Tax agency wins appeal of $1.7 million malicious prosecution case

The Canada Revenue Agency has scored a significant legal victory as the B.C. Court of Appeal overturned a $1.7 million award against the tax agency for malicious prosecution.

The ruling marks a possibly fatal blow in a 13-year-battle between the CRA and a Nanaimo husband and wife who sued after they were tried and acquitted of tax evasion in criminal court.

Last year, a lower court judge awarded groundbreaking damages to Tony and Helen Samaroo after finding the CRA didn't have reasonable and probable cause to prosecute the restaurateurs in a criminal court, where they were ultimately acquitted.

But the appeal court found the B.C. Supreme Court judge who sided with the couple and slammed the CRA for "reprehensible" conduct misunderstood the law — deciding it was necessary to prove how someone had dodged their taxes in order to convict them of a crime.

"Where the necessary intent to evade taxes is present, then the specific manner in which the intent is carried out is not a necessary element of proving the offence," the appeal court found.

"What they did or did not do to avoid paying taxes does not necessarily have to be shown for a conviction, if the fact of intentionally not paying taxes can be otherwise demonstrated."

Vindication for tax agency and investigator

Not only does the appeal court decision overturn the $1.7 million award for malicious prosecution, the judges also dismissed the Samaroo's underlying claim.

The only possible route of appeal is to the Supreme Court of Canada. The lawyer for the Samaroos said he would be able to comment on Thursday.

The unanimous appeal court ruling ruling, written by Justice David Harris, is a vindication for both the CRA and investigator Keith Kendal.

Kendal was criticized in the lower court as being intent on seeing criminal charges laid and "argumentative, evasive, inflexible and reluctant to concede what clearly should have been conceded."

Harris writes that by coming to the conclusion, the CRA needed to prove the "mechanics" of tax evasion in order to prosecute, the trial judge also "narrowed his consideration of what evidence was important in assessing whether reasonable and probable cause existed to initiate the prosecution."

In fact, the ruling says there was enough evidence to support the view the Samaroos could be found guilty.

"This does not mean that conviction is certain," the appeal court ruling says. "That is not the test."

Old bills and credibility

The case against the Samaroos, who operated a nightclub, a restaurant and a motel, began with an anonymous tip in 2006.

The CRA claimed they had been skimming money from the restaurant after determining that substantial cash deposits had been made to their business accounts.

The tax agency's original criminal case relied heavily on the theory the couple had been withholding proceeds from the till after one of three daily shifts.

But Tony Samaroo — who immigrated to Canada from Trinidad — claimed the cash came from safety deposit boxes where he had been stashing a decade worth of savings, because he didn't trust banks.

He claimed he transferred the money into the accounts where the CRA found it because he was worried modern financial institutions would no longer accept old bills.

The judge who acquitted Samaroo in the criminal trial found him to be a credible witness.

But the appeal court says the judge who heard the couple's civil claim shouldn't have relied on that finding as fact.

"Both the absence of declared income consistent with accumulating savings of the amount claimed and the apparent illogicality of holding cash rather than paying off expensive debt objectively casts doubt on the claim that the cash represented savings accumulated over a lengthy time," Harris writes.

"In my opinion, both of these circumstances offer a basis, alongside other evidence, for not accepting Mr. Samaroo's explanations and provide support for the inference that the cash deposited came from the business."

'Objectively sufficient'

Harris says the lower court judge wrongly ignored those circumstances because he believed it was essential to prove how a scheme worked — as opposed to simply finding that it had.

Regardless of how the alleged scheme operated, Harris writes, enough smoke existed to reasonably assume a fire was taking place. 

And that meant the CRA was justified in prosecuting.

"In my opinion, the uncontested evidence I have described is objectively sufficient to support the view that the Samaroos could be found guilty beyond a reasonable doubt," Harris writes.

"It does not depend on proving the particular mechanics of the tax evasion. It depends on the conclusion that, taken together, the only rational inference is that the Samaroos were evading tax by not reporting all of the cash revenue of the businesses."