Court File and Parties
Court File No.: CV-09-384653 Date: 2016-05-26 Ontario Superior Court of Justice
Between: F. MARC HOLTERMAN and THOMAS S. TIFFIN Plaintiffs/Moving Party – and – S. ANDREW FISH and THE ATTORNEY GENERAL OF CANADA Defendants/Respondents
Counsel: F. Marc Holterman, Plaintiff/Moving Party, In person Thomas S. Tiffin, Plaintiff/Moving Party, In person Helen A. Daley & Simon Bieber, for the Defendants/Respondents
Heard: April 27, 2016
Before: LEDERER J.
Endorsement
[1] The moving parties are the plaintiffs in this proceeding. After three days of trial, they agreed to discontinue the action. A consent order was made. By this motion, they seek to set aside the discontinuance so as to adduce additional evidence at a continuing trial. In making the motion, the plaintiffs refer to and rely on r. 59.06(2)(a) of the Rules of Civil Procedure. The rule states:
A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made…
may make a motion in the proceeding for the relief claim.
[Emphasis added]
[2] It is not so much the order the plaintiff’s wish to set aside, it is the discontinuance. The Rules of Civil Procedure “do not specifically address the setting aside of a Notice of Discontinuance”. Whether the rule has application to this case, or not, is of little consequence. The case law is clear. The court has the discretion to do what is asked based on its “inherent jurisdiction”. [1] The defendants do not question that jurisdiction.
[3] The RCMP received a complaint. It alleged fraud on the part of the two plaintiffs. The matter was passed on to the Canada Revenue Agency (“CRA”). What was described by Jorge Liviero, the individual involved, as an audit, began. The file was passed on to the Special Investigations Directorate and to S. Andrew Fish, a defendant in this action. He continued to examine and inquire into the activities of the two plaintiffs. Both Jorge Liviero and S. Andrew Fish caused “Requirements to Provide Information and Documents” to issue in order to gather information from third party financial institutions about financial transactions undertaken by the plaintiffs. [2] S. Andrew Fish analyzed the financial records obtained and interviewed people who had given funds to the plaintiffs. On August 23, 2002, he swore an Information to Obtain Search Warrants [3]. In this affidavit, S. Andrew Fish swore, among other things, that he had “reasonable grounds to believe and does believe” that the plaintiffs were in breach of the Income Tax Act. [4] That statement was based on what S. Andrew Fish had learned from his examination and inquiry carried out, at least in part, using information obtained through the issuance of the Requirements to Provide Information and Documents. As S. Andrew Fish saw it, the plaintiffs had received significant income that they had not declared in their income tax returns. Search warrants were issued and executed.
[4] Charges were laid. In response, applications were made to exclude the evidence obtained through the Requirements to Provide Information and Documents and to quash the search warrants. The applications were successful. In the time between the issuance of the search warrants and applications, the Supreme Court of Canada had released its decisions in R. v. Jarvis [5] and R. v. Ling [6]. Based on these decisions, the judge found that, at the time that the Requirements to Provide Information and Documents were issued, those acting under the authority of the CRA, were not carrying out an audit. They were conducting an investigation which had the predominant purpose of determining whether the plaintiffs were subject to “penal liability”. This being so, the CRA was no longer able to rely on Requirements to Provide Information and Documents. The CRA needed a search warrant. When search warrants were subsequently obtained, the Information to Obtain Search Warrants sworn to support the request was based on information that resulted from the Requirements to Provide Information and Documents. Since that information was improperly obtained, the judge hearing the application quashed the search warrants. The criminal proceedings were stayed.
[5] The judge who heard the application was direct and certain in his findings. There was “serious misconduct” on the part of the officials of the CRA. He rejected as untrue the testimony of S. Andrew Fish that, when he received the file, he had no grounds to “investigate” the plaintiff, Thomas S. Tiffin. The judge found S. Andrew Fish deliberately omitted relevant information when the issuance of search warrants was requested. The judge accepted that the “Information to Obtain Search Warrants” [7] sworn by S. Andrew Fish contained “numerous misstatements of fact”. It led one to believe that the plaintiffs were being investigated for fraud when they were not. The judge found this to be “intentionally misleading”. He found that S. Andrew Fish failed to account for any allowable deductions available to the plaintiffs and that this was done intentionally to mislead the judge issuing the search warrants as to the amount of taxes owing.
[6] There was an appeal by the Crown [8] which is described by counsel on behalf of the CRA as “largely successful”. A new trial was ordered. [9] That being said, there is nothing in the decision of the three judges of the Court of Appeal (each of whom prepared their own reasons) to suggest anything other than acceptance of the findings of the judge who heard the application to the effect that S. Andrew Fish had been untruthful and had intentionally misled the judge who issued the search warrants. [10] Those findings led the plaintiffs to commence this action. The only cause of action referred to in the statement of claim was “misfeasance in public office”. The essential question raised by the supposed commission of the tort is “…whether the alleged misconduct was deliberate and unlawful”. [11]
[7] There are two elements that require proof if the cause of action is to be sustained:
First, the public officer must have engaged in deliberate and unlawful conduct in his or her capacity as a public officer.
Second, the public officer must have been aware both that his or her conduct was unlawful and that it was likely to harm the plaintiff. [12]
[8] At the trial, the plaintiffs relied on the findings made by the judge as to the lack of truthfulness and completeness of the evidence of S. Andrew Smith as demonstrative of the commission of the tort. The principle of res judicata (a matter adjudicated) was mentioned. It has no application in these circumstances. S. Andrew Fish provided evidence referred to when the application to quash the search warrants was heard. He had been cross-examined under oath as to his actions. He was not a party. The evidence he gave there could not be received in evidence against him in this civil proceeding. [13] We seek to encourage individuals to provide evidence when it will assist the court. If the testimony they provided was at the risk of contributing to some future proceeding at which they could be party and could bear liability, it would function as a considerable disincentive to appearing in the first place. Cause of action estoppel cannot function as a res judicata in this situation. There has been no determination of the liability of S. Andrew Fish for misfeasance in public office or any other tort. The same is true of issue estoppel. “Issue estoppel prevents a litigant from re-litigating an issue that has been clearly decided by a court of competent jurisdiction in a previous proceeding between the same parties or their privies even if the new litigation involves a different cause of action.” [14] Among the concerns that should be satisfied before issue estoppel can be applied is “mutuality”. “A person that was party to the first law suit [in this case, the plaintiffs] cannot rely on a finding made in that proceeding in a subsequent lawsuit, unless his or her opponent in the second suit [in this case, S. Andrew Fish] was a party or privy to that lawsuit.” [15] S. Andrew Fish was not a party or privy [a person interested or affected by the adjudication in the prior proceeding]. Moreover, even where the requirements of issue estoppel are present and met, discretion remains. In this case, to fail to exercise that discretion in favour of rejecting the application of issue estoppel would ignore the policy proposition referred to above and leave witnesses who were not parties, nonetheless, liable as a result of the evidence they had provided. This would be contrary to public policy.
[9] At the trial, the income tax issue raised (as opposed to any question of fraud) referred to money received by the plaintiffs in connection with their employment. Was it received as loans or as income? If it was as income, it should have been declared and subject to inclusion in the calculation of any tax owed by the plaintiffs. The plaintiffs maintained they were loans and not subject to tax. During the course of the evidence at the trial, it became apparent that these “loans” were the subject of an agreement in which the plaintiffs purported to act for both the lender and the borrower. They signed the agreement for both sides. No money was paid back. Some of the money was expended in connection with their employment. These were accounted for by receipts. Some of the funds were put to personal use. There was evidence that this was accounted for in the same way, through receipts. With this evidence, the characterization of these monies as a loan became open to question.
[10] There may have been answers but the plaintiffs did not provide evidence to explain or confirm these funds as loans. Rather, they asked for time to discuss the situation with counsel for the defendants. Upon their return, counsel indicated some surprise when the plaintiffs said they were close to a settlement. Another judge was made available to the parties. After some further discussion, with that judge’s assistance, a settlement was reached. It included the discontinuance of this action. It appeared that the matter was completed subject to the resolution of the costs of the proceeding. Then this motion was brought.
[11] The discretion of the court to act and set aside a discontinuance can only be exercised when there is “…inadvertence, mistake or misapprehension of the client’s instructions, and no special circumstances”. [16] The plaintiffs rely on the presence of “exceptional circumstances” as the basis for this motion. For the court to exercise its discretion on that basis, the plaintiffs must satisfy two criteria:
i) Would the evidence, if presented to the court at first instance, probably have changed the result?
ii) Could the evidence have been obtained before the hearing and disposition of the motion by the exercise of reasonable diligence? [17]
[12] At an earlier time (1927), the Supreme Court of Canada was more definite as to what was required to satisfy the first of the two criteria. It was not enough that the result would “probably have changed”. The new evidence would have to be “practically conclusive”. [18] It has been said that the difference between the two tests has to do with the court in which the matter is being heard. Is it before the trial judge (results would probably have changed) or seeking to introduce new evidence on an appeal (practically conclusive)? [19] Whether the test has changed or whether it depends on the nature of the proceeding (trial judge or on appeal) does not matter to this case.
[13] What is the new evidence that is the foundation for this motion and the basis for the assertion of exceptional circumstances? On January 8, 2016 and on January 14, 2016, the CRA sent letters to, respectively, each of the two plaintiffs: Thomas Tiffin and Frederick (Marc) Holterman. Quite apart from the referral of the complaint by the RCMP, the plaintiffs had each filed Notices of Objection to their tax assessments, both dated April 28, 2003, and both for the years 1995 to 1999. The two letters were the results of the objections. They were both allowed. The money which had been included as income, rather than understood to be loans, would not be assessed as income.
[14] The plaintiffs submit that the timing of the delivery of these results demonstrates a breach of the Income Tax Act. Pursuant to s. 152(1), the Minister of Revenue [20] is required to examine a taxpayer’s return of income and assess the tax owing or any refund to made for the year. [21] Section 165 allows the taxpayer to serve a Notice of Objection to the assessment. [22] On receipt of the Notice of Objection, the Minister is required to reconsider the assessment “with all due dispatch”. [23] The breach referred to by the plaintiffs arises because it took 13 years to complete the re-assessment occasioned by the Notices of Objection and communicated through the two letters delivered during January 2016. As the plaintiffs see it, in view of the improper delay, this “new evidence” should be applied nunc pro tunc (now for then), which is to say, it should be applied as if it was known when the request for issuance of the search warrants was made. This would serve to demonstrate that when S. Andrew Fish swore the Information to Obtain the Search Warrants he knew or should have known that the money received by the plaintiffs was properly characterized as “loans”. The plaintiffs submit this would prove the alleged misfeasance in public office.
[15] 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”. [24] Thus, there is no basis for going back. At the time of the swearing of the Information to Obtain Search Warrants, the original assessments stood. If the plaintiffs wished to accelerate the resolution of the re-assessments (if they thought it would help), they could “with exercise of reasonable diligence” have done so. Section 169(1)(b) of the Income Tax Act provides that where a re-assessment has not been completed within 90 days of the service of a Notice of Objection, a taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied. [25] Counsel for the defendants pointed out that the plaintiffs had reason not to attempt to move the re-assessments forward. While they were extant, the plaintiffs were saved from having to pay any tax that the original assessments found to be owing.
[16] 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:
The new evidence sought to be introduced here is not of the same kind as the new evidence spoken of in Varette v. Sainsbury. It and other cases establishing the rule had to do with evidence, oral or documentary, of events that led to the bringing of the action. Here the evidence of Forster is not of that kind: It is of tests he made and conclusions he reached long after the event. The principle that a new trial may be ordered where new evidence has been discovered or become available is not directly applicable here at all.... [26]
[17] Even if this is wrong, there is nothing in the re-assessments that contribute to a demonstration that S. Andrew Fish deliberately and knowingly engaged in unlawful conduct. The two letters do not say anything that could contribute to such a finding. All they say is that the objection is allowed and that certain sums of money are not to be included in income. The Notices of Objection were not produced in the record on this motion. Neither basis for the objections nor the reasons for vacating the original assessments are apparent or before the court. For the letters released in January 2016 to advance the argument that there was misfeasance in public office attributable to the actions of S. Andrew Fish, it would be necessary to take from them that, on August 23, 2002, when he swore the Information to Obtain Search Warrants, S. Andrew Fish was aware of and understood the results of the re-assessments. This was not possible. The Notices of Objection which were the cause of those re-assessments would not be served for another eight months (April 28, 2003). To advance the understanding of the presence of the tort, S. Andrew Fish would be taken to have known that the re-assessments would find that the plaintiffs owed no taxes for the years in question and, even though the letters of January 2016 do not say it, that the reason the Minister of Revenue would accept that the money was not taken into income was as a result of a finding that it was taken as loans. And, finally, it would have to be accepted that S. Andrew Fish swore the Information to Obtain Search Warrants deliberately knowing that the information it relied on was false and that it was likely to harm the plaintiffs. To the extent that any allegation that the Information to Obtain Search Warrants were illegal relies on the findings in R. v. Jarvis and R. v. Ling. It is worth observing that those decisions were not released until November 21, 2002, which is to say, three months after the Information was sworn. There is no evidence of “a massive fraud” as alleged by the plaintiffs. [27]
[18] The letters of January 8, 2016 and January 14, 2016 are not new evidence that could cause the court to exercise its discretion and set aside the discontinuance. They do not represent evidence that led to the commencement of the action. They are demonstrative of conclusions arrived at much later. If this is wrong and they are such evidence, they would not contribute to a result that would have been to the benefit of the plaintiffs. They would not contribute to a finding of misfeasance in public office. In the event that this is incorrect, the information they contain could have been obtained through reasonable diligence.
[19] The motion is dismissed.
[20] The parties agreed that, if the defendants were successful, costs should be awarded to them in the amount of $3,000, but only as against the plaintiff, F. Marc Holterman. Costs in that amount are to be paid by the plaintiff, F. Marc Holterman, to the defendants.
LEDERER J. Released: 2016-05-26
Judgment
COURT FILE NO.: CV-09-384653 DATE: 2016-05-26 ONTARIO SUPERIOR COURT OF JUSTICE
Between: F. MARC HOLTERMAN and THOMAS S. TIFFIN Plaintiffs/Moving Party – and – S. ANDREW FISH and THE ATTORNEY GENERAL OF CANADA Defendants/Respondents
JUDGMENT
LEDERER J. Released: 2016-05-26
