Softcom Solutions Inc. et al. v. Attorney General of Canada et al.

[Indexed as: Softcom Solutions Inc. v. Canada (Attorney General)]

Ontario Reports

Ontario Superior Court of Justice

Schabas J.

December 11, 2019

149 O.R. (3d) 123 | 2019 ONSC 7191

Case Summary

Evidence — Hearsay — Exceptions to rule — Tax audit resulting in charges that were ultimately stayed — Action commenced for negligent investigation — Auditor who testified at preliminary inquiry having since died — Transcripts of auditor's evidence admitted as evidence in civil action under principled exception to hearsay rule.

The Canada Revenue Agency ("CRA") audited the corporate plaintiff, resulting in criminal charges against two of its principals. Following a lengthy preliminary inquiry which resulted in a committal for trial, the charges were stayed for unreasonable delay. The plaintiffs then commenced an action against the CRA and others for negligent investigation. The conduct of the CRA auditor, including his contacts with investigators in the Special Investigations section of the CRA, was a critical issue. The auditor had since died, but he had testified for about nine days at the preliminary inquiry and was examined in-chief, cross-examined and re-examined. The defendant sought leave to enter the transcripts of his testimony as evidence.

Held, the transcripts should be admitted.

The transcripts were admissible pursuant to the principled exception to the rule against hearsay. The defendants sought to rely on the substance of the auditor's testimony and the plaintiffs had no opportunity to cross-examine him, so the transcripts were hearsay and presumptively inadmissible. However, the evidence met the necessity and reliability factors under the principled approach. The necessity factor was clearly met because the auditor was deceased. The reliability factor was met because the auditor's conducting of the audit and his findings, being matters in issue in the present case, were reviewed in both direct and cross-examination. A review of the transcript revealed a rigorous cross-examination that provided an adequate substitute for testing the evidence in the civil trial. [page124]

Cases referred to

R. v. Hawkins (1996), 1996 154 (SCC), 30 O.R. (3d) 641, [1996] 3 S.C.R. 1043, [1996] S.C.J. No. 117, 141 D.L.R. (4th) 193, 204 N.R. 241, J.E. 96-2285, 96 O.A.C. 81, 111 C.C.C. (3d) 129, 2 C.R. (5th) 245, 32 W.C.B. (2d) 388, EYB 1996-67709, 1996 CCAN para. 10,056; R. v. Hynes, [2001] 3 S.C.R. 623, [2001] S.C.J. No. 80, 2001 SCC 82, 206 D.L.R. (4th) 483, 278 N.R. 299, J.E. 2002-10, 208 Nfld. & P.E.I.R. 181, 159 C.C.C. (3d) 359, 47 C.R. (5th) 278, 88 C.R.R. (2d) 222, 51 W.C.B. (2d) 453, JCPQ 2002-26; R. v. Khelawon, [2006] 2 S.C.R. 787, [2006] S.C.J. No. 57, 2006 SCC 57, 274 D.L.R. (4th) 385, 355 N.R. 267, J.E. 2007-28, 220 O.A.C. 338, 215 C.C.C. (3d) 161, 42 C.R. (6th) 1, 71 W.C.B. (2d) 498, EYB 2006-111773, JCPQ 2006-212; R. v. Smith, 1992 79 (SCC), [1992] 2 S.C.R. 915, [1992] S.C.J. No. 74, 94 D.L.R. (4th) 590, 139 N.R. 323, J.E. 92-1312, 55 O.A.C. 321, 75 C.C.C. (3d) 257, 15 C.R. (4th) 133, 17 W.C.B. (2d) 97, 1992 CCAN para. 10,034; R. v. Starr, [2000] 2 S.C.R. 144, [2000] S.C.J. No. 40, 2000 SCC 40, 190 D.L.R. (4th) 591, 258 N.R. 250, [2000] 11 W.W.R. 1, J.E. 2000-1848, 148 Man. R. (2d) 161, 147 C.C.C. (3d) 449, 36 C.R. (5th) 1, 47 W.C.B. (2d) 250, REJB 2000-20233, 2000 CCAN para. 10,101; R. v. U. (F.J.), 1995 74 (SCC), [1995] 3 S.C.R. 764, [1995] S.C.J. No. 82, 128 D.L.R. (4th) 121, 186 N.R. 365, J.E. 95-1956, 85 O.A.C. 321, 101 C.C.C. (3d) 97, 42 C.R. (4th) 133, 28 W.C.B. (2d) 282, 1995 CCAN para. 10,044

Statutes referred to

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, s. 11(b)

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) [as am.]

Authorities referred to

Martin, Arthur, "Preliminary Hearings", Special Lectures of the Law Society of Upper Canada, 1955

RULING to determine the admissibility of preliminary inquiry evidence in a civil trial.

Sam Laufer and Daniel Freudman, for plaintiffs.

Maria Vujnovic, Michael Bader and Kaitlin Coward, for defendants.

[1] SCHABAS J.: — This action involves a claim against the Canada Revenue Agency ("CRA") asserting, among other things, negligent investigation and breach of the plaintiffs' rights under 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.

[2] The facts giving rise to the claim occurred long ago, between approximately 1995 and 2000 when the CRA audited the plaintiff Softcom Solutions Inc. ("SSI"), which led to criminal charges against the two principals of SSI, one of whom is a plaintiff in this action, Sonya Zenz. Following a lengthy preliminary inquiry held between 2000 and 2002 which resulted in a committal for trial, the charges were stayed by a Superior Court judge due to unreasonable delay under s. 11(b) of the Charter. Although an appeal of that order was commenced, it did not proceed. The plaintiffs [page125] commenced this action in 2008, but it was then stayed until approximately 2016 while tax appeals were proceeding under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) and in the Tax Court of Canada.

[3] The matter is now being tried before me.

[4] The conduct of the auditor, John Haisanuk, including his contacts with investigators in the Special Investigations section of the CRA, is a critical issue in the case. Unfortunately, Mr. Haisanuk died in 2011. However, he testified for approximately nine days at the preliminary inquiry in 2000. He was examined in chief on May 29 and June 6, 7, 8 and 9, 2000. His cross-examination by Zenz's counsel commenced on June 9 and continued on June 13 and 14. The co-accused, Wally Dove, who was self-represented, cross-examined Haisanuk on June 19 and 20 and re-examination was also conducted on June 20, 2000.

[5] Transcripts for all dates are available, and the defendants seek leave to enter them as evidence. They submit this is the only way for the court to obtain Haisanuk's evidence. They also point out that the plaintiffs have already tendered some of Haisanuk's evidence as exhibits to the affidavit of Sonya Zenz, and the court should therefore have the benefit of Haisanuk's complete testimony. This is due to the somewhat unusual way that the case has proceeded. Two years ago, the defendants brought a motion for summary judgment and both parties filed affidavit evidence and conducted cross-examinations. The affidavits and transcripts of those cross-examinations are now in evidence before me as, by agreement, the summary judgment motion has been converted into an abbreviated trial in which the affidavits serve as direct evidence and the cross-examinations at trial are limited due to the availability of the transcripts.

[6] The plaintiffs object, pointing out that the evidence is hearsay and they are unable to cross-examine Haisanuk. Although he was cross-examined at the preliminary inquiry, the plaintiffs argue that the cross-examination was in the context of a criminal case and was not focused on the matters that are in issue in this case, asserting that the role of a preliminary inquiry is limited to simply determining whether a case should be sent on to a trial.

[7] There is no question that the evidence is hearsay and is presumptively inadmissible. As the Supreme Court reminds us in R. v. Khelawon, 2006 SCC 57, [2006] 2 S.C.R. 787, [2006] S.C.J. No. 57, at paras. 56 and 59:

Recall the defining features of hearsay. An out-of-court statement will be hearsay when: (1) it is adduced to prove the truth of its contents and (2) there is no opportunity for a contemporaneous cross-examination of the declarant. [page126]

Once the proposed evidence is identified as hearsay, it is presumptively inadmissible.

(Emphasis in original)

[8] In this case both elements are met. The defendants seek to rely on the substance of Haisanuk's testimony, and the plaintiffs have no opportunity to cross-examine him at this trial. As to the second part of the test, the Supreme Court has "identified the inability to test the evidence as the 'central concern' underlying the hearsay rule" and stated that this is "because its reliability cannot be tested": see Khelawon, at para. 58, in which Charron J. quotes from Iacobucci J. in R. v. Starr, 2000 SCC 40, [2000] 2 S.C.R. 144, [2000] S.C.J. No. 40, and Lamer C.J.C. in R. v. U. (F.J.), 1995 74 (SCC), [1995] 3 S.C.R. 764, [1995] S.C.J. No. 82.

[9] But there are exceptions to the hearsay rule. There are traditional, categorized exceptions, and it is also now well-accepted that all hearsay should be assessed using the principled approach, which involves considering two factors: necessity and reliability: Khelawon, at paras. 42-46.

[10] In this case the necessity factor is clearly met. Haisanuk is deceased. The issue, then, is one of reliability. This requirement is "aimed at identifying those cases where this difficulty is sufficiently overcome to justify receiving the evidence as an exception to the general exclusionary rule": Khelawon, at para. 61.

[11] In Starr, Iacobucci J. stated at para. 212 that "testimony in former proceedings is admitted, at least in part, because many of the traditional dangers associated with hearsay are not present". The "traditional dangers" are mitigated by the fact the evidence was given under oath and was subject to cross-examination. As Charron J. put it in Khelawon, at para. 63:

It is one thing for a person to make a damaging statement about another in a context where it may not really matter. It is quite another for that person to repeat the statement in the course of formal proceedings where he or she must commit to its truth and accuracy, be observed and heard, and be called upon to explain or defend it. The latter situation, in addition to providing an accurate record of what was actually said by the witness, gives us a much higher degree of comfort in the statement's trustworthiness. However, in some cases it is not possible to put the evidence to the optimal test, but the circumstances are such that the trier of fact will nonetheless be able to sufficiently test its truth and accuracy. Again, common sense tells us that we should not lose the benefit of the evidence when there are adequate substitutes for testing the evidence.

[12] It must be borne in mind, however, that reliability in this context does not mean that the evidence is actually true, just that the circumstances in which it is made permit its admission into [page127] evidence. As was stated in R. v. Hawkins (1996), 1996 154 (SCC), 30 O.R. (3d) 641, [1996] 3 S.C.R. 1043, [1996] S.C.J. No. 117, at para. 75:

The criterion of reliability is concerned with threshold reliability, not ultimate reliability. The function of the trial judge is limited to determining whether the particular hearsay statement exhibits sufficient indicia of reliability so as to afford the trier of fact a satisfactory basis for evaluating the truth of the statement. More specifically, the judge must identify the specific hearsay dangers raised by the statement, and then determine whether the facts surrounding the utterance of the statement offer sufficient circumstantial guarantees of trustworthiness to compensate for those dangers. The ultimate reliability of the statement, and the weight to be attached to it, remain determinations for the trier of fact.

[13] The ultimate decision of whether a statement is true or not, or what weight, if any, it should be given, is up to the trier of fact in considering all of the evidence. Again, as Charron J. stated in Khelawon, at para. 80:

To say that a statement is sufficiently reliable because it is made under oath, in person, and the maker is cross-examined is somewhat of a misnomer. A lot of courtroom testimony proves to be totally unreliable. However, therein lies the safeguard -- in the process that has uncovered its untrustworthiness. Hence, the presence of adequate substitutes for that process establishes a threshold of reliability and makes it safe to admit the evidence.

[Emphasis in original]

[14] This brings me to the plaintiffs' objection, that despite the evidence being under oath, it was not tested on cross-examination on matters relevant to this action, and therefore should not be admitted.

[15] I disagree. Haisanuk testified at the preliminary inquiry for nine days, and was cross-examined for approximately four of those days. I have reviewed the transcripts. His conduct in conducting the audit and his findings were reviewed in both direct and cross-examination. This is the conduct that is in issue in this case.

[16] It is also well-recognized that a preliminary inquiry is not just to determine whether there is sufficient evidence to commit the matter to trial, but has an "ancillary" purpose of providing an opportunity for the accused to discover the Crown's case: R. v. Hynes, 2001 SCC 82, [2001] 3 S.C.R. 623, [2001] S.C.J. No. 80, at para. 31. This often includes exploring potential defences and investigative conduct that may provide grounds for motions at trial. As G. Arthur Martin, Q.C., as he then was, wrote many years ago in "Preliminary Hearings", Special Lectures of the Law Society of Upper Canada, 1955, at p. 1:

The preliminary hearing has two aspects. Its primary purpose, of course, is to ascertain whether or not there is sufficient evidence to warrant the accused being placed upon his trial. In determining this, a magistrate, who is [page128] conducting a preliminary hearing is not determining whether or not the accused is guilty or not guilty. His function is to ascertain whether or not there is sufficient evidence to induce the belief in the mind of a cautious man that the accused is probably guilty. Therefore, considerations of reasonable doubt have no application at this stage of the proceedings.

From the point of view of defence counsel the preliminary hearing has another aspect. It affords counsel an opportunity of ascertaining the nature and the strength of the case against his client and it may be likened in that respect to an Examination for Discovery.

[17] In the criminal case, the lawyer for Sonya Zenz, who is the principal plaintiff in this action, took advantage of this second aspect of a preliminary inquiry. Haisanuk was cross-examined on many issues that are central to this action against the CRA including, for example, his experience, his role as an auditor, his contact with Special Investigations ("SI") in Belleville in January 1997, and how he understood his role in relation to Special Investigations. It also canvassed his contact with SI in Calgary and his decision to refer the matter to SI in Belleville in June 1997, including his discussions at that time with Peter Heryat, who was in charge of the subsequent criminal investigation.

[18] In my view, the cross-examination of Haisanuk provides an adequate substitute for testing the evidence in this trial. As in Hawkins (at para. 80), Haisanuk's testimony was "subject to the opportunity of contemporaneous cross-examination by counsel" and was "an opportunity which appears to have been vigorously exercised".

[19] In coming to this conclusion, I am mindful of the fact today, years later and following further disclosure and in the context of this civil action, a cross-examination of Haisanuk might have covered some other issues, or been more or less in depth in exploring his conduct and state of mind; however, that is something that I will need to take into account in deciding the extent to which I should rely on the transcripts. As stated, finding that the reliability test to admit hearsay is met does not mean that the trier of fact must rely on the evidence at the end of the trial. As was observed by Lamer C.J.C. in R. v. Smith, 1992 79 (SCC), [1992] 2 S.C.R. 915, [1992] S.C.J. No. 74, at para. 39, "[w]here the criteria of necessity and reliability are satisfied, the lack of testing by cross-examination goes to weight, not admissibility".

[20] Having reached my conclusion that the transcripts are admissible pursuant to the principled exception to the rule against hearsay, it is not necessary to address the other argument of the defendants, that the transcripts should be entered in order to complete the record. [page129]

[21] The transcripts are admissible.

Evidence admitted.

End of Document