CHALLENGE in return for shares in GESTION TECKTEL INC. While
admitting that this document obviously included false statements,
Bernard FROMAGEAU stated that he had not moved ahead with it and
had signed no other document regarding the operation, despite the
insistence of his brother-in-law.
[112] The Appellant nonetheless stated that he had
purchased software from S.A. Challenge.
[113] The counsel for the Respondent referred to
Exhibit I-16, a letter to SRET members dated
May 19, 1993, and signed by
Mr. Normand Lassonde as delegated member
(1998-1999):
...
[translation]
It is my pleasure to announce that the case between S.R.E.T.,
Société de Recherche en Télématique
(1989), and Revenue Canada regarding their threatened assessment
based on members' "participation" in S.R.E.T.
activities has been resolved.
In a letter sent to me, the Minister of National Revenue,
Mr. Otto Jelinek, writes: "... the provisions
of the Act that exclude SR & ED expenses from the determination
of losses by a member only apply to limited members, which is
not the case for Télématique members".
As a result, there will be no reassessment of you participation
in S.R.E.T.
...
[114] Counsel asked him why he had made such a false
statement to members when, in reality, the limited member
question had not been resolved and that it did, in fact, concern
members' participation in SRET. He explained that he was not
a tax expert and that he had confused the terms "limited
partner" and "specified member". Counsel then
asked how he could then make such a statement.
[115] Exhibit P-82 is a letter sent by
Mr. Normand Lassonde, delegated member 1988-1999, to
members, asking that they sign a notice of waiver. After reading
the first paragraph of the letter, counsel asked: "Do you
not think that calling your research project "ALEX"
misleads people?"
[116] This first paragraph reads as follows:
[translation]
In 1989, you were a member of SERT (Société de
Recherches Expérimentales en Télématique
Enr), which, in conjunction with Geyser Informatiques Inc. and
Infotique Tyra Inc., conducted a major research project entitled
Alex in co-operation with Bell Canada and
Minitel.
[117] Counsel then addressed his disputes with the
Commission des valeurs mobilières.
[118] She filed a ruling by the Quebec Court of Appeal,
La Reine c. Imbeault et Lassonde, as
Exhibit I-42. This ruling quashes an acquittal on
instruction from the Judge presiding at a jury trial of the
Appellant for having conspired with another individual to defraud
and having defrauded the public. The Court of Appeal
ordered a new trial, which was heard before Guérin J.
the appellant was found guilty of defrauding the general public
through a partnership, Calypso, from april 24, 1987 to
September 1, 1987. This judgment was filed as
Exhibit I-43.
[119] The counsel for the Respondent referred the
Appellant to Exhibit I-45, a copy of the judgment by
Piché J., dated November 9, 1989. In this
judgement, she found the Respondent, Normand Lassonde,
guilty of contempt of court for having violated the injunction
order issued by Yves Mayrand J. on
November 25, 1987. The order had forbidden the
Defendant from making any type of investiment governed by the
Commission des valeurs mobilières. The investments were in
Geyser Informatics Inc. This judgment is dated
November 9, 1989.
[120] Exhibit I-46 is a motion by Geyser
Informatics Inc., Gestion Tecktel Inc, Systèmes Financiers
Iceberg Inc. and Société de recherches
expérimentales en télématique. It is a
judgment dated February 5, 1990 by
Paul Martineau J. This judgment confirms the
jurisdiction of the Commission des valeurs mobilières du
Québec in requesting that funds be frozen.
[121] The judgment from the Quebec Court of Appeal dated
December 19, 1994 sets aside the judgment by
Piché J. on the grounds that the order by
Mayrand J. was not sufficiently clear.
[122] Exhibit I-49 is a judgment by the Court
of Quebec, Criminal and Penal Division, with
Pierre Verdon J. presiding. The judgment is dated
March 30, 1992. The Commission des valeurs
mobilières du Québec was the prosecutor. The
Appellant was the Defendant, along with Geyser Informatics Inc.
the period in question was from October 19 to
November 9, 1989. They were found guilty of the
20 offences of which they were accused. [translation]
"Essentially, they are accused of having, on twenty
occasions and with as many people, of having placed investment
contracts within the meaning of section 1 of the
Securities Act, without having obtained a prospectus from the
Commission des valeurs mobilières. In the case at hand, it
was research contracts granted by these people to Geyser
Informatics Inc., in volving the payment of amounts of between
ten thousand and thirty thousand dollars. "
[123] Exhibit I-50 is the judgment by
Trottier J. of the Superior Court, Criminal Division, dated
February 1, 1993. The appeal of Verdon J.'s
judgment was dismissed.
[124] Exhibit I-53 is the sentencing decision
by André Plante J. of the Court of Quebec, dated
April 28, 1995.
Analysis and Conclusion
[125] The Appellant's motion is based on the ruling
by the Supreme Court of Canada in Askov, supra.
That ruling holds that a delay of almost two years following the
preliminary hearing is clearly excessive and unreasonable.
[126] I cite what seem to be the most relevant parts of
the summary of the reasons written by Corey J.:
. . . s. 11(b) of the Charter, any person charged with an
offence has the right to be tried within a reasonable time and
this right, like other specific s. 11 guarantees, is primarily
concerned with an aspect of fundamental justice guaranteed by s.
7. The primary aim of s. 11(b) is to protect the
individual's rights and to protect fundamental justice for
the accused. . . .
The court should consider a number of factors in determining
whether the delay in bringing the accused to trial has been
unreasonable: (1) the length of the delay; (2) the
explanation for the delay; (3) waiver; and (4) prejudice to the
accused.. . . . Certain actions of the accused, on the other
hand, will justify delays. A waiver by the accused
[page1201] of his rights will justify delay, but the waiver must
be informed, unequivocal and freely given to be valid.
[127] This decision was rendered in the area of criminal
law.
[128] The counsel for the Appellant referred to the
ruling by the Supreme Court of Canada in Blencoe v.
Colombie-Britannique (Human Rights Commission), [2000] 2
S.C.R. 307, which clearly states that the constitutional right to
be tried within a reasonable time only applies to criminal
law.
[129] I quote Bastarache J., who wrote the reasons
for the majority, at page 359:
However, it must be emphasized that this statement was made in
the context of s. 11(b) of the Charter which provides that a
person charged with an offence has the right "to be tried
within a reasonable time". The qualifier to this
right is that it applies to individuals who have been
"charged with an offence". The s. 11(b)
right therefore has no application in civil or administrative
proceedings. This Court has often cautioned against
the direct application of criminal justice standards in the
administrative law area. We should not blur concepts
which under our Charter are clearly distinct. The s.
11(b) guarantee of a right to an accused person to be tried
within a reasonable time cannot be imported into s.
7. There is no analogous provision to s. 11(b) which
applies to administrative proceedings, nor is there a
constitutional right outside the criminal context to be
"tried" within a reasonable time.
[130] The ruling by the Supreme Court of Canada in
Blencoe, supra, was rendered in a context of
administrative law. It was a complaint allowed by a human rights
commission and filed with a human rights tribunal. The Supreme
Court ruled that section 7 of the Charter can extend
beyond the sphere of criminal law and apply to a human rights
case. However, the Court found that, in this case, section 7
of the Charter was not violated. The Court also indicates
that there are remedies available in the administrative law
context to deal with state-caused delay in human rights
proceedings, such as a stay of proceedings. In this case, it
ruled that such a stay of proceedings was not warranted.
[131] I cite two paragraphs from the summary of this
ruling, at page 312:
A stay is not the only remedy available for abuse of process
in administrative law proceedings and a respondent asking for a
stay bears a heavy burden. . . .
The determination of whether a delay is inordinate is not
based on the length of the delay alone, but on contextual
factors, including the nature of the case and its complexity, the
purpose and nature of the proceedings, and whether the respondent
contributed to the delay or waived the delay.
[132] In proceedings related to complaints made under
administrative law, the determination of whether a delay is
inordinate is not based on the length of the delay alone, but on
contextual factors, including the nature of the case and its
complexity, the purpose and nature of the proceedings, and
whether the respondent contributed to the delay or waived the
delay.
[133] An assessment under the Act is not a complaint or
an accusation. It is simply an act determining a taxpayer's
debt under the Act, within a self-assessment system.
[134] In the issue dealt with in this motion, there is a
portion that I feel is administrative law and another that is
civil procedure. The administrative law portion is that which
goes from the income tax return to the assessment. From the
moment when an appeal of the assessment is instituted before this
Court, which is a court of justice or civil court, it is no
longer administrative law, but civil law.
[135] The notion of diligence by the Minister, required
in the assessment process under the Act, has already been
examined by the courts. The Federal Court of Appeal, in Canada
v. Ginsberg, [1996] 3 F.C. 334, ruled that the failure
by the Minister to act with all due dispatch in making the
initial assessment, as required by subsection 152(1) of the
Act, should not result in the vacation of the assessments.
This subsection directs the minister, with all due dispatch, to
examine a taxpayer's return, assess the tax for the year and
any possible interest and penalties.
[136] I cite the relevant portions of this ruling:
. . . Bearing in mind, however, as found by the Tax Court
Judge, that the Minister was late in assessing, the only question
I must address is the nature of the sanction once there is a
failure to exercise a duty under subsection 152(1).
...
I find no escape with the clear terms of subsection 152(3),
particularly the words "Liability for the tax under this
Part is not affected by . . . the fact that no assessment has
been made". (Le fait . . . qu'aucune cotisation n'a
été faite n'a pas d'effet sur les
responsabilités du contribuable à
l'égard de l'impôt prévu par la
présente Partie.).
Subsection 152(8) in turn says "An assessment shall . . .
be deemed to be valid and binding notwithstanding any . . .
defect or omission . . . in any proceeding under this Act
relating thereto." (une cotisation est réputée
être valide et exécutoire nonobstant tou[t] . . .
vice de forme ou omission . . . dans toute procédure
s'y rattachant en vertu de la présente loi).
Section 166, in support, states that "An assessment shall
not be vacated . . . by reason only of any . . . omission . . .
on the part of any person in the observation of any directory
provision of this Act". (Une cotisation ne doit pas
être annulée . . . uniquement par suite . . .
d'omission . . . de la part de qui que ce soit dans
l'observation d'une disposition simplement directrice de
la présente loi).
[137] The counsel for the Respondent referred to the
ruling by Bowie J. of this Court in Antosko v.
Canada, [2000] T.C.J. no 466 (Q.L.). In that case,
Bowie J. had to rule on a claim similar to that of the
Appellant, to the effect that the assessments should be vacated
for unreasonable delay.
[138] On November 6, 1996, the Minister issued
reassessments for the 1977 and 1980 taxation years pursuant to
subsection 164(4.1) of the Act to give effect to the
Supreme Court's judgement [1994] 2 S.C.R. 312. That judgement
was the culmination of some ten years of litigation regarding the
taxpayer's assessments.
[139] To vacate the 1996 assessments, the Appellant
relied on the decision by this Court in Ginsberg and on
section 7 of the Charter. As regards the decision of
this Court in Ginsberg, it was overturned by the Federal
Court of Appeal on the grounds cited supra. As regards
section 7, the Appellant relied on the decision by the Court
of Appeal of British Columbia in Blencoe v. British
Columbia (Human Rights Commission), (1998) 160 D.L.R. (4th)
303 (C.A.C.-B.). As we have seen, that decision was overturned by
the Supreme Court of Canada. The Judge was not yet aware of that
fact.
[140] As regards section 7 of the Charter, I
cite paragraph 12 of the Antosko decision:
12 Counsel for the
Appellant referred to the judgment of the British Columbia Court
of Appeal in Blencoe v. British Columbia (Human Rights
Commission). [See Note 5 below] In that case the Court held
that section 7 of the Charter entitled the Appellant to the
termination of an investigation into a complaint of sexual
harassment that had been brought against him. Mr. Mockler argued
that the case stands for the proposition that:
[TRADUCTION]
. . . s. 7 protects against a completely open-ended government
pursuit of a citizen. Such an open-ended pursuit violates the
security of the person
The present case bears no similarity in principle to
Blencoe. The Appellant is not the subject of an inquiry of
any kind. His complaint on this issue is only that the
proceedings at four different levels of appeal from the first
reassessments took some 13 years to resolve the substantive issue
which gave rise to the reassessments. Those reassessments were
not the result of any lengthy factual inquiry; there was only one
issue between the parties, and it was a simple matter of
interpreting one section of the Act. I do not propose to
recount the history of the litigation. It is sufficient to say
that there were procedures available to the Appellant by which
the delays could have been minimized, had he chosen to invoke
them. Similarly, although the Minister was slow to reassess the
Appellant after the Supreme Court had delivered judgment, and
slow as well to confirm the assessments after they were objected
to, at least some of that delay was attributable to an ongoing
correspondence between counsel as to the propriety of the
reassessments. At any stage the Appellant could have insisted on
having his reassessments in order to appeal from them. And after
the Notices of Objection were delivered, he had only to wait 90
days before launching his appeals to this Court. Instead, he
chose to wait until the assessments were confirmed, more than
seven months later. This is far different from the facts in
Blencoe, where the investigation of a very serious
complaint took on a life of its own, and had a deleterious effect
on the life and well-being of Mr. Blencoe and his family. In that
case the chambers judge made a specific finding of fact that the
stigma associated with the complaint contributed greatly to,
among other things, a clinical depression for which the Appellant
required medical care
[141] As we have just seen, an assessment cannot be
vacated for lack of diligence in processing an assessment. Once
proceedings have begun before this Court, it is the
responsibility of the Appellant to request that the case be
heard.
[142] In any case, as regards the processing of
assessments, I am of the opinion that the evidence has shown that
there was no lack of diligence on the part of
Minister's agents in light of the administrative limitations
set forth in the Act.
[143] The Appellant claims that his usual assessment was
not issued within the usual time. This is an internal, not
legislative procedural deadline. The delay of that deadline by
several months was not explained, but is too minimal to examine
at length.
[144] Once the initial assessment is issued, the
Act sets forth deadlines and conditions in which the
Minister may issue reassessments.
[145] Subsection 152(3.1) defines the normal
reassessment period. For an individual, this period is three
years after the day on which the first assessment was mailed.
[146] Subsection 152(4) requires that the Minister
issue a reassessment within the normal reassessment period,
unless the taxpayer has filed a waiver within the normal
assessment period.
[147] This normal period becomes unlimited if the
taxpayer makes a misrepresentation attributable to neglect,
carelessness or wilful default or has committed any fraud in
filing the return or in supplying any information.
[148] The reassessments were issued within the normal
reassessment period or the period set forth for waiver.
[149] In the case of the Appellant, he was not required
to sign a waiver, as he was reassessed within the normal
reassessment period. The member signed a waiver at the suggestion
of their delegated member.
[150] The Appellant strongly emphasized that signing of
a waiver. He indicated an broken promise to invite him to present
his views at Headquarters in Ottawa.
[151] It is interesting, in this regard, to read the
letter that he sent to members on March 5, 1993 asking
that they sign the waivers (Exhibit P-82). Part of
that letter deals with the meeting with Mr. Boucher and no
mention is made of the alleged promise. Yet the letter was
written shortly after the events.
[152] I quote:
[translation]
Following our presentation, Mr. Boucher made the
following proposal to us on February 22, 1993. "I
suggest that you request an interpretation of the Act from the
'Legislation' section in Ottawa, on condition that the
SRET members waive the limitation period. If you refuse, there
will be immediate assessment."
[153] This leads me to address the purpose and
usefulness of a waiver. Taxpayers sometimes believe that they are
duped in signing a waiver. In Charron v. Canada,
[1997] T.C.J. No 303 (Q.L.), the taxpayer's accountant
led him to believe that he had made a mistake by signing a
waiver. I cite paragraphs 10, 13, 14 and 15:
10 The appellant
appeared for himself at the hearing. He repeated that the
accountant who made up the Notice of Appeal told him that he
should not have signed the waiver and that in signing it he had
waived the usual assessment period, which is three years for an
individual. The appellant said he signed because he felt he could
trust the Minister's officer.
. . .
13 In Cal
Investments Ltd. v. The Queen,
90 D.T.C. 6556, Joyal J. of the Federal Court Trial
Division explained the purpose and circumstances of such a waiver
as follows:
A waiver of the sort at issue in this case, might be
interpreted as an accommodation between the Crown and a taxpayer
for the better administration of the Income Tax Act and to
provide a more efficient determination of any liability
thereunder. In the light of the limitations on assessments under
s. 152 of the Act, the Crown requests a waiver so that it may
continue its assessment or audit work in a normal administrative
mode without having to worry about limitations. The taxpayer, on
the other hand, knows full well that on an assessment being made,
he alone has the burden of proving it wrong. That burden becomes
much heavier if the Crown, facing the end of the limitation
period, issues what might be termed a premature assessment which,
for purposes of abundant caution, would include many sundry items
which the taxpayer would have to traverse one by one. The
taxpayer in those circumstances would look upon a waiver as being
to his own benefit as well as the Crown's and would
ordinarily comply with the Crown's request.
In many cases, also, the waiver might be limited to specified
issues, i.e., those where assessing or auditing processes have
not been completed and which in fact remain the only outstanding
items on which the Crown can ultimately decide to assess or
reassess. This narrows the field of the assessment and again
provides mutual advantages to both the Crown and the
taxpayer.
14 In Bailey v.
M.N.R.,
89 D.T.C. 416, at 419, Judge Rip of this Court said the
following on the same point:
A waiver is usually given by a taxpayer to the respondent when
there is an unresolved dispute over one or more specific matters
and the three year time period within which the respondent may
reassess is fast approaching. The execution of a waiver avoids a
hasty reassessment by the respondent; it provides the taxpayer
with further opportunity to consider adjustments proposed by the
respondent and to allow him to make further representations to
support his claim.
15 The purpose
of a waiver is to continue analysis of a transaction or matter
concerning which the basis of the assessment is in question. It
is hard to see why the accountant raised doubts in the
appellant's mind as to the relevancy of signing the waiver
and it should be noted that the accountant is no longer
representing the appellant at the hearing. The Minister could
have assessed immediately since he was still within the normal
assessment period. As Joyal J. said, for the sake of
efficiency it was just as well to accept this mutual
accommodation rather than make a hasty assessment, which would
not be in the interests of the taxpayer or of the Minister as the
administrator of the Act. I see no reason in this case for
casting any doubt on the validity of the waiver: accordingly, it
is valid.
[154] In the case at bar, the evidence shows that the
Minister could have made an immediate assessment. He accepted to
delay the reassessment to allow for further examination of the
file.
[155] We saw in the description of facts that the large
number of individuals reassessed and their complaints at the
executive level led to a specific examination of the case. That
examination led to a settlement offer in 1995. The Appellant and
several members decided not to accept the settlement.
[156] The examination and proposed settlement took place
after the notices of objection were filed by the investors and
prior to confirmation by the Minister. A taxpayer who is not
satisfied with an assessment files a notice of objection with the
Minister pursuant to section 165 of the Act. During that
time, a taxpayer may, pursuant to paragraph 169(1)(b) of the
Act, appeal to this Court after 90 days have elapsed after
service of the notice of objection and the Minister has not
notified the taxpayer that the Minister has vacated or confirmed
the assessment or reassessed.
[157] In fact, this is what was done by the
600 members who followed the advice of the Appellant or his
counsel to not accept the settlement offer made in
April 1995 and to appeal to this Court without waiting for a
decision by the Minister. It must be noted, in this regard, that
the various pieces of correspondence that allegedly led the
members to act thus were not filed in evidence.
[158] It is possible for a taxpayer to ask this Court to
enter an appeal for hearing once the Response is filed. In fact,
in an appeal litigation, it is the responsibility of the
appellant to request the hearing.
[159] The counsel for the Appellant represented several
members. The counsel agreed with the counsel for the Respondent
to suspend the deadline for filing the Response to the Notice of
Appeal for certain appeals. He also agreed with the counsel for
the Respondent to select a case for the purposes of the hearing.
This decision by the counsel for the members and the Appellant
was consistent with the proper administration of justice. There
is absolutely nothing in the evidence that could lead me to
believe that the counsel did not make this choice freely.
[160] Several witness summons were quashed on grounds of
relevance and abuse of process. According to the loose-leaf
publication entitled "Witnesses" by authors
Mewett and Sankoff, published by Carswell, there are three main
reasons for quashing subpoenas, i.e., the summoned individuals do
not have personal knowledge of the facts, it is abuse of process
or there is violation of the Charter.
[161] I cite passages from shapter 7.7:
a)
Grounds for Quashing a Subpoena or Summons
(i) Witness
Can Provide No Material Evidence
Neither a subpoena nor a summons is an independently operating
judicial instrument. The power of each flows from the notion that
the justice system must be able to secure the attendance of
witnesses who provide the testimony that is necessary to allow
decisions to be made. It follows, thus, that for a subpoena to be
valid, it must be served upon a potential witness who has some
form of relevant and admissible evidence to offer to the
hearing. Where a subpoena is issued to a person who cannot offer
any such evidence, it will be quashed.
Several of the cases in which subpoenas have been set aside on
the basis that the person subpoenaed cannot give material
evidence have involved public officials. In R. v. Baines,
the English Court of King's Bench set aside subpoenas to the
Prime Minister and Home Secretary. The case concerned an alleged
breach of the peace and they both deposed that they did not see
the breach and argued that the subpoenas were sought only to
harass them. The court held that while the officials did not have
any immunity from testifying, the subpoenas were, in the
circumstances, an abuse.
Canadian courts have followed R. v. Baines in refusing
to grant any immunity to public officials on that ground alone
but, at the same time, have been fully aware that they may be
targets of harassment whose attendance may be sought for no
legitimate purpose.
For this reason, it appears that courts asked to review a
subpoena issued to a public official will closely scrutinize -
arguably much more closely than would be the case of an ordinary
witness - whether the witness truly has evidence to offer. In
R. v. Brown, the accused was charged with assault after
hitting the Prime Minister of Canada in the face with a cream
pie.
A witness may also be immaterial if his or her proposed
evidence cannot, as a matter of law, affect the outcome of the
case. In Baldwin v. Bauer, counsel for the accused wished
to examine two Crown counsel on their decision to reduce charges
against the accused, and subpoenas for this purpose were set
aside by the High Court of Ontario on the ground that the
reduction of the charges was within the discretion of the Crown
attorney and any testimony on this question could not be material
to the case.
(ii) Subpoena is
an Abuse of Process
A subpoena will also be quashed where a court is convinced
that its issuance was, in effect, an abuse of process. There is
probably no judicial term which is more frequently misused than
"abuse of process", and in this context, unfortunately,
the jurisprudence suffers from a discernable lack of precision.
Still, the general principles are not too difficult to divine.
Where a subpoena is issued to support an improper purpose, being
one that is not related to securing the witness' evidence, it
will usually be quashed.
(iii) Subpoena Would
Cause a Charter Violation
...
[162] Abuse of the process of the court is described as
follows in Odgers' Principles of Pleading and
Practice in Civil Actions in the High Court of Justice,
22nd ed., Stevens & Sons, 1981:
The term "abuse of the process of the court" is
similarly descriptive. It connotes that the powers of the court
must be used bona fide and properly, and must not be abused. The
court will prevent the improper use of its machinery and will not
allow it to be used as a means of vexatious and oppressive
behaviour in the process of litigation.
[163] It must be noted that the Appellant called no
witness who took part with him in managing SRET.
[164] The Appellant invoked as discrimination the fact
that the study report mentioned that the audits of SR & ED
partnerships began with partnerships with more members. Pursuant
to section 220 of the Act, the Minister administers
and enforces the Act. By doing what he did with the
partnerships in question, the Minister only fulfilled his duty,
which is to ensure compliance with the Act.
[165] The Appellant also based his motion on acts of
oppression on the part of the Minister's agents. The evidence
did not reveal any. Everything that the auditors did was simply
part of their normal work. The Appellant tried to block them at
every turn. If there were any acts of oppression, they were by
the Appellant. For example, I cite the March 17, 1992
letter (Exhibit I-4) criticizing
Mr. Deslonchamps' behaviour to his Director,
Mr. Jean-Marc Boucher, the
January 13, 1993 letter (Exhibit I-11) to
Mr. Simon Beauregard calling his request for verification of
software and electronic equipment [untimely relentlessness] and
harassment, the January 22, 1993 letter
(Exhibit I-12) to
Mr. Jean-Marie Boucher to complain about
Mr. Beauregard and the February 18, 1993 letter to
Minister Pierre Blais to complain about
Mr. Boucher (Exhibit I-14), to name only a
few.
[166] The information given to members was often only
half-truth. The Appellant always covered himself with the
misleading title of delegated member when, in reality, official
documents show him having renounced his share in the partnership
on November 27, 1989 (Exhibit P-1).
[167] He indicated at the hearing that Revenue Canada
did not give advance rulings on SR & ED projects. This was
denied by Mr. Lambert from that directorate, as indicated in
paragraph 63 of these reasons.
[168] In light of the various disputes between the
Appellant and the Commission des valeurs mobilières du
Québec and the Appellant's propensity to use them as
excuses, I believe it is appropriate to mention the purpose of
the Commission found in section 276 of its incorporating
legislation (R.S.Q., c. V-1.1) :
. . .
The Agency's mission is:
10 to promote efficiency in the
securities market;
20 to protect investors against unfair,
improper or fraudulent practices;
30 to regulate the information that must be
disclosed to security holders and to the public in respect of
persons engaging in the distribution of securities and in respect
of the securities issued by these persons;
40 to define a framework for the activities
of the professionals of the securities market and organizations
responsible for the operation of a stock market.
[169] Regarding the scope of a tax shelter number, I
feel it is appropriate to cite a passage from the letter granting
a tax shelter number to SRET (Exhibit P-2), which
requires the following:
[translation]
. . .
Any promoter of a tax shelter shall include the following
statement on all written notification by the promoter regarding
the tax shelter number:
"The registration number assigned to the tax shelter
shall be indicated on all income tax returns filed by the
purchaser. Assignment of a registration number is only for
administrative purposes and in no way confirms the
purchaser's entitlement to deductions for losses or other
amounts that may be associated with the tax shelter."
[170] Nevertheless, even if the Appellant had not
personally contributed to the delay, the decision would have been
the same for the aforementioned reasons. There are no grounds in
law or fact for quashing the assessments for unreasonable delay
at either the assessment stage or the litigation stage.
[171] The motion to quash the assessment is dismissed.
Costs are awarded to the respondent.
Signed at Ottawa, Canada, this 3rd day of October
2003.
Lamarre Proulx J.
Translation certified true
on this 8th day of March 2004.
Gerald Woodard, Translator
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