T-2515-80
Usarco Limited and Frank Levy (Plaintiffs)
v.
The Queen and Attorney General of Canada
(Defendants)
Trial Division, Mahoney J.—Toronto, August 20;
Ottawa, August 26, 1980.
Practice — Motion to strike pleadings — Plaintiffs seek a
declaration that a certificate given pursuant to s. 244(4) of
Income Tax Act is fraudulent and a nullity — Plaintiffs also
seek a declaration that an information charging them with
income tax evasion is statute-barred — Defendants seek to
strike out statement of claim — Plaintiffs allege that evidence
was complete in May 1978 and that an officer authorized to
perform duties of Minister pursuant to s. 244(4), standing in
the Minister's shoes, could not truthfully certify that such
evidence had come to the Minister's attention in June, and that
his untruthful certification was fraudulent — Whether Court
lacks jurisdiction to declare that information was invalid —
Whether statement of claim discloses a reasonable cause of
action — Whether action is frivolous or vexatious — Court
lacks jurisdiction to grant relief with respect to information —
Statement of claim to stand — Income Tax Act, S.C. 1970-
71-72, c. 63, s. 244(4).
Lazarus Estates, Ltd. v. Beasley [1956] 1 All E.R. 341,
referred to. Medicine Hat Greenhouses Ltd. v. The
Queen 79 DTC 5091, referred to. Fee v. Bradshaw 76
DTC 6279, distinguished. Samuel Varco Ltd. v. The
Queen (1978) 87 D.L.R. (3d) 522, distinguished. Imperial
Tobacco Ltd. v. Attorney-General [1980] 2 W.L.R. 466,
distinguished. Canadian Radio-Television Commission v.
Teleprompter Cable Communications Corp. [1972] F.C.
1265, followed.
MOTION.
COUNSEL:
Geoffrey J. R. Dyer for plaintiffs.
W. J. A. Hobson, Q.C. and Roger E. Taylor
for defendants.
SOLICITORS:
McDonald & Hayden, Toronto, for plaintiffs.
Deputy Attorney General of Canada for
defendants.
The following are the reasons for judgment
rendered in English by
MAHONEY J.: The defendants apply to strike
out the statement of claim herein on the grounds
that this Court lacks jurisdiction to grant the relief
sought, that the statement of claim discloses no
reasonable cause of action and that the action is
frivolous or vexatious. The plaintiffs seek a decla
ration that a certificate given pursuant to subsec
tion 244(4) of the Income Tax Act, S.C. 1970-71-
72, c. 63,' dated April 16, 1980, is "without proper
factual foundation" and, therefore, a nullity.
Counsel stated that the choice of language was "a
matter of taste" and that he would, if necessary,
amend the prayer for relief to substitute or add the
words "made fraudulently". I will deal with this
application on the basis that such an amendment
had been made. The plaintiffs also seek a declara
tion that an information laid June 22, 1979, charg
ing the plaintiffs with income tax evasion is stat-
ute-barred and, therefore, invalid.
The plaintiffs argue that they have no other
remedy in respect of the information in view of the
fact that the certificate is conclusive evidence in
that other court. I have difficulty in accepting that
any court would so hold, if the certificate were,
indeed, proved fraudulent. As Lord Justice Parker
said of fraud, in not entirely dissimilar circum
stances,
... that quality, if proved, vitiates all transactions known to the
law of however high a degree of solemnity.'
' 244... .
(4) An information or complaint under the provisions of the
Criminal Code relating to summary convictions, in respect of
an offence under this Act, may be laid or made on or before a
day 5 years from the time when the matter of the information
or complaint arose or within one year from the day on which
evidence, sufficient in the opinion of the Minister to justify a
prosecution for the offence, came to his knowledge, and the
Minister's certificate as to the day on which such evidence
came to his knowledge is conclusive evidence thereof.
2 Lazarus Estates, Ltd. v. Beasley [ 1956] 1 All E.R. 341 at
p. 351.
That is a conclusion with which Lord Justice
Denning as he then was, at page 345, concurred
succinctly:
Fraud unravels everything.
In a pertinent judgment of the Alberta Supreme
Court of Appeal, 3 Lieberman J.A., said:
1 would like to comment upon the phrase "conclusive
evidence" as it is used in s. 244(4). In dealing with this matter I
wish to make it clear that I am doing so on the basis that there
is no fraudulent intent or improper motive involved in specify
ing the date contained in the certificates.
I agree that this Court has no jurisdiction vis Ã
vis the information. The information is a process
of another court over whose process this Court is
vested with no control. A declaration that would
necessarily and directly embarrass that court in
the control of its process cannot be sought in this
Court. The certificate is another matter. It is not a
process of another court; it is a document gener
ated for use as evidence in that court.
In Fee v. Bradshaw, 4 this Court held, in appar
ently similar circumstances, that it did not have
the power to verify the truth of facts attested to in
a subsection 244(4) certificate. That decision
ensued upon a hearing in a proceeding initiated by
originating notice of motion. The taxpayers had
the opportunity to adduce evidence. It is not
apparent that fraud was expressly alleged. This
summary application to strike out a statement of
claim is to be distinguished. Fraud is alleged. No
evidence can be received here; I must assume that
what the plaintiffs allege in the statement of claim
is all true and that it will all be proved if the action
goes to trial.
3 Medicine Hat Greenhouses Ltd. v. The Queen 79 DTC
5091 at p. 5097.
76 DTC 6279.
The Fee decision was appealed and the oral
judgment of the Federal Court of Appeal, 5 which,
regrettably, appears not to have been reported,
upheld that decision in the following terms:
Even if it is assumed that the Trial Division had the power to
review the accuracy of the certificate of the Minister in this
case, we are of the view that the appellant's application had
nevertheless to be dismissed since it is clear, in our opinion, that
section 244(4) of the Income Tax Act refers to the personal
knowledge of the Minister and not to the knowledge of the
officers of his department.
A further appeal to the Supreme Court of Canada
is pending.
While the Court of Appeal did not find it neces
sary expressly to dispose of the question of juris
diction, it clearly did not wish to base its decision
on a lack of jurisdiction. I find, in that refusal,
some support for my own view that the action
ought not be summarily dismissed for a clear lack
of jurisdiction to grant the relief sought. The
reason for dismissing the application adopted by
the Court of Appeal is not to be applied where
fraud is proved. If it were, the protection against
dilatory prosecution afforded by subsection 244(4)
is illusory, in spite of fraud, in cases in which the
Minister is not personally involved in the decision
to prosecute. Parliament cannot have intended
that.
I am cognizant of the numerous precedents in
which civil courts have declined to exercise their
jurisdiction to grant declaratory relief where there
were pending concurrent criminal proceedings. 6
They, however, are not pertinent to the question of
whether a statement of claim should be struck out.
The test for that was stated by the Federal Court
of Appeal in Canadian Radio-Television Com
mission v. Teleprompter Cable Communications
Corp.'
... the problem before the Court with respect to the claimed
declaration was not whether on such facts the declaration asked
should be made but whether on the facts as alleged a declara
tion if made in the exercise of the Court's discretion at trial
would be sustainable.
5 Court No. A-210-76. Decision rendered April 5, 1978.
Copy of oral reasons attached to abstract of hearing.
6 E.g. Samuel Varco Ltd. v. The Queen (F.C.T.D.) (1978) 87
D.L.R. (3d) 522. Imperial Tobacco Ltd. v. Attorney-General
(H.L.) [19801 2 W.L.R. 466.
[1972] F.C. 1265 at 1270.
Further, on the facts as pleaded, ... I do not regard it as
inconceivable that the Court in the exercise of a judicial
discretion might grant a declaration of the sort claimed ...
I am therefore of the opinion that it would have been wrong
to abort the proceedings at this stage by striking out the
statement of claim ...
The material facts alleged, in chronological
order, are:
1. Donald R. Banks, a special investigations
officer of the Department of National Revenue,
began an investigation into the plaintiffs' affairs
in May 1974.
2. In December 1975, he advised the plaintiffs
that he expected to finish the investigation
within three months and that he did not intend
to recommend prosecution in respect of the con
struction, in 1972, of a swimming pool by the
plaintiff, Usarco, for the plaintiff, Levy.
3. Banks continued his investigation into other,
unrelated, matters.
4. In April 1978, the plaintiffs were advised by
J. R. Giles, Director-Taxation, Hamilton, that
Banks had completed his investigation of their
affairs and that "the Department" would be
prepared to discuss its findings with them in
May 1978.
5. On June 22, 1979, Banks laid the information
alleging income tax evasion arising exclusively
out of the benefit conferred as a result of con
struction of the swimming pool.
6. The Attorney General elected to proceed on
the information by way of summary conviction.
7. On April 16, 1980, Giles signed the certificate
pursuant to subsection 244(4) stating that evi
dence, sufficient in the opinion of the Minister
to justify a prosecution for the offence in issue,
had come to the Minister's attention on June 26,
1978.
Giles was, at all material times, an officer desig
nated by paragraph 900(2)(b) of the Income Tax
Regulations, 8 duly made pursuant to paragraph
8 C.R.C. 1978, Vol. X, c. 945.
221(1)(f) of the Act, to exercise the powers and
perform the duties of the Minister under subsec
tion 244(4) of the Act. Assuming, as I must, all of
the allegations of fact in the statement of claim to
be true, the inferences the plaintiffs invite are,
firstly, that Giles must have had all the evidence
he ever had not later than May 1978, and, second
ly, that he, standing in the Minister's shoes, could
not truthfully certify that it had come to the
Minister's attention in June, and that his untruth
ful certification was fraudulent. Notwithstanding
counsel's indignation that such a proposition
should be advanced by the plaintiffs, much less
entertained by the Court, I cannot agree that, on
the facts alleged, those inferences are so far-
fetched as to support a summary finding that the
statement of claim ought to be struck out as
disclosing no reasonable cause of action.
I have, as stated, dealt with this on the basis
that the promised amendment expressly alleging
fraud had been incorporated in the statement of
claim. With that amendment, it is clearly not
frivolous nor merely vexatious. I have not con
sidered what the result ought to have been in its
absence. Perhaps that question will be answered by
the Supreme Court of Canada when it deals with
the Fee appeal. I express no opinion as to the
likelihood of this Court exercising its discretion to
grant the declaration sought but expect that the
fact that this action is pending will not delay the
criminal proceedings if the court of criminal juris
diction finds itself able to deal with the allegation
of fraud, provided it is raised before it.
ORDER
In the result, paragraph 10(b) of the statement
of claim, which refers to the information, will be
struck out. The plaintiffs will have leave, on or
before September 15, 1980, to amend paragraph
10(a) of the statement of claim by adding or
substituting an express allegation that the certifi
cate was made fraudulently and such other com
plementary amendments as they may be advised,
failing which the statement of claim will be struck
out and the action dismissed with costs. Proceed
ings will be stayed in the meanwhile. If said
amendment is made, the statement of claim,
except paragraph 10(b), will stand and costs of
this application will be in the cause.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.