Fact that mens rea may have been negated did not mean that prosecution was legally unsound

Canada Revenue Agency (CRA) conducted criminal investigation of plaintiff tax preparers’ preparation of scientific research and experimental development (SRED) claims on behalf of taxpayer clients. Plaintiffs attempted to overcome clients’ lack of documentation by creating after-the-fact evidence of inter-corporate transactions. Plaintiffs were charged with fraud under Criminal Code but charges were ultimately stayed. Plaintiffs brought actions against Government of Canada for damages resulting from criminal investigation, alleging negligent investigation, breach of Canadian Charter of Rights and Freedoms, misfeasance in public office, malicious prosecution, and intentional interference with contractual relations and economic interests. Actions dismissed. Investigator’s interpretation of plaintiffs’ practices provided foundation for recommending charges. Plaintiffs’ backdating of documents was inconsistent with generally accepted accounting methods and constituted misrepresentations. Plaintiffs’ methods were not validated by CRA in reassessments or appeals. CRA investigators owed private law duty of care, based on negligence standard of care. Plaintiffs did not establish negligence, malicious prosecution or economic interference. Investigators had legal basis for investigation under s. 239 of Income Tax Act even though charges under Act were not brought. Claim for civil damages could not be brought because recommended administrative step was not followed by investigator. CRA’s lead investigator was qualified to lead investigation and her receipt of modest increase in acting salary did not create risk of corruption or bad faith. Investigation was conducted in full conformity with Crown’s Charter obligations. Fact that mens rea may have been negated based on plaintiffs’ mistaken belief that methods were sound did not mean that prosecution was legally unsound.

Gordon v. Canada (2019), 2019 CarswellNat 3036, 2019 FC 853, R.L. Barnes J. (F.C.).

Case Law is a weekly summary of notable civil and criminal court decisions by the Supreme Court of Canada, the Federal Court of Canada and all Ontario courts. These cases may be found online in WestlawNext Canada. To subscribe, please visit store.thomsonreuters.ca