Martin v. Chartered Professional Accountants of Ontario, 2018 ONSC 2046
CITATION: Martin v. Chartered Professional Accountants of Ontario, 2018 ONSC 2046
DIVISIONAL COURT FILE NO.: 413/17
DATE: 20180409
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SWINTON, PARAYESKI and MATHESON JJ.
BETWEEN:
JOHN WILLIAM MARTIN
Applicant
– and –
CHARTERED PROFESSIONAL ACCOUNTANTS OF ONTARIO
Respondent
Robert W. Staley, Jonathan G. Bell and Jessica M. Starck, for the Applicant
Paul F. Farley and Alexandra E. Hersak, for the Respondent
HEARD at Toronto: March 13, 2018
Swinton J.:
Overview
[1] The Applicant, John William Martin, seeks judicial review of the October 8, 2016 decision of the Appeal Committee of the Chartered Professional Accountants of Ontario (the “Respondent”). In that decision, the Appeal Committee rejected his appeal of a decision of the Discipline Committee, dated October 6, 2015, that had found him guilty of two allegations of professional misconduct and found six other allegations not proven. The Appeal Committee allowed a cross-appeal brought by the Respondent, finding that the Applicant was guilty of five further allegations of professional misconduct. It subsequently ordered that the Applicant’s licence be revoked.
[2] The Applicant submits that the Appeal Committee applied the wrong standard of review and impermissibly interfered with the findings of fact made by the Discipline Committee. For the reasons that follow, I would dismiss the application for judicial review, as the Appeal Committee did not interfere with the findings of fact made by the Discipline Committee, and the decision of the Appeal Committee is reasonable.
Factual Background
[3] Eight allegations of professional misconduct were made against the Applicant, a licensed Chartered Accountant. They alleged that while the Applicant was providing accounting services to named clients, he conducted himself in a manner that would not maintain the good reputation of the profession and its ability to serve the public interest “in that he and his company participated in and profited from an arrangement to evade the payment of tax properly owing by his clients.”
[4] The allegations arose out of complaints concerning a “Tax Minimization Plan” (“TMP”) that the Applicant devised. The following description of the TMP from the Discipline Committee’s decision is not disputed (at paras. 90 to 91):
The TMP involved transactions with a few high net worth individuals who felt that they were paying too much tax. It was essential that the taxpayer would be paying approximately 50% or thereabouts of tax on his corporate income for the plan to be beneficial. Mr. Martin owned corporations that had substantial non-capital losses and these losses would eventually expire unless they were used in some manner.
The framework of the TMP was not seriously contended during the hearing. Mr. Martin’s plan was that one of his companies would invoice the taxpayer corporation for services. These services were usually provided, but the quantum of the invoice could be hard to justify. No time sheets or records had been kept to support the amount of the invoices. The taxpayer/client corporation would pay the invoices and deduct them in their statements, thereby receiving a deduction for tax purpose, saving tax at 50%. Mr. Martin’s company would receive the income and record it – but would not pay any tax on this income due to the utilization of the non-capital losses available. The second part of the plan was that Mr. Martin would then write a personal cheque for 75% of the invoiced amount to the shareholder of the taxpayer corporation. Using this series of transactions, the tax savings were split 50-50 between the taxpayer corporation/shareholder and Mr. Martin/Mr. Martin’s corporations.
The Decision of the Discipline Committee
[5] The Discipline Committee found that the Applicant had engaged in professional misconduct with respect to the first two allegations because he proceeded with the TMP without first discussing the validity of the TMP with a tax advisor. The Discipline Committee also observed, with respect to the second allegation, that the Applicant did not have a reasonable basis to believe the transactions were defensible. It stated (at para. 112):
Given that the transactions, at best, presented a risk that they were in violation of the Income Tax Act, and inappropriate transactions for an accountant to involve himself in, the tribunal found Mr. Martin had committed professional misconduct with respect to Allegation No. 2.
[6] The Discipline Committee found that allegation 3 was not proven. That transaction is no longer at issue. It then turned to allegation 8, the next transaction chronologically. The client referred to in this allegation was Allen Church, a lawyer and a senior tax partner in the Applicant’s firm.
[7] The Discipline Committee noted that although “there was some dispute as to the extent of the consultation, Mr. Martin conferred with Mr. Church in relation to the TMP before Mr. Church participated.” It also noted that Mr. Church had a personal interest, since he was looking to reduce his own taxes, but it still relied on his involvement because he participated in the TMP (at para. 119).
[8] The Discipline Committee found that “by his participation in the plan”, Mr. Church gave “tacit approval” to the TMP. The Discipline Committee relied on this “tacit approval” not only for allegation 8, but also for allegations 4 through 7, which post-date allegation 8 (at paras. 116, 118, 121, 125, 128 and 132). It concluded that “once Mr. Church had participated, Mr. Martin reasonably believed he could rely on Mr. Church’s professional judgment as a tax expert to confirm the validity of the TMP.” The Discipline Committee therefore concluded that allegations 4 through 8 were not proven.
[9] With respect to its findings on allegations 1 and 2, the Discipline Committee imposed a six month suspension and a $25,000 fine as a sanction.
The Decision of the Appeal Committee
[10] The Appeal Committee rejected the Applicant’s appeal with respect to the first two allegations.
[11] The Appeal Committee disagreed with the Discipline Committee’s view that the failure to consult a tax law expert in and of itself constituted professional misconduct (at para. 69). In upholding the Discipline Committee’s findings on allegations 1 and 2, the Appeal Committee focused on the TMP itself. The Appeal Committee noted that there was no disagreement before the Discipline Committee about “two fundamentally important points”: that the TMP was invalid, and that taxes properly owing were not paid by the Applicant’s clients (at para. 53). The Appeal Committee reviewed the nature of the Applicant’s conduct – for example, participating in misleading transactions that included generating invoices that would not have been issued and paid in the absence of the TMP, using a second party - the shareholders of the client corporations - to receive payments and making payments in his personal funds so as to make it more difficult for Canada Revenue Agency to discover the transaction, and receiving a significant financial benefit from the transactions (at paras. 70-74). This conduct, according to the Appeal Committee, justified the two findings of professional misconduct (at para. 74):
This tribunal confirms the finding that Mr. Martin is guilty of professional misconduct as alleged in Allegation Nos. 1 and 2, not because of a failure to consult a tax expert before proceeding with the TMP but rather because he issued invoices which he knew his clients would not pay but for the tax savings that they received by participating in the TMP. Further he distributed his personal funds to shareholder clients who entered into the TMP transactions knowing that the invoices he issued to their corporations would otherwise not have been paid to the shareholders personally without the return flow of funds originated under the TMP.
[12] None of these facts are disputed. This same undisputed conduct was the basis for the Appeal Committee’s conclusions regarding the five other allegations that formed the basis of the Respondent’s cross-appeal.
[13] The Appeal Committee considered the Discipline Committee’s reliance on Mr. Church’s “tacit approval” of the TMP. With respect to the Discipline Committee’s treatment of Mr. Church’s involvement, the Appeal Committee stated (at para. 77):
The DC concluded that “once Mr. Church had participated, Mr. Martin reasonably believed he could rely on Mr. Church’s professional judgment as a tax expert to confirm the validity of the TMP (paragraphs 119 and 199). The AC finds this conclusion unreasonable. This was not a consultation which met the standard required of a member of the profession.
The Appeal Committee also concluded that Mr. Church was not independent or objective, because he was an investor in the TMP. Accordingly, “[h]e could not provide the kind of independent objective advice required to justify a reasonable belief in the validity of the TMP” (at para. 78).
[14] The Appeal Committee found that the Discipline Committee erred in accepting Mr. Church’s participation as “tacit approval” of the TMP that would justify the Applicant’s belief that the TMP was valid. The Appeal Committee concluded that the Applicant was guilty of five further allegations of professional misconduct, because “he failed to take the steps necessary to ensure he had complied with his own professional standards so as to meet his own obligations and the needs of his clients.” As he had failed to maintain the good reputation of the profession, in accordance with Rule 201.1 of the Rules of Professional Conduct, he was guilty of professional misconduct in respect of allegations 4 through 8.
[15] The Appeal Committee, in a subsequent decision, imposed the sanction of licence revocation.
The Issues
[16] The Applicant submits that the Appeal Committee decision should be overturned for two reasons. First, the Appeal Committee, which was required by Regulation 7-3, s. 16 to apply a standard of reasonableness in an appeal from a decision of the Discipline Committee, erred by applying a standard of correctness.
[17] Second, the Appeal Committee improperly interfered with findings of fact made by the Discipline Committee without finding that the Discipline Committee had made any palpable and overriding error.
[18] The Applicant raised a further issue in his factum, arguing that the reasons of the Appeal Committee were so inadequate as to result in a denial of procedural fairness. The Applicant’s counsel wisely did not pursue this submission in oral argument, given the holding in Newfoundland and Labrador Nurses Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, which rejected the argument that adequacy of reasons is a stand-alone ground of judicial review (at para. 14). See, as well, paras. 21-22.
The Standard of Review in the Divisional Court
[19] The task of this Court, on judicial review, is to review the decision of the Appeal Committee. The determinations by tribunals established by professional regulatory bodies to deal with discipline are entitled to deference, and are reviewed on a standard of reasonableness (see, for example, Law Society of New Brunswick v. Ryan, 2003 SCC 20, [2003] 1 S.C.R. 247 at para. 32).
The Appeal Committee did not apply the wrong standard of review
[20] The Appeal Committee’s task was to determine whether the decision of the Discipline Committee was reasonable on the evidence and the law (Regulation 7-3, s. 16).
[21] Unfortunately, the Appeal Committee did not expressly address the standard of review in its reasons. However, in summarizing the submissions made to it, the Appeal Committee made reference to the Respondent’s submission that it should not interfere with findings of fact made by the Discipline Committee unless those findings were unreasonable. The Respondent also submitted that it would be unreasonable to conclude that Mr. Church’s involvement provided a defence to allegations 4 through 8 (at paras. 37-38).
[22] When one reads the reasons of the Appeal Committee, as a whole, it is apparent that the Appeal Committee did understand that it was to intervene only if the decision of the Discipline Committee was unreasonable. The Appeal Committee set out the Discipline Committee’s conclusion that the Applicant could reasonably rely on Mr. Church’s tax expertise to confirm the validity of the TMP. The Appeal Committee then stated that this conclusion was “unreasonable” (at para. 77), thus using language that shows it was applying a reasonableness standard of review.
[23] Moreover, throughout its reasons, the Appeal Committee applied a deferential approach. It considered the findings of fact made by the Discipline Committee and the reasons of the Discipline Committee as the focus of the analysis. It did not embark on an independent analysis of the evidence and the legal standards, which would be the case if it were applying a correctness standard of review.
The Appeal Committee did not overturn findings of fact made by the Discipline Committee
[24] The Applicant submits that the Appeal Committee overturned two key findings of fact made by the Discipline Committee without identifying any palpable and overriding error. The two key findings were that the Applicant had consulted Mr. Church on the validity of the TMP, and that Mr. Church was an independent expert. As a consequence, the Applicant submits, the Appeal Committee unreasonably rejected the conclusion of the Discipline Committee that he had a reasonable belief that the TMP was valid and thereby did not commit professional misconduct with respect to allegations 4 through 8.
[25] In my view, the Appeal Committee did not overturn any finding of fact made by the Discipline Committee. The Appeal Committee relied on the findings of fact made by the Discipline Committee. Significantly, there is no dispute about the nature of the TMP, that the TMP was not a valid plan and that the result of the participation of the Applicant’s clients in the TMP was that the clients failed to pay taxes properly owing. The conduct described in allegations 4 through 8 was proven with undisputed facts (see para. 75).
[26] Having found that those facts were proved, the Discipline Committee had found that the Applicant committed professional misconduct with respect to allegations 1 and 2 on those undisputed facts. In other words, the Discipline Committee (and the Appeal Committee subsequently) found that the Applicant, by his conduct, had failed to maintain the good reputation of the profession and its ability to serve the public interest. Those facts were also the basis upon which the Appeal Committee granted the cross-appeal.
[27] The real issue with respect to allegations 4 through 8 was the significance of Mr. Church’s participation in the TMP.
[28] The Appeal Committee seems sceptical about the Discipline Committee’s finding of fact that the Applicant conferred with Mr. Church before Mr. Church became involved (see para. 76). However, it did not overturn that finding, as the Applicant suggests. Where the Appeal Committee and the Discipline Committee part ways is with respect to the significance of the Applicant’s reliance on Mr. Church’s “tacit approval” of the scheme.
[29] The Appeal Committee correctly identified the basis for the Discipline Committee’s conclusion on allegations 4 through 8: the Applicant had not engaged in professional misconduct because he had a reasonable basis for believing that the TMP was valid once Mr. Church participated. In other words, the Discipline Committee concluded that this reasonable belief excused the Applicant’s conduct.
[30] In the view of the Appeal Committee, this was unreasonable. The Appeal Committee took the view that Mr. Church “could not provide the kind of independent objective advice required to justify a reasonable belief in the validity of the TMP” (at para. 78). In its view, the Applicant could not discharge his professional responsibilities by relying on a third party such as Mr. Church with respect to the TMP. While the Appeal Committee did not decide whether a consultation with an independent tax law advisor, fully informed about the TMP, would constitute a defence to these allegations of professional misconduct (at para. 80), the Applicant’s reliance on Mr. Church was insufficient to excuse his misconduct. Accordingly, the Appeal Committee concluded that the Applicant had acted in a manner that failed to maintain the good reputation of the profession and its ability to serve the public interest.
[31] There is no issue that the basis for the Discipline Committee’s findings regarding allegations 4 – 8 was the tacit approval of Mr. Church. The Appeal Committee found that the decision of the Discipline Committee with respect to Mr. Church’s involvement was unreasonable and in turn substituted a finding of guilty on allegations 4 – 8. On this application for judicial review, the Court must decide if the Appeal Committee’s decision is unreasonable.
[32] In my view, the Appeal Committee’s decision is reasonable. The Appeal Committee applied the correct standard of review, and there is a line of analysis that supports the result. It did not overturn findings of fact by the Discipline Committee, as the Applicant submits. Rather, it concluded that the Discipline Committee’s decision with respect to allegations 4 through 8 was unreasonable because of the conclusion that the Applicant’s conduct was excused by Mr. Church’s tacit approval of the TMP and participation in the plan. This conclusion of the Appeal Committee was within a range of reasonable outcomes based on the evidence and the findings of fact of the Discipline Committee with respect to the Applicant’s conduct in devising and operating the TMP.
Conclusion
[33] Accordingly, the application for judicial review is dismissed. Costs to the Respondent are fixed at $25,000.00 all inclusive, an amount agreed upon by the parties.
Swinton J.
I agree _______________________________
Parayeski J.
I agree _______________________________
Matheson J.
Released: April 9, 2018
CITATION: Martin v. Chartered Professional Accountants of Ontario, 2018 ONSC 2046
DIVISIONAL COURT FILE NO.: 413/17
DATE: 20180409
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SWINTON, PARAYESKI and MATHESON JJ.
BETWEEN:
JOHN WILLIAM MARTIN
Applicant
– and –
CHARTERED PROFESSIONAL ACCOUNTANTS OF ONTARIO
Respondent
REASONS FOR JUDGMENT
Swinton J.
Released: April 9, 2018