T-2756-83
Rans Construction (1966) Ltd., Joseph Rans,
Lucille Rans, Malcolm Rans, John Miazga
(Plaintiffs)
v.
The Queen (Defendant)
INDEXED AS: RANS CONSTRUCTION (1966) LTD. v. CANADA
Trial Division, Dubé J.—Saskatoon, September
29; Ottawa, October 14, 1987.
Practice — Res judicata — Motion to dismiss actions as
frivolous, vexatious and abuse of process — Plaintiffs con
victed of tax evasion — Civil action seeking to quash or reduce
notices of reassessment — Motion denied, although identity of
parties same, and criminal proceedings final — Convictions in
criminal proceedings constitute estoppel in civil proceedings on
same subject-matter — Question out of which estoppel
arising must be fundamental to decision arrived at — Issue in
civil proceedings of whether monies earned by shareholders not
essential to finding of guilt in criminal proceedings — New
issues of triple taxation, and concerning monies not dealt with
in criminal proceedings, raised.
Practice — Pleadings — Motion to strike — Actions to
quash or reduce notices of reassessment — Plaintiffs previ
ously convicted of tax evasion — Motion dismissed — Matter
not res judicata — Different matters determined in criminal
proceedings — Fundamental issue in civil actions of whether
monies earned by shareholders not essential to criminal con
victions — As actions consolidated, and one action excepted
from motion, trial to proceed in any event.
Practice — Parties — Crown acting as Attorney General in
criminal proceeding and as Minister of National Revenue in
civil action — Same party — Crown indivisible.
Income tax — Reassessment — Action to quash or reduce
— Fundamental issue whether monies earned by shareholders
— Civil action not estopped by criminal conviction for tax
evasion as different issues raised.
This is an application for an order dismissing the plaintiffs'
actions as scandalous, frivolous and vexatious and as an abuse
of process on the ground that these matters are res judicata.
The plaintiffs were tried and convicted of tax evasion. The
statements of claim request that the notices of reassessment be
quashed or reduced.
Held, the motion should be denied.
The three essential elements to res judicata are: (1) identity
of the parties (2) identity of the subject-matter, and (3) that
the previous decision be final.
It is admitted that the criminal proceedings are final.
Although in the previous proceedings, the Queen was acting as
Attorney General for Canada and here as the Minister of
National Revenue, the parties are the same. The Queen is
indivisible and wears the same crown in civil or criminal
proceedings.
The case law has clearly established that issues resolved in
criminal courts as final decisions may not be revived in civil
courts, provided the issues are the same. For the issues to be the
same, the question out of which the estoppel arises must have
been fundamental to the decision arrived at. The fundamental
issue in the civil action of whether the monies had been
appropriated to the shareholders was not an essential finding to
their guilt in the criminal proceedings. Also, other issues are
raised in the civil actions that were not dealt with in the
criminal proceedings. Not all of the amounts at issue herein
were the subject of criminal charges. Nor was the issue of triple
taxation determined in the criminal proceedings.
As all the actions were consolidated and since one of the
actions is excepted from the motion to strike, the trial would
proceed in any event. All these issues are so intertwined as to be
inseparable.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Rules, C.R.C., c. 663, R. 419(1)(c),(f).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 3(a),
15(1)(b) (as am. by S.C. 1977-78, c. 1, s. 8), 18(1)(a),
239(1)(d).
CASES JUDICIALLY CONSIDERED
APPLIED:
Carl Zeiss-Stiftung v. Rayner and Keeler, Ltd. (No. 2),
[1966] 2 All E.R. 536 (H.L.); Theodore v. Duncan,.
[1919] A.C. 696 (P.C.); Demeter v. British Pacific Life
Insurance Co. and two other actions (1984), 13 D.L.R.
(4th) 318 (Ont. C.A.); Hunter v. Chief Constable of the
West Midlands Police, [1982] A.C. 529 (H.L.); German
v. Major (1985), 39 Alta. L.R. (2d) 270 (C.A.); Angle v.
M.N.R., [1975] 2 S.C.R. 248; (1974), 47 D.L.R. (3d)
544; Spens v Inland Revenue Comrs, [1970] 3 All ER
295 (Ch.D.).
COUNSEL:
Peter Foley, Q.C. and William A. Grieve for
plaintiffs.
Norman A. Chalmers, Q.C. for defendant.
SOLICITORS:
Gauley & Co., Saskatoon, Saskatchewan, for
plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for order ren
dered in English by
Dust J.: This application heard at Saskatoon,
Saskatchewan, on September 29, 1987, is for an
order dismissing the plaintiffs' actions (excepting
the action concerning the 1975 and 1976 taxation
years of the plaintiff John Miazga) as scandalous,
frivolous and vexatious and an abuse of the process
of this Court under Rule 419(1)(c) and (f) [Fed-
eral Court Rules, C.R.C., c. 663] on the ground
that these matters constitute res judicata having
previously been tried and the plaintiffs convicted
in the criminal courts of Saskatchewan.
It is common ground that the plaintiffs were
prosecuted on 17 counts of tax evasion and con
victed on October 28, 1980 by Chief Judge Boy-
chuk of the Provincial Court for Saskatchewan on
counts 1, 2, 3, 8, 10 and 14, being the substantive
tax evasion counts. (The remaining counts were
subsumed into those six counts and stayed.) On
appeal, the convictions were upheld by Mr. Justice
Gerein of the Court of Queen's Bench for Sas-
katchewan on May 3, 1982 which decision was
confirmed by the Court of Appeal for Saskatche-
wan. Leave to appeal therefrom was denied by the
Supreme Court of Canada on January 25, 1983
[[1983] 1 S.C.R. xii].
The plaintiff Rans Construction (1966) Ltd. is a
company which at all times relevant to this motion
was engaged in a business of waterline and sewer
construction in Western Canada. The other plain
tiffs, Joseph Rans, Lucille Rans, Malcolm Rans
and John Miazga are the shareholders of the
company.
The several statements of claim filed by each of
the plaintiffs in separate actions (now consolidated
for trial by order of the Court) request that the
notices of reassessment in each case be quashed
and that the monies paid by them for additional
tax interest and penalty under the Income Tax Act
[S.C. 1970-71-72, c. 63] of Canada and the pro
vincial Income Tax Act be returned to them. In
addition, the plaintiffs claim the amounts paid to
Revenue Canada as tax and other payments on
behalf of the family members (and the plaintiff
Frank Pscheida) and interest on these sums.
In the alternative, the statements of claim
request an order that the reassessments of all the
plaintiffs be reduced by the amounts paid for the
family members' tax and other deductions directly
to the defendant.
The position of the plaintiffs, as outlined in the
statements of claim, is that the retention by Reve
nue Canada of these monies would constitute taxa
tion of the same monies in three places, that is in
the hands of the family members, the shareholders
and the corporation. It is to be noted that not all of
the monies covered by the statements of claim
were the subject of criminal proceedings.
There are three essential elements to res judica-
ta: one, identity of the parties; two, identity of the
subject-matter; and, three, that the previous deci
sion be final.' (The plaintiffs admit that the crimi
nal proceedings are final.)
As to the identity of the parties, the plaintiffs
submit that the parties in the criminal proceedings
and the parties in these civil proceedings are not
the same: in the previous proceedings, the Queen
was acting in her capacity as Attorney General for
Canada, whereas in these civil proceedings, the
Crown is Her Majesty the Queen acting in her
capacity as the Minister of National Revenue. In
my view, that argument cannot stand. The Queen
' Carl Zeiss-Stiftung v. Rayner and Keeler, Ltd. (No. 2),
[1966] 2 All E.R. 536 (H.L.), at p. 550.
is indivisible and wears the same crown in civil or
criminal proceedings. 2
There is jurisprudence to the effect that convic
tions in criminal proceedings constitute an estoppel
in civil proceedings on the same subject-matter. In
Demeter v. British Pacific Life Insurance Co. and
two other actions, 3 a 1984 decision of the Ontario
Court of Appeal, the plaintiff sued on three life
insurance policies covering the life of his wife,
after having been convicted of her murder. The
Court held that it was clear from the record that
the plaintiff was seeking to relitigate the very issue
that had been decided against him in his criminal
trial. The conviction amounted to prima facie
evidence of the plaintiff's guilt in the civil matter:
to use a civil action to initiate a collateral attack
on a criminal conviction in the absence of fresh
evidence, or evidence of fraud or collusion,
amounts to an abuse of process.
In Hunter v. Chief Constable of the West Mid
lands Police,' the House of Lords held that where
a final decision had been made by a criminal court
of competent jurisdiction, it was a general rule of
public policy that the use of a civil action to
initiate a collateral attack on that decision was an
abuse of the process of the court. The Court also
ruled that such fresh evidence as the plaintiff
sought to adduce in his civil action fell far short of
satisfying the test to be applied in considering
whether an exception to that general rule of public
policy should be made, which is whether the fresh
evidence entirely changed the aspect of the case.
The case was about alleged assaults by the police
after a murder conviction.
2 The defendant quoted Viscount Haldane in Theodore v.
Duncan, [1919] A.C. 696 (P.C.) wherein he said (at p. 706):
"The Crown is one and indivisible throughout the Empire, and
it acts in self-governing States on the initiative and advice of its
own Ministers in these States."
3 (1984), 13 D.L.R. (4th) 318 (Ont. C.A.).
[19821 A.C. 529 (H.L.).
In German v. Major, 5 a 1985 Alberta Court of
Appeal decision, on action for malicious prosecu
tion, there had been a finding of prima fade case
in criminal proceedings by a trial judge and by a
judge on appeal, demonstrating reasonable and
probable grounds for prosecution. The Court
struck out the entire claim against the defendant
holding that it was beyond doubt that the plain
tiff's case was hopelessly doomed to fail. Kerans
J.A. said, at page 282:
German's other grounds are no more than a regurgitation of
the arguments for German at the criminal trial, which, as I
have observed, were not entirely accepted.
The jurisprudence has therefore clearly estab
lished that issues resolved in criminal courts as
final decisions may not be revived in civil courts,
provided the issues are the same. This brings us to
the second and remaining criterion for res judica-
ta, namely the identity of the subject-matter.
So as to properly determine whether matters
decided in criminal proceedings are the same mat
ters which are raised again in the civil actions, it is
necessary to identify those issues which were prop
erly decided in sustaining the criminal convictions.
In a Supreme Court decision, Angle v. M.N.R. 6
Dickson J. [as he then was] appropriately put the
question as follows:
Is the question to be decided in these proceedings, ... the
same as was contested in the earlier proceedings? If it is not,
there is no estoppel. It will not suffice if the question arose
collaterally or incidentally in the earlier proceedings or is one
which must be inferred by argument from the judgment
.... The question out of which the estoppel is said to arise
must have been "fundamental to the decision arrived at" in the
earlier proceedings ....
Then Dickson J. goes on to quote the following
passage from the English Court in Spens v Inland
Revenue Comrs: 7
5 (1985), 39 Alta. L.R. (2d) 270 (C.A.).
6 [1975] 2 S.C.R. 248, at pp. 254-255; (1974), 47 D.L.R.
(3d) 544, at pp. 555-556.
7 [1970] 3 All ER 295 (Ch.D.), at p. 301.
... whether the determination on which it is sought to found
the estoppel is 'so fundamental to the substantive decision that
the latter cannot stand without the former. Nothing less that
this will do'.
At the outset of this hearing, counsel for the
plaintiffs filed a table listing the amounts dealt
with under the various criminal charges and the
amounts referred to in the civil proceedings, from
which it would appear that several substantial
amounts claimed in the civil actions were not
covered in the criminal charges. As an illustration,
in the case of Rans Construction (1966) Ltd., the
criminal charges cover the sum of $145,753.66
whereas the civil action deals with the amount of
$314,481.16. Obviously, any strike out order
would not affect the items claimed in the civil
actions which were untouched by the criminal
charges. Neither would the exceptions, already
made by the Crown in the instant motion for the
1975 and 1976 taxation years of the plaintiff John
Miazga, be affected by the strike out prayed for by
the defendant.
However, the main argument of counsel for the
plaintiffs is more subtle and somewhat more com
plex. As I understand it, it goes as follows.
The counts upon which the plaintiffs were con
victed for tax evasion are for offences contrary to
paragraph 239(1)(d) of the Income Tax Act which
reads as follows:
239. (1) Every person who has
(d) wilfully, in any manner, evaded or attempted to evade,
compliance with this Act or payment of taxes imposed by
this Act, ...
is guilty of an offence and, in addition to any penalty otherwise
provided, is liable on summary conviction ...
The several counts recite that the amounts were
overstated for the purpose of a deduction under
paragraph 18(1)(a) of the Act which reads as
follows:
18. (1) In computing the income of a taxpayer from a
business or property no deduction shall be made in respect of
(a) an outlay or expense except to the extent that it was
made or incurred by the taxpayer for the purpose of gaining
or producing income from the business or property;
According to the affidavit filed by the Crown,
central to the prosecution of the plaintiffs for tax
evasion were the issues of whether the year-end
adjustments for wages payable to family members
were legitimate expenses or deductions of the cor
poration and whether these amounts were appro
priated to the shareholders within the meaning of
paragraph 15(1)(b) of the Income Tax Act [as
am. by S.C. 1977-78, c. 1, s. 8]. The paragraph
reads as follows:
15. (1) Where in a taxation year
(b) funds or property of a corporation have been appropriat
ed in any manner whatever to, or for the benefit of, a
shareholder, or
the amount or value thereof shall, except to the extent that it is
deemed to be a dividend by section 84, be included in comput
ing the income of the shareholder for the year.
The affidavit goes on to say that the above
issues were fully dealt with in the reasons for
judgment of the trial judge and of the Court of
Queen's Bench on appeal. The plaintiffs submit
that the finding that the monies in question were
appropriated by the shareholders was an unneces
sary finding in order to sustain a conviction: all
that was necessary for the criminal courts to
decide was that the monies were received by the
shareholders and that the monies were not
declared as income by the shareholders. The plain
tiffs submit that the finding that the monies were
received by the shareholders should have been
made under section 3 of the Income Tax Act
which provides as follows:
3. The income of a taxpayer for a taxation year for the
purposes of this Part is his income for the year determined by
the following rules:
(a) determine the aggregate of amounts each of which is the
taxpayer's income for the year (other than a taxable capital
gain from the disposition of a property) from a source inside
or outside Canada, including, without restricting the general
ity of the foregoing, his income for the year from each office,
employment, business and property. [My emphasis.]
In other words, the plaintiffs claim that the
monies received by the shareholders and found by
the court to be an appropriation should properly
have fallen within paragraph 3(a), either as an
amount which formed part of the taxpayer's
income for the year, or as an amount falling within
the enumerated examples in that subsection, and
at least under the heading of "business".
Counsel for the plaintiffs further submitted that
the criminal courts found that the non-reporting of
that income was contrary to section 15 (the appro
priation section) and established these three
conclusions:
1. The money was received by the shareholders;
2. It was not earned by the shareholders; and
3. It should have been reported as income by the shareholders.
The plaintiffs allege that the second step (not
earned) was entirely unnecessary to sustain a con
viction. All that was required was that the monies
be received by the shareholders and that it should
have been reported as income by them.
In other words, the plaintiffs claim that by
making a finding of appropriation the criminal
courts essentially decided a question which they
themselves stated was not a question before them.
Mr. Justice Gerein of Queen's Bench said as fol
lows in his judgment at page 48:
In determining the guilt or innocence of the accused the trial
judge was concerned solely with whether evasion occurred. He
was not concerned with the amount of tax avoided. Whether a
tax is being paid on the same income more than once was not a
matter before the trial judge. That issue must be determined in
another forum.
Therefore, the plaintiffs submit that the issue of
whether the monies in question were earned by the
shareholders in their work for the company was
not essential to the criminal proceedings. The fun
damental issue decided by the criminal courts was
that those monies were not earned by the family
members. There was no proof that the monies were
not earned by the shareholders in their work for
the company.
The plaintiffs claim that the fundamental issue
in the civil actions is whether or not the monies in
question were earned by the shareholders, whereas
the criminal convictions of the shareholders could
stand without a finding of appropriation by them
under section 15 of the Income Tax Act. The
plaintiffs submit that the Demeter case and the
other decisions are distinguishable in that the find
ing in those cases were identical issues as in the
civil cases, whereas in the case at bar the issue of
whether the monies had been appropriated to the
shareholders was not an essential finding to their
guilt. Since it was not an issue which was essential
to a finding of guilt, there was no need for the
plaintiffs to present any evidence on the matter at
the criminal proceedings.
The plaintiffs therefore submit that, by making
a finding that it was an appropriation of the
monies in question to the shareholders, the crimi
nal courts found inadvertently not only that the
shareholders evaded tax on those monies, but that
Rans Construction (1966) Ltd. was not entitled to
claim those monies as an expense against income
earned by the shareholders. In other words, the
criminal courts found tax liability which they were
not competent to find.
The plaintiffs also submit that the question of
whether tax is being paid on the same income
more than once is one of the issues to be deter
mined in the instant actions before the civil courts.
As stated by Gerein J. at page 48 of his judgment
this issue was not determined by the criminal
courts:
Whether tax is being paid on the same income more than once
was not a matter before the trial judge. That issue must be
determined in another forum. [My emphasis.]
It must be borne in mind that in a strike out
procedure under Rule 419 of the Federal Court it
must be plain and obvious that the plaintiff has no
cause of action, or more precisely in this instance,
that the action of the plaintiffs is plainly and
obviously frivolous or vexatious, being a relitiga-
tion of issues already determined in previous crimi
nal proceedings. It is not for the motion judge at
this very preliminary stage to forecast the outcome
of the trial. Several issues are being raised in these
civil actions that have not been dealt with in the
criminal proceedings.
Summing up, it seems clear to me, firstly, that
several sums reassessed as income in the hands of
Rans Construction (1966) Ltd. for the taxation
years 1973, 1974 and 1975 were not the subject of
criminal charges, but are the subject-matter of
these civil actions. Secondly, at issue in these civil
actions is the contention of triple taxation, a con
tention which the criminal courts rightfully
declined to decide. Thirdly, the plaintiffs claim the
deduction from tax payable of certain sums
already paid to National Revenue, a matter which
was not for the criminal courts to resolve. There
fore, one criterion essential to res judicata has not
been met: the subject-matters in the criminal and
civil litigations are not identical.
Furthermore, as a practical consideration, all
these actions having been consolidated by consent,
and since one of these actions (concerning the
1975 and 1976 taxation years of the plaintiff John
Miazga) is excepted from the instant motion of the
defendant, the trial would proceed in any event. It
would proceed with reference to the John Miazga
taxation and the other items untouched by the
criminal courts. All these issues are so intertwined
as to be inseparable and to deny the plaintiffs the
right to deal with some of them in their civil
proceedings would seriously interfere with the
proper presentation of their overall arguments at
trial.
Consequently, this motion is denied but, under
the circumstances, with costs in the cause.
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