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R. v. McCartie, 2013 BCPC 150 (CanLII)

Date:
2013-06-10
File number:
1091:74283-1
Citation:
R. v. McCartie, 2013 BCPC 150 (CanLII), <https://canlii.ca/t/fzchr>, retrieved on 2024-03-29

Citation:      R. v. McCartie                                                                     Date: 20130610

2013 BCPC 0150                                                                          File No:        1091:74283-1

                                                                                                        Registry:                 Nanaimo

 

 

IN THE PROVINCIAL COURT OF BRITISH COLUMBIA

     

 

 

 

 

 

REGINA

 

 

v.

 

 

COLIN McCARTIE and ANNE McCARTIE

 

 

 

 

 

REASONS FOR JUDGMENT

OF THE

HONOURABLE JUDGE GOUGE

 

 

 

 

 

Counsel for the Crown:                                                                    R.L. Gibson and M. Down

Appearing on their own behalf:                                      Colin McCartie and Anne McCartie

Place of Hearing:                                                                                                   Nanaimo, B.C.

Date of Hearing:                                                                                                      June 4, 2013

Date of Judgment:                                                                                                June 10, 2013


ISSUES

 

[1]           Mr. and Ms. McCartie apply to compel disclosure of Crown documents, relying on the principles stated in R vs Stinchcombe 1991 CanLII 45 (SCC), [1991] 3 SCR 326.  I heard their submissions on June 4, 2013, but there was not time on that day to allow Crown counsel to embark upon their submissions.   I have reflected on the matter.  For the reasons given below, I am able to dispose of some issues on the application without hearing from Crown counsel and think it necessary to give directions respecting the hearing of the remaining issues on the application.

[2]           Mr. and Ms. McCartie are charged with a number of counts of false reporting, and one count each of tax evasion, under section 239 of the Income Tax Act.  Mr. McCartie is also charged with one count of tax evasion under section 327 of the Excise Tax Act.   The substantive issue in the prosecution, at least of the income tax charges, is whether the receipts which are the subject of the charges were “income”, as defined by the Income Tax Act.  Mr. and Ms. McCartie say that they were not, because they were not derived from business activities in which Mr. and Ms. McCartie engaged with a reasonable expectation of profit.

[3]           Mr. and Ms. McCartie also raise issues arising from the manner in which the Canada Revenue Agency (“CRA”) conducted the investigation leading to these charges.  More specifically, Mr. and Ms. McCartie allege that:

a.   CRA staff failed to conduct a fair and unbiased investigation before proceeding with the charges against them, because CRA staff mistakenly believed that Mr. and Ms. McCartie were members of a group of tax protesters who espouse the absurd theory that Canada’s tax laws do not apply to “natural persons”.  Mr. and Ms. McCartie deny that they belong to the group or adhere to the theory.   Mr. and Ms. McCartie express the point in the following terms in their written submission on this application:

...  exculpatory evidence provided by the defendants was ignored;  their innocence was not investigated; and their audit was cut short and fast tracked to investigation, denying them procedural fairness.   Because of a reasonable apprehension of bias on the part of CRA, the defendants have been selectively targeted for prosecution.  The investigation and lead up to the prosecution has demonstrated an abuse of process, with evidence of fraud or constructive fraud, co-mingling of auditory and investigative powers and a conspiracy to injure the defendants  ....

b.   After the CRA initiated a criminal investigation into their affairs, auditors employed by CRA continued to obtain information from them under the authority of CRA’s statutory audit powers and shared that information with other CRA staff engaged in the criminal investigation.   Mr. and Ms. McCartie invoke the principles stated in R vs Jarvis 2002 SCC 73 (CanLII), [2002] 3 SCR 757 in support of the propositions that:  (i) such conduct would constitute a breach of their rights under section 7 of the Canadian Charter of Rights & Freedoms;  and (ii)  such a breach may justify exclusion of evidence obtained during the audit process or a judicial stay of the prosecution.

[4]           Mr. and Ms. McCartie say that the documents sought on this application are, or may be, relevant to either or both of the issues identified in paragraph 3.

[5]           At the conclusion of its investigation, CRA issued assessments against Mr. and Ms. McCartie under the Income Tax Act and against Mr. McCartie under the Excise Tax Act.  Mr. and Ms. McCartie filed notices of appeal of those assessments, invoking the statutory appeal process.  CRA then exercised its statutory power to direct a stay of the statutory appeal process pending the outcome of this prosecution.   Mr. and Ms. McCartie complain that the stay unfairly deprives them of the benefit of the statutory appeal process.   I have considerable sympathy for that complaint.  If the statutory appeal process were left to run its course, the result might be a determination that Mr. and Ms. McCartie are correct in their assertion that the receipts in issue are not income.   If that were so, the substantive issue in this prosecution (at least as it relates to income tax) would be determined, adversely to CRA, and the prosecution could not continue.   By directing a stay of the appeal process, CRA has deprived Mr. and Ms. McCartie of the right to have the central substantive issue in this prosecution determined by the tribunals and courts best qualified to decide it.   However, this issue was squarely raised on previous interlocutory applications in this prosecution, in which it was held that CRA is entitled to proceed as it has done, and that CRA’s decision to stay the appeal process does not infringe any right of Mr. and Ms. McCartie:  R vs McCartie 2012 BCSC 928R vs McCartie 2012 BCPC 510.   I have no power to reconsider the issue.

PRINCIPLES GOVERNING DISCLOSURE APPLICATIONS

[6]           The basic principles are stated in the following passages from Stinchcombe (underlining added):

...   the Crown is under a duty at common law to disclose to the defence all material evidence whether favourable to the accused or not.

*   *   *

...  this obligation to disclose is not absolute.   ...  counsel for the Crown has a duty to respect the rules of privilege.  In the case of informers the Crown has a duty to protect their identity.   ...   While the Crown must err on the side of inclusion, it need not produce what is clearly irrelevant.

*   *   *

...  information ought not to be withheld if there is a reasonable possibility that the withholding of information will impair the right of the accused to make full answer and defence, unless non-disclosure is justified by the law of privilege.

[7]           In Stinchcombe, at paragraph 26, Justice Sopinka noted that Stinchcombe was an allegation of a serious indictable offence, and that different considerations might apply in cases where the allegations were less serious.  The consequent evolution of the jurisprudence is summarized in R vs Collins 2010 ABPC 19 at paragraphs 47 – 87.  To abbreviate that summary, I think it well-established that the principle of proportionality, now in vogue in civil proceedings, applies to limit the scope of Stinchcombe disclosure according to the circumstances of each individual prosecution.

THE DOCUMENTS IN ISSUE

[8]           Mr. and Ms. McCartie seek production of the following classes of documents:

a.   notes and diaries prepared and maintained by CRA auditors and investigators;

b.   CRA policy manuals and memoranda, setting out investigative standards and procedures to be followed by CRA auditors and investigators;

c.   CRA files pertaining to “Operation Fable”, a CRA investigation into the conduct of a group of individuals who espouse the view that the tax laws of Canada do not apply to “natural persons”.

In addition, Mr. and Ms. McCartie ask that I compel answers to two questions relating to an informer tip received by CRA in relation to the charges against Mr. and Ms. McCartie.  Those questions are:

d.   On what date did Ms. Coles (a CRA auditor who worked on the audit of Mr. and Ms. McCartie) first read the tip?

e.   Did the tip allege criminal misconduct on the part of Mr. and Ms. McCartie?

RELEVANCE

[9]           Mr. and Ms. McCartie assert that the classes of documents described in paragraphs 8(a), 8(b) and 8(c) are relevant to the issue described in paragraph 3(a).   They assert that an investigating officer, whether a police officer or a CRA investigator, is under a Charter obligation to conduct a thorough, fair and unbiased investigation in an attempt to uncover all relevant evidence, whether inculpatory or exculpatory.  Mr. and Ms. McCartie rely on Cardinal vs Kent Institution 1985 CanLII 23 (SCC), [1985] 2 SCR 643 in support of that assertion.

[10]        Before analyzing the relevant legal principles, I note a difference between an income tax prosecution and a prosecution of a Criminal Code offence.   In most Criminal Code prosecutions, there is little doubt that an offence has been committed.  A vehicle has been stolen, a person has been stabbed, or some other manifestly criminal act has been committed.   The first task of the investigator is to find out who did it.  A person who did not commit the act is often in no position to find out who did.  Such a person relies on the police to investigate thoroughly to avoid the risk of mistakenly accusing an innocent person.   I do not think that such circumstances impose on the police a Charter obligation to conduct a careful and unbiased investigation because (as discussed below) sufficient safeguards are provided by the common law.  However, it is reasonable for the public to expect the police to behave in that way because of the risk of false allegations against innocent people.   Fortunately, most police officers are very much aware of the issue and conduct themselves accordingly.   An income tax prosecution, as exemplified by this case, is different.   In this case, the substantive issues are whether the receipts in question were received by Mr. and Ms. McCartie, and, if so, whether they were generated by a business activity in which they engaged with a reasonable expectation of profit.   All of the facts pertinent to the substantive issues are, and always have been, in the possession of Mr. and Ms. McCartie.   If exculpatory evidence exists, it is, and always has been, in their possession.

[11]        Stinchcombe requires the Crown to disclose “material evidence” in the possession of the Crown.   On this application, Mr. and Ms. McCartie seek disclosure of evidence relating to the conduct of the CRA investigation.  Such evidence is not material to the substantive issues in the prosecution.   It might be material to a potential Charter defence if, as Mr. and Ms. McCartie assert, CRA is under a Charter obligation to conduct a careful, thorough and unbiased investigation.  For the reasons given below, I have concluded that it is not.

[12]        Cardinal does not support the existence of the Charter obligation asserted by Mr. and Ms. McCartie.  Rather, Cardinal was an application of administrative law principles (which existed and were consistently applied long before the Charter was enacted) to the exercise of a statutory power of decision.  If the facts asserted by Mr. and Ms. McCartie can be proven, the principles stated in Cardinal would support an application for judicial review of the tax assessments issued by CRA against Mr. and Ms. McCartie.  Such an application would fall within the exclusive jurisdiction of the Federal Court.   CRA has exercised its statutory authority to stay, pending conclusion of these criminal proceedings, the statutory appeal process which would otherwise be available to challenge the assessments.   However, the stay of the statutory appeal process is not necessarily a bar to an application for judicial review of the assessments:  JP Morgan Asset Management (Canada) Inc vs Canada 2012 FC 651.  It is important to bear in mind that judicial review is concerned with different issues than is the statutory appeal process.   Judicial review is concerned with procedural fairness.  The appellate process is concerned with the substantive issue.  The stay directed by CRA precludes an appeal of the substantive issue until the conclusion of this prosecution.  It does not necessarily preclude judicial review of the fairness issues raised by Mr. and Ms. McCartie.

[13]        If the allegations of fraud and conspiracy advanced by Mr. and Ms. McCartie can be proven, they may found an action for damages against those responsible:   Leroux vs Canada Revenue Agency 2012 BCCA 63.

[14]        In appropriate circumstances, an action for damages for negligence may be brought in relation to the conduct of a police investigation:  Hill vs Hamilton-Wentworth Regional Police Services Board 2007 SCC 41 (CanLII), [2007] 3 SCR 129.

[15]        Mr. and Ms. McCartie have notice of the evidence which the Crown intends to tender against them.   They know how and when that evidence was procured from them.   If any of it was procured by a breach of their Charter rights, its admissibility will be assessed by reference to the existing Charter jurisprudence.

[16]        Mr. and Ms. McCartie need not be concerned that I will regard the CRA assessments as determinative of any issue in this prosecution.   I will decide this case by reference to the evidence tendered and received at trial.  CRA’s opinion as to whether a particular receipt was income, as defined by the Income Tax Act, will not influence my decision.  Any bias or misconduct in the investigation will be cured by an impartial hearing at the trial of this prosecution:  Histed vs Law Society of Manitoba 2006 MBCA 89 (CanLII), [2006] 10 WWR 624; 274 DLR (4th) 326 at paragraphs 48 – 61.

[17]        I was referred to no authority which would support the existence or imposition of a Charter obligation of the kind asserted by Mr. and Ms. McCartie.   No such obligation is expressly imposed by the Charter.   Because of the existing legal safeguards outlined above, there is no need to infer such a Charter right as a matter of necessary implication. 

[18]        The implication of a Charter right of the kind asserted by Mr. and Ms. McCartie would require the court to undertake an extensive collateral inquiry into the conduct of the CRA investigation, unduly prolonging the inquiry into the substantive issue.  Such an inquiry would offend the principle of proportionality, particularly having regard to the existence of the alternative remedies mentioned above.

[19]        Mr. and Mrs. McCartie assert that the documents described in paragraphs 8(a), 8(b) and 8(c) are relevant to their allegation of a breach of a Charter right to a careful and unbiased investigation.  Having concluded that there is no such Charter right, it follows that the documents are not relevant to any issue in this prosecution, and I decline to order production of those documents.

[20]        Mr. and Ms. McCartie say that the questions posed in paragraphs 8(d) and 8(e) are relevant to their “Jarvis defence”.   In Jarvis, the court held at paragraph 97:

The fact that the CCRA is investigating a taxpayer’s penal liability, does not preclude the possibility of a simultaneous investigation, the predominant purpose of which is a determination of the taxpayer’s tax liability.   However, if an investigation into penal liability is commenced, the investigators can avail themselves of that information obtained pursuant to the audit powers prior to the commencement of the criminal investigation, but not with respect to information obtained pursuant to such powers subsequent to the commencement of the investigation into penal liability.

As a consequence, there are two (and, in my judgment, only two) relevant questions:

a.   On what date did CRA commence a criminal investigation?

b.   Did the criminal investigation team receive any information which was obtained after that date by CRA, by the exercise of its audit powers, from Mr. and Ms. McCartie?

The date on which Ms. Coles first read the tip is not relevant to the first question.   It is common ground that other CRA staff read the tip before Ms. Coles did.  It might be relevant to inquire when the tip was first received by CRA, because it might be possible to infer that the criminal investigation began soon thereafter.   The contents of the tip might be relevant to the first question because they might lend support to that inference.  Neither the date which Ms. Coles first read the tip nor the contents of the tip is relevant to the second question. 

[21]        As a result, I conclude that the contents of the tip may be relevant to a question in issue in this proceeding.   In order to decide whether they are relevant, one would need to read the tip and learn more about the circumstances in which it was received.

PRIVILEGE

[22]        The Crown claims confidential informer privilege over:  (i) the date on which the tip was received;  and (ii) the contents of the tip.

[23]        In R vs Basi 2009 SCC 52 (CanLII), [2009] 3 SCR 389, the court said at paragraphs 36, 38 (underlining added):

The privilege arises where a police officer, in the course of an investigation, guarantees protection and confidentiality to a prospective informer in exchange for useful information that would otherwise be difficult or impossible to obtain.  In appropriate circumstances, a bargain of this sort has long been accepted as an indispensable tool in the detection, prevention and prosecution of crime.

*   *   *

Whenever informer privilege is claimed  ...  its existence must be determined by the court in camera at a “first stage” hearing.  ...  Ordinarily, only the putative informant and the Crown may appear before the judge.

I note also the observations of the court in Named Person vs Vancouver Sun 2007 SCC 43 (CanLII), [2007] 3 SCR 253 at paragraphs 47 – 49.   In view of the express direction provided by the Supreme Court of Canada, I am obliged to direct that an in camera hearing be held to determine whether the tip is relevant and, if so, whether the privilege asserted by the Crown exists in this case. 

[24]        The requirement for an in camera hearing gives rise to a procedural difficulty.   I have been assigned to preside at the trial of this prosecution.  It is a fundamental principle of justice, which admits of few exceptions (and only those which can be justified by the most pressing necessity), that an accused person is entitled to be present at all parts of the proceedings against him, and to see or hear, and challenge, all of the evidence to be tendered against him.   If I am to be the trial judge, I should not be privy to any information to which Mr. and Ms. McCartie are not also privy.   For that reason, I will not participate in the ex parte hearing.  Another judge will conduct that hearing.

DISPOSITION

[25]        The application to compel production of the documents described in paragraphs 8(a), 8(b) and 8(c) is dismissed.  Crown counsel are directed to arrange a date with the Judicial Case Manager for determination of the claim of informer privilege.

June 10, 2013

_____________________
T. Gouge, PCJ