



COURT OF APPEAL FOR ONTARIO

CITATION: Holterman v. Fish, 2017 ONCA 769

DATE: 20171005

DOCKET: C62338

Feldman, Cronk and Miller JJ.A.

BETWEEN

F. Marc Holterman and Thomas S. Tiffin

Plaintiffs/Moving
    Parties

(Appellants)

and

S. Andrew Fish and the Attorney General of Canada

Defendants/Respondents

(Respondents)

F. Marc Holterman and Thomas S. Tiffin, acting in person

Helen A. Daley and Simon Bieber, for the respondents

Heard: April 13, 2017

On appeal from the order of Justice Thomas R. Lederer of
    the Superior Court of Justice, dated May 26, 2016, with reasons reported at
    2016 ONSC 3275.

B.W. Miller J.A.:

OVERVIEW

[1]

The appellants, Marc Holterman and Thomas Tiffin, commenced an action
    for misfeasance in public office against the respondents, Andrew Fish and the
    Attorney General of Canada. The action was discontinued on consent. On
    discovering new information after the discontinuance, the appellants brought a
    motion to set the discontinuance aside. Their motion was dismissed. The
    appellants have appealed that decision.

[2]

For the reasons that follow, I would dismiss the appeal.

BACKGROUND

[3]

The Canada Revenue Agency (CRA) suspected that the appellants had underreported
    their incomes for the years 1995-99. It commenced a fraud investigation. The
    respondent Andrew Fish was a CRA investigator. In 2002, he swore an Information
    to Obtain (ITO) in support of an application for search warrants, stating
    that he had reasonable grounds to believe that the appellants were in breach of
    the
Income Tax Act
, R.S.C. 1985, c. 1 (5
th
Supp) (ITA). Following
    execution of the search warrants, fraud and tax evasion charges were laid
    against the appellants.

[4]

A year later, the appellants filed Notices of Objection with the
    Minister of National Revenue (MNR), disputing the CRAs determination that certain
    monies they had received were payments rather than loans, and were therefore
    subject to income tax.

[5]

At the appellants criminal trial, the trial judge found that Fish had
    been intentionally misleading in swearing the ITO, and that the ITO contained
    numerous misstatements of facts:
R. v. Tiffin
(2005), 136 C.R.R.
    (2d) 1, at paras. 41-42. He quashed the search warrants and excluded the
    evidence obtained from their execution. Although this Court allowed the Crowns
    appeal, it did not disturb the trial judges findings that Fish had been
    intentionally misleading: (2008) 90 O.R. (3d) 575 (C.A.). The Attorney General
    subsequently stayed the charges against the appellants.

[6]

Thereafter, the appellants commenced the current civil action against
    the respondents for misfeasance in public office, alleging that Fish had
    intentionally sworn a false ITO with the intent to injure them and that the
    Attorney General was vicariously liable for Fishs actions. At trial before
    Lederer J. of the Superior Court of Justice, the appellants sought to have
    Fishs testimony from their criminal trial admitted into evidence. Lederer J.
    declined, as Fish had not been a party to that proceeding. Neither did Lederer
    J. accept that factual findings from the criminal trial  specifically, that
    Fish had made misstatements and been intentionally misleading  were binding as
res judicata
.

[7]

By the fourth day of the civil trial, the appellants had closed their
    case. After Holterman had begun his cross-examination of Fish, the trial judge
    alerted the appellants about a potentially insurmountable obstacle: the onus
    was on them to prove that the monies they had received were in fact loans and
    therefore not taxable, but they had not led any evidence to establish this.
    During a recess, the appellants conferred and decided it would be best to seek
    a discontinuance of the action. The respondents were agreeable and the action
    was discontinued on consent.

[8]

In January 2016, approximately one month after the discontinuance, the
    appellants received Notices of Reassessment from the MNR, in response to the
    Notices of Objection they had filed in 2003. All the money that the CRA had originally
    assessed as taxable income was now reassessed as non-taxable. The MNR provided
    no explanation for its reversal.

[9]

In the appellants view, the reassessments vindicated their original
    position, and provided some evidence that Fish had acted in bad faith in
    swearing the ITO in which he stated he had reason to believe the appellants had
    not disclosed taxable income. The appellants also viewed the timing of the reassessments
    as highly suspect: they came 13 years late, and immediately on the heels of the
    appellants discontinuance of their action against Fish and the Attorney
    General.

[10]

The
    appellants therefore brought a motion to set aside the consent discontinuance
    on the basis of exceptional circumstances; specifically, new facts that had arisen
    after the discontinuance. The appellants argued that if the reassessments had
    been available at trial, their availability would have likely changed the
    result. The appellants argument was that the reassessments proved that Fish
    must have been lying in the August 2002 ITO when he swore that he had reason to
    believe that the appellants had undisclosed taxable income.

[11]

The
    motion judge rejected this argument:

There is no reason to believe that the release of these
    re-assessments would have had any impact on whatever decision would have been
    made but for the discontinuance. The re-assessments do nothing to establish the
    requirements necessary to prove misfeasance in public office. There is no
    basis, in law, for assuming that this information should be assessed as if it
    were known at the time the Information to Obtain Search Warrants was sworn. The
Income Tax Act
provides that while a re-assessment is underway, the
    original assessment remains valid and binding notwithstanding any error,
    defect or omission in the assessment or in any proceeding under this Act
    relating thereto. Thus, there is no basis for going back.

The letters revealing the results of the re-assessment are not
    evidence of a sort that can support a setting aside of the discontinuance.
    These letters do not deal with evidence referring to events that led to the
    bringing of the action. They provide a conclusion reached long after that time.
    [Citations omitted.]

[12]

Essentially,
    the motion judge concluded that the reassessments could not help prove what
    Fish knew 12 years earlier, at a time before the search warrants were executed,
    before the CRA investigation was complete, and before the Notices of Objection setting
    out the appellants argument had been received.

[13]

The
    motion judge also found that the evidence could have been obtained by the
    appellants by the time of trial had they exercised proper diligence. The motion
    judge reasoned that the appellants could have exercised their statutory right
    of appeal under s. 169 of the
ITA
to apply for an order vacating or
    varying the original assessment. He also noted that the appellants had a strong
    incentive
not
to do so: while the reassessments were outstanding, they
    did not have to pay the outstanding tax assessments.

[14]

The
    motion judge therefore dismissed the motion.

ANALYSIS

[15]

A
    court can set aside a notice of discontinuance in exceptional circumstances. The
    appellants argue that the motion judge erred in refusing to exercise his
    discretion to do so.

[16]

In
    my view, the motion judge did not make any reversible error. For the reasons
    that follow, I conclude that the appellants fall far short of meeting the high
    bar for setting aside the consent discontinuance in this case.

The test
    for setting aside a discontinuance

[17]

In
    determining whether there were exceptional circumstances to set aside the
    discontinuance, the motion judge applied the
Sagaz
test, which guides
    the application of r. 59.06(2)(a) of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194 for setting aside or varying an order due to fraud or
    facts arising or discovered after the order has been made. In
671122
    Ontario Ltd. v. Sagaz Industries Canada Inc.
, 2001 SCC 59, [2001] 2 S.C.R.
    983, the moving party sought to reopen a trial on the basis of fresh evidence. The
    Supreme Court ruled against the moving party, and cautioned at para. 61 of its
    decision that the discretion to reopen a trial should be exercised sparingly
    and with the greatest care.

[18]

The
    test from
Sagaz
is often reduced to two questions: (1) whether the new
    evidence, if presented at trial, would probably have changed the result, and
    (2) whether the evidence could have been obtained before trial by the exercise
    of reasonable diligence. But more is involved. As this Court stated in
Mehedi
    v. 2057161 Ontario Inc.
, 2015 ONCA 670, at para. 20, the test includes
    considerations of finality, the apparent cogency of the evidence, delay,
    fairness and prejudice. Appellate courts must also consider the importance of deferring
    to trial judges, who are in the best position to decide whether, at the
    expense of finality, fairness dictates that the trial be reopened:
Sagaz
,
    at para. 60;
Mehedi
, at para. 21.

[19]

In
    my view, the factors set out in
Sagaz
provide an appropriate structure
    for determining whether to set aside a notice of discontinuance, with the
    caveat that the interest in finality may pose an even greater obstacle to
    setting aside a consent discontinuance than reopening a trial. An important
    aspect of a discontinuance on consent is that the parties, after considering
    their positions, made a joint decision to end the litigation. Although there
    may be exceptional circumstances where departure from such a decision will be
    justified, courts should not allow significant and considered measures to terminate
    litigation to be lightly undone:
Yancey v. Neis
, 1999 ABCA 272, 250
    A.R. 19, at para. 25;
Philipos v. Canada (Attorney General)
, 2016 FCA
    79, 483 N.R. 328, at paras. 17-20.

Application

[20]

The
    appellants argue that the motion judge erred in not finding exceptional
    circumstances that would justify setting aside the discontinuance. I do not
    agree.

[21]

The
    salience of the appellants fresh evidence is a matter of its ability to
    satisfy elements of their cause of action: misfeasance in public office. The
    appellants alleged that Fish committed that tort by engaging in unlawful
    conduct in the exercise of his public duties (swearing the ITO), which he knew
    to be unlawful, and which he knew was likely to injure the appellants. The MNRs
    conclusion that the appellants had no tax liability, the appellants argue, assists
    in establishing that Fishs conduct in swearing the ITO was unlawful and that
    he knew it to be so.

[22]

The
    essence of the appellants argument is this:

(1)     the
    MNR, on reassessment, determined that the appellants had no tax liability;

(2)     that
    determination was based on facts that existed in 2002;

(3)     the
    original Notice of Assessment was therefore in error, and the appellants never
    had a tax liability;

(4)     Fish
    could not have had reasonable grounds to believe the appellants had a tax
    liability if the appellants did not, in fact, have a tax liability; and
    therefore

(5)     by
    stating that he had reasonable grounds to believe that the appellants had
    undisclosed income when, as a matter of fact, they did not, Fish deliberately acted
    unlawfully.

[23]

The
    argument derails at step 4. The appellants treat a determination of tax
    liability as an empirically ascertainable event rather than a technical
    determination made by applying legal rules to established or apparent facts. That
    dubious premise leads the appellants to the proposition that if in 2016 the MNR
    concluded the appellants had no liability in 2002, then there could have been
    no good reason in 2002 for anyone to have suspected otherwise. The appellants
    are incorrect, however, to attribute to Fish, at an early stage of an
    investigation, all that was known and subsequently concluded by the MNR by
    2016. As the motion judge explained, the reassessments merely report a
    conclusion. They provide no evidence of what Fish knew in 2002, at a time
    before the search warrants were executed, and before receipt of the Notices of
    Objection setting out the appellants argument as to why the payments in
    question were not taxable. Neither do the reassessments provide any insight
    into how the MNR reached its conclusion, other than it was made after a review
    of the facts and documents submitted by the appellants.

[24]

The
    argument also fails at step 5. As the motion judge found, the fresh evidence sheds
    no light on the pivotal issue in the action: did Fish, in 2002, knowingly
    engage in unlawful conduct that he knew would likely injure the appellants? The
    bare fact of the reassessments does not significantly advance the argument that
    in 2002 Fish had no reason to believe that the appellants were in breach of the
ITA
. The reassessments are equally consistent with: 1) Fish, in 2002,
    having reasonable grounds; 2) Fish not having reasonable grounds but (incompetently)
    believing that he did; and 3) Fish lacking reasonable grounds, knowing that he
    did not have reasonable grounds, and acting in the knowledge that his actions were
    unlawful. The equivocal nature of the fresh evidence prevents it from meeting
    the high bar of probably changing the result of the tort action. I see no
    reason to interfere with the motion judges conclusion on this issue.

[25]

Ultimately,
    the fresh evidence  even when viewed in conjunction with the evidence adduced
    at trial  does not prove that Fish knowingly acted unlawfully and with an
    intent to injure the appellants. The reassessments do not provide the
    appellants with the evidentiary foundation to establish a case for misfeasance
    in public office. At most, they address one of the concerns raised by the trial
    judge: that the appellants could not prove that Fishs original assessment was,
    in fact, incorrect. Other obstacles remained.

[26]

Although
    that is sufficient to dispose of the appeal, I will address the further issue
    whether the evidence could have been found with reasonable diligence.

[27]

The
    appellants argue, with some justification, that it appears exceedingly unlikely
    that the MNR, which had an obligation under s. 165(3) of the
ITA
to
    make a determination with all due dispatch, would in fact take 13 years and
    coincidentally release its Notices of Reassessment immediately after the
    appellants discontinued their action. The respondents provided no evidence that
    would shed any light on this timing.

[28]

The
    motion judge held, however, that the appellants did not pursue the evidence
    with reasonable diligence, because they failed to exercise their statutory
    right to appeal the CRAs original assessments to the Tax Court of Canada. The
    motion judge found it significant that the appellants had a strong incentive
    not to take steps to force the issue: as long as the Notices of Objection
    remained outstanding, there was a stay of the appellants obligation to pay the
    assessed tax and penalties.

[29]

I
    do not agree with the motion judge on this point. It seems unduly harsh to put
    the onus on the appellants to go to the considerable expense and trouble of
    bringing an appeal before the Tax Court in order to force the MNR to comply
    with its statutory obligations, particularly when the appellants would have had
    no inkling, at that point, that the MNR would end up allowing their objection.

[30]

Although
    I would not fault the appellants on their diligence in pursuing the
    reassessments, they nevertheless cannot succeed on this appeal. As noted above,
    I agree with the motion judges decision that the fresh evidence is not of a
    nature that could have affected the result had the matter proceeded to judicial
    determination.

DISPOSITION

[31]

I
    would dismiss the appeal and award costs to the respondents in the amount of
    $5,000, inclusive of disbursements and HST.

Released: KF OCT 5 2017

B.W. Miller J.A.

I agree. K. Feldman
    J.A.

I agree. E.A. Cronk
    J.A.


