Date: 19971113
Docket: 91-1946-IT-G
BETWEEN:
GEOFFREY D. BELCHETZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
D. Hamlyn, J.T.C.C.
[1] The taxation years in question are 1986, 1987 and 1988. The appeals in this matter relate to the disallowance by the Minister of National Revenue (the "Minister") for losses, interest expenses, and fees paid by the Appellant in respect of his participation in S/Y Close Encounters Limited Partnership, one of a series of limited partnerships promoted by Overseas Credit and Guaranty Corporation ("OCGC"). The limited partnership was created to acquire, own and participate in the operation of an eighty foot luxury sailing yacht as one of a syndicate of limited partnerships of which OCGC would be the general partner. The Appellant asserts he was participating in a legitimate business. The Minister asserts there was no source of income, the Appellant was defrauded by the general partner OCGC and its officers Einar Bellfield ("Bellfield") and Osvaldo Minchella ("Minchella").
[2] The motions in this matter arise from the Appellant's assertion that the Respondent has unduly delayed filing a Reply to the Appellant's Notices of Appeal, and has not acted in accordance with an Order of this Court dated October 30, 1991. As such, the Appellant submits the Respondent's conduct amounts to an abuse of process of this Court and the Appellant is entitled to relief. This motion hereinafter is called the "Delay" motion.
[3] The Appellant further alleges the Respondent has obtained and used without the Appellant's knowledge and consent the entire litigation file of the Appellant's former solicitors Shibley Righton. As a result, the Appellant submits the Respondent has violated his right to be protected from unreasonable search and seizure and his right to privacy, and as a consequence the Appellant is entitled to relief. This motion herein is entitled the "Seizure" motion.
[4] The atmosphere during the hearing of the motions especially on the second day was highly charged and emotive.
[5] The allegations of misconduct abound on both sides, including allegations by the Appellant of alleged threats and intimidation by the Respondent's officials before and during the course of this proceeding and concerns about professional conduct with respect to the Respondent's counsel in relation to the Seizure matters. Allegations from the Respondent included those that the Appellant brings this proceeding as a means to encourage contributions to the "war-chest" to fund his appeals.
[6] Normally, the conduct and atmosphere of the motion would be of no consequence. However, the strength of feeling necessitated this hearing being spread over two days and the perceived need to file an incredible amount of documentation, of affidavits and of exhibits that leads to a conclusion the animosity between the parties affected the efficient and expeditious presentation of these motions.
THE MOTIONS
FACTS
[7] The taxation years in issue are 1986, 1987 and 1988.
[8] The Notices of Assessment were dated November 2, 1990. On November 12, 1990 the Appellant filed his Notices of Objection. The assessments were confirmed by Notice of Confirmation dated June 14, 1991. On September 6, 1991 the Appellant filed Notices of Appeal with this Court.
[9] By consent order dated October 30, 1991, this Court ordered the following:
It is ordered, pursuant to subsection 44(2) of the Tax Court of Canada Rules (General Procedure), that the time within which the Respondent may file and serve a reply to the notice of appeal be extended 60 days from the receipt of the decision of the Federal Court of Canada in the matter of William Dixon v. The Queen.
[10] The Dixon case (file number T-3109-90) was chosen as a test case to govern several cases including the Appellant's.
[11] The Dixon case never went to trial. After several negotiation and settlement attempts between 1991 and 1996, the Dixon matter was finally resolved. The taxpayer William Dixon accepted the Respondent's offer to settle in December 1996. Mr. Dixon signed a Notice of Discontinuance backdated to September 30, 1996. However, further problems in relation to other tax matters of Mr. Dixon prevented full completion of the matter until the Spring of 1997. In May 1996, the Respondent wrote to the Appellant to determine if he wished to settle on the basis of Dixon or did he wish to go on to trial. The Appellant did not respond. A Notice of Discontinuance was signed and filed by the Respondent in the Dixon matter on July 21, 1997.
[12] In December 1994 and January 1995 charges were laid under the Criminal Code of Canada (the "Criminal Code") against two former officers of OCGC, Bellfield and Minchella, who held positions of President and Director of Investment Development. The charges allege that Bellfield and Minchella defrauded the limited partners of OCGC limited partnerships and the Government of Canada. In May 1997, both individuals were committed to trial.
[13] On April 23, 1996 a third person also connected with OCGC, Pierre Rochat, plead guilty to a charge under subsection 239(1)(a) of the Act and was sentenced to imprisonment.
[14] After the collapse of OCGC, the law firm of Shibley Righton, who represented the Appellant amongst others "purchased" from Bellfield a number of boxes of records for use in pursuing the appeals and notices of objection of the Shibley Righton clients.
[15] On April 11, 1995 materials which included the Bellfield records were seized under the Criminal Code from the offices of Shibley Righton. By Order dated May 23, 1995, Moldaver J. of the Ontario Court of Justice (General Division) (the "Ontario Court") ordered that the individual investors of OCGC Limited Partnerships be served with notices of hearing to determine the claims of solicitor-client privilege asserted with respect to the Shibley Righton materials. The Appellant Belchetz did not appear at the appointed hearing. At the hearing the existence of additional boxes in the hands of Shibley Righton was revealed. Mr. Justice O’Driscoll found after three days of hearing that all of the Shibley Righton materials, including the additional boxes, were not protected by solicitor-client privilege. The documents were turned over to the police.
[16] Thereafter in an ex parte application under subsection 490(15) of the Criminal Code, the Respondent in this proceeding obtained access to the seized material. This Order from the Ontario Court was dated November 21, 1996.
[17] The Appellant asserts some of the seized material includes all the legal opinions, research, evidence, solicitor's work product and other privileged material assembled or prepared by Shibley Righton for the purposes of the Appellant's appeals before this Court.
[18] From the cross-examination of the Appellant on the Seizure motion, it would appear the Appellant relies, inter alia, to support his motion, that his solicitor-client privileges were breached, upon the basis that the inventory record of Corporal Trendell as to the purported contents of the seized boxes reveals solicitor-client documents, a statement made by the Respondent's counsel on the prior examination of September 17, 1997 about what documents they (the Respondent) had access to, and a letter from Shibley Righton titled “Dear Investor” dated April 27, 1994, was produced to the Appellant on the aforesaid cross-examination.
The Appellant's Posed Questions
[19] The Appellant poses three questions:
1. Should the Reply filed by the Respondent be expunged pursuant to Rule 53 and Rule 63 of the Tax Court of Canada Rules (General Procedure) (the "Rules") on the basis that it was filed late or is otherwise an abuse of the process of the Court;
2. Does the fact that the Reply was filed after the Respondent obtained access by way of Court Order (Ontario Court) without notice to the Appellant to all of the litigation files of the Appellant amount to an abuse of the process of this Court; and
3. If the answer to either or both questions 1 and 2 is Yes, what remedy should the Court provide to the Appellant.
The Appellant's Argument - Delay
[20] Delay in the prosecution of an action can have a deleterious effect on the administration of justice. In this case a delay of six years is unprecedented. A delay of this nature runs contrary to the Rules of this Court. A delay cannot be for strategic reasons. The Respondent's delay in filing the Notice of Discontinuance in Dixon was improper and abuse of the process of this Court. The Respondent had an onus to move the Dixon appeal forward in accordance with the Order of this Court in this matter. The Appellant's delay in proceeding with these appeals is an abuse of the process of this Court. Such delay calls for exceptional relief. The Respondent has violated implicit undertakings to proceed with the Dixon case in the Federal Court of Canada and to keep this Court informed of any changes in circumstances. The Appellant cannot assure this Court that these appeals will be heard before the conclusion of the Bellfield prosecution. The prejudice suffered by the Appellant of the Respondent's cumulative delay is substantial, continuing and uncontradicted.
Seizure
[21] The Shibley Righton tax litigation files are still the subject of solicitor-client privilege. The Appellant did not intend to waive this privilege in this civil proceeding. The intention of the Appellant in relation to the Seizure matter before Mr. Justice O’Driscoll was to waive solicitor-client privilege in relation only to the criminal proceeding against Bellfield and Minchella. The solicitor-client privilege attached to the specific boxes of documents seized as the Appellant maintains those boxes were his litigation files in this proceeding. The Appellant ought not to be penalized for not opposing the seizure in relation to the Bellfield prosecution as it would be unfair to deprive the Appellant of his solicitor-client privilege.
[22] The conduct of the Respondent before Madam Justice Dunnet (the hearing under subsection 490(15) of the Criminal Code) by proceeding without notice to the Appellant, misstated the nature of its disclosure obligations in this proceeding. The consent to the application of the Respondent in this case to the application under subsection 490(15) of the Criminal Code, not advising this Court of the nature of the materials secured and using the materials after discovering they were solicitor-client materials was improper.
[23] The intrusion of the Respondent into the solicitor-client confidences violates a standard of propriety and the violation is unprecedented. The conduct has tainted these appeals and can not be remedied. The conduct is such that the administration of justice is brought into disrepute.
[24] As a result of this argument the Appellant submits the appeals should be allowed pursuant to Rules 53 and 63(2)(c) or, in the alternative, direct that the appeals proceed on the basis that the facts alleged in the Notices of Appeal are presumed to be true pursuant to Rules 53 and 63(2)(c) or, in the further alternative, remove the Department of Justice from these appeals and preclude new counsel from any form of communication with the Department of Justice or officials of Revenue Canada involved in these appeals to date.
The Respondent's Argument - Delay
[25] In the Dixon matter, the Appellant Dixon chose the venue of the Federal Court of Canada. The Respondent had no influence over the choice of venue. The Order of this Court was obtained with the Appellant's consent to delay the Appellant's appeals pending the decision by the Federal Court of Canada in Dixon. The Appellant never had the intention to proceed alone. Shibley Righton attempted settlement discussions and these settlement discussions broke down. No steps were taken to proceed with the Dixon case. The Appellant left the group that was represented by Shibley Righton and took no steps to proceed with his appeals. Further attempts were made at settlement and failed. A final offer of settlement was made in May 1996 and this offer included the Appellant. The Appellant rejected this settlement and did not communicate an intention to the Respondent in relation to these appeals.
[26] In the Dixon matter, settlement was not completed until September 30, 1996. Through problems of miscommunication and wrong documentation the matter was not resolved until December 1996 when a Notice of Discontinuance was signed and backdated to September 1996. Because of other non related problems, the Respondent did not sign and file the Notice of Discontinuance until July 21, 1997.
[27] The Respondent filed and served a Reply to the Notices of Appeal in this matter on September 12, 1997.
[28] The Notice of Discontinuance is not a decision within the Federal Court of Canada's legislation or rules. The Federal Court - Trial Division never rendered a decision in the Dixon matter, and as such the Respondent has validly filed a Reply in this matter within sixty days from the filing of the Notice of Discontinuance.
[29] As to the relief sought, the Respondent states a Reply was filed and served in accordance with Rule 63(1)(c). The Respondent also submits there is no basis for expunging the Reply within Rule 53, and that under a motion it is the pleading that is the subject of scrutiny not the facts relating to the litigation.
Seizure
[30] There is no evidence to support the assertion the Respondent used the solicitor's work product of Shibley Righton. There is no evidence the Shibley Righton documents contain information that may have been the subject of a claim for privilege. That determination can not be made from a review of the inventory of Corporal Trendell.
[31] The Appellant did not exercise his right to litigate the matter at the O’Driscoll hearing. Mr. Belchetz had notice that a hearing was being held to determine solicitor-client privilege in regards to the seized materials, and yet he did not appear. Mr. Justice O’Driscoll exercised his jurisdiction in accordance with the Criminal Code. After hearing from two investors, O'Driscoll J. found solicitor-client privilege does not attach to any of the seized materials. The Respondent maintains this finding from a Superior Court of Record cannot be collaterally attacked in proceedings before the Tax Court of Canada. The Respondent concedes to the extent that a residual right to claim solicitor-client privilege might exist in the course of the proceedings before the Tax Court of Canada, but that right must be claimed before the trial judge.
[32] The Respondent maintains his right to the documents as the Respondent has a legal interest in the detained documents.
[33] The Order of Dunnett J. confirmed that the Respondent had the requisite interest and an Order was made under subsection 490(15) of the Criminal Code.
[34] The Appellant has the onus to establish his Canadian Charter of Rights and Freedoms (the "Charter") rights have been violated, and this has not been done.
ANALYSIS - DELAY
[35] I find the lengthy delay in this matter was consented to by both parties. The Respondent has explained why it took so long to sign the Notice of Discontinuance. The test case approach and the several attempts at settlement were not unilateral. Beyond this step, I can not find that the Appellant was proactive in the pursuit of his appeals other than this motion now before the Court. Upon reading Rule 406 of the Federal Court of Canada Rules regarding discontinuance, it is apparent that the discontinuance of the Dixon matter was not final until the Respondent gave his consent. The Order of this Court was not violated in spirit although not all the appropriate contemplations were found within the Order. I conclude the Reply has been filed within the limits prescribed by the Order.
ANALYSIS - SEIZURE
[36] In this motion the Appellant has asked this Court for it to grant a remedy under subsection 24(1) of the Charter for the alleged breach that has occurred to Mr. Belchetz’s solicitor-client privileged documents through the Respondent’s access granted under subsection 490(15) of the Criminal Code. In considering what remedy is appropriate under subsection 24(1) it is instructive to consult the commentary of Bowman, J. of this Court in O’Neill Motors Limited v. The Queen, 96 DTC 1486. In O’Neill the question before the Court was what, if any, remedy was available to the Appellant under section 24 of the Charter because of the Minister’s breach of section 8 of the Charter in its illegal search and seizure of documents. Although the decision before this Court concerns whether there was in fact a breach of Charter rights, and then a consideration of what remedy is appropriate under subsection 24(1), Bowman J. stresses in O’Neill that detailed consideration must be given to the evidence of the breach and a balancing of concerns between the rights of the subject and the maintaining of the integrity of the self-assessing taxation system. As Bowman J. states at page 1496:
I would not want my conclusion in this case to be taken as a wholesale sanctioning of the vacating of all assessments where some component of the Minister’s basis of assessment was unconstitutionally obtained information. Other cases may arise in which a simple exclusion of evidence is sufficient, others in which the evidence is of little or no significance in the making of the assessments or where its introduction would not bring the administration of justice into disrepute, or still others in which Suarez[1] solution will commend itself. In the exercise of the discretion vested in the court under section 24 of the Charter one must be vigilant in balancing, on the one hand, the rights of the subject that are protected under the Charter, and on the other, the importance of maintaining the integrity of the self-assessing system. As each case arises these and, no doubt, other factors will play a role and all factors must be assigned their relative weight. In the circumstances of this case I have concluded that the most appropriate exercise of my discretion is to vacate the assessments.
[37] One of the important differences between these appeals and O'Neill is that Judge Bowman considered the O’Neill decision in context of a trial with full benefit of the available evidence and factual considerations, whereas in this case, a motion, there are only affidavits and cross-examination on affidavits, and from that and a review of the filed materials I conclude not all the relevant evidence was before the Court.
[38] The jurisprudence of Att. Gen. of Can. v. Inuit Tapirisat et al., [1980] 2 S.C.R. 735 (S.C.C.), Erasmus et al. v. The Queen, 91 DTC 5415 (F.C.T.D.), and Enterac Property Corporation v. The Queen, 95 DTC 391 (T.C.C.), all serve to set out the principle that to strike out any claims or to dismiss an action, it must be plain and obvious that such a remedy is warranted, and that the Court is satisfied that such is the case beyond doubt.
[39] In Inuit Tapirisat, Estey J. speaking for the Court states at page 740:
On a motion such as this a court should, of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the court is satisfied that “the case is beyond doubt”.
[40] In Erasmus, Pinard J. used this principle in the consideration of a motion under subsection 419(1) of the Federal Court of Canada Rules (which is similar to Rule 53 of the Tax Court of Canada Rules (General Procedure)) to find at page 5416 that:
In so far as the motion is based on the other paragraphs of Rule 419(1), counsel for the defendant has also failed to meet the heavy burden of showing that it is clear and obvious that the plaintiff’s proceeding or portions thereof are scandalous, frivolous or vexatious, or may prejudice, embarrass or delay the fair trial of the action, or otherwise are an abuse of the process of the Court.
[41] This principle is further supported by Bell J. in Enterac where he found because he could not conclude that the impugned paragraphs sought to be struck were not relevant, the Respondent had not made it clear and obvious that a fair hearing of the appeal would be prejudiced or delayed, and so the impugned paragraphs should not be struck.
[42] The Appellant asks this Court to make a finding inferentially that the Appellant's solicitor-client privilege rights have been breached but with little conclusive hard evidence to go on.
[43] Under Rule 72 of the Tax Court of Canada Rules (General Procedure) it states:
An affidavit for use on a motion may contain statements of the deponent’s information and belief, if the source of the information and the fact of the belief are specified in the affidavit.
[44] This Rule is comparable to the Federal Court of Canada Rules, Rule 332(1) which states:
Affidavits shall be confined to such facts as the witness is able of his own knowledge to prove, except on interlocutory motions on which statements as to his belief with the grounds thereof may be admitted.
[45] In dealing with the interpretation of Rule 332(1), Thurlow A.C.J. in The Queen v. A. & A. Jewellers Ltd., [1978] 1 F.C. 479 (F.C.T.D.), stated at 480 regarding the plaintiff’s affidavit evidence:
Moreover, in my view, it is not admissible under Rule 332(1)... It says nothing as to why, if the named person had knowledge, he did not make the affidavit himself.
...
It seems to have become a common practice in preparing material for use in interlocutory applications to ignore the first clause of this Rule and to use the second clause as a device to avoid the swearing of an affidavit by a person who knows the facts in favour of putting what he knows before the Court in the form of hearsay sworn by someone who knows nothing of them. This is not the object of the Rule. The Court is entitled to the sworn statement of the person who has personal knowledge of the facts when he is available. The second part of the Rule is merely permissive and is for use only when the best evidence, that is to say the oath of the person who knows, is for some acceptable or obvious reason not readily obtainable.
[46] The affidavit evidence of the Appellant goes beyond information and belief. It further appears there was better evidence available than the hearsay statements Mr. Belchetz relied on. In particular, the source of the statements would be a better deponent than Mr. Belchetz reciting the statements. This factor materially affects the evidentiary burden.
[47] This Court does not know specifically what was seized nor does Mr. Belchetz know if his litigation file was part of the seizure. He simply asserts that it was. On review, the inventory record of Corporal Trendell of the R.C.M.P. does not help sufficiently enough to make a determination that the materials seized were indeed from the litigation file of Mr. Belchetz, or that the materials seized were such that Mr. Belchetz's solicitor-client privilege attached to them (see exhibit Q - Motion Record, Volume 3). Mr. Belchetz did not appear at the hearing before Mr. Justice O’Driscoll, although notified of its existence. Mr. Belchetz does say that Shibley Righton had assured him that "they would be protecting solicitor-client insofar as it pertains to our matter, notwithstanding the fact that they no longer acted for me, because the responsibility and the obligation on solicitor-client privilege supersedes the ending of the retainer".[2] As to who gave this advice or when it was given the Appellant could not recall. It is clear from the Ontario Court proceeding that Mr. Justice O'Driscoll found there was no solicitor-client privilege in terms of what was before him and from the materials filed in this Court at least one investor aside from the representations of Shibley Righton did contest the matter on his own behalf. The possession of the Respondent to certain documents acquired by way of Court Order prior to the filing of a Reply as such does not amount to an abuse of process of this Court.
[48] This evidence of possession and the extensive Appellant's submission does not convince me a solicitor-client privilege breach clearly exists at this point in the litigation in relation to this Appellant.
[49] In order to invoke the Charter remedy, a rights violation must be clear and unambiguous. Thus, in large measure it may be this particular motion is premature. After the litigation process continues in this matter including document discovery, examination for discovery and other pre-trial procedures, the situation may be somewhat clearer and as a matter of evidence or as a Charter issue of alleged solicitor-client privilege breach, if still considered appropriate by counsel, may be brought to the trial judge.
CONCLUSION
[50] The Reply of the Respondent is filed in accordance with the Order of this Court.
[51] The Seizure documents in the possession of the Respondent have not been shown to be part of the Appellant's litigation file as such. It has not been shown that a solicitor-client privilege was attached to whatever materials were seized. The alleged Charter violation has not been made out.
DECISION
[52] The motions are dismissed. The costs of the motions are to be costs in the cause subject to the discretion of the trial judge.
"D. Hamlyn"
J.T.C.C.