Date: 20151207

Docket: T-1296-14

Citation: 2015 FC 1354

Ottawa, Ontario, December 7, 2015

PRESENT:    The Honourable Mr. Justice Russell

BETWEEN:

MINISTER OF NATIONAL REVENUE

Applicant

and

SUNNI SCHIMPF

Respondent

ORDER AND REASONS

I.                   INTRODUCTION

[1]               The Minister of National Revenue [Applicant] seeks to have Sunni Schimpf [Respondent] found in contempt of a Compliance Order made by the Honourable Justice Mactavish on February 16, 2015 pursuant to s 241.7 of the Income Tax Act, RSC 1985, c 1 [ITA].

II.                BACKGROUND

[2]               The Applicant, acting through the Canada Revenue Agency [CRA], is attempting to conduct an audit of the Respondent for the 2010 and 2011 taxation years.

[3]               On August 8, 2013, the CRA sent the Respondent a compliance warning letter requesting information, pursuant to s 231.7 of the ITA [First Request for Information]. It was personally served on the Respondent on August 13, 2013.

[4]               The Applicant sent a second compliance warning letter on October 23, 2013 [Second Request for Information]. It was personally served on the Respondent that same day.

[5]               Both requests for information indicated that the information and documents requested were required within thirty days of the date of each of the requests. The information requested was as follows:

All operational records:

-   Accountant’s working papers and adjusting entries for the years under audit

-   General ledger or similar item showing day-by-day, the amount of business income and disbursements

-   All sales invoices, sales reconciliations, quote sheets, etc.

-   All vouchers to support the amounts expensed and input tax credits (ITCs) claimed

-   Inventory, accounts payable, and accounts receivable records

-   All purchase and sale documents for capital acquisitions and dispositions

-   Business investment statements (purchase documents for the business and assets)

-   All business and personal bank account statements, duplicate deposit books, cancelled cheques, and bank account reconciliations and loan documents

-   All credit card statements, line of credit statements and loan documents, including the repayment schedules and the purpose of the loans

-   All insurance policy documents

-   List purchased business items and their values (purchased at time of business and additional items)

-   Print outs of business activities from the phone app you have been using

-   Till Z reports

Concerning personal records:

-   List of major household personal assets (e.g. real estate, vehicles, equipment, recreational, etc.) along with the approximate costs/proceeds of disposition and years of sale or purchase

-   Personal investment statements (e.g. RRSP, mutual funds, term deposits, etc.)

-   All (including spouse’s) personal bank account statements/passbooks, transaction records, cancelled cheques, and bank account reconciliations

-   All credit card statements, line of credit statements and loan/mortgage documents, including repayment schedules and the purpose of the loans

-   All insurance policy documents

-   Details of any non-taxable sources of funds received that would impact your financial situation during the audit period (e.g. inheritances, lottery winnings, etc.) pertaining to the household

-   House purchase documents

[6]               The Applicant obtained a Compliance Order on February 16, 2015 against the Respondent, which found that under s 231.7 of the ITA, the Respondent had failed to comply with the requests for information. The Compliance Order compelled the Respondent to provide the information forthwith and, in any event, no later than thirty days after being served with the Compliance Order.

[7]               The Respondent was served with a copy of the Compliance Order on March 4, 2015 and has not yet complied with its stipulations by providing the relevant information to the CRA.

[8]               On August 26, 2015, Justice Bell granted an Order pursuant to Rules 467(1) and 369 of the Federal Courts Rules, SOR/98-106 [Rules], requiring that the Respondent appear before a judge of the Federal Court to attend a contempt hearing. The Order was made in response to an ex parte motion that was brought by the Applicant. In making the Order, the Court demonstrated its satisfaction that a prima facie case that contempt has been committed exists.

[9]               In addition, Justice Bell indicated that the Applicant could introduce the contents of the Court file, including any correspondence from the Registry of the Court and correspondence from the Respondent contained therein, directly and without the need for oral proof of the documents. Furthermore, the Applicant was permitted to prove personal service of the Order by way of affidavit which occurred on September 2, 2015.

III.             ISSUE

[10]           The issue before the Court is whether the Respondent is guilty of contempt of Court.

IV.             STATUTORY PROVISIONS

[11]           The following provisions of the ITA are applicable in this proceeding:

[12]           The following provisions of the Rules are applicable in this proceeding:

V.                ANALYSIS

A.                Failure to Comply with Court Orders

[13]           The clear evidence before the Court in the affidavit of Mr. Lee Hart, an auditor for the CRA, sworn June 17, 2015, and in Mr. Hart’s sworn oral evidence before the Court in the hearing of this matter on September 16, 2015 in Regina (and the relevant affidavits of personal service), is that:

a)      The Respondent was personally served with Justice Mactavish’s Compliance Order of February 16, 2015 in accordance with the terms of that Order;

b)      The Respondent was personally served with Justice Bell’s Order of August 26, 2015;

c)      The Respondent has not complied with the Compliance Order of February 16, 2015 in that she has failed to provide any of the information and materials to the CRA set out in that Order;

d)     The Respondent has failed to comply with the Order of August 26, 2015 in that she has failed to appear before the Court on September 16, 2015 as ordered;

e)      The Respondent has failed to pay the Applicant’s costs in the amount of $1,000.00 in accordance with the Compliance Order of February 16, 2015; and,

f)       The Respondent has refused to comply with the CRA’s requests that she cooperate and provide the information and documentation required.

B.                 Contempt

[14]           As Canada (Minister of National Revenue) v Bjornstad, 2006 FC 818 [Bjornstad], makes clear:

[3]        Principles to be applied when considering whether to find a person in contempt of court are:

1. The party alleging contempt has the burden of proving such contempt, and the person alleged to be in contempt (the contemnor) need not present evidence to the Court.

2. The constituent elements of contempt must be proven beyond a reasonable doubt.

3. In the case of disobedience of an order of the Court, the elements which must be established are the existence of the Court order, knowledge of the order by the alleged contemnor, and knowing disobedience of the order.

4. Unless the Court otherwise directs, evidence to establish contempt shall be given orally.

See: Rules 469 and 470, and Tele-Direct (Publications) Inc. v. Canadian Business Online Inc. (1998), 151 F.T.R. 271 (Fed. T.D.).

[4]        The fundamental purpose of the Court's contempt power is to ensure respect for the judicial process so as, in turn, to secure the proper and effective functioning of the judicial system. In short, the rule of law requires that court orders be complied with.

[15]           All of the above conditions have been satisfied in the present case beyond a reasonable doubt.

[16]           More recently, in Carey v Laiken, 2015 SCC 17, the Supreme Court of Canada has confirmed that civil contempt has three elements which must be established beyond a reasonable doubt:

[32]      Civil contempt has three elements which must be established beyond a reasonable doubt: G. (N.) c. Services aux enfants & adultes de Prescott-Russell (2006), 82 O.R. (3d) 686 (Ont. C.A.), at para. 27; College of Optometrists, at para. 71; Bhatnager v. Canada (Minister of Employment & Immigration), [1990] 2 S.C.R. 217 (S.C.C.), at pp. 224-25; Jackson v. Honey, 2009 BCCA 112, 267 B.C.A.C. 210 (B.C. C.A.), at paras. 12-13; TG Industries Ltd. v. Williams, 2001 NSCA 105, 196 N.S.R. (2d) 35 (N.S. C.A.), at paras. 17 and 32; Godin v. Godin, 2012 NSCA 54, 317 N.S.R. (2d) 204 (N.S. C.A.), at para. 47; Gaudet v. Soper, 2011 NSCA 11, 298 N.S.R. (2d) 303 (N.S. C.A.), at para. 23. These three elements, coupled with the heightened standard of proof, help to ensure that the potential penal consequences of a contempt finding ensue only in appropriate cases: Bell ExpressVu, at para. 22; Chiang, at paras. 10-11.

[33]      The first element is that the order alleged to have been breached “must state clearly and unequivocally what should and should not be done”: Prescott-Russell, at para. 27; Bell ExpressVu, at para. 28, citing with approval Jaskhs Enterprises Inc. v. Indus Corp. [2004 CarswellOnt 4036 (Ont. S.C.J.)] 2004 CanLII 32262, at para. 40. This requirement of clarity ensures that a party will not be found in contempt where an order is unclear: Pro Swing, at para. 24; Bell ExpressVu, at para. 22. An order may be found to be unclear if, for example, it is missing an essential detail about where, when or to whom it applies; if it incorporates overly broad language; or if external circumstances have obscured its meaning: Culligan Canada Ltd. v. Fettes, 2010 SKCA 151, 326 D.L.R. (4th) 463 (Sask. C.A.), at para. 21.

[34]      The second element is that the party alleged to have breached the order must have had actual knowledge of it: Bhatnager, at p. 226; College of Optometrists, at para. 71. It may be possible to infer knowledge in the circumstances, or an alleged contemnor may attract liability on the basis of the wilful blindness doctrine (ibid.).

[35]      Finally, the party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act that the order compels: Sheppard, Re (1976), 12 O.R. (2d) 4 (Ont. C.A.). at p. 8. The meaning of this element is one of the main points in contention on appeal and I will turn to consider it in more detail momentarily.

[17]           I am satisfied on the evidence before me that the Applicant has established all of these elements beyond a reasonable doubt. In addition to being personally served with the Orders referred to above, the record also shows that the Respondent left a voicemail message with the Applicant’s counsel, Mr. John Krowina at the Department of Justice on April 7, 2015, in which she says “papers that I received state that I am supposed to give information Lee Hart [sic]…” and asking for contact information for Mr. Hart, which was provided to her (see Exhibit A-2). The record also shows that the Respondent did not contact Mr. Hart and has not provided the CRA with any of the information and documentation requested.

[18]           The Court is faced with a situation where the Respondent, fully aware of the CRA’s requests and Court Orders, has simply refused to comply in any way, and has failed to appear at the contempt hearing as ordered to present any evidence to a finding of contempt under Rule 466 or to address the potential sentence to be imposed pursuant to Rule 472, as ordered by Justice Bell.

[19]           This is similar to the situation faced by Justice Kelen in Minister of National Revenue v Marshall, 2006 FC 788 [Marshall]:

[17]      This is a case where the respondent has ignored the RFIs. The respondent has provided no information to the Minister and has expressed no willingness to cooperate with the Minister or to meet the CRA's representatives. Nor has the respondent appeared before this court to account for her failure to comply with Shore J.'s compliance order. Nor has the respondent indicated remorse for her conduct or given her undertaking to comply with the compliance order. I can only conclude that the respondent's conduct is attributable to ill will to the CRA or the Minister and/or a disregard for this Court's authority requiring her to provide the requested documents and information. I conclude there is a need for specific deterrence in this case to ensure that the respondent does not again breach the orders of this Court. To the Court's knowledge, however, this is the first finding of contempt on which the respondent has been found guilty.

[20]           All in all, the Applicant has proved contempt by the Respondent beyond a reasonable doubt.

C.                 Sentence

[21]           As Justice Bell’s Order of August 26, 2015, which was personally served on the Respondent on September 2, 2015, makes clear the Respondent was fully aware that if contempt was proven against her under Rule 466, the Court would address the sentence to be imposed pursuant to Rule 472. By choosing not to attend the contempt hearing, the Respondent has chosen not to provide the Court with any mitigating factors that could affect sentencing.

[22]           In Winnicki v Canada (Human Rights Commission), 2007 FCA 52 [Winnicki], the Federal Court of Appeal approved the trial judge’s consideration of the relevant factors to be assessed in determining the appropriate penalty where someone is found in contempt:

[17]      The trial judge said as follows:

I find TW to be in contempt of Justice de Montigny's order dated October 4, 2005. In order to determine the appropriate penalty, one must look at the relevant factors. As discussed by Justice Lemiuex [sic] in Lyons Partnership, L.P. v. MacGregor (2000), 186 F.T.R. 241, the factors which one must access are:

1. the gravity of the contempt in the context of the particular circumstances of the case as they pertain to the administration of justice;

2. whether the contempt offence is the first offence;

3. presence of any mitigating factors such as good faith or an apology; and

4. deterrence of similar conduct.

[23]           Further guidance was provided by Justice Lemieux in Lyons Partnership, LP v MacGregor, 186 FTR 241, [2000] FCJ No 341, 5 CPR (4th) 157 (FCTD):

[21]      In Cutter (Canada) Ltd., supra, Urie J.A. said in assessing the amount of the fine what was relevant was “the gravity of the contempt in the context of the particular circumstances of the case as they pertain to the administration of justice” (page 562). The Federal Court of Appeal endorsed the reasons of the trial judge that the amount of the fine should reflect “the severity of the law and yet sufficiently moderate to show the temperance of justice”. The level of the fine, Urie J.A. indicated, could not be a token fine because this would “be inconsistent with the gravity of the contraventions and might serve to encourage others to flout the law if it is to their financial advantage to do so”.

[22]      This last statement by Urie J.A. echoes the words of Justice Rouleau of this Court in Montres Rolex S.A. v. Balshin (1987), 15 C.P.R. (3d) 368 (Fed. T.D.) “that the primary purpose of imposing sanctions is to ensure compliance with orders of the court”. Dubé J. of this Court in Louis Vuitton S.A. v. Tokyo-Do Enterprises Inc. (1990), 37 C.P.R. (3d) 8 (Fed. T.D.), also stressed the importance of deterrence as the principal factor in ensuring that those orders will not be breached again because “if those who get caught were to get away unscathed that would encourage such activities and consequently destroy the intended effect of the laws that have been passed” (page 13, line b). Dubé J., in assessing a fine, took into account the value of the counterfeit goods sold. He also ordered solicitor-client costs capped to a maximum.

[23]      To close off on the issue of first principles, other relevant factors to be taken into account are whether the contempt offence is a first offence (Canada (Attorney General) v. de l'Isle (1994), 56 C.P.R. (3d) 371 (Fed. C.A.) and the presence of any mitigating factors such as good faith or apology (Baxter Travenol Laboratories of Canada Ltd., supra).

[24]           Justice Kelen applied similar principles in Marshall, above:

[16]      To summarize, the factors relevant to determining a sentence in contempt proceedings are:

i. The primary purpose of imposing sanctions is to ensure compliance with orders of the court. Specific and general deterrence are important to ensure continued public confidence in the administration of justice;

ii. Proportionality of sentencing requires striking a balance between enforcing the law and what the Court has called “temperance of justice”;

iii. Aggravating factors include the objective gravity of the contemptuous conduct, the subjective gravity of the conduct (i.e. whether the conduct was a technical breach or a flagrant act with full knowledge of its unlawfulness), and whether the offender has repeatedly breached orders of the Court; and

iv. Mitigating factors might include good faith attempts to comply (even after the breach), apologize or accept responsibility, or whether the breach is a first offence.

[25]           It seems to me that the circumstances in the present case resemble those in Marshall, above. I have no knowledge of any prior contempt finding against the Respondent but, apart from that, the Respondent has refused to come to Court and address any possible mitigation factors in accordance with Justice Bell’s Order of August 26, 2015. To quote Justice Kelen again in Marshall, above:

[18]      I therefore conclude that the circumstances of this case require the respondent to pay a fine, to pay the applicant's costs, and comply with the March 2, 2006 order of Mr. Justice Shore within 30 days of these reasons for order and order, by providing the documents and information set out in the RFIs to the CRA.

[26]           In Canada (Minister of Revenue) v Bosnjak, 2013 FC 399 [Bosnjak], the respondent did not attend the contempt hearing where Justice Gleason also heard submissions on sentencing. A sentence was imposed without holding a further hearing:

[16]      Because I was satisfied that the Respondent had been personally served with Justice Barnes' show cause Order of March 7, 2013 and with the Applicant's Submissions as to Sentence and was therefore clearly on notice that he was liable to being sentenced for contempt on April 15, 2013, I proceeded to hear the Applicant's Submissions as to Sentence on April 15th. (This same procedure has been followed by several of my colleagues in similar matters in previous cases. See, for example, Minister of National Revenue v. Bjornstad, 2006 FC 818 (F.C.) [Bjornstad]; Canada (Minister of National Revenue) v Loy Yeung Kwan, File No T-554-05 (December 13, 2005); Canada (Minister of National Revenue) v Hrappstead, File No T- 2275-04 (26 May 2005); Canada (Minister of National Revenue) v Arthur C Dwer, File No T-1479-02 (September 30, 2003).)

[27]           In Bjornstad, above, Ms. Bjornstad did not attend in Court, nor did she otherwise respond to the application to find her to be in contempt of court. Nonetheless, Justice Dawson decided that the facts established without a doubt that a contempt order existed, that she had knowledge of it, that she disobeyed it and was therefore guilty of contempt of court. In Canada (Minister of National Revenue) v Hrappstead, File No T-2275-04 (May 26, 2005) and Canada (Minister of National Revenue) v Loy Yeung Kwan, File No T-554-05 (December 13, 2005) both Justice Shore and I, respectively, found the respondent to be guilty of contempt of court and concurrently imposed a specific sentence.

[28]           The letter of May 22, 2015 sent by regular mail to the Respondent and the contents of Justice Bell’s Order made it clear to the Respondent that she would have the opportunity to address issues of possible incarceration, penalty and costs on September 16, 2015 in the event that she was found in contempt. This information is adequate notice of what was at stake and where and when the Respondent could make her case. It seems then that the Winnicki requirement is fulfilled, as the Respondent was indeed provided with an opportunity to make submissions to the Court prior to sentencing, but had chosen not to avail herself of that opportunity.

D.                Solicitor/Client Costs

[29]           Solicitor/client costs have been held to be appropriate in this kind of case. In Louis Vuitton Malletier, SA v Bags O’Fun Inc, 2003 FC 1335, this Court held as follows:

[41]      With respect to costs, where an application for an order finding contempt of Court is successful, the normal practice is to award reasonable costs on a solicitor-client basis to the party seeking enforcement of the Court order. This reflects the policy of the Court that a person who assists the Court in the enforcement of its orders and in ensuring respect for Court orders should not be put out of pocket. See, for example, Coca-Cola Ltd. v. Pardhan (2000), 5 C.P.R. (4th) 333 (Fed. T.D.); aff'd (2003), 23 C.P.R. (4th) 173 (Fed. C.A.) on other grounds, and the authorities reviewed therein by Associate Chief Justice Lutfy (as he then was).

[30]           I agree with the Applicant that in this case the Respondent has simply ignored and disobeyed the Court Orders and has forced the Applicant to initiate and maintain these contempt proceedings and to incur significant corresponding expenses for no reasons other than the Respondent’s refusal to comply with the law. The Applicant has submitted a draft bill of costs in the amount of $9,194.47, but I notice that it includes an entry for “consult with senior counsel.” Applicant’s counsel conceded at the hearing that this was his first contempt hearing and that he may have taken a little longer to prepare than would normally be the case. While I do not doubt the time ascribed in the draft bill of costs, this is a fairly simple application and I think it would be reasonable to discount the costs somewhat to reflect these factors. Consequently, I think that reasonable costs in this case should be $7,000.00.

ORDER

THIS COURT ORDERS that

1.      The Respondent is guilty of contempt of this Court’s Orders of February 16, 2015 and August 26, 2015, and shall pay a fine of $3,000.00 within 30 days from the date of service of this Order, and shall pay the Applicant’s legal costs in the amount of $7,000.00, together with the costs of $1,000.00 ordered on February 16, 2015 but still unpaid, within 30 days from the date of service of this Order. Failure to pay this fine and the legal costs within 30 days shall subject the Respondent to 30 days’ imprisonment.

2.      The Respondent shall also provide the information and documents set out in the Court’s order dated February 16, 2015 within 30 days from the date of service of this Order, or provide the Applicant with a full explanation why the Respondent does not have this information and these documents, failing which the Respondent shall be imprisoned for 10 days, such term to run consecutive to any other term of imprisonment imposed by this Order.

3.      The Respondent shall not be imprisoned for failure to pay the fine or the legal costs if within 30 days from the date of service of this Order the Respondent arranges with the Applicant for an oral examination under oath and provides evidence satisfactory to the Court that she is not able to pay the fine or the legal costs, or that she needs an extended time period in which to pay.

4.      If the Applicant informs the Court by affidavit that payment of either the fine or the legal costs has not been made within 30 days from the date of service of this Order, and that the Respondent has not arranged with the Minister for an oral examination under oath with respect to her ability to pay the fine or the legal costs, the Court shall issue a warrant for the imprisonment of the Respondent for 30 days.

5.      If the Applicant informs the Court by affidavit that the Respondent has not provided the information and documents set out in the Court’s Order dated February 16, 2015, within 30 days from the date of service of this Order or provided the Applicant with a full explanation why the Respondent does not have this information and these documents, then the Court shall issue a warrant for the imprisonment of the Respondent for a term of 10 days, such term to run consecutive to any other term of imprisonment imposed by this Order.

“James Russell”

 

FEDERAL COURT

SOLICITORS OF RECORD

DOCKET:	T-1296-14
STYLE OF CAUSE:	MINISTER OF NATIONAL REVENUE v SUNNI SCHIMPF
PLACE OF HEARING:	Regina, Saskatchewan
DATE OF HEARING:	September 16, 2015
ORDER AND Reasons:	RUSSELL J.
DATED:	December 7, 2015

APPEARANCES:

John Krowina	For The Applicant
Sunni Schimpf	On her own behalf

SOLICITORS OF RECORD:

William F. Pentney Deputy Attorney General of Canada Saskatoon, Saskatchewan

For The Applicant