A company (“JAD”) that promoted itself as an SR&ED specialist firm, created backdated records in support of R&D claims that it and its principals (Deacur and Gordon) made on behalf of numerous clients. Deacur and Gordon were committed to stand trial, but the prosecution ended when Crown counsel entered a stay of proceedings. Deacur and Gordon, and JAD, brought an action for damages for inter alia malicious prosecution. CRA had failed to understand that backdating records was an acceptable accounting practice, and that the prosecution had no chance of success.
Before dismissing their actions, Barnes J stated (at paras. 277):
The fact that mens rea might have been negated in the prosecution of Messrs. Deacur and Gordon based on a wholly untenable but mistaken belief that their methods were sound does not, however, lead to a conclusion that the prosecution was legally unsound. On my assessment of the evidence, the CRA had reasonable and probable grounds for recommending a prosecution. There is no evidence that CRA officials acted unlawfully, maliciously or negligently in the conduct of the JAD investigation. To the contrary, the investigation was thorough, fair, objective and competently carried out.
Before so concluding, points made by him included:
- Even though the prosecution is actually conducted by the Crown, liability for malicious prosecution “may also attach to those who were ‘actively instrumental’ in setting the law in motion”, e.g., “the act of withholding or misrepresenting evidence by an investigator for a malicious purpose may support a viable cause of action” (para. 253); and here “the prosecution was effectively initiated by the CRA in the sense that CRA officials were actively instrumental in setting the prosecution in motion” (para. 255).
- One of the requirements for malicious prosecution is that “The prosecution was terminated in favour of the plaintiff” (para. 251) and “A stay of prosecution is a favourable termination” (para. 252).
- Various complaints about alleged process mistakes by CRA (e.g., not using a Form T-134 to refer the audit file to Special Investigations) failed inter alia because “Procedural lapses are only relevant to the extent that their avoidance could have influenced the outcome of the investigation” (para. 236).
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|Tax Topics - Income Tax Act - Section 239 - Subsection 239(1) - Paragraph 239(1)(c)||backdating of accounting records to support clients’ SR&ED claims constituted the actus reus of s. 239(1)(c) – but potentially no mens rea if genuine belief that this was permitted||585|
Samaroo v. Canada Revenue Agency, 2019 BCCA 113
The Samaroos were acquitted in 2011 on all counts of tax evasion respecting their having allegedly skimmed $1.7 million in cash from the restaurant operations of their corporation between 2004 and 2005. They then were awarded damages (including $750,000 in punitive damages) in 2018 by the B.C. Supreme Court in an action brought by them against CRA for malicious prosecution and breaching their s. 7 Charter rights.
After noting that Miazga v. Kvello Estate, 2009 SCC 51established that one of the requirements for finding malicious prosecution was that “the prosecution was undertaken without reasonable and probable cause,” and noting that CRA had suspected that the Samaroos had failed to provide the “till tapes” for one of the daily shifts to the corporate bookkeeper, Harris JA indicated that here “The trial judge treated proof of the till tape theory, a particular scheme, as essential to proving the actus reus” of the alleged s. 239(1)(d) offence (para. 57), whereas, in fact (para. 58):
[T]he actus reus of the offence does not depend on proof of any particular method by which taxable income is not reported. What matters is the fact that taxable income is intentionally not reported. The existence of unreported taxable income does not necessarily require proof of how it is hidden or disguised.
Furthermore (at para. 72):
… [T]he trial judge improperly reversed the onus of proof. It was for the plaintiffs to demonstrate the absence of reasonable and probable cause, not for the defence to prove it.
Before allowing the appeal and dismissing the underlying action Harris JA, stated (at paras 81, 94, and 97):
… [T]he Samaroos failed to prove an absence of reasonable and probable cause to initiate and continue the prosecution.
… In my view, both the absence of declared income consistent with accumulating savings of the amount claimed and the apparent illogicality of holding cash rather than paying off expensive debt objectively casts doubt on the claim that the cash represented savings accumulated over a lengthy time. …
Viewing the matter as a circumstantial case, the inculpatory facts are sufficiently enveloping to call for an exculpatory explanation of the origins of the cash deposits. …
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|Tax Topics - Income Tax Act - Section 239 - Subsection 239(1) - Paragraph 239(1)(d)||proof of actus reus does not require proof of particular scheme for evading tax||229|
Samaroo v. Canada Revenue Agency, 2018 BCSC 324, rev'd 2019 BCCA 113
The taxpayers (Mr. and Mrs. Samaroo), operated a restaurant and nightclub in Nanaimo, B.C. Mr. Samaroo and his accountant told CRA that substantial cash deposits made to the business account were of large accumulated cash savings that were deposited because he was afraid that the bank would stop accepting old $100 bills. The principal CRA investigator (Keith Kendall) formed the view that the taxpayers had skimmed $1.7 million from the restaurant between 2004 and 2005. In 2011, the taxpayers were acquitted on all counts of tax evasion. The taxpayers then sought damages for alleged malicious prosecution in this action against CRA, the Crown prosecutor (Brian Jones) and his law corporation. Punnett J dismissed the claims against the latter two, but awarded damages against CRA consisting of $347,731.74 respecting the legal expenses of the criminal defence, $300,000 to each of Mr. and Mrs. Samaroo for aggravated damages and $750,000 in punitive damages.
Punnett J first noted (at paras 106 -107) that the elements in issue (as enunciated in Miazga, 2009 SCC 5) respecting all defendants were whether “the prosecution was undertaken without reasonable and probable cause; and … was motivated by malice or a primary purpose other than that of carrying the law into effect,” and additionally, in the case of CRA, whether CRA “initiated or continued the prosecution against them.”
As to the latter element, he stated (at paras 195 and 198):
[I]t appears they [Brian Jones and another prosecutor] relied on Mr. Kendal and the CRA to gather the evidence, draft the final Information, and essentially, do charge approval. …
… Mr. Kendal and therefore his employer the CRA “caused everything to be done which could be done wrongfully to set the law in motion” against the Samaroos … .
As to the absence of reasonable and probable cause, he stated (at paras 242, 244 and 245):
[T]he CRA could prove the plaintiffs had the money, but not anything about whether it was skimmed, when it was skimmed, from which corporation it was skimmed, nor how the plaintiffs did so. The theory of the prosecution was founded on an assumption, which could not be proved.
…[T]he charges against the Samaroos were founded on an assumption, and grounded in mere suspicion and hypotheses, which did not and could not constitute reasonable and probable cause … .
As to malice of CRA. he stated (at para 257 and 258):
Proof of malice requires proof on a balance of probabilities that in the role of an investigator, Mr. Kendal acted deliberately to subvert and abuse his office. … He did so by suppressing evidence and attributing evidence to witnesses that was not accurate. … He knowingly misstated evidence essential to the proof of the actus reus despite being aware of its importance, [and] filed a misleading report knowing it would be relied upon to authorize the prosecution… . I am satisfied that malice has been vicariously established as against the CRA as a result of the conduct of Mr. Kendal.
…Mr. Kendal … wrote the Prosecution Report as an advocate not an investigator. He presented the evidence in a way designed to mislead [the prosecutors].
Respecting the failure to establish malice of Brian Jones, he stated (at para 281):
…He struck me as a lawyer, who, through negligence or otherwise, gave up control of the prosecution to Mr. Kendal and the CRA and in so doing risked a miscarriage of justice. However, a failure to act properly as a result of negligence or a lack of understanding of the issues or a failure to properly exercise prosecutorial discretion does not in itself amount to malice.
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|Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Subsection 24(1)||malicious prosecution in breach of s. Charter rights gave rise to Charter s. 24 damages in the alternative||143|
|Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 7||malicious prosecution breached a couple's s. 7 rights||210|