Taxpayers Succeed in claim of Malicious Prosecution against the CRA: Samaroo v. Canada

Taxpayers Succeed in claim of Malicious Prosecution against the CRA: Samaroo v. Canada Revenue Agency

Introduction – Samaroo v. Canada Revenue Agency (2018 BCSC 324)

Tony and Helen Samaroo (the “Plaintiffs”) have been awarded over 1.6 million dollars in damages by the Supreme Court of British Columbia following a successful tort claim against the Canada Revenue Agency (the “CRA”) for malicious prosecution.

Overview and Case History

The Plaintiffs operated several businesses in Nanaimo, B.C. including a restaurant, nightclub and motel. The CRA investigated and then prosecuted the Plaintiffs and their corporations for tax evasion. They were acquitted on all counts in R. v Samaroo(2011 BCPC 503) after a lengthy trial. Following their success at trial, the Plaintiffs made a claim against Brian Jones, the Crown prosecutor at trial, and Keith Kendal, a senior investigator for the CRA, for malicious prosecution. The Plaintiffs also brought aclaim under s. 7 of the Canadian Charter of Rights and Freedoms (the “Charter”) for breach of their right to life, liberty and security of the person against Mr. Kendal and the CRA.

What is Malicious Prosecution?

Malicious Prosecution is a tort (a civil wrong) similar to that of abuse of process. A tort claim will only succeed if all of the requisite elements of the tort are proven. The elements of the tort are set out in the leading Canadian case Miazga v Kvello Estate (2009 SCC 51) as follows:

• the defendant initiated or continued the prosecution against them;
• the prosecution terminated in the plaintiffs’ favour;
• the prosecution was undertaken without reasonable and probable cause; and
• the prosecution was motivated by malice or a primary purpose other than that of carrying the law into effect.

Different elements were at issue for the three defendants: elements a), c), and d) for Mr. Kendal and elements c) and d) for Mr. Jones. Element b) was not in issue since the Plaintiffs were acquitted of all counts at trial.

The remaining elements of the tort examine the initiation of the prosecution, whether there was reasonable and probable cause for the prosecution, and whether the prosecution was motivated by malice. Therefore, the actions taken by the defendants at trial and the sequence of events leading up to the trial were critical to the analysis in this case. In particular, the alleged suppression and misstatement of the bookkeeper’s evidence by Mr. Kendal was discussed extensively.

The Suppression of the Bookkeeper’s Evidence

The Plaintiffs’ restaurant operated a morning, night and graveyard shift. After each shift, the till would be rung off to determine shift sales. A ring off produced a till tape or “z tape” and the shift sales were recorded on a daily sales summary sheet. The daily sales summary sheet had three columns, “day”, “night”, and “days total.” These sheets were provided to the Plaintiffs’ bookkeeper, Ms. Ferens so she could post monthly sales totals to the general ledger. She was interviewed three times by the CRA before trial.

Her first interview occurred during the audit in 2006. She stated that the daily sales summary sheet used to show only two ring offs per day. As a result, the Crown developed a theory that the Plaintiffs underreported sales by failing to provide one of the three till tapes (i.e. a record of sales from the ring off) to their bookkeeper during the audit period.

Her second interview occurred during the investigation after search warrants were executed in 2007. She stated she posted from the sales summary sheet – not the till tapes – and that she did not look at the till tapes. The searches concluded and the case was assigned to Mr. Kendal. No till tapes were located during the searches.

Mr. Kendal drafted the prosecution report that the Public Prosecution Service of Canada relied on when deciding to approve the charges. In his final draft, Mr. Kendal stated that Ms. Ferens would explain that she received a daily sales summary sheet for each day of the month from Mr. Samaroo with till tape #1 sales data, till tape #2 sales data and a summary column of the two till tapes. He failed to disclose the existence of the 2007 interview in the final prosecution report as well as the fact that Ms. Ferens could not provide evidence with respect to which till tapes were provided for in the daily sales summary sheets.

The charges against the Plaintiffs were approved and the 21-count information was sworn on June 12, 2008. Ms. Ferens was interviewed a third time in 2010 and a will-say statement for the interview was prepared. The prosecution commenced on September 20, 2010.

Summary of Findings on the Tort Elements for the Defendants

Justice Punnett examined the actions of Mr. Kendal and determined the following:

• There was an abundance of evidence that supports the conclusion that Mr. Kendal, on CRA’s behalf, was “actively instrumental” in the prosecution of the Plaintiffs for tax evasion
• Mr. Kendal had evidence that that would destroy the Crown theory of evasion, suppressed that evidence, and continued to facilitate the prosecution based on a theory that he knew he could not prove. Objectively, he did not have reasonable and probable grounds to believe he could prove the overt acts of the alleged offences of tax evasion beyond a reasonable doubt.
• Mr. Kendal was motivated by malice and acted deliberately to subvert and abuse his office by suppressing evidence and attributing evidence to witnesses that was not accurate.

The CRA is vicariously liable for the actions of its employees; therefore, the CRA is liable for the actions of Mr. Kendal in his position as senior investigator for the CRA.

Justice Punnett also examined the actions for Mr. Jones and his corporation and determined the following:

• Based on evidence available to Mr. Jones, it was apparent that he could no longer prove the charges as they were alleged. He failed to properly assess his ability to prove the mechanics of the overt acts of the alleged offences of tax evasion beyond a reasonable doubt.
• Mr. Jones gave up control of the prosecution to Mr. Kendal and the CRA and risked a miscarriage of justice; however, his failure to act properly did not in itself rise to the highest spectrum of blameworthiness that constitutes malice.

The Relationship between Reasonable and Probable Cause for Prosecution and the Elements of the Offence of Tax Evasion

To secure a conviction for tax evasion, the Crown must prove beyond a reasonable doubt the physical (actus reus) and mental (mensreus) elements of the offence. The actus reuselement looks to the conduct of the accused while the mensreuselement looks to the intent or knowledge of the accused. To satisfy the actus reus element for tax evasion, the Crown must prove beyond a reasonable doubt the accused did something or engaged in a course of conduct that avoided or attempted to avoid the payment of tax imposed by the Income Tax Act (R v Klundert (2004), 187 CCC (3d) 417, 242 DLR (4th) 644 (Ont. C.A.) at para 47).

A claim of malicious prosecution will fail if there existed objective reasonable and probable cause to believe that guilt (actus reusand mensreus) could properly be proved beyond a reasonable doubt. In this case, Justice Punnett determined that, when the charges were laid, the defendants lacked the evidence of actus reus of tax evasion. Mr. Samaroo’s alleged criminal conduct, as theorized by the Crown, was withholding the third till tape from the bookkeeper. The evidence falsely attributed to Ms. Ferens by Mr. Kendal – that she only received two till tapes out of three – was essential to prove that Mr. Samaroo withheld the third tape.

Damages

The Plaintiffs were awarded compensatory and punitive damages against the CRA. Special damages were awarded to compensate the Plaintiffs for out of pocket expenses and aggravated damages were awarded to compensate the Plaintiffs for emotion suffering.

Punitive damages were also awarded as Justice Punnett determined that Mr. Kendal’s conduct was worthy of rebuke.

Justice Punnett commented further, “the conduct was highly blameworthy as it engaged core values in our society and the checks and balances that exist when invoking the power of the State against the individual… Evidence was concealed. Inculpatory evidence was created.” The charges should never have proceeded and Mr. Kendal’s conduct was high-handed, reprehensible and malicious.

The Plaintiffs also succeeded in their section 7 Charter claim against the CRA; however, Justice Punnett declined to award damages under section 24(1) of the Charter as he had awarded punitive damages.

The damage award was allocated as follows: $347,731.74 for out of pocket expenses, $300,000 each to Mr. and Mrs. Samaroo for aggravated damages, and $750,000 in punitive damages.

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch