Court of Appeal for Ontario

Date: 2017-10-05 Docket: C62338 Judges: Feldman, Cronk and Miller JJ.A.

Parties

Between

F. Marc Holterman and Thomas S. Tiffin Plaintiffs/Moving Parties (Appellants)

and

S. Andrew Fish and the Attorney General of Canada Defendants/Respondents (Respondents)

Counsel

F. Marc Holterman and Thomas S. Tiffin, acting in person

Helen A. Daley and Simon Bieber, for the respondents

Hearing and Appeal

Heard: April 13, 2017

On appeal from: The order of Justice Thomas R. Lederer of the Superior Court of Justice, dated May 26, 2016, with reasons reported at 2016 ONSC 3275.

Decision

B.W. Miller J.A.:

Overview

[1] The appellants, Marc Holterman and Thomas Tiffin, commenced an action for misfeasance in public office against the respondents, Andrew Fish and the Attorney General of Canada. The action was discontinued on consent. On discovering new information after the discontinuance, the appellants brought a motion to set the discontinuance aside. Their motion was dismissed. The appellants have appealed that decision.

[2] For the reasons that follow, I would dismiss the appeal.

Background

[3] The Canada Revenue Agency ("CRA") suspected that the appellants had underreported their incomes for the years 1995-99. It commenced a fraud investigation. The respondent Andrew Fish was a CRA investigator. In 2002, he swore an Information to Obtain ("ITO") in support of an application for search warrants, stating that he had reasonable grounds to believe that the appellants were in breach of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) ("ITA"). Following execution of the search warrants, fraud and tax evasion charges were laid against the appellants.

[4] A year later, the appellants filed Notices of Objection with the Minister of National Revenue ("MNR"), disputing the CRA's determination that certain monies they had received were payments rather than loans, and were therefore subject to income tax.

[5] At the appellants' criminal trial, the trial judge found that Fish had been "intentionally misleading" in swearing the ITO, and that the ITO contained "numerous misstatements of facts": R. v. Tiffin (2005), 136 C.R.R. (2d) 1, at paras. 41-42. He quashed the search warrants and excluded the evidence obtained from their execution. Although this Court allowed the Crown's appeal, it did not disturb the trial judge's findings that Fish had been intentionally misleading: (2008) 2008 ONCA 306, 90 O.R. (3d) 575 (C.A.). The Attorney General subsequently stayed the charges against the appellants.

[6] Thereafter, the appellants commenced the current civil action against the respondents for misfeasance in public office, alleging that Fish had intentionally sworn a false ITO with the intent to injure them and that the Attorney General was vicariously liable for Fish's actions. At trial before Lederer J. of the Superior Court of Justice, the appellants sought to have Fish's testimony from their criminal trial admitted into evidence. Lederer J. declined, as Fish had not been a party to that proceeding. Neither did Lederer J. accept that factual findings from the criminal trial – specifically, that Fish had made misstatements and been intentionally misleading – were binding as res judicata.

[7] By the fourth day of the civil trial, the appellants had closed their case. After Holterman had begun his cross-examination of Fish, the trial judge alerted the appellants about a potentially insurmountable obstacle: the onus was on them to prove that the monies they had received were in fact loans and therefore not taxable, but they had not led any evidence to establish this. During a recess, the appellants conferred and decided it would be best to seek a discontinuance of the action. The respondents were agreeable and the action was discontinued on consent.

[8] In January 2016, approximately one month after the discontinuance, the appellants received Notices of Reassessment from the MNR, in response to the Notices of Objection they had filed in 2003. All the money that the CRA had originally assessed as taxable income was now reassessed as non-taxable. The MNR provided no explanation for its reversal.

[9] In the appellants' view, the reassessments vindicated their original position, and provided some evidence that Fish had acted in bad faith in swearing the ITO in which he stated he had reason to believe the appellants had not disclosed taxable income. The appellants also viewed the timing of the reassessments as highly suspect: they came 13 years late, and immediately on the heels of the appellants' discontinuance of their action against Fish and the Attorney General.

[10] The appellants therefore brought a motion to set aside the consent discontinuance on the basis of "exceptional circumstances"; specifically, new facts that had arisen after the discontinuance. The appellants argued that if the reassessments had been available at trial, their availability would have likely changed the result. The appellants' argument was that the reassessments proved that Fish must have been lying in the August 2002 ITO when he swore that he had reason to believe that the appellants had undisclosed taxable income.

[11] The motion judge rejected this argument:

There is no reason to believe that the release of these re-assessments would have had any impact on whatever decision would have been made but for the discontinuance. The re-assessments do nothing to establish the requirements necessary to prove misfeasance in public office. There is no basis, in law, for assuming that this information should be assessed as if it were known at the time the Information to Obtain Search Warrants was sworn. The Income Tax Act provides that while a re-assessment is underway, the original assessment remains "valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding under this Act relating thereto". Thus, there is no basis for going back….

The letters revealing the results of the re-assessment are not evidence of a sort that can support a setting aside of the discontinuance. These letters do not deal with evidence referring to events that led to the bringing of the action. They provide a conclusion reached long after that time. [Citations omitted.]

[12] Essentially, the motion judge concluded that the reassessments could not help prove what Fish knew 12 years earlier, at a time before the search warrants were executed, before the CRA investigation was complete, and before the Notices of Objection setting out the appellants' argument had been received.

[13] The motion judge also found that the evidence could have been obtained by the appellants by the time of trial had they exercised proper diligence. The motion judge reasoned that the appellants could have exercised their statutory right of appeal under s. 169 of the ITA to apply for an order vacating or varying the original assessment. He also noted that the appellants had a strong incentive not to do so: while the reassessments were outstanding, they did not have to pay the outstanding tax assessments.

[14] The motion judge therefore dismissed the motion.

Analysis

The Test for Setting Aside a Discontinuance

[15] A court can set aside a notice of discontinuance in exceptional circumstances. The appellants argue that the motion judge erred in refusing to exercise his discretion to do so.

[16] In my view, the motion judge did not make any reversible error. For the reasons that follow, I conclude that the appellants fall far short of meeting the high bar for setting aside the consent discontinuance in this case.

[17] In determining whether there were exceptional circumstances to set aside the discontinuance, the motion judge applied the Sagaz test, which guides the application of r. 59.06(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for setting aside or varying an order due to fraud or facts arising or discovered after the order has been made. In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, the moving party sought to reopen a trial on the basis of fresh evidence. The Supreme Court ruled against the moving party, and cautioned at para. 61 of its decision that the discretion to reopen a trial should be exercised "sparingly and with the greatest care."

[18] The test from Sagaz is often reduced to two questions: (1) whether the new evidence, if presented at trial, would probably have changed the result, and (2) whether the evidence could have been obtained before trial by the exercise of reasonable diligence. But more is involved. As this Court stated in Mehedi v. 2057161 Ontario Inc., 2015 ONCA 670, at para. 20, the test "includes considerations of finality, the apparent cogency of the evidence, delay, fairness and prejudice." Appellate courts must also consider the importance of deferring to trial judges, who are "in the best position to decide whether, at the expense of finality, fairness dictates that the trial be reopened": Sagaz, at para. 60; Mehedi, at para. 21.

[19] In my view, the factors set out in Sagaz provide an appropriate structure for determining whether to set aside a notice of discontinuance, with the caveat that the interest in finality may pose an even greater obstacle to setting aside a consent discontinuance than reopening a trial. An important aspect of a discontinuance on consent is that the parties, after considering their positions, made a joint decision to end the litigation. Although there may be exceptional circumstances where departure from such a decision will be justified, courts should not allow "significant and considered measures" to terminate litigation to be "lightly undone": Yancey v. Neis, 1999 ABCA 272, 250 A.R. 19, at para. 25; Philipos v. Canada (Attorney General), 2016 FCA 79, 483 N.R. 328, at paras. 17-20.

Application

[20] The appellants argue that the motion judge erred in not finding exceptional circumstances that would justify setting aside the discontinuance. I do not agree.

[21] The salience of the appellants' fresh evidence is a matter of its ability to satisfy elements of their cause of action: misfeasance in public office. The appellants alleged that Fish committed that tort by engaging in unlawful conduct in the exercise of his public duties (swearing the ITO), which he knew to be unlawful, and which he knew was likely to injure the appellants. The MNR's conclusion that the appellants had no tax liability, the appellants argue, assists in establishing that Fish's conduct in swearing the ITO was unlawful and that he knew it to be so.

[22] The essence of the appellants' argument is this:

(1) the MNR, on reassessment, determined that the appellants had no tax liability;

(2) that determination was based on facts that existed in 2002;

(3) the original Notice of Assessment was therefore in error, and the appellants never had a tax liability;

(4) Fish could not have had reasonable grounds to believe the appellants had a tax liability if the appellants did not, in fact, have a tax liability; and therefore

(5) by stating that he had reasonable grounds to believe that the appellants had undisclosed income when, as a matter of fact, they did not, Fish deliberately acted unlawfully.

[23] The argument derails at step 4. The appellants treat a determination of tax liability as an empirically ascertainable event rather than a technical determination made by applying legal rules to established or apparent facts. That dubious premise leads the appellants to the proposition that if in 2016 the MNR concluded the appellants had no liability in 2002, then there could have been no good reason in 2002 for anyone to have suspected otherwise. The appellants are incorrect, however, to attribute to Fish, at an early stage of an investigation, all that was known and subsequently concluded by the MNR by 2016. As the motion judge explained, the reassessments merely report a conclusion. They provide no evidence of what Fish knew in 2002, at a time before the search warrants were executed, and before receipt of the Notices of Objection setting out the appellants' argument as to why the payments in question were not taxable. Neither do the reassessments provide any insight into how the MNR reached its conclusion, other than it was made after "a review of the facts and documents submitted" by the appellants.

[24] The argument also fails at step 5. As the motion judge found, the fresh evidence sheds no light on the pivotal issue in the action: did Fish, in 2002, knowingly engage in unlawful conduct that he knew would likely injure the appellants? The bare fact of the reassessments does not significantly advance the argument that in 2002 Fish had no reason to believe that the appellants were in breach of the ITA. The reassessments are equally consistent with: 1) Fish, in 2002, having reasonable grounds; 2) Fish not having reasonable grounds but (incompetently) believing that he did; and 3) Fish lacking reasonable grounds, knowing that he did not have reasonable grounds, and acting in the knowledge that his actions were unlawful. The equivocal nature of the fresh evidence prevents it from meeting the high bar of "probably changing the result" of the tort action. I see no reason to interfere with the motion judge's conclusion on this issue.

[25] Ultimately, the fresh evidence – even when viewed in conjunction with the evidence adduced at trial – does not prove that Fish knowingly acted unlawfully and with an intent to injure the appellants. The reassessments do not provide the appellants with the evidentiary foundation to establish a case for misfeasance in public office. At most, they address one of the concerns raised by the trial judge: that the appellants could not prove that Fish's original assessment was, in fact, incorrect. Other obstacles remained.

[26] Although that is sufficient to dispose of the appeal, I will address the further issue whether the evidence could have been found with reasonable diligence.

[27] The appellants argue, with some justification, that it appears exceedingly unlikely that the MNR, which had an obligation under s. 165(3) of the ITA to make a determination "with all due dispatch", would in fact take 13 years and coincidentally release its Notices of Reassessment immediately after the appellants discontinued their action. The respondents provided no evidence that would shed any light on this timing.

[28] The motion judge held, however, that the appellants did not pursue the evidence with reasonable diligence, because they failed to exercise their statutory right to appeal the CRA's original assessments to the Tax Court of Canada. The motion judge found it significant that the appellants had a strong incentive not to take steps to force the issue: as long as the Notices of Objection remained outstanding, there was a stay of the appellants' obligation to pay the assessed tax and penalties.

[29] I do not agree with the motion judge on this point. It seems unduly harsh to put the onus on the appellants to go to the considerable expense and trouble of bringing an appeal before the Tax Court in order to force the MNR to comply with its statutory obligations, particularly when the appellants would have had no inkling, at that point, that the MNR would end up allowing their objection.

[30] Although I would not fault the appellants on their diligence in pursuing the reassessments, they nevertheless cannot succeed on this appeal. As noted above, I agree with the motion judge's decision that the fresh evidence is not of a nature that could have affected the result had the matter proceeded to judicial determination.

Disposition

[31] I would dismiss the appeal and award costs to the respondents in the amount of $5,000, inclusive of disbursements and HST.

Released: October 5, 2017

"B.W. Miller J.A."

"I agree. K. Feldman J.A."

"I agree. E.A. Cronk J.A."