http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/107781/index.do 
Scheuer v. Canada (January 02, 2015 – 2015 FC 74, Diner J.).
Précis: A large group of taxpayers were reassessed in connection with a charitable donation scheme. They hit back with a negligence action in the Federal Court against the Crown, CRA and the Attorney General of Canada alleging that CRA was aware of the dangers associated with the scheme and failed to warn the plaintiff taxpayers. The defendants moved to strike the claim and were unsuccessful before the Prothonotary. They appealed and the The Federal Court dismissed their appeal, with costs. The Court held it was not “plain and obvious” that the claim would fail; it should be allowed to proceed to trial.
Decision:
Scheuer is a new chapter in the evolving saga of negligence claims against CRA and the Crown for failure to fulfil duties of care owed to taxpayers. This decision arose out of the same facts involved in the
Ficek decision reported some time ago on this blog:
In
Ficek the Federal Court held CRA had intentionally delayed assessing taxpayer who made donations to Global Learning Gift Initiative (GLGI) in order to avoid issuing tax refunds. As a result the Court issued a declaration that CRA had failed to act with “due dispatch” in assessing the applicant.
Scheuer also involved donations to GLGI.
[3] The Plaintiffs are a group of Canadian taxpayers who participated in a tax shelter donation program marketed by Global Learning Group Inc [GLGI]. The Plaintiffs made a claim in negligence in 2011 against Her Majesty the Queen, the Canada Revenue Agency [CRA], and the Attorney General of Canada for the CRA’s alleged breach of its duty of care by failing to properly warn the Plaintiffs in a timely fashion of the consequences that could follow from their participation in the GLGI program.
[4] The Plaintiffs allege in the Amended Statement of Claim that CRA was aware of potential issues surrounding the charitable donations made to GLGI as early as the year 2000, but took no steps to warn or inform Canadian taxpayers, and in particular the Plaintiffs, of its concerns with the program. The Plaintiff Scheuer alleges that he relied upon the fact that CRA had issued a valid tax shelter number to GLGI and made various donations to GLGI for the years 2004 to 2007, for which he claimed charitable donation tax credits. The CRA later reassessed the Plaintiff Scheuer and disallowed those charitable donation tax credits. The Plaintiffs claimed damages from the Defendants for the CRA’s failure to properly warn and protect them.
The defendants moved unsuccessfully before the Prothonotary to strike the claim:
[6] The Prothonotary dismissed the motion to strike the claim, concluding that he was not convinced that it was abundantly clear that the claim was bereft of any chance of success, given: the findings in
Ficek v Canada (Attorney General) [Ficek], 2013 FC 502, which supported the proposition that the within taxpayers were part of a targeted group within CRA who were being treated differently than other taxpayers; the provisions in the
Income Tax Act [ITA]; the exceptions in section 241 of the ITA to the prohibition against providing confidential information; the relevant case law regarding motions to strike and duties of care; and the allegations in the Amended Statement of Claim.
The court first turned to the standard of review of the Prothonotary’s order:
[11] The case law is clear that discretionary orders of prothonotaries ought only to be reviewed de novo by a judge on appeal where: (a) the questions raised in the motion are vital to the final issue of the case; or (b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts: …
While the Prothonotary should not have relied upon the factual findings in
Ficek as evidence it was not clear that he did so or merely relied upon the pleadings. In any event the Court found that any error in that regard was immaterial.
The Court then entered into a proximity analysis. It cited the proximity factors pleaded by the plaintiffs:
[26] The pleadings provide various points in time at which sufficient proximity can be found, with increasing proximity at each point. The following facts, all obtained from the Amended Statement of Claim, may be sufficient to establish proximity by interaction, the merits of which of course will have to be determined if this matter makes it to trial. The relevant sections from the Amended Statement of Claim potentially establishing a basis for proximity are:
- CRA issued a tax shelter number to GLGI without properly assessing the scheme submitted by GLGI and with knowledge that the Plaintiffs would rely on the tax shelter number as an indication that GLGI had met the requirements of the ITA (para 147);
- The Plaintiffs relied on the tax shelter number (paras 147, 157);
- The Plaintiffs are separate from the general public in that they are part of a group of taxpayers who donated to GLGI (para 157);
- CRA was aware of potential issues surrounding the charitable donations made to GLGI as early as the year 2000 but took no steps to warn or inform Canadian taxpayers and in particular the Plaintiffs (para 149);
- The Plaintiffs filed their tax returns to CRA which included the specific information of the donations they made based on the tax shelter numbers (para 150);
- CRA received information returns from the GLGI promoters which reported all their sales, as required by subsection 237.1(4) of the ITA (para 151);
- CRA assessed each individual tax return separate and apart from all other Canadians. At this time, CRA had information available to it regarding GLGI’s sales (para 152);
- CRA accepted the Plaintiffs’ donations to GLGI, creating further reliance by the Plaintiffs on CRA that the scheme was approved by CRA (para 154);
- CRA waited until 3 years later to reassess the tax payer, when CRA knew or ought to have known that the donation would not be accepted (para 156); and
- CRA has continued to allow GLGI to market its program to Canadian taxpayers, knowing that none of the tax credits issued will be honoured by CRA (para 155).
The Court held that these facts, if accepted as true, gave rise to an arguable case that the defendants owed a
prima facie duty of care to the plaintiffs:
[28] The facts as alleged above provide some basis for distinguishing the relationship between the CRA and these Plaintiffs from the relationship that exists between the CRA and all those affected by its actions. The facts suggest that despite CRA’s knowledge as early as 2000 of potential issues surrounding the charitable donations made to GLGI, and the annual reporting by individual taxpayers and by GLGI of the names of individuals who were investing in the GLGI program, CRA confirmed the assessments of the individuals and did not reassess them until several years later. In my view, this provides at least an arguable case of sufficient proximity for a
prima facie duty of care. Ultimately, it will be necessary to consider the entirety of the circumstances said to constitute the relationship to determine whether a duty exists: Taylor at paras 117-118. All we have at this very early stage of the proceedings are pleadings of the affected taxpayer Plaintiffs who participated in the GLGI scheme. We do not yet even have a statement of defense from the Defendants.
The Court rejected the Defendants’ argument that the legislative scheme of the
Income Tax Act precluded the existence of a duty of care:
[30] In response to the Defendants’ arguments that the ITA’s (i) purpose to raise funds for the treasury, and (ii) self-assessment system, are both inconsistent with a private law duty of care by the CRA to warn individual taxpayers of specific questionable tax schemes, I need refer only to the following discussion of the British Columbia Supreme Court in
Leroux, above [2014 BCSC 720]. Where Leroux is currently under appeal, and may resultantly be nuanced or reversed by the Court of Appeal, the case nonetheless establishes that these issues are arguable ones, and that the claims are not necessarily bound to fail:
303. The close causal connection between the alleged misconduct and the harm is another indicator of proximity, according to
Odhavji. The foreseeability of devastating consequences to Mr. Leroux in a general sense was evident to everyone involved at the time the assessment was levied, particularly in view of the extremely large penalties and the daily compounding of interest, even if the specifics of Mr. Leroux’s business difficulties were not known to them.
The fact that Mr. Leroux had reciprocal and perhaps even more important duties under the Income Tax Act, does not detract from the duty on the CRA employees to conduct themselves as reasonably careful professionals in these circumstances. There is nothing in the statutory scheme of the Income Tax Act that would suggest otherwise. [The Court’s emphasis]
[…]
The Court rejected various policy-based arguments raised by the defendants:
[38] With respect to the Respondents’ argument that the CRA’s decision whether to issue in this case (or not to issue) a warning to taxpayers is a true policy decision and therefore exempt from tortious claims, it is not plain and obvious to me that the decision to warn is a true policy decision. Rather, it is an arguable issue which merits further exploration:
Imperial Tobacco, above, at para 91.
…
[41] Certainly, with a carve-out built into the very legislative provision from the ITA that the Respondent relies on, and which speaks to the protection of the public, to state that section 241 [confidentiality provision] forecloses the possibility of a finding of proximity, is to put the proverbial cart before the horse.
[42] The basic point is that while this and the other “policy considerations” cited by the Defendants to negate any duty could indeed ultimately negate the imposition of any prima facie duty of care at trial, I am not prepared to conclude at this very early stage of the proceedings that the Plaintiffs have a hopeless case, and no chance of success: the Plaintiffs in my view are entitled to have these matters fully and properly considered at a hearing.
The Court not only concluded that the Prothonotary had made no reversible errors, it also concluded that had it conducted a de novo review it would have come to the same result:
[45] Even if I had found that the question was vital to the final issue in the case and reviewed the entire Order de novo, I would have arrived at the same result. Despite the fact that the duty of care asserted by the Plaintiffs is a novel one, it is simply not “plain and obvious” that the facts as pled fail to establish the existence of a duty of care by CRA in this case. The proximity and policy issues raise arguable issues to be determined by a court with the benefit of a trial and a complete record. It cannot be said at this stage that the Plaintiffs’ claim is hopeless.
The appeal by the Defendants was dismissed, with costs.