{"id":2452,"date":"2022-10-20T08:42:59","date_gmt":"2022-10-20T15:42:59","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=2452"},"modified":"2022-10-20T08:49:13","modified_gmt":"2022-10-20T15:49:13","slug":"misconduct-of-the-cra-in-tax-litigation-legal-remedies-and-the-loss-of-public-confidence","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2022\/10\/misconduct-of-the-cra-in-tax-litigation-legal-remedies-and-the-loss-of-public-confidence\/","title":{"rendered":"Misconduct of the CRA in tax litigation: Legal remedies and the loss of public confidence"},"content":{"rendered":"<p>The Tax Court recently released its decision in <em>Choptiany v. HMTK<\/em>, 2022 TCC 112. The decision is an indictment of the CRA\u2019s tactics during the litigation and, in particular, an indictment and condemnation of the CRA\u2019s ongoing flouting of court orders. The Court was also highly critical of the conduct of counsel for the Respondent. This resulted in the Court allowing the taxpayers\u2019 appeals on the basis of the misconduct.<\/p>\n<p>There can be no doubt that the CRA operates in an adversarial relationship with taxpayers. But, if it was the adversarial nature of the relationship that guided the CRA in its decisions to ignore court orders, it is clear that a relationship which is adversarial in law cannot in any circumstance justify an approach in which the CRA seemed to attempt to place itself above the law.<\/p>\n<p>In brief, in <em>Choptiany<\/em>, the Appellants applied to have their appeals allowed as a remedy for ongoing and egregious misconduct on the part of the CRA during the course of the litigation. The Appellants were the lead appeals for a large number of taxpayers who participated in services provided through either Fiscal Arbitrators or DeMara Consulting. The appeals were based on the single issue of the applicability of gross negligence penalties.<\/p>\n<p>The issue which gave rise to the problems was a simple one \u2013 at first, the Respondent\u2019s nominee advised during discovery that he was unaware of any criminal investigation. The Appellants were subsequently advised that CRA had conducted a criminal investigation against DeMara. The Appellants sought the materials related to that investigation. The Court made orders in relation to those requests, there was ongoing non-compliance with those orders, several adjournments were granted and ultimately the appeals were allowed on the basis of that non-compliance.<\/p>\n<p>The Court\u2019s findings were blunt:<\/p>\n<ul>\n<li>\u201cThe Respondent had inappropriately restricted the scope of CRA\u2019s search for ordered documents by wrongly, unreasonably and intentionally inserting restrictive words in what they had CRA look for, that were attributed to me. This was not inattention or inadvertence.\u201d<\/li>\n<li>\u201cThe Respondent wrongly, inappropriately and intentionally did not disclose an actual investigation by CRA Criminal Investigations into one of the Appellants\u201d.<\/li>\n<li>The Court described an aspect of the Respondent\u2019s conduct as \u201coutrageously misleading and inappropriate\u201d and potentially \u201ccontemptuous\u201d.<\/li>\n<li>\u201cThe Respondent has repeatedly failed to comply with [the Court\u2019s order and the] Respondent remains not fully complying with what was ordered.\u201d<\/li>\n<li>\u201cThe Respondent has repeatedly failed to have its nominees at any of the three oral examinations be knowledgeable and prepared, including failing to inform themselves on matters that clearly were relevant on discovery and could have been expected to be the subject of questioning. The Respondent\u2019s nominee at the Second Discovery and the Third Discovery was also uncooperative, obstructive, obfuscatory and evasive. He provided incorrect answers to relevant questions asked and these have not been fully or properly corrected. Other answers were glib and cavalier. Others appear to be attempts to run out the clock. These breaches of this Court\u2019s Rules remain outstanding.\u201d<\/li>\n<li>\u201cThe Respondent has adopted and demonstrated a consistent pattern of non-compliance with this Court\u2019s Orders and Rules with respect to CRA\u2019s audits and investigations involving the Appellants. I find this to have been intentional and deliberate, and that it was undertaken to frustrate these Appellants\u2019 rights to pre-trial discovery on the subject of CRA\u2019s investigation involving them relevant to their appeals.\u201d<\/li>\n<\/ul>\n<p>Having referred to the numerous and ongoing problems of non-disclosure, the Court found: \u201cIt is very hard to believe [that the problems] could have occurred without the CRA overall, and at the Appeals and Investigations divisions, <u>and Respondent\u2019s counsel<\/u>, at some level within the group handling the Fiscal Arbitrators and DeMara group of appeals, having been aware, if only by wilfull blindness\u201d (emphasis added.) In other words, the judge found the problems were not the result of a single individual within the CRA. Rather, they were caused by both the \u201cCRA overall\u201d and \u201cRespondent\u2019s counsel\u201d.<\/p>\n<p>The remedy of granting the appeals without a full hearing is a drastic one and based on the court\u2019s \u201cinherent jurisdiction to deal appropriately with parties abusing their processes.\u201d The remedy is usually reserved for cases where the conduct has been ongoing, \u201cegregious and intentional\u201d. In <em>Choptiany<\/em>, the Court found that the Respondent\u2019s conduct was egregious and intentional, that there was a history of non-compliance, and that there was no reason to believe a less drastic remedy would bring change to the Respondent\u2019s persistent pattern of non-compliance.<\/p>\n<p>It is regrettable that any litigant would conduct itself in the manner that the CRA did in <em>Choptiany<\/em> but more regrettable when it is a government agency where public trust in the integrity of the agency is so fundamental. In another recent decision, <em>Oddi v. Canada (Revenue Agency)<\/em>, 2022 FC 1313, the Federal Court described the relationship between the CRA and taxpayers as \u201cinherently adverse\u201d, and noted that the two \u201coccupy opposing positions\u201d. In <em>Oddi<\/em>, the Court considered whether the CRA owed a duty of care to taxpayers and affirmed that \u201c[a]bsent a breach of the powers in the statute, the Minister has no duty towards a debtor other than to act in accordance with the statute for purposes of the statute.\u201d<\/p>\n<p>Three points flow from this. First, in order to fully, vigorously and effectively defend a client\u2019s interests, counsel for taxpayers must be constantly aware of the adversarial nature of the relationship with the CRA.<\/p>\n<p>Secondly, though the Supreme Court of Canada has observed that trials are not tea parties, the adversarial relationship can never justify the misconduct described by the Court in <em>Choptiany<\/em>. Again, it must be emphasized that an adversarial relationship does not place the CRA outside of or above the law. Arguably, a government agency such as the CRA, with the powers it possesses and with the imbalance of power between the agency and the taxpayer, should conduct itself in accordance with the highest standards of honour and integrity. Without this, public trust and confidence in the government agency will be eroded or lost.<\/p>\n<p>The final point is that counsel and, in this case, the Department of Justice, must never become either willingly or unwittingly complicit with the misconduct of a witness or a party to the litigation. Counsel have professional obligations that extend far beyond what might be the interests of a party in attempting to win a case through ill-conceived tactics.<\/p>\n<p>The <em>Choptiany<\/em> case also invites more specific reflection upon the role of Department of Justice counsel in tax litigation. In <em>Jackman v. The Queen<\/em>, 2022 TCC 73, the Court offered the reminder that \u201c[i]t is the Department of Justice that represents the respondent Her Majesty the Queen. CRA is not Justice\u2019s client in a solicitor-client relationship. That is not changed by any funding agreement between the two departments.\u201d<\/p>\n<p>This statement has important implications. Principally, it suggests that there is no solicitor-client relationship between the Department of Justice and the CRA in tax litigation and there is, therefore, no solicitor-client privilege in the communications between DOJ counsel and CRA representatives or nominees. The relationship is merely that of counsel and witness.<\/p>\n<p>It is difficult to know or even imagine what decisions might have resulted in the ongoing and repeated breaches of court orders in <em>Choptiany<\/em>. However, on the basis of <em>Jackman<\/em>, to the extent that those decisions were based upon communications between DOJ counsel the CRA nominees, those communications were not protected by privilege and might therefore be discoverable in the subsequent related cases.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Tax Court recently released its decision in <em>Choptiany v. HMTK<\/em>, 2022 TCC 112. The decision is an indictment of the CRA\u2019s tactics during the litigation and, in particular, an indictment and condemnation of the CRA\u2019s ongoing flouting of court&hellip;<\/p>\n","protected":false},"author":12,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30,16],"tags":[],"class_list":["post-2452","post","type-post","status-publish","format-standard","hentry","category-current-tax-cases","category-tax-litigation"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/2452","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=2452"}],"version-history":[{"count":3,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/2452\/revisions"}],"predecessor-version":[{"id":2454,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/2452\/revisions\/2454"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=2452"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=2452"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=2452"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}