http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/127573/index.do
Canada v. Scheuer (January 13, 2016 – 2016 FCA 7, Dawson (author), Ryer, Webb JJ. A.).
Précis: In a decision blogged earlier on this site the Federal Court dismissed the Crown’s motion to strike the statement of claim in this case. The plaintiffs are seeking a remedy against the Crown for its negligence in connection with a tax shelter in which they invested. The Crown appealed the Federal Court’s decision to the Federal Court of Appeal. The Court of Appeal recognized that there could be liability in connection with public officials acting “in a manner inconsistent with the proper and valid exercise of their statutory duties, in bad faith or in some other improper fashion” [para. 46] but found that such allegations had not been properly pleaded. The Court further determined that there was no general tortious duty of care on the part of CRA and its officials in connection with tax shelters and decided to strike the statement of claim in its current form. The plaintiffs were given leave to file an amended statement of claim consistent with the terms of the Court of Appeal’s decision.
Costs were awarded to the Crown in the Court of Appeal and to the plaintiffs in the Federal Court and before the Prothonotary.
Decision: The Court of Appeal determined that a duty of care exists on the part of CRA and its officials in limited areas but the statement of claim did not properly plead any of those recognized areas:
[26] In Cooper, at paragraph 36, the Supreme Court stated that when a case falls within one of a number of enumerated examples, or an analogous situation, and reasonable foreseeability is established, a prima facie duty of care may be posited. Examples given by the Supreme Court that are relevant to the present case include: where the defendant’s act foreseeably causes physical harm to the plaintiff or to the plaintiffs’ property; negligent misstatement; misfeasance in public office; a duty to warn of the risk of danger; a duty of care owed by municipalities to prospective purchasers of real estate to inspect housing developments without negligence; and, a duty of care to execute a policy of road maintenance in a non-negligent manner.
[27] The plaintiffs argue that this claim falls within or is analogous to: misfeasance in public office; the obligation on municipalities to take care when inspecting housing developments and executing road maintenance; negligent misstatement; negligent performance of a service; duty to warn; and, creating “the impression that GLGI operated under its watch”.
[28] In my view, the amended statement of claim fails to properly plead any of the above causes of action. The question then arises whether it pleads a sufficiently analogous cause of action.
In terms of a general tortious duty of care the Court found, as a matter of public policy, that such a duty did not exist:
[42] Cooper provides guidance about the nature of residual policy concerns that may negate the existence of a duty of care. In Cooper, an investor alleged that the Registrar of Mortgage Brokers of British Columbia was liable in negligence for failing to oversee the conduct of an investment company licensed by the Registrar. At the first step of the Cooper-Anns test, the Supreme Court found insufficient proximity to ground a duty of care. The Court, however, went on to hold that even if a prima facie duty of care had been established at the first stage, it would have been negated at the second stage for three “overriding policy reasons”.
[43] One reason, discussed at paragraph 55 of the Court’s reasons, was the impact of such a duty of care upon taxpayers. Together, the Chief Justice and Justice Major wrote:
Finally, we must consider the impact of a duty of care on the taxpayers, who did not agree to assume the risk of private loss to persons in the situation of the investors. To impose a duty of care in these circumstances would be to effectively create an insurance scheme for investors at great cost to the taxpaying public. There is no indication that the Legislature intended that result. [emphasis added]
[44] In my view, this policy consideration applies to a duty of care to warn against investment in an improvident or suspect tax shelter. The written warning tax shelter promoters are mandated by paragraph 237.1(3)(c) of the Income Tax Act to display in connection with use of a tax shelter identification number is consistent with Parliament’s intent that taxpayers should participate in a tax shelter at their own peril, not at the peril of Canadian taxpayers generally. Moreover, at paragraph 8 of the amended statement of claim, the plaintiffs acknowledge that they received independent legal opinions, opinions from accountants and valuation appraisals in respect of the tax shelter. The issuers of such opinions, who benefited financially from the provision of their professional advice, are better placed to indemnify the plaintiffs in the event of negligence in the exercise of their professional responsibilities.
In the result the statement of claim was struck with leave to amend:
[47] For these reasons, I would allow the appeal with costs, and set aside the judgment of the Federal Court. Pronouncing the judgment the Federal Court ought to have pronounced, I would strike out the amended statement of claim with leave to amend in a manner consistent with these reasons and order the respondents to pay to the appellants the costs of the motions in the Federal Court before the Prothonotary and the Judge.
Comment: This is a significant case in that it negates the existence of a classical tortious duty of care on the part of CRA and its officials in the highly contentious area of tax shelters. The decision could possibly make its way to the Supreme Court of Canada on this narrow issue.
The decision is silent on one interesting issue. Prior to February 19, 2003 charitable donation programs were not tax shelters since they relied upon tax credits (in the case of individuals) rather than deductions. The Court of Appeal’s decision relies on the statutory tax shelter warning scheme but that would only apply to more recent charitable donations programs. What is the position of taxpayers involved in such programs in 2001, for example, when the warning system was not in place?