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It is not difficult to gain a reader’s attention with this headline. The answer to the question it poses is a “definite maybe’, for reasons that I will explain.
In 2007, there was a significant legal development resulting from a Supreme Court of Canada decision, Hill v. Hamilton-Wentworth Regional Police Services Board. This judgment acknowledged for the first time that police owe a legal duty to conduct a criminal investigation reasonably. A failure to do so may result in a criminal suspect having a civil claim against the police to recover damages.
That landmark decision left open the question of whether the same principle would apply to other public and private agencies that conduct investigations. With no shortage of aggrieved persons taking note of the decision, various “negligent investigation” claims have been brought against government agencies, crown corporations, private investigators, and others. While there remain few definitive court decisions as to how broadly the principle applies, it does appear that the original decision is not confined to police investigations. How far it extends is less obvious and will be decided on a case-by-case basis.
In that context, it was only a matter of time before some brave soul would try to turn this legal weapon against the Canada Revenue Agency (CRA). Indeed, such claims have been made in recent lawsuits brought in Ontario and British Columbia courts. While these cases remain undecided at this point, preliminary court rulings indicate that the ability to sue CRA for a negligent investigation remains a live issue.
The B.C. case is Leroux v. Canada (Revenue Agency), in which the taxpayer filed a civil claim in B.C. Supreme Court in 2010 against the CRA alleging negligent investigation on the basis that he had been subjected to a 13-year-long series of audits, assessments, reassessments, and collection procedures related to his potential liability for Income Tax and Goods and Services Tax. The plaintiff alleged that the CRA investigation ultimately caused the collapse of his business empire.
The government applied to the Court to dismiss Mr. Leroux’s lawsuit on the basis that, among other things, a claim of negligent investigation is not available against the CRA. In support of that argument, the CRA asked the Court to determine that it owed no legal duty to individual taxpayers. That preliminary application was dismissed by the Court and, two years later, also by the B.C. Court of Appeal, which ruled the legal issue should be decided at trial with the benefit of all of the facts.
These rulings have not determined that the CRA definitely does owe a legal duty of care to the taxpayer. Rather, they have determined that it is unclear at this time that no such legal duty could exist in any case.
In coming to its decision, the Court of Appeal distinguished between claims that are, in effect, directed at the decisions of the Tax Court of Canada and claims based on the conduct of CRA officials that raise issues distinct from the validity of tax assessments. Only the latter type of claim will be considered as a possibility.
The B.C. decision in Leroux was considered in a subsequent Ontario case, McCreight v. Canada (Attorney General). In that case, the plaintiffs were tax advisors involved in a CRA investigation into the affairs of their corporate clients. During its investigation, the CRA obtained documents from those advisors and their clients. Later, the CRA was ordered by a court to return the documents. However, they laid charges against the plaintiffs on the very day on which the documents were due to be returned. These charges were later dropped and subsequent hearings in the Ontario Superior Court of Justice determined that the CRA investigator’s primary motivation in laying the charges was to retain possession of the seized documents.
Although the Superior Court initially did strike this claim against the CRA, the Ontario Court of Appeal disagreed and reinstated it. The Appeal Court held that it is not plain and obvious that CRA investigators owe no duty of care to those they investigate for offences under the Income Tax Act; therefore, a claim of that nature must go to trial on its merits in order to be finally determined.
With these two cases still before the courts, and possibly more to come, it appears likely that we will eventually have an answer as to whether a negligent investigation claim can be brought against the CRA. Stay tuned for more news in subsequent articles.
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