COURT FILE NO.: CV-08-10694CM

DATE: 20120427

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Michael McCreight, Kim McCreight, John Gregory Skinner, Joan Skinner and BDO Dunwoody LLP

Plaintiffs

– and –

The Attorney General of Canada Representing Her Majesty the Queen in Right of Canada, Canada Revenue Agency, formerly The Canada Customs and Revenue Agency, Henry George Kehl, William Carter a.k.a. Bill Carter, Gregory Mee a.k.a. Greg Mee, Ed Hooft, Anne Kamp, Ian McGuffin, Rod Mercer, Stephane Marinier, Morris Pistyner, Elaine Krivel, Bruck Easton, Stephen Harvey and Damien Frost

Defendants

Donald W. Leschied, for the Plaintiffs

Wendy J. Linden and P. Tamara Sugunasiri, for the Crown Defendants

HEARD: March 12, 13, 14, 15 and 16, 2012

Patterson j.:

[1] The Attorney General of Canada (“AGC”) represents all defendants except for Henry George Kehl who is self-represented, William Carter against whom the action has been dismissed and Stephen Harvey who has never been served. All the personally named defendants are government employees either through the Canada Revenue Agency (“CRA”), formerly the Canada Customs and Revenue Agency (“CCRA”), or as Crown prosecutors.

[2] The motion by the defendants is to:

(a) strike the jury notice;

(b) strike all causes of action against the Crown Prosecutors other than malicious prosecution for disclosing no reasonable cause of action due to the principle of prosecutorial immunity;

(c) strike the allegations of malicious prosecution against the Crown Prosecutors for failing to set out an improper or “collateral purpose” for such a prosecution together with material facts as required;

(d) strike some of the causes of action against the CRA auditors and investigators for disclosing no reasonable cause of action; and

(e) streamline the Claim by striking paragraphs that are superfluous, irrelevant, argumentative, frivolous and plead evidence.

[3] The amended statement of claim comprises 315 paragraphs on 111 pages and includes not only the Attorney General for Canada and the Canada Revenue Agency but also 10 individuals who are employees or agents of the CRA or the Department of Justice.

[4] The plaintiffs, Michael McCreight (“McCreight”) and John Gregory Skinner (“Skinner”), partners in the accounting firm BDO Dunwoody LLP (“BDO”), and their respective spouses, Kim McCreight and Joan Skinner, together with BDO have sued the defendants for malicious prosecution, negligent prosecution, negligent investigation, fraudulent misrepresentation, conspiracy, misfeasance in public office, breach of fiduciary duty, breach of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11, and statutory Family Law Act, R.S.O. 1990, c. F.3, (“FLA”), claims for loss of care, guidance and companionship.

I. THE FACTS

[5] In April 1998 the audit department for the CRA was concerned about a company in Windsor called Concept Machine Inc., co-owned by Michael Doyscher, that had applied for preferential tax credits under an approved government policy which encouraged Canadian companies to develop what is commonly referred to as R & D, or research and development credits. The matter was referred to the Windsor tax office with the investigator in Windsor being Anne Kamp. The investigation eventually broadened to include other taxpayer companies that had used the R & D program and who had consulted and retained the services of the national tax firm BDO and more specifically, its team of tax advisors which included Michael McCreight, who was a senior partner in accounting, and John Skinner, who was a management specialist in engineering and consulting services. As part of the investigation, Kamp applied for and received search warrants in July and October 1998 and in May 1999 which were executed on the homes and businesses of various taxpayers, their accountants and lawyers.

[6] One year later, in July 1999, the documents were to be returned but the CRA applied to the court in Windsor to request a further extension of nine months in order to complete its investigation.

[7] The matter was heard before Daudlin J. who on October 27, 1999, refused the CCRA’s request and ordered it to return all seized documents by November 9, 1999, giving the government approximately two weeks to copy any relevant documents.

[8] Seven days later, on November 3, 1999, Kamp sought formal approval from the Windsor tax office and the Department of Justice (“DOJ”) to charge various taxpayers, including the tax consultants McCreight and Skinner, with fraud and conspiracy both under the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, and the Criminal Code, R.S.C. 1985, c. C-46, for claiming fraudulent R & D tax credits in the tax returns of Concept Machine Inc. and related companies. Those charges were approved by the DOJ on November 9, 1999. As a result of the charges being laid, all seized documents were withheld. McCreight and Skinner faced a total of 43 criminal charges which alleged that they were parties or co-conspirators with the client taxpayers, Concept Machine Inc. and others regarding the tax returns claiming research and development credits for the years 1996, 1997 and 1998.

[9] The preliminary inquiry was conducted before Momotiuk J. which commenced on August 27, 2001, with the final decision being given by Momotiuk J. on February 28, 2006, a period of approximately six years being taken to complete the preliminary hearing. Justice Momotiuk discharged McCreight and Skinner on all counts, but two of the corporate taxpayers were committed for trial for tax evasion, making false statements, fraud, attempted fraud and making false GST returns. The charges against those corporate taxpayers were stayed on February 12, 2007, by Justice Quinn on the basis of unreasonable delay contrary to s. 11(b) of the Charter.

[10] In addition to the Attorney General of Canada and the CRA, the plaintiffs are suing various Crown defendants made up of two groups: auditors and investigators employed by the CRA (Kamp, Mee, Hooft, McGuffin and Mercer), and the prosecutors employed by the Department of Justice (“DOJ”) (Marinier, Pistyner and Krivel) and retained prosecutors (Easton and Frost).

[11] The defendants do not move to strike the allegations of misfeasance against the CRA or its officers.

II. ISSUES AND THE LAW

[12] This motion raises the following issues:

A. Should the jury notice be struck pursuant to s. 26 of the Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50 (“CLAP”) and rule 47.02(1)(a) of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, since this is an action against the Crown in Right of Canada?

B. Should the causes of action set out in the statement of claim for

(i) negligence claims against the Crown prosecutors;

(ii) malicious prosecution;

(iii) negligence claims against the CRA auditors and investigators;

(iv) breach of fiduciary duty;

(v) breach of the Charter;

(vi) fraudulent misrepresentation;

(vii) negligent misrepresentation;

(viii) conspiracy;

(ix) damages to BDO; and

(x) the FLA claims

each be struck for disclosing no reasonable cause of action?

C. Should the personal claims against the prosecutors Elaine Krivel, Morris Pistyner and Stephanie Marinier be struck on the basis, inter alia, that they did not personally charge or prosecute any of the plaintiffs; and

D. Should paragraphs 46-61 and 69-119, in particular, and other paragraphs be struck for being improperly pleaded as either evidence, mere editorializing, argument, irrelevant and/or frivolous?

A. Quash the Jury Notice

[13] There is no dispute between the parties that this court has jurisdiction to hear this motion, but there is a difference of opinion as to whether the matter can be before a jury. I agree with the submissions of the Crown that no jury is permissible in this action since it is an action against the Crown. Rule 47.02(1)(a) of the Rules of Civil Procedure provides that a motion to strike a jury may be made on the ground that a statute requires a trial without a jury.

[14] Section 26 of the Crown Liability and Proceedings Act provides that in any proceeding against the Crown, the trial should be without a jury.

[15] Section 23(1) provides that proceedings against the Crown may be made in the name of the Attorney General of Canada or, in the case of an agency of the Crown against which proceedings are by an Act of Parliament authorized to be taken in the name of the agency, in the name of that agency. The Canada Revenue Agency Act, S.C. 1999, c. 17 (“CRAA”), creates the CRA as an agency of the Crown and permits the CRA to be sued in its own name. Section 35(1) of the CLPA extends the application of s. 26 to agencies of the Crown. Therefore, both the CRA and the Attorney General of Canada are “The Crown” for the purposes of the CLPA, and s. 26, which excludes a jury, applies to the CRA as an agency of the Crown and also applies to the individually named defendants who at all times were servants/agents of the Crown for whom the Crown is vicariously liable by virtue of s. 3 of the CLPA. The plaintiffs do not allege that the individually named Crown servants operated outside of the course of their employment.

[16] Despite the argument of the plaintiffs, in my opinion, the case of Pierre v. Pacific Press Ltd. (1994), 1994 CanLII 1501 (BC CA), 113 D.L.R. (4th) 511 (B.C.C.A.) is distinguishable from the case before the court on the basis that the CBC is a corporation created by the Broadcasting Act, S.C. 1991, c. 11, and is not a departmental agency as identified in the Financial Administration Act, R.S.C. 1985, c. F-11 (“FAA”). Further, unlike the CRAA, s. 44(3) of the Broadcasting Act expressly states that employees of the CBC are not Crown servants.

[17] Consequently, the motion to quash the jury notice is granted.

B. Do the Pleadings Disclose a Reasonable Cause of Action?

[18] Rule 21.01(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defence and the judge may make an order or grant judgment accordingly.

[19] On a Rule 21 motion it is assumed that the facts as stated in the claim can be proved and that the claim will be struck only where it is plain and obvious that the plaintiff’s statement of claim discloses no reasonable cause of action (Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, at p. 980).

[20] Rule 25.06(7) provides that if a document is material, it shall be pleaded as briefly as possible with the precise words in the document not having to be pleaded unless they themselves are material. The issue concerning the pleadings and documents referred to therein specifically was dealt with at a prior motion before Justice Cusinato in McCreight v. Canada (A.G.), 2010 ONSC 2817, which resulted in the plaintiffs amending their pleadings.

[21] Rule 25.06 provides that a pleading shall contain a precise statement of the material facts upon which a party relies but not the evidence by which those facts are to be proved. That being said, various cases have commented on the difficulty of distinguishing the two as there is no “bright line” rule with respect to what is evidence and what is a material fact, but it is instead dependent upon the nature and complexity of the pleaded case.

[22] In R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, the Supreme Court commented that the power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effect fair litigation. It requires the weeding out of hopeless claims and ensuring that those that have some chance of success go on to trial (para. 19). The more the evidence and arguments are trained on the real issues the more likely it is that the trial process will successfully come to grips with the parties’ respective positions on those issues and the merits of the case (at para. 20). The motion to strike must be used with care as the law is not static and unchanging (at para. 21). The court in Imperial Tobacco uses the example of Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562 (H.L.) and Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1963), [1964] A.C. 465 (H.L.). The court then said at para. 21:

Therefore, on a motion to strike, it is not determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assuming the facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial.

[23] Further at para. 25 “The question is whether, considered in the context of the law and the litigation process, the claim has no reasonable chance of succeeding” (emphasis in original).

[24] In fulfilling this important housekeeping function, courts are guided by Justice Epstein in Aristocrat Restaurants Ltd. (c.o.b. Tony’s East) v. Ontario, [2003] O.J. No. 5331 (S.C.), at paras. 18-19:

The failure to properly establish a cause of action can occur in one of two ways. A claim will be found to be legally insufficient when either the allegations it contains do not give rise to a recognized cause of action or it fails to plead the necessary legal elements of an otherwise recognized cause of action.

In order to survive the second type of rule 21.01(1)(b) motion, a plaintiff must, at minimum, plead the basic elements of a recognized cause of action pursuant to which an entitlement to damages is claimed. Vague allegations that make it impossible for an opposing party to reply should be struck. The court is permitted to strike out less than the entire pleading where the portion being struck is distinct.

(i) Negligence Claims against the Crown Prosecutors

[25] The plaintiffs allege the following torts against Easton, Frost, Krivel, Marinier, Pistyner (“Crown Prosecutors”) and the AGC in their statement of claim:

a) Negligence – paras. 277-83, 293, 295 and 296

b) Breach of fiduciary duty – paras. 265, 290, 291, 292 and 293;

c) Breach of Charter rights – paras. 295-96;

d) Fraudulent/Negligent misrepresentation – paras. 262-65;

e) Conspiracy – paras. 258-61; and

f) Misfeasance in public office – paras. 274-75.

[26] It is well-settled law that negligence is not a recognized cause of action against Crown prosecutors. In Nelles v. Ontario, 1989 CanLII 77 (SCC), [1989] 2 S.C.R. 170, and more recently in Miazga v. Kvello Estate, 2009 SCC 51, at para. 80, it is stated “the prosecutor’s failure to fill his or her proper role may be the result of inexperience, incompetence, negligence, or even gross negligence, none of which is actionable”.

[27] Therefore, all allegations of negligence against the Attorney General and its agent Crown prosecutors is struck.

(ii) Malicious Prosecution

[28] Prior to the Supreme Court of Canada’s decision in Nelles in 1989, prosecutors had absolute immunity from lawsuits of any kind. However, in that case the Supreme Court carved out the tort of malicious prosecution as a sole exception to this immunity.

[29] The Supreme Court in Nelles indicated that there are four necessary elements which must be proved for the plaintiff to succeed in an action for malicious prosecution:

a) The proceeding must have been initiated by the defendant;

b) The proceeding must have terminated in favour of the plaintiff;

c) The absence of reasonable and probable cause; and

d) Malice where a primary purpose other than that of carrying the law into effect.

[30] Further, at p. 193 the court noted that “The required element of malice is for all intents, the equivalent of ‘improper purpose’. It has ... a ‘wider meaning than spite, ill-will or a spirit of vengeance, and includes any other improper purpose, such as to gain a private collateral advantage’.”

[31] In Nelles at p. 199:

Further, it is important to note that what we are dealing with here is an immunity from suit for malicious prosecution; we are not dealing with errors in judgment or discretion or even professional negligence. By contrast the tort of malicious prosecution requires proof of an improper purpose or motive, a motive that involves an abuse or perversion of the system of criminal justice for ends it was not designed to serve and as such incorporates an abuse of the office of the Attorney General and his agents the Crown Attorneys.

[32] Lamer J. at p. 194 stated that the plaintiff bringing a claim for malicious prosecution has no easy task and is held to a very high standard of proof to avoid a non-suit or directed verdict and at p. 197, he described the burden on the plaintiff as being onerous and strict. He continues:

The fact that the absence of reasonable cause is a matter of law to be decided by a judge means that an action for malicious prosecution can be struck before trial as a matter of substantive inadequacy.

[33] Further, at p. 199:

In my view the inherent difficulty in proving a case of malicious prosecution combined with the mechanisms available within the system of civil procedure to weed out meritless claims is sufficient to ensure that the Attorney General and Crown Attorneys will not be hindered in the proper execution of their important public duties.

[34] As noted in the case of R. v. Power, 1994 CanLII 126 (SCC), [1994] 1 S.C.R. 601, the very notion that a private law duty of care exists between prosecutors and the accused runs counter to the principles of prosecutorial discretion, which is the foundation of the enforcement of criminal law.

[35] In Scott v. Ontario, [2002] O.J. No. 4111 (S.C.), at para. 31, Cameron J. stated:

Under our system of criminal law, a person accused of a crime must bear the consequences of arrest and incarceration until trial. No one wants to be forced to bear the costs of defence, loss of a job, lost opportunities, loss of reputation, loss of freedom and other indignities that come with imprisonment. Subject to the granting of judicial interim release, even an innocent person must bear these consequences and without recourse to compensation.

[36] As stated in Miazga, at para. 80:

[E]ven if the plaintiff should succeed in proving that the prosecutor did not have a subjective belief in the existence of reasonable and probable cause, this does not suffice to prove malice, as the prosecutor’s failure to fulfill his or her proper role may be the result of inexperience, incompetence, negligence, or even gross negligence, none of which is actionable. ... Malice requires a plaintiff to prove that the prosecutor wilfully perverted or abused the office of the Attorney General or the process of criminal justice. [Emphasis in original.]

[37] The elements required to make out an allegation of malicious prosecution have previously been recited at para. 29 of this judgment and with respect to the fourth element of malice, the Supreme Court of Canada in Miazga, at para. 78, citing Lamer J. in Nelles, confirmed that the plaintiff must demonstrate “a deliberate and improper use of the office of the Attorney General or Crown Attorney” in which the prosecutor “perpetuated a fraud on the process of criminal justice and in doing so has perverted or abused his office and the process of criminal justice”. Further, you cannot infer malice from the absence of reasonable and probable grounds. An improper collateral purpose must be identified in the pleadings together with supporting material facts to maintain a viable action for malicious prosecution.

[38] The statement of claim at para. 273(h) alleges that “Prosecutors Easton, Harvey and Frost acted maliciously, with reckless indifference or for a primary purpose other than of carrying the law into effect.” Further, under the heading of conspiracy in para. 258(a) the allegation is that Kamp, McGuffin, Mercer as well as prosecutors and agents of the DOJ, Easton, Marinier and Pistyner, acted “maliciously and conspired together to:

a) Engage in the lawful and unlawful means particularized in the statement of claim with a predominant purpose and effect of causing injury and loss to McCreight and Skinner.”

Similar allegations continued in subparagraphs (b) and (c) of 258 and in para. 258(d) it was alleged that they sought to achieve an unlawful purpose by seeking convictions against McCreight and Skinner other than in accordance with the due process of law set out in the government of Canada’s guidelines and standards on fair play and due process. The allegations continue in para. 259 which alleges that McCreight and Skinner were deprived of an independent judicial review prior to the charges being laid; that the Special Investigation Unit in Windsor falsely represented to the DOJ that McCreight and Skinner had no intention of making submissions; that there was a breach of an undertaking to allow the plaintiffs to make submissions prior to the charges being laid; and a violation of the order of Justice Daudlin concerning the return of the documents that were seized under the search warrant.

[39] Similar allegations are continued in paras. 260 and 261 but, in my opinion, those parts of the pleadings that allege an improper purpose are insufficient as they essentially allege that the prosecutor wanted to injure McCreight and Skinner for the purpose of getting a conviction. These bald allegations, in my opinion, are insufficient to support a claim of malicious prosecution against the Department of Justice, or any of the named individuals.

[40] Allen M. Linden & Bruce Feldthusen in their book Canadian Tort Law, 9th ed. (Markham, Ont.: LexisNexis, 2011) at p. 114, indicate that legal liability for negligence is premised on 1) duty; 2) failure to conform to the standard required; 3) a reasonably close causal connection between the conduct and the resulting injury (sometimes referred to as “proximate cause”); and 4) actual loss or damage resulting to the interest of another.

[41] The plaintiffs take the position that the doctrine of prosecutorial immunity must yield to the tort of malicious prosecution as provided by Nelles and R. v. Stinchcombe, 1991 CanLII 45 (SCC), [1991] 3 S.C.R. 326, which emphasized Crown counsel’s duty to make full, frank and complete disclosure and that disclosure is not a matter of discussion but a duty to be faithfully executed.

[42] Further, in Krieger v. Law Society of Alberta, 2002 SCC 65, [2002] 3 S.C.R. 372 the court reiterated that in Stinchcombe it was held that the Crown has an obligation to disclose all relevant information to the defence. While the Crown Attorney retains the discretion not to disclose irrelevant information, disclosure of relevant evidence is not a matter of prosecutorial discretion but is instead a prosecutorial duty.

[43] The Supreme Court of Canada in Kamloops (City of) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2, at p. 9, followed the House of Lords decision in Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (H.C.), with Wilson J. adopting the following statement of law:

However, in some circumstances the law could impose over and above, or perhaps alongside, these public law powers and duties a private law duty towards individuals enabling them to sue the authority for damages in a civil suit. The difficulty was to determine when such a private law duty could be imposed.

[44] In Williams v. Ontario, 2009 ONCA 378, 95 O.R. (3d) 401, Sharpe J.A. dealt with a SARS case with the central issue being whether Ontario owed a private law duty of care to the plaintiff sufficient to ground an action in negligence for damages. He then proceeded in para. 10 to outline the test for a Rule 21 motion as enunciated in Hunt and in para. 12 began his review of the Cooper-Anns test and the duty of care.

[45] Sharpe J.A. then indicated that before applying the Cooper-Anns test in any given action, the court must first determine whether the duty of care asserted by the plaintiff has already been recognized in law and if so, he stated that it is not necessary to do the two-part test. And, if not, then the Cooper-Anns test is used to determine whether a novel duty should be given legal recognition. The first stage of the Cooper-Anns test involves a determination of whether the relationship between the parties justifies the imposition of a duty of care on the defendant, which involves a consideration of foreseeability, proximity and policy. At para. 14, Sharpe J.A. indicates that:

For a duty of care to arise, more is required than foreseeability — the two parties must also be sufficiently proximate to one another.... Proximity, explained the court in Cooper, at para. 31, “is generally used in the authorities to characterize the type of relationship in which a duty of care may arise.”

[46] Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, held that proximity if sufficiently close and direct, will be established if it is fair to require the defendant to be mindful of the legitimate interests of the plaintiff.

[47] In determining whether it is fair to require a duty of care, consideration is to be taken of “expectations, representations, reliance, and the property or other interests involved” (Cooper, at para. 34). In determining proximity it is not defined by any single unified characteristic nor is there a clear test to be applied to determine whether proximity exists in a given case (Cooper at para. 35).

[48] The second stage of the Anns test requires the trial judge to consider whether there exists any residual policy considerations that ought to negate or reduce the scope of the duty of care.

[49] At both stages the Cooper-Anns test involves looking at policy reasons for refusing to impose a duty of care on the defendant. As indicated by Sharpe J.A. at para. 16

At the first stage, when determining whether to recognize a prima facie duty of care, the policy reasons must arise from the nature of the relationship between the parties, rather than any external concerns, which are not considered until the second stage of the test: Cooper, at para. 30.

And at paragraph 17:

If the first stage of the Cooper-Anns test is met, the plaintiff has established a prima facie duty of care owed by the defendant and the analysis proceeds to the second stage. It is here that the court considers whether there are “residual policy considerations” that militate against recognizing a novel duty of care: Cooper, at para. 30. These are policy considerations that “are not concerned with the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally: Cooper, at para. 37. One such residual policy concern is the need to immunize the policy decisions of the government from tort liability: Cooper, at para. 38. Policy decisions, as contrasted with operational decisions, are based on social, political or economic factors: Swinamer v. Nova Scotia (Attorney General), 1994 CanLII 122 (SCC), [1994] 1 S.C.R. 445, [1994] S.C.J. No. 21, at p. 455 S.C.R. (“Swinamer”). Determining whether a governmental decision is a policy decision requires evaluating the nature of the decision itself, rather than the identity of the actors: Swinamer, at p. 457 S.C.R.

[50] In the Williams case Sharpe J.A. was dealing with pleadings that were at such a level of generality that he felt obligated to do a full Cooper-Anns analysis and stated at para. 19:

[T]he proximity analysis cannot be short-circuited by focusing simply on the fact that the plaintiff has alleged that the defendant’s negligence has resulted in physical harm to [the] plaintiff’s person or property.

There were directives concerning the West Nile virus issued by Ontario and thereby it was at least arguable that a relationship was established where the plaintiff established a duty of care. In Williams the directives were mandatory in terms in complying with Cooper at para. 43. When the claim is against a public authority exercising statutory powers the starting point for analysis is the statutory scheme.

[51] After doing a full analysis, Sharpe J.A. was of the opinion that the plaintiff failed to satisfy the first stage of Cooper-Anns. He also observed that the residual policy concerns were such that there was an overriding obligation to the general public as compared to individual claimants. In conclusion, at para. 39 Sharpe J.A. indicated:

Several recent decisions of the Supreme Court of Canada and of this court recognize that it is appropriate to analyze claims alleging negligence against public authorities based on the exercise of discretionary statutory duties at the pleading stage to determine whether there is any possibility that a duty of care could be found to exist: Cooper; Edwards; Syl Apps Secure Treatment Centre v. D.(B.), 2007 SCC 38, [2007] 3 S.C.R. 83.

It was held on the facts as pleaded that Ontario did not owe a duty of care to the plaintiff.

(iii) Negligence Claims against the CRA Investigators and Auditors

[52] Paragraphs 266-69 of the statement of claim allege negligence by Crown employees Kamp, McGuffin, Mercer, Hooft and Mee (“CRA Officers”) and argues that they personally owed a duty of care to McCreight and Skinner. It is also argued that the CRA officers failed to use reasonable care; failed to investigate properly; failed to comply with the order of Daudlin J.; failed to disclose all of the evidence and information in their possession. It is further alleged that they rushed to judgment and had tunnel vision since charges were laid prior to the investigation being completed and that McCreight and Skinner were targeted and singled out for prosecution.

[53] The Crown owes a duty to the public generally and for that reason it has been determined that for a civil action for monetary damages against the Crown to succeed, it is necessary to look at the relevant statutes to determine if there is the necessary proximity to ground a private law duty of care to a particular plaintiff.

[54] Regarding the claim of negligent investigation, the Crown submits that Neumann v. Canada (A.G.), 2011 BCCA 313, 338 D.L.R. (4th) 348, basically confirms that there is no legal authority for establishing a duty of care between CRA officers and the subject of an investigation. In the Supreme Court of Canada decision in Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129, McLachlin C.J. was careful to limit whether negligent investigation was actionable against the Crown in a case that involved a municipal police and a particular subject wrongfully convicted but recognized that a thorough analysis would have to be done for different relationships.

[55] At the hearing of this motion, the plaintiff submitted a recent British Columbia Court of Appeal case (Leroux v. Canada (Revenue Agency), 2012 BCCA 63) which upheld the trial judge’s decision. Mr. Leroux was a business man subjected to 13 years of audits, assessments, re-assessments, and collection procedures that caused him to lose his business. He alleged that officials took, retained and shredded or lost his original documents, and then charged him. He did not have the documents to defend himself and the CRA filed a certificate of indebtedness against him and subjected him to collection procedures. Mr. Leroux claimed damages for misfeasance in public office, negligence on the part of CRA employees and negligent supervision by the CRA. The question on the appeal was whether the negligent acts of the CRA could give rise to a private law remedy. The Crown accepted that the circumstances as pleaded disclosed the foreseeability of harm but the question was whether there was proximity sufficient to establish a prima facie duty of care on its part. The trial judge did not address this issue in his reasons nor did he proceed to the second stage of the Cooper-Anns analysis to question whether there might be residual policy considerations which would justify denying liability. The Court of Appeal stated at para. 40: “It seems he left those questions for decision following a trial when the full matrix of facts would be available. The answers to those questions are likely to be decisive of the liability for negligence, if any, of the CRA.”

[56] The court stated at para. 41:

I am not persuaded the chambers judge was plainly wrong in leaving those questions for consideration following a trial, or any interlocutory application as might flow from amendments to the pleadings, disclosure and discovery. Material facts for the constituent elements of the tort of negligence are included in the statement of claim, however prolix and disorganized that pleading.

As with the pleading of the tort of misfeasance, this pleading should be reformulated in a further amended statement of claim, but I would not accede to this ground of appeal.

[57] It therefore appears that the Leroux case found for the first time, in Canada, that a duty of care was owed by CRA agents for negligent conduct.

[58] In the amended statement of claim before me I have significant difficulty with it because the allegations against the investigators and prosecutors since they seem, for the most part, to be bald allegations of wrongful conduct.

[59] Where specific allegations are made in the plaintiffs’ statement of claim, such as non-compliance with the Daudlin order, the plaintiffs fail to take into account Daudlin J.’s decision where he acknowledged that the investigations were almost complete and that the government had a right pursuant to s. 49 of the Criminal Code, RSC 1985, c C-46, to keep items seized when proceedings are instituted in which the thing retained may be required. Further, the plaintiffs allege that in line with governmental procedures set out in the Tax Operational Manual (“TOM”), as well as commitments made to McCreight, Skinner and their counsel that they would have an opportunity to be heard prior to charges being laid, the Crown prosecutor informed Daudlin J. that there would be an opportunity for McCreight’s lawyer to make submissions. In my opinion, these allegations did not create a duty of care on the part of the CRA and the Crown prosecutors to seek approval in order to have the charges laid. It is alleged that Kamp stated to the DOJ that McCreight and Skinner did not wish to give further submissions and that this was influential in the DOJ, as well as senior representatives of the CRA in Toronto, giving their approval to lay the charges.

[60] The investigation regarding the research and development credits had already gone on for more than a year. Throughout, and subsequent to the charges being laid, McCreight, Skinner and others had highly competent counsel. In my opinion nothing prevented them from giving their side of the story throughout and the CRA received approval and charges were laid on the basis that the CRA and the prosecutors were of the opinion that there were reasonable and probable grounds for conviction. Regarding disclosure, the preliminary inquiry process obligates the prosecutor to submit such documentation as it believes is necessary for the purpose of obtaining approval to proceed further and that there is sufficient evidence for a trial. In this case, Momotiuk J. determined that no charges should continue against McCreight and Skinner.

[61] Plaintiffs’ counsel pointed out that Momotiuk J. indicated there was no evidence against McCreight, Skinner BDO or their employees.

[62] The Crown points out that the search warrants that were issued were never challenged, and that Kamp and the CRA were pursuing an investigation in accordance with the Income Tax Act and the Criminal Code. Further, it is the Crown’s position that the CRA and its prosecutors were in an inherently adversarial relationship with the subjects of the investigation, namely McCreight and Skinner, and therefore, this would be contrary to there being a proximity such that would create a duty of care between the CRA officers and McCreight and Skinner. This position really is stage 1 of Anns which has to be completed if there is not a previously established duty of care. Out of an abundance of caution, I am doing an Anns analysis for greater certainty despite the Leroux case.

[63] The second stage of the Cooper-Anns test asks whether there are residual policy concerns that would negate a private law duty of care. The government in this case argued that there were other remedies available to the plaintiffs; that the issue of misfeasance and malicious prosecution are available for the plaintiff in this case against the Attorney General of Canada; that it should not be permissible for the public to second guess every aspect of the investigatory work with the benefit of hindsight; and, that a duty of care to the public at large is contrary to the self-assessing tax system and the government’s need to raise revenue through the Income Tax Act.

[64] Further, the Crown takes the position that since the plaintiffs are accountants and tax preparers, and the allegation in the investigation related to them doing tax returns for others, that there are competing privacy concerns concerning taxpayer information subject to limited exceptions like criminal law enforcement.

[65] I agree with the submission of the Crown that the negligence claims against the CRA and the CRA officers should be struck for the failure to establish proximity and agree with the stage II residual policy concerns as outlined by the Crown in para. 62, 63 and 64 herein.

(iv) Breach of Fiduciary Duty by the Crown Prosecutors and CRA Investigators

[66] In Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, (“Elder”), the Supreme Court enunciated the test whereby, in rare circumstances, a fiduciary duty in law will be owed by a governmental body to a particular individual. The court identified traditional categories of fiduciary relationships, namely: solicitor/client; parent/child; director/corporation; executor/beneficiary; and guardian/ward, but indicated that ad hoc fiduciary relationships could be established if there was an undertaking by the fiduciary to act in the best interests of the beneficiary, or if there was a defined person or class of persons who are vulnerable to the fiduciary’s control and the beneficiary had a legal or substantial practical interest that stood to be adversely affected by the fiduciary’s exercise of discretion or control. In the case at hand, the CRA officers have a duty to enforce the Income Tax Act and the relevant provisions of the Criminal Code for the benefit of society as a whole and there was no undertaking by them to act in the best interests of Skinner or McCreight during the course of their investigation of prosecution.

[67] Further, McLachlin C.J. in Elder said at para. 45 “The mere grant to a public authority of discretionary power to affect a person’s interest does not suffice.” In my opinion, there is nothing in any of the relevant statutes or statutory provisions that would create a fiduciary duty on behalf of CRA officers to the plaintiffs.

[68] The pleadings do not allege that the CRA officers acted outside their employment.

[69] The TOM referred to in the statement of claim is not a statute but rather only a policy and, in my opinion, does not create any fiduciary relationship between CRA officers and taxpayers. As was mentioned previously, the prosecutors are immune in their prosecutorial duties except for malicious prosecution. In my opinion, the pleadings do not establish a fiduciary relationship in favour of the plaintiffs BDO, Kim McCreight or Joan Skinner.

[70] Therefore, those paragraphs referring to a fiduciary duty fail to disclose a reasonable cause of action and are struck.

[71] Further, within the section under the claim of fiduciary duty, the plaintiffs claim damages for abuse of process. Since it is not a stand-alone cause of action for civil damages, it is therefore struck.

(v) Charter Breaches

[72] In Vancouver (City of) v. Ward, 2010 SCC 27, [2010] 2 S.C.R. 28, the Supreme Court for the first time recognized that the remedy provided in s. 24(1) of the Charter can, in appropriate cases, support a civil claim for monetary relief against the Crown where the Charter is breached by public officials. The Ward case did not involve an action against Crown prosecutors but the municipal police who had wrongfully accused Ward of throwing a pie at Prime Minister Chrétien. Ward was released approximately four and a half hours later and brought an action in tort for breach of his rights as guaranteed by the Charter. It was held that s. 24(1) was broad enough to include the remedy of constitutional damages for breach of the claimant’s Charter rights in an appropriate case. The court held that it would first be necessary to determine if a Charter right had been breached, then the plaintiff would need to show why damages are a just and appropriate remedy and, thirdly, whether there are countervailing factors to defeat an award of damages.

[73] Pursuant to s. 32(1)(a) of the Charter, it does not apply to individuals but only the Parliament and government of Canada therefore the Charter claims advanced against the personally named defendants are struck.

[74] It has been acknowledged by the defendants that the allegations of malicious prosecution against the AGC and the CRA are not objected to as a pleading. Regarding allegations of s. 7 violations, there is no suggestion in the pleadings that the plaintiffs were ever incarcerated. Regarding s. 8 of the Charter the search warrants were never quashed, set aside or challenged. As stated in the Neumann case, at para. 7:

[T]he search warrant is an important and accepted enforcement tool utilized by those charged with investigating crime. If a search warrant is lawfully obtained and executed, those subjected to it cannot seek compensation for its unintended repercussions.

[75] Concerning the s. 11(b) allegations regarding the right to be tried within a reasonable time period, there was no trial. Rather, the matter was dealt with at a preliminary inquiry and did not proceed any further. As noted in Ward, where there is a concurrent tort claim (as there is in this case) for malicious prosecution, a claim for damages under the Charter would result in double compensation and so the Charter claim should be barred. At para. 36:

Tort law and the Charter are distinct legal avenues. However, a concurrent action in tort, or other private law claim, bars s. 24(1) damages if the result would be double compensation: Simpson v. Attorney-General, [1994] 3 N.Z.L.R. 667 (C.A.), at p. 678.

[76] Therefore, the claims regarding the alleged Charter breach are struck.

(vi) Fraudulent Misrepresentation

[77] Mariani v. Lemstra (2004), 2004 CanLII 50592 (ON CA), 246 D.L.R. (4th) 489 (Ont. C.A.), at para. 12, outlines the test for fraudulent misrepresentation:

a) The defendant made a false representation of fact;

b) The defendant knew the statement was false, or was reckless as to its truth;

c) The defendant made the representation with the intention that it would be acted upon by the plaintiff;

d) The plaintiff relied on the statement and acted upon it; and

e) The plaintiff suffered damage as a result of his so acting.

[78] Rule 25.06(8) of the Rules of Civil Procedure provides:

Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

[79] It appears from the pleadings that the allegations regarding fraudulent misrepresentation are founded on a failure to disclose by the Crown. R. v. Power, at p. 630, recognized that disclosure prior to and at the preliminary inquiry are governed by different principles than once a committal for trial has been obtained.

[80] The court in Power, at p. 630, accepted the observation of Grandpré J. in Caccamo v. R., 1975 CanLII 11 (SCC), [1976] 1 S.C.R. 786, at pp. 809-10, that “the sole purpose of the preliminary inquiry is to satisfy the magistrate that there is sufficient evidence to put the accused on trial and that, therefore, the Crown has the discretion to present only that evidence which makes out a prima facie case”. All that the plaintiffs in this case allege is that McCreight and Skinner relied on the representation that they received full disclosure “to their detriment in preparation for and during the preliminary inquiry”.

[81] The plaintiffs described McCreight and Skinner as targeted taxpayers that should have been allowed an opportunity to make submissions prior to the charge being laid. In German v. Major (1985), 1985 ABCA 176, 39 Alta. L.R. (2d) 270 (C.A.) the Alberta Court of Appeal rejected this argument, at p. 281:

[L]et me say only that he offers no authority for the remarkable proposition that the only reasonable way to investigate a crime is to put the prosecution case to the accused before charge and ask for an explanation. In any event, in this case German knew of the inquiry but did not come forward with any explanation.

[82] In my opinion there is nothing in the amended statement of claim to explain why the plaintiffs could not have made submissions to the investigators or prosecutors at any stage or why they failed to make representations and what the content of those representations would have been or how that would have impacted the process.

[83] Further, there has been no detrimental reliance established and therefore there is no viable cause of action for fraudulent misrepresentation and so this part of the claim is struck.

(vii) Negligent Misrepresentation

[84] The case of Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, establishes that to be successful in an allegation of negligent misrepresentation, the plaintiff must show (i) there was a duty of care based on a special relationship between the CRA and the plaintiff; (ii) the representation that was made is untrue, inaccurate, or misleading; (iii) the CRA acted negligently in making the said misrepresentation; (iv) the plaintiff relied in a reasonable manner on the said negligent misrepresentation; and (v) the reliance must have been detrimental to the plaintiff in the sense that damages resulted.

[85] In the present case, there is no recognized cause of action for negligent misrepresentation by a CRA investigator. There is no legal duty of care on a CRA investigator. The imposition of such a duty would be inconsistent with the scheme of the Income Tax Act which expressly provides that taxpayers cannot, for example, rely on errors or omissions. Also, there is no special relationship between the CRA investigators and McCreight and Skinner.

[86] Further, in the pleadings no factual basis is made out to show that the Crown prosecutors could reasonably have foreseen that McCreight and Skinner would rely to their detriment on the alleged representation. In my opinion there was no detrimental reliance and therefore, allegations related thereto are struck as disclosing no reasonable cause of action.

(viii) Conspiracy

[87] Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452 provides that the requisite elements for conspiracy are: 1) action taken in concert; 2) by lawful or unlawful means; 3) the predominant purpose of which is to cause injury to the plaintiffs; 4) knowing that injury is likely; and 5) injury results to the plaintiffs. As indicated by Wilson J. in Southam Col. Ltd. v. Gouthio, 1948 CanLII 248 (BC SC), [1948] 3 D.L.R. 178 (B.C.S.C.), at p. 185, cited in Cement Lafarge, at p. 471:

Where the acts agreed on and done are in themselves lawful then, even if their doing damnified the plaintiff, no action of conspiracy will lie unless the object of the conspirators was to injure the plaintiff.

[88] In my opinion, these necessary elements are not pleaded in the statement of claim nor are there sufficient material facts made therein out to maintain this claim. It is insufficient for the plaintiffs to simply make the bald allegation of conspiracy to achieve an unlawful purpose “by seeking conviction against McCreight and Skinner other than in accordance with due process of law and the Government of Canada guidelines and standards of fair play and due process”. Further, it has been provided in the Normart Management Ltd. v. West Hill Redevelopment Co. (1996), 1996 CanLII 8210 (ON SC), 30 O.R. (3d) 531, (C.J. (Gen. Div.)) at para. 15; aff’d 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97 (C.A.), that even where all the elements of conspiracy are pleaded, where the conspiracy claim could have no impact on success or failure of the litigation, it has been struck.

[89] Regarding the Crown prosecutors, they have prosecutorial immunity and regarding the other Crown defendants, this allegation would have no impact on the success or failure of the litigation since it will rise or fall on the claim for misfeasance in public office. Therefore, the allegations of conspiracy are struck.

(ix) Claim for Damages by BDO

[90] Although BDO was at no time the subject of the investigation, it claims recovery for supporting its partners (McCreight and Skinner) in BDO (a limited partnership). Choosing to fund McCreight and Skinner does not give BDO standing in this action. BDO is not without legal remedies against the plaintiffs or its insurer.

[91] BDO as a named plaintiff and its claim for damages is therefore struck.

[92] Further, BDO has no claim for Charter damages.

C. Should the personal claims against Elaine Krivel be struck?

[93] Elaine Krivel was the section head of the criminal litigation branch at the Toronto Regional Office for the Department of Justice, and her sole involvement in this case was to generally approve the pre-charge screening of charges.

[94] Claims were made against her for malicious prosecution, misfeasance in public office and negligence. In my opinion, maintaining the action against Krivel personally is without factual basis and is frivolous and vexatious and an abuse of process and so this claim against her personally is struck pursuant to s. 21.01(3)(d) of the Rules of Civil Procedure.

D. Should the personal claims against Morris Pistyner and Stephanie Marinier be struck?

[95] Morris Pistyner was senior counsel and regional director of the Public Prosecutions Service of Canada, and he was generally responsible for directing, managing and advising agents of the DOJ engaged in criminal prosecutions. There are no allegations he played any personal role.

[96] Similarly, Stephanie Marinier was senior counsel of criminal prosecutions assigned to the Ontario Regional Office of the DOJ, and was generally responsible for directing, managing and advising agents of the DOJ engaged in criminal prosecutions. Again, there are no allegations that she personally played any role in the proceedings against McCreight and Skinner. There are merely bald assertions of tortious conduct without any underlying material facts to support the allegations. For instance, it is not alleged that Pistyner or Marinier laid any of the charges or prosecuted or continued the case.

[97] In the 110-page claim, there are no material facts pleaded to suggest that Pistyner or Marinier initiated or conducted the McCreight and Skinner prosecutions. The allegations of bad faith and the use of the words deliberately, negligently or callous disregard are without foundation in the material facts pleaded.

[98] In my opinion, it is plain and obvious that the plaintiffs have failed to disclose any reasonable, sustainable cause of action against Pistyner and Marinier and, as with Krivel, the action and allegations against them as individual defendants are struck.

(x) Family Law Act Claims by Kim McCreight and Joan Skinner

[99] The plaintiffs’ spouses, Kim McCreight and Joan Skinner, assert personal claims under s. 61(1) of the Family Law Act, which provides as follows:

If a person is injured or killed by the fault or neglect of another under circumstances where the person is entitled to recover damages, or would have been entitled if not killed, the spouse, as defined ... [is] entitled to recover their pecuniary loss resulting from the injury or death from the person from whom the person injured or killed is entitled to recover . . .

[100] The language of s. 61 of the FLA permits a derivative claim by a family member based on there being injury or death to the principal plaintiff. The case of Munro v. Canada (1992), 1992 CanLII 7423 (ON SC), 11 O.R. (3d) 1 (C.J. (Gen. Div.)), provides that there must be physical or mental injury in a recognized medical sense that was caused by the negligence of the defendant.

[101] In the statement of claim the alleged injury is to the spouse’s physical, emotional and psychological well-being.

[102] In my opinion, the type of injury here, namely anxiety surrounding involvement in a criminal allegation, is not the type of injury contemplated by s. 61 of the FLA. In Healey v. Lakeridge Health Corp., 2011 ONCA 55, 103 O.R. (3d) 401 at para. 62, Sharpe J.A. emphasized that where there is no obvious physical injury, a plaintiff must show a recognizable psychiatric illness which was caused by the defendant’s negligence in order to be compensated by monetary damages. In my opinion, the plaintiffs in the present case have failed to show that they suffered the kind of physical injury or medical condition that warrants a s. 61 FLA claim on behalf of the spouses. As such, the FLA claim made by Kim McCreight and Joan Skinner is struck and they be struck as plaintiffs.

E. Should certain paragraphs contained in the plaintiffs’ statement of claim be struck on the basis that they are irrelevant, frivolous, or contain evidence, argument or editorializing?

[103] Rule 25.06(1) indicates that a pleading shall contain a concise statement of material facts but not the evidence on which those facts are to be proven. Further, rule 25.11(b) allows the court to strike out those parts of the pleading that are frivolous.

[104] In my opinion, paras. 46 to 61, which appear to be no more than a list of potential witnesses and do not provide material facts in support of the causes of action advanced, contain excessive evidence and other irrelevant information. Therefore, these paragraphs are struck.

[105] Further, paras. 69 to 119 inclusive should be struck on the basis that they are evidence, arguments or otherwise do not contain material facts in support of a pleading that is to be a concise statement of the allegations on which the plaintiff relies. Further, the striking of these paragraphs will help to streamline production, discovery and trial and thus will result in the most just and expeditious and least expensive determination of the issues on the merits as provided by rule 1.04(1) of the Rules of Civil Procedure 1.04(1).

Should the plaintiffs be permitted to amend their statement of claim where it has been determined to be deficient?

[106] The statement of claim was issued approximately three years ago and has had three amendments with the last amendment being the result of the order of Cusinato J. concerning the appropriateness of certain documents being referred to in the statement of claim.

[107] As stated in Beer v. Pearce (23 March 2009), Windsor, CV-07-10280, (Ont. S.C.), at para. 31:

Since this Motion has been outstanding for a number of months, I can only assume that if the Plaintiff had more particulars than were provided, the Claim would have been amended. For that reason, I see no useful purpose in granting leave to amend at this point in time.

[108] In my opinion, the plaintiffs have had ample opportunity to amend the pleadings to rectify any deficiencies if pertinent to the facts. In my opinion, they should not now be permitted to further amend except to the extent of removing the improper parties and causes of action improperly made out as provided in this order.

CONCLUSION

[109] It is therefore ordered that:

1. The jury notice is struck;

2. The cause of action framed in negligence against the prosecutors, namely the AGC, the Crown prosecutors and their agents, as set out in paras. 262-65, 277-83, 295 of the statement of claim is struck without leave to amend;

3. The cause of action framed in malicious prosecution is struck without leave to amend;

4. The allegation of negligence against the CRA officers is struck without leave to amend;

5. The allegation of breach of fiduciary duty as laid out in paras. 290-91, 293 of the statement of claim against all remaining defendants is struck without leave to amend;

6. The cause of action alleging breach of Charter rights articulated in paras. 293, 295-96 of the statement of claim is struck without leave to amend;

7. The claims for fraudulent and negligent misrepresentation at paras. 262-65 are struck without leave to amend;

8. The conspiracy claim asserted in paras. 258-61 of the statement of claim is struck without leave to amend;

9. The claim asserted by BDO as plaintiff is struck without leave to amend and BDO is struck as plaintiff;

10. The FLA claims asserted by Kim McCreight and Joan Skinner are struck without leave to amend and they are struck as plaintiffs;

11. Claims against the Crown defendants, Marinier, Pistyner and Krivel are struck;

12. Paragraphs 46-61 and 69-119 of the statement of claim are struck;

13. An order is granted extending the time to deliver a statement of defence;

14. The parties shall make written submissions as to costs within 60 days of the release of this decision.

“Original signed by “Justice Terrence Patterson”

Terrence L.J. Patterson

Justice

Released: April 27, 2012