Hillman v. R. – TCC: Court declines CRA’s application in RRSP strip cases to have Rule 58(1) determinations in respect of prior prosecutions of the promoters of the RRSP strips

Hillman v. R. – TCC:  Court declines CRA’s application in RRSP strip cases to have Rule 58(1) determinations in respect of prior prosecutions of the promoters of the RRSP strips


Hillman v. The Queen (June 29, 2018 – 2018 TCC 122, Russell J.).

Précis:   The taxpayers were all reassessed in respect of what CRA alleged were RRSP strips.  The promoters of those strips were convicted in two separate criminal proceedings.  CRA sought to have the Court make a determination under Rule 58 either that the taxpayers could not dispute the factual findings in one of the two criminal cases (the Kendall decision) on the basis of the abuse of process doctrine or, in the alternative, that the factual findings in the Kendall decision were prima facie evidence of the facts and conclusions listed in the Crown’s Reply.  Justice Russell held that neither of the Crown’s proposed remedies were appropriate uses of Rule 58(1) and dismissed the application with one set of costs to the Appellants in accordance with the Tariff.

Decision:   The Crown claimed alternative relief under Rule 58(1):

[3]  The order sought by the Respondent is that the following proposed question and alternatively the second following proposed question be answered prior to the hearing of this appeal.

Proposed Question

Whether the Appellant is precluded by the abuse of process doctrine from re-litigating the facts and conclusions of mixed fact and law determined by the Alberta Court of Queen’s Bench in R. v. Kendall, 2015 ABQB 177 that are listed in paragraph 16 of the Further Amended Reply.

Second Proposed Question

If not, then whether the facts and conclusions determined by, and the underlying the convictions by, the Alberta Court of Queen’s Bench as set out in its Reasons for Judgment in R v. Kendall, 2015 ABQB 177 are admissible as evidence in this proceeding as prima facie evidence of the facts and conclusions listed in paragraph 16 of the Further Amended Reply. I note that there are approximately 50 facts and conclusions listed in paragraph 16 of the Further Amended Reply.

There were in fact two criminal proceedings involving the promoters of this plan:

[7]  The Respondent charged and prosecuted certain individuals in respect of orchestrating this RRSP scheme, including marketing it to the Appellant and others. These individuals included Messrs. Steven Kendall, Christopher Houston and Milowe Brost. Messrs. Kendall and Houston were charged with conspiracy to defraud the government, fraud on the government, fraud on investors and theft. After a lengthy trial in the Alberta Court of Queen’s Bench, they were Kendall and Houston were found guilty of defrauding the government through denying payment of withholding taxes on withdrawn RRSP funds - R. v. Kendall, 2015 ABQB 177. The reasons for judgment of Justice McIntyre issued March 18, 2015 exceed 500 paragraphs and include factual findings. Two statements of agreed facts also had been filed in that matter.

[8]  Mr. Brost had elected trial by judge and jury in the Alberta Court of Queen’s Bench. He ultimately was convicted of five charges including defrauding investors, unlike Messrs. Kendall and Houston who were not convicted of that particular charge. In the Brost case Justice Hall issued a five page document entitled “Findings of Fact” wherein he listed his numerous findings of fact in respect of Mr. Brost. He was sentenced July 28, 2015.

Justice Russell found that the use of Rule 58(1) for the abuse of process argument was inappropriate:

[13]  There is no question that the Rule 58(1) requirement that the hearing may be shortened would here be met, insofar as the Appellant’s first issue - of liability for tax - would be resolved, leaving for litigation only the remaining two issues of whether the matter is statute-barred and whether there is liability for a subsection 163(2) penalty.

[14]  However, in this appeal the Appellant has pleaded that she did not acquire RRSP unqualified shares using her RRSP funds, and thus is not liable for taxation. Her argument, based on certain jurisprudence, is that the entire arrangement was a Ponzi scheme and as such no legally effective transactions occurred, including any actual purchase by her using her RRSP funds of corporate shares intended by the scheme’s organizers to be mis-portrayed as RRSP qualifying shares when in actuality they were not. This was not an issue in the Kendall trial. Indeed in that criminal proceeding the accused parties had, with the Crown, signed two statements of admitted facts, one admitted fact being that the RRSP clients (of which the Appellant would be one) had purchased such corporate shares using RRSP funds. In my view this is enough to conclude that it would not be fair to allow the proposed question to go forward.

[15]  Additionally, however, I note that upon review of the lengthy Kendall reasons for judgment, the Court’s findings of fact are not very specifically articulated as compared or contrasted with the specificity of the Respondent’s some 50 pleaded facts and conclusions at paragraph 16 of the Further Amended Reply. That is not surprising, as typically issues of income tax liability per interpretation of the Act are litigated in this Court while a provincial superior court having criminal jurisdiction would deal with tax matters, as here, through the lens of Criminal Code charges as to tax evasion, fraud and the like.

[16]  Also essentially the same RRSP transactions were litigated in the Alberta Court of Queen’s Bench in the case of Mr. Brost, as noted above. His matter was heard by a different judge, Justice Hall, sitting with a jury. Mr. Brost was convicted of different charges than were Messrs. Kendall and Houston, and Justice Hall’s findings of fact in Brost are not identical to and may substantively differ from those made in the Kendall context. It raises the question why the Brost findings of fact should not also be considered in the proposed question, and not simply the findings of fact reflected in Kendall. I could revise the proposed question to reflect that decision also but I feel that this would cause the intended focus of the proposed question to be lost, to the disadvantage of the efficacy purpose supposed to underlay any Rule 58(1) referral of a particular question.

[17]  I add the further complication that the Appellant in this matter was not a party to the Kendall litigation, nor was she called as a witness in that proceeding. The jurisprudence reflects that this of itself is not a determinative factor; nevertheless it is relevant.

[18]  On the basis of the foregoing I conclude that it would not be appropriate to refer the Respondent’s proposed question for determination at a Rule 58(1) stage two hearing.

Similarly Justice Russell rejected the alternative “prima facie evidence” argument:

[20]  Again in this context the Kendall findings are somewhat tainted vis-a-vis the Appellant from the perspective that they are based on admission in the Kendall litigation of a key fact (that clients’ RRSP funds were used to purchase non RRSP qualifying corporate shares), which admitted key fact the Appellant has fundamentally put in issue in this Court, per her pleadings. I note also that the argument for shortened time frame for the hearing of the appeal proper is less obvious, where the effect of allowing the Kendall findings on a prima facie basis seemingly would simply be to reverse the initial onus of proof from the Respondent to the Applicant of the many facts and conclusions pleaded in paragraph 16 of the Further Amended Reply.

[21]  For these reasons and as well those noted above regarding the first proposed question, I likewise decline to order a stage two Rule 58(1) hearing in respect of the alternative proposed question. In my view, considering the several concerns herein noted, the most efficient way to proceed with this appeal is through it proceeding to hearing, perhaps preceded by a pre-trial conference, whereat the presiding judge could address questions similar to those herein proposed in the context of the hearing over which he or she would preside.

As a result the Crown’s application was dismissed with one set of costs to the Appellants in accordance with the Tariff.