Feigenbaum Law

CRA Successful in Appeal of $1.7 Million Malicious Prosecution Case

Corporate Tax Planning
Personal Tax Planning
April 18, 2019

We’ve previously blogged about a ground-breaking decision in which the B.C Supreme Court ordered the Canada Revenue Agency (CRA) to pay more than $1 million in damages for the malicious prosecution of two British Columbia business owners who the agency had claimed had engaged in tax evasion.

Since then, the CRA appealed that decision, and the B.C. Court of Appeal recently overturned it.

Now, after more than a decade-long battle with the CRA, the couple in question will not see their award (subject to further potential appeal up to the Supreme Court of Canada) and their underlying claim against the CRA has been dismissed.

A Brief Recap

For the sake of a refresher on the facts, the couple had a number of corporations through which they operated a restaurant, nightclub, and motel.

In June 2008 they were charged with 21 counts of tax evasion with the government claiming the couple had schemed to skim more than $1.7 million, tax-free, from their restaurant between 2004 and 2005 by doctoring daily sales summary sheets and/or under-reporting money coming into the restaurant.

After a trial that spanned almost 20 days the couple was acquitted on all counts. They subsequently filed a malicious prosecution claim against the Crown prosecutor as well as a senior CRA investigator, arguing that the couple had been wrongfully charged with a crime and that the prosecution had not been conducted fairly or lawfully.

The charges against the Crown prosecutor were dismissed, but the charges against the CRA were upheld and the couple obtained more than $1 million in damages.

In a 70-page decision, the trial judge noted that:

[The CRA’s] conduct in this case was high-handed, reprehensible and malicious. The behaviour of [the investigator] respecting the suppressing and misstating of evidence deserves rebuke. It offends the Court’s sense of decency and was a marked departure from conduct expected of an individual in [the investigator’s] position and an agency such as the CRA.

and further stated that:

…the CRA employees looked forward with unprofessional glee to the plaintiffs’ anticipated conviction and sentencing and their resulting ruination. It is appalling that the incarceration of the plaintiffs would be joked about…[i]n addition, the CRA’s advertising of its successes indicates a deeply troubling approach to its duties. No doubt the average citizen would find it objectionable if a police force advertised, on a government website, how many people they incarcerated each year.

The CRA Appeal

The CRA appealed, arguing that the trial judge had:

  • made a palpable and overriding error of fact when he found that the CRA investigator had suppressed or withheld evidence from the Crown and that the investigator had been motivated by malice; and
  • interpreted the law incorrectly regarding the material facts of the case and whether or not they established a reasonable cause for prosecution;
  • erred in finding that the Crown had to establish the “actual mechanics of fraud” in order to establish tax evasion;
  • erred in awarding legal costs for the defence of the provincial trial to the couple since it was the couples’ corporations and not the couple themselves who had been on trial in the original provincial court trial.

The Court of Appeal Decision

In a unanimous decision, the B.C Court of Appeal noted that the trial judge had, among other things, erroneously applied the test for reasonable and probable cause finding that tax evasion could not be proven unless the particular mechanics of how the tax was evaded could be proven.

In this way, the trial judge had narrowed his consideration of what evidence had been important in assessing whether reasonable and probable cause existed to initiate the prosecution and had dismissed relevant evidence as mere hypothesis and suspicion.

The Court of Appeal further noted that when all the evidence of all of the relevant circumstances that were known to the prosecution was considered, there was reasonable and probable cause to initiate and continue the prosecution against the couple.

The Court allowed the appeal, set aside the order for damages owing to the couple, and dismissed their underlying action.

How Can We Help?

If you have questions about this decision, or any other recent developments in tax and related areas of law, contact Mark Feigenbaum at Feigenbaum Law.

With professional accounting designations from both Canada and the US, coupled with being admitted to the bar in the US and Canada, Mark Feigenbaum and his team are uniquely positioned to provide tax advice to clients on both sides of the border.

Due to our vast knowledge and wealth of experience, professionals such as lawyers, accountants, financial planners, agents, and business managers, frequently refer complicated tax and business law matters to our firm.

We have developed a reputation for finding creative solutions to seemingly unsolvable problems and for the exceptional quality of our work.

Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.


Tagged: appeal, CRA, malicious prosecution, tax evasion