Neeb v. R., [1997] 2 CTC 2343

Bowman T.C.J. (Orally):

I will render my reasons in the matter of the preliminary motion brought by the respondent to dismiss the appeal of Timothy P. Neeb on the grounds of issue estoppel or alternatively abuse of process.

The reasons were prepared over the lunch hour and are somewhat brief and I apologize for any inelegance in them. I did not have the luxury to spend much time on them because we have a two week trial which should go on immediately afterwards, if this motion is dismissed.

At the opening of the hearing, counsel for the appellant filed an amended Notice of Appeal. The Crown reserved the right to file an Amended Reply and the consent was without prejudice to the Crown’s argument on the issue of abuse of process or issue estoppel.

The appeal is from an assessment for the 1987 taxation year. The evidence before me consists of an affidavit by Mr. Robert Gosman of the Department of Justice and Mr. Paul Jenkins from the Department of National Revenue as well as portions of the examination for discovery of the appellant.

The facts which give rise to the argument of issue estoppel or abuse of process can be stated fairly briefly. They are succinctly set out in Mr. Shipley’s memorandum of fact of law and are based upon the two affidavits that I mentioned.

In summary they are as follows:

During the 1982, 1983, 1984, 1985, 1986 and 1987 taxation years the appellant engaged in the business of buying and selling narcotics. During the examination for discovery of the appellant, counsel for the respondent asked the appellant whether he had maintained income statements for the years 1982 to 1987 in respect of that business. The answer was no.

The appellant was asked to produce income statements for those years and he said he was unable to do so. In his returns of income for 1983, 1984 and 1985 the appellant did not disclose income from the narcotics business and he did not file returns of income for 1986 and 1987.

The assessments for the years 1983 to 1987 are as follows and I am setting out the income upon which the appellant was assessed for each of those years:

1987 - $ 3,816,336

I have left off the pennies.

The Crown proceeded upon the assumption that, to use the words in the Memorandum of Fact and Law, the appellant’s organization had received income of something over $17 million from the business during the taxation years 1983 to 1987. This amount was not included in income tax returns.

The matter proceeded to trial. The appellant was charged not only with income tax evasion but also with the illegal importation of narcotics under the Narcotics Control Act.

The Crown reduced the amount for the five years on which the appellant was charged to $7 million and the tax on that was something in excess of $2.5 million.

I will read the indictment here. The charge in the Ontario Supreme Court on May 15, 1990 was that the accused, that is to say Mr. Neeb:

In the Municipality of Metropolitan Toronto in the Judicial District of York or elsewhere in the Province of Ontario between the 1st day of January 1983 and the 30th day of April 1988, both days inclusive, wilfully evaded the payment of taxes imposed by the Income Tax Act, R.S.C. 1952, Ch. 148, as amended, by failing to declare income in the amount of no less than $7 million for the taxation years 1983, 1984, 1985 1986 and 1987 and did thereby commit an offence contrary to section 239(1 )(d) of the said Act.

On the back of the indictment there are notes which I presume are in the handwriting of the Honourable Mr. Justice Watt:

May 15, 1990:

Accused pleads guilty.

Then the sentence of May 1990:

Five years concurrent to sentence imposed on indictment 66888

which I presume is pursuant to the Narcotics Control Act.

Now I observe that both the charge and the plea of guilty were for the five years 1983 to 1987 and the plea of guilty was in respect of $7,000,000 unattributed to any particular year.

Now evidently the plea of guilty was the result of a deal that was struck, if you wish to call it that, a plea bargain and apparently to reflect the $7,000,000 to which the appellant was prepared to plead guilty for the years 1983 to 1987. And a special investigator who was Mr. Jenkins, who also testified, also filed an affidavit, prepared a Revised Unreported Federal Tax Sought to be Evaded Schedule and the amount of income said to be not reported by the appellant, was reduced from $17,074,205.66 to $7,000,000.

I do not need to go through all of these but I observe that the original amount was as I said, $17,074,205.66. He simply cut that amount in half for a total of $8,537,102.83. To bring it down to $7,000,000 he reduced the alleged unreported income for 1986 by $1,537,102.83, giving us, as stated, an aggregate amount of $7,000,000. That is the figure to which the appellant pleaded guilty before Mr. Justice Watt.

The assessment, however, was not reduced to reflect these adjustments. 1987, the assessment before me, is in respect of income of not $3,821,446 but rather $3,816,336.99. The difference is insignificant and I am not going to comment on the difference there but the other assessments were also not adjusted and it would be improper for me to speculate, but one might wonder whether or not the failure to adjust the assessments for the other years may have had something to do with the wish not to reopen those assessments because no notice of objection had been filed on a timely basis.

In any event, Mr. Neeb endeavoured to object to the assessments for the 1983 to 1986 taxation years and he appeared before my brother Judge Sarchuk. His application for an extension of time to file notices of objection was denied. However, the 1987 taxation year is properly before the court.

That is a brief summary of the facts.

Now the principles relating to issue estoppel are quite well established. I summarized them in a case recently which has not been reported, evidently, Adams v. R. [1996] 3 C.T.C. 2585, 96 D.T.C. 1733 (T.C.C.). There was a companion case, Adams v. R. [1996] 3 C.T.C. 2592, 96 D.T.C. 1737 (T.C.C.), where it is said, at page 2586 that:

It can no longer be doubted that, as a matter of law, the principle of issue estoppel can apply in a civil proceeding where the same issue has been litigated in a previous criminal proceeding between the same parties. That question has been put to rest by the Federal Court of Appeal in Van Rooy v. Minister of National Revenue, 88 D.T.C. 6323. For issue estoppel to apply in a subsequent case based on a prior judicial proceeding three conditions must prevail:

(1) That the same question has been decided.

(2) That the judicial decision which is said to create the estoppel was final.

(3) The parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.

I refer then to Carl-Zeiss-Stiftung v. Rayner & Keeler Ltd. (No.2) (1967), 1 A.C. 853, [1966] 2 All E.R. 536, at pages 935 (All E.R. 565-66), and a decision of the Supreme Court, Angle v. Minister of National Revenue (1974), [1975] 2 S.C.R. 248, 28 D.T.C. 6278, at page 255 (D.T.C. 6280-81).

There was another condition, I understand, added in the Angle case by Mr. Justice Dickson having to do with the issue having to be fundamental to the decision of the Court. I do not need to deal with that particular consideration in this case. The judicial decision is final and the parties to the judicial decision were the same persons. The real question here is whether the same question has been decided.

I conclude that issue estoppel does not apply here, and for several reasons. As counsel for the appellant pointed out, we are dealing here with a plea of guilty. I am not suggesting for a moment that issue estoppel cannot necessarily apply where there is a plea of guilty. No case that I am aware of has so held, but I will leave that determination for another day. However, it does render it somewhat more difficult to determine whether there is an identity of issues. Here we have a plea of guilty covering five years in respect of a global amount of $7 million. It is not clear what part of the income was earned in 1987, the year under appeal, and the problem is, I think, apparent when you look at the difference between the amounts assessed and the amounts in respect of which Mr. Jenkins arrived at a total of $7,000,000, which I think it must be clear is a rather arbitrary figure. He simply cut the amounts in half and then reduced them by a further approximately $1.5 million.

I do not think there is an identity of issues with respect to 1987.

There is no admission or determination that the appellant’s income for 1987 was either $3,816,336.99 or $1,910,723.10, being the amount arrived at by Mr. Jenkins. This is purely an amount that was arrived at by the assessor to come to $7,000,000 to which the appellant was prepared to plead guilty for all five years.

It was argued by Mr. Shipley that the appellant cannot say, as he has said in his pleadings, that the income was nil for 1987 because he has pleaded guilty. It does not necessarily follow that he is admitting that his income for that year was either $3.8 million or $1.9 million.

In any event, even accepting Mr. Jenkins’ calculations, I emphasize that there is no evidence that the appellant accepted this figure. There is no determination as to the appropriate years to which the total income of $7,000,000 was applied. There is no determination whether he was a partner with one Brook, another allegation in the pleadings. One might infer some sort of acceptance of this by the willingness to cut the figure in half, but I don’t think the evidence goes that far.

There is no determination as to his expenses. Indeed, it cannot be said on the evidence before me that the various arguments that the appellant is raising now were considered either by Mr. Justice Watt or indeed by the assessors for the Department of National Revenue.

The circumstances I think would be erroneous and dangerous to apply issue estoppel. I note in the leading 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 the Federal Court of Appeal agreed with Associate Chief Judge Christie that there was no identity of issues, even though they held that he erred in believing that issue estoppel cannot apply as between criminal and civil proceedings. And in that decision of Van Rooy, at pages 88-9 (D.T.C. 6330), I am not going to read the whole thing, but Mr. Justice Urie said:

While I am very cognizant of the conceptual difficulties in defining the limits of the rebuttal evidence which may be adduced and the danger thereby of exposing to relitigation the very issues which led to the conviction, on the facts of this case as exposed in the reasons for Judgment of the Provincial Court Judge, I have no difficulty in concluding that, in the broad sense, the fundamental decision of tax evasion found in the criminal proceeding is equally fundamental in the reassessment to tax on the basis of failure to disclose certain income.

Now I pause in my quotation from that case to observe that notwithstanding that conclusion, Mr. Justice Urie goes on to say, at page 89:

However, the narrower issue within that broad fundamental decision is one which is equally fundamental for purposes of the tax appeal, namely, the quantum of suppressed income, has been exposed to doubt. Therefore, assuming that a Court is entitled to have regard to the reasons for Judgment and not just to the Certificate of Conviction, I agree with the Associate Chief Judge at least with respect to the issue of quantum, that issue estoppel does not lie because of a lack of identity of issue.

There was a further passage from that judgment to which I would like to make reference on page 89 (D.T.C. 6331):

The position of counsel for the Applicant on the alternative plea is that at least $40,000 was proven to have been suppressed, at least to the satisfaction of the Trial Judge. While I concede that I have had some difficulty in following the complex evidence adduced on the monetary aspects of the evasion, it is clear on the whole, I think, that the learned Judge had been unable to determine with any precision the exact amount evaded. In fact he said, ‘I believe there was a substantial sum evaded but I don’t know how much.’ Nor did he appear to accept the submission of counsel for the Minister that over and above any capital gains there appeared to be some $40,000 suppressed. That being so, in my view, it is not possible to find, in effect, that the Certificate of Conviction can, on the evidence, be modified to show a lesser sum than $60,000 as the amount evaded. There is thus doubt, at the very least, that the existence of the conviction can or should estop the civil proceedings.

I refer as well, without quoting from it, to a decision of the trial decision of the Federal Court, by Mr. Justice Mahoney in Sheridan Warehousing Ltd. v. R., (sub nom. Sheridan Warehousing Ltd. v. The Queen) which is found in [1983] C.T.C. 90, 83 D.T.C. 5095, where he held that notwithstanding a criminal conviction for tax evasion with respect to false valua- tion of certain property, the V-Day value was not determined by the trial judge and therefore the taxpayer was not estopped from asserting a V-Day value.

That decision, I believe, with respect, is consistent with the conclusion I am reaching here.

The second passage that I quoted from the Van Rooy case confirms my view that issue estoppel with respect to the quantum of income either applies or it does not apply. It does not partially apply. Here we have an assessment of tax on income of $3,816,336.99 and a conviction based upon a calculation by Mr. Jenkins of income of $1,910,723.10, a figure that, at least in the material that I have, was not accepted by the appellant explicitly or implicitly when pleaded guilty. If he is not estopped from arguing about the other half of the $3.8 million, I don’t see he can be estopped from putting the whole question of the quantum of his income in 1987 in issue.

I turn now to the argument of abuse of process. The concept is somewhat broader and may subsume issue estoppel.

I do not think there is any abuse of process. The appellant is in fact pursuing his statutory right in this court to appeal from an assessment of income tax to the only court in this country that has exclusive original jurisdiction to hear and consider civil appeals from income tax assessments.

Counsel suggests that because Mr. Neeb unsuccessfully tried to file objections to assessments for 1982 to 1986 in which he would necessarily contend the assessments were too high, it is an abuse of process for him, having failed to get permission to object to those years, to suggest that some of the income assessed in 1987 should be shifted to those earlier years, thereby increasing the tax for those earlier years. And, of course, the court does not have the power to order that an income tax assessment be increased. That is clear from the decision of the Exchequer Court in Harris v. Minister of National Revenue, [1964] C.T.C. 562, 64 D.T.C. 5332. Even within the context of his guilty plea, he is still entitled to contend that his income, or some part of it, should be taxed in another year.

As I observed to Mr. Shipley in the course of his very able argument, it seemed to me that the arguments that he was advancing in his preliminary motion on abuse of process or issue estoppel were more appropriate to arguments that should be made on a full appeal.

One final point I should mention. I have observed a substantial reluctance on the part of the courts to apply issue estoppel in these circum- stances. Van Rooy is one good example, so too is Sheridan Warehousing as is the Adams case. In that case I said, at pages 2589-90:

... it is dangerous to apply the doctrine of issue estoppel indiscriminently in a civil tax appeal where the taxability of amounts that it is sought to contest in the tax court was not specifically put before the provincial court in the previous criminal trial and those amounts merely form part of a global amount upon which the prior conviction is founded. I say this for several reasons. In the first place issue estoppel is based upon the view, which I am sure no one would dispute, that it is undesirable that if a particular question is litigated between two parties before one court and is the subject of a final determination by that court, it should be capable of being litigated again between the same parties in another court.

Nonetheless, the effect of applying the doctrine is to prevent this court, which, under the Tax Court of Canada Act, has exclusive original jurisdiction to hear and determine appeals from assessments made under the Income Tax Act, from exercising that jurisdiction and determining the correctness of an assessment. The achievement of the desirable objective which the doctrine embodies necessarily precludes any further enquiry into the truth. For that reason, it must be applied only in clear cases.

Similarly, I went on to say that considerations that impel a taxpayer to either remain silent in a criminal proceeding or to plead guilty are considerations that really should not impinge upon his decision to contest the civil assessment. In other words, in deciding to remain silent or plead guilty, he should not be influenced by whether or not he can appeal his income tax assessment.

I said that at some length in the Adams case and continued, at page 2590:

It would be an unfortunate consequence of the application of the doctrine to civil tax appeals, based on a prior conviction under section 239 of the Income Tax Act, if a decision taken by an accused to remain silent in a prosecution were to be influenced by such extraneous factors as the effect that decision might have in a subsequent appeal to this court.

But that is only a policy observation. It has really nothing much to do with the doctrine that I am discussing.

In all the circumstances, I am satisfied that the doctrine of issue estoppel and the doctrine of abuse of process does not apply.

The motion to dismiss the appeal on the grounds of issue estoppel or abuse of process is dismissed.

Costs should be in the cause. In view of the speed with which I have prepared these reasons, I would reserve the right to edit them or, if necessary, to expand on them.

Motion dismissed.