The Rule of Law?

as experienced by Peter Eickmeier

Do you believe that there exists the rule of law? Do you believe that, if you strictly and literally comply with the statutes enacted by the government, a judge will not accuse you of using a strictly literal interpretation of the law and rule against you because he dislikes that strictly literal interpretation of the law (i.e., because he dislikes that law)? Do you believe that a judge applies the law to a case and judges in accordance with the law? Or does he ask the prosecutor to provide an excuse to rule against the accused regardless of what the law says, and then does not ask the accused for a rebuttal, because he doesn’t want anything on the record that would exonerate the accused? And do you believe that a judge who rules against the accused will always give a reason that addresses the issue in the case, rather than speak in broad terms to avoid dealing with that issue? If you use the Oxford English Dictionary to interpret words in the statute in which there is no other definition given, do you feel confident that the judge will not accuse you of using “some dictionary” to get the meaning of the words in the statute, because he hates that meaning?

Then think again. My experiences before the courts may give you cause to wonder about the existence or relevance of law in determining the outcome of a judicial case. I was left with the feeling that the government loads the accused down with thousands of pages of “disclosure” materials (in my case, over 25,000 pages) that do not appear to have any relevance to the charge, so that the accused can never see precisely what he is charged with. And then the government looks around for a prosecutor who either believes that there is an actual offence or is willing to take on the case anyway.

In my case, the first prosecutor who was retained to handle the case apparently did not see any offence arising from the evidence presented, and was not willing to proceed with a case he did not believe in.

Then the second prosecutor backed out of the case after several months of legal research. So, the case ultimately went to a third prosecutor who was willing to take on the case anyway.

When I asked the chief investigator why the first prosecutor was no longer handling the case, he explained that the purpose of the first prosecutor was merely to give an opinion as to whether there was a case at all. But this explanation was contradicted by the person who assigned the case to the prosecutor: she said that she thought the first prosecutor was handling the prosecution, and that she was not aware of any change.

The government then concealed from me what wrongful acts the prosecutor intended to allege. And I could not find any wrongful acts in the mountain of disclosure materials provided by the government because nothing in the disclosure materials said what the government was complaining about. (The obvious reason for this concealing by the government is that if I knew what the government was complaining about, I could easily explain that such behaviour is expressly allowed by the statute.)

When the case went to court, I got the impression that the courts try to find an excuse to convict when there is none, and that in doing so they avoid mention of the issue in the case and prevent an argument of the accused that rebuts the excuse from being heard by telling the accused that a reply is not necessary, thereby preventing that argument from becoming a part of the transcript of the hearing. So the judgment of the court does not reveal the issue in the case, but rather suggests that the issue is something else, so that the written decision appears to be reasonable.

In addition, when one government auditor was being cross-examined, he kept avoiding the question so that it took me fifteen minutes to get a “yes” out of him. Under further questioning, he admitted that he always answers promptly for the prosecutor, but always avoids answering questions from the accused. This shows something about what the government does to create evidence for its case.

The Setting:

I went to law school because I saw no way to earn a living from physics, my university major. And I looked for a subject in law school that was as similar to physics as possible. Nothing was similar, but tax law came closest; it was the most problem-oriented law-school subject (vaguely like physics or mathematics, which are problem oriented) and so it became my main interest.

Aside from having little or no social utility, there was one shortcoming it had that concerned me: you could not make money from tax law alone, since you were restricted to merely reducing your income taxes on earnings from other activities. There was no way you could get the government to pay you money by a sort of negative income tax, because there was no such thing. Or so I thought at the time.

Tax Law:

My area of operations became tax law. The occupation of tax lawyer or tax accountant is best exemplified by the most important Canadian tax case in the past two decades:

Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54. In that case Canada Trustco Mortgage Company received a $120,000,000.00 reduction of its taxable income by mere paper shuffling. The transaction was an artificial transaction (i.e., one where the sole purpose of the transaction is to get a tax benefit, because there is no income-earning purpose for it). And although the tax authorities (including their appeals department) denied the tax reduction, the tax courts unanimously approved it, including all three judges at the Court of Appeal and all nine judges of the Supreme Court.

Here is how it worked (slightly simplified):

Canada Trustco Mortgage Company (hereinafter referred to as Canada Trustco) is a subsidiary of the largest Canadian Bank (TD Canada Trust), and Transamerica Leasing Inc. (hereinafter referred to as Transamerica) is a U.S. company that finances equipment by taking ownership of the equipment and leasing it to the company that uses the equipment.

Canada Trustco and Transamerica entered into an agreement whereby Transamerica sold trailers (that it was leasing to trucking companies) to Canada Trustco for $120 million. In the agreement, Canada Trustco appointed Transamerica its agent to hold title to the trailers, so there was no need to have the ownership or license plates changed at any government office.

Canada Trustco immediately leased the trailers to Maple Assets Investments Limited (hereinafter referred to as MAIL), a corporation incorporated in the UK by Canada Trustco to be used only for this transaction, for 20 years with an option to purchase the trailers at the end of the 20-year term, and the full amount of the lease payments and price payable on exercise of the option was $120 million.

MAIL immediately sub-leased the trailers to Transamerica for 20 years with an option to purchase at the end of the 20-year term, and the full amount of the lease payments and price payable on exercise of the option was $120 million payable immediately.

MAIL deposited this money in an account at the Royal Bank of Canada, located in London, England. And the Royal Bank of Canada loaned the $120,000,000.00 to Canada Trustco, and the interest payments were the same as the interest accruing on the bank account.

So, the payments for interest and lease payments went around in a circle, but, in fact, they didn’t require any movement of money, merely bookkeeping entries, all done by the Royal Bank of Canada located in London, England. So, the money went around in a circle, and so did the title to the trailers.

But the title remained in the name of Canada Trustco for twenty years so that Canada Trustco could take capital cost allowances (accelerated depreciation) on the trailers and thereby get a reduction of taxable income of $120 million over a period of years. And Transamerica did not give up any right to capital cost allowances because there is no such thing in the United States.

So, by merely shuffling papers, Canada Trustco got a huge tax saving, since its taxable income was reduced by $120 million over a period of years.

Canada Trustco used the following techniques to hide this transaction from the tax authorities:

1. MAIL was incorporated in the UK (rather than in Canada) so that its financial records were less accessible to Canadian tax authorities.

2. The payment by MAIL to Canada Trustco was partly in the form of a government bond (for $25 million) so that the amount going out to Transamerica ($120 million) would be substantially different from the amount of cash coming in ($120 million was changed to $95 million because $25 million was in the form of a government bond). So, there would be less chance of suspicion being aroused in tax authorities.

3. Money was sent around in a circle to hide the fact that no money was really changing hands. Since the money passed through three countries, the tax authorities would not see where the money had gone unless they launched an investigation, which they would not do unless they suspected something wrong, which they would not likely do unless they could see where the money had gone.

4. The loan was from a UK branch of Royal Bank of Canada, thereby making its records less accessible to Canadian tax authorities.

After a tax audit in Canada, the tax authorities disallowed the tax savings to Canada Trustco, and so did its appeals department, on the grounds that Canada Trustco’s purchase of the trailers did not involve having any money at risk, and that the purchase of trailers by Canada Trustco was a sham. But the tax court, and all three judges at the Court of Appeal, and all nine judges of the Supreme Court unanimously allowed the tax reduction, on the grounds that it was not a sham, and not having money at risk was not relevant.

This case was a major victory for tax lawyers, and it showed that it was still possible to get something for nothing by using a clever tax strategy. It was reported in a major newspaper, and the report is set out below:

The tax man’s reach

By BEPPI CROSARIOL

Wednesday, October 26, 2005 Posted at 9:25 AM EDT

From Wednesday’s Globe and Mail

The Supreme Court of Canada can boast of many achievements in its hallowed 130-year history, but last week it did the impossible. It managed to stir up excitement over the subject of tax law.

In a decision being hailed as a major victory for Corporate Canada, the country’s highest court effectively sanctioned the well-worn practice of tax avoidance, saying transactions structured to minimize what is owed to Caesar, as it were, don’t per se constitute a breach of the law.

The closely watched decision was one of two rulings handed down last Wednesday that marked the high court’s first test of the infamous general anti-avoidance rule, or GAAR. Enacted in 1988, the rule was intended as a catch-all to close loopholes in the Income Tax Act, forcing taxpayers to honour the spirit of the law, even in cases where no specific statute prevents them from structuring a sweeter deal.

“It’s an extremely important case,” said Alan Wheable, senior vice-president of taxation for Toronto-Dominion Bank, whose Canada Trustco Mortgage Co. subsidiary prevailed in the case after a bitter three-year battle with the federal government. “I think it’s reassuring to both regular taxpayers and the government, because I think it indicates that the government can’t do whatever it wants [even though] there are definite limits on taxpayers.”

The case in question turned on a complex sale-leaseback transaction set up in 1996 by Canada Trustco with the help of two partners at Toronto-based law firm McMillan Binch Mendelsohn LLP, Vern Kakoschke and Michael Templeton. The mortgage lender purchased $120-million worth of tractor trailers from a U.S. company, Transamerica Leasing Inc., and then leased back the trailers to Transamerica, enabling Canada Trustco to claim a capital cost allowance -- essentially a tax break for equipment depreciation -- on the trailers for the 1997 taxation year.

For the most part, the arrangement was run of the mill. In fact, it’s common for capital-intensive industries such as airlines and trucking companies to finance equipment by having deep-pocketed financial institutions buy the planes and trucks at the outset and then lease them over time to minimize capital outlay.

But this deal had a twist. Instead of setting up regular instalment payments, the parties arranged for Transamerica to prepay the lease in a lump sum through a circuitous route that included an intermediary company registered in the United Kingdom.

That’s when the government pounced. It argued Canada Trustco, by getting its money back right away, had not acquired title to the trailers and was avoiding the risk associated with leaseback arrangements.

But the financial institution fought back, hiring a team of lawyers at Osler Hoskin & Harcourt LLP, led by litigators Al Meghji and Gerald Grenon and tax partner Monica Biringer, and won its case. The government appealed, but again Canada Trustco prevailed.

Determined to close a loophole some lawyers say could cost Ottawa tens of millions of dollars annually from future arrangements, it took the case up to the Supreme Court.

But the high court sided unanimously with Canada Trustco, reasoning the deal was not an abuse of law.

The case has electrified legal experts versed in the arcana of accrued revenues and tax-loss carry forwards. So excited were the tax gnomes in March, on the day the Supreme Court heard arguments, that more than 200 from across the country descended on the Ottawa courtroom, forcing staffers to hastily set up a second room with a video screen to accommodate the overflow. “I looked behind me and I was stunned to see that it was completely packed,” Oslers’ Mr. Meghji said.

Evy Moskowitz, a senior partner with Moskowitz & Meredith LLP, a Toronto law firm affiliated with accounting giant KPMG LLP, said the decision offers greater tax-planning certainty to Canadians considering transactions that aren’t explicitly covered by existing law -- not just in the leasing arena but in all business and personal income tax arrangements.

“I think generally this is a good decision for taxpayers,” she said. “The onus is on the CRA [Canada Revenue Agency] to show that what you are doing is abusive, and if the CRA cannot show that, then the taxpayer wins.”

The case is particularly significant for businesses, however, because companies for years have endured the prospect of reassessments whenever their savvy deal advisers waded into uncharted legal waters with aggressive tax-paring structures. Indeed, tax lawyers, along with their counterparts in competition law, have become key players in cross-border mergers and acquisitions, where the tax fallout often can make or break a deal.

“It is a very significant tax case,” Mr. Meghji said. “It gives corporations direction on when tax avoidance becomes abusive tax avoidance.”

Accolades for Mr. Meghji and his colleagues have been pouring in from the corporate world as a result. “There’s been almost universal praise for the team at Oslers that argued this,” said David Powell, president and chief executive officer of the Canadian Finance & Leasing Association, which represents about 235 financial institutions with more than $100-billion in leasing deals.

Lawyers say the Canada Trustco case is bound to bring new status to the arcane field of tax law.

“It’s been a lot of fun watching this case go all the way to the top and holding your breath,” said Mr. Kakoschke of McMillan Binch Mendelsohn. “It’s been exciting.”

bcrosariol@globeandmail.ca

This case is well known to all Canadian tax lawyers, but there are many other older cases that show the same activity of tax-lawyers: getting a tax benefit for the taxpayer with as little effort as possible, using transactions that have no business purpose other than to get the tax benefit, i.e., using “artificial” transactions.

After this case, one wonders whether banks ever pay any income taxes at all. But those banks are still around to collect bailouts from the government when they are about to go broke from investing in high-risk investments that produce big profits one year so the top management in the bank can get bonuses of hundreds of millions of dollars for each person, and that cause the bank to go begging for a bailout the next year when the high-risk investments go sour and threaten the bank’s very existence.

The Tax-Plan:

I assumed that these cases actually represented the law, and that their use did not constitute a criminal offence. And so, when I was approached by a businessman who suggested using a tax plan that would enable us to get a tax advantage that was more than a mere reduction of income tax payable in order to provide better cash flow for his business plan, I concluded that his tax plan was perfectly legal: it was a plan to get the government to actually pay money to the taxpayer, even if the taxpayer did not pay or owe anything to the government.

At the time he presented it, he had not reduced it to writing, and he provided no statutory authorities for it. Nevertheless, I studied it and found it to be in compliance with the tax laws. Years later, when an audit was approaching, I prepared a written explanation of the plan, and changed the facts to provide the worst-case scenario that the tax auditor could imagine, so that I would be able to justify the plan, including any adverse assumptions that the auditor could come up with. Here is how it worked:

C Inc. of Buffalo is a custom-computer-software vendor and receives orders (with software specifications) from U.S. customers.

B Ltd., a steel vendor from Toronto, knows where custom computer software can be obtained cheaply (from A. Ltd. of Toronto) and so offers to supply C. Inc. on favourable terms (high quality, fast delivery, low price, and sales on approval). C Inc. does not know where B Ltd. will have the software made.)

[Hereinafter, A means A Ltd.; B means B Ltd.; C means C Inc.]

B receives software orders from C and then orders the software from A. (A does not know where B is getting the orders.)

A does not reveal to B that A uses cheap off-the-shelf software, slightly modified, to produce “custom” software which A then sells to B for about $1,000,000.00 per program. Nor does A reveal that A uses cheap labour from India to do some of the work. A does not even reveal these things to Revenue Canada for fear of them leaking out to B, so A does not claim A’s off-the-shelf software costs ($100.00 per program) or Indian labour costs in determining A’s taxable income. So A has no receipts for such expenses. (Computer software entering Canada is duty-free, and, if sent by telephone lines, GST-free also.)

A writes the software and sends it to B, invoicing B for the agreed price, plus GST, “payable upon receipt of invoice.” B does not pay yet. B then sends the software to C “on approval,” (duty-free).

C then sends the software to the end user customer “on approval.”

B submits B’s monthly report to GST promptly, requesting a $210,000.00 refund for $3,000,000.00 purchases, (all sales being zero-rated exports; and “on approval”).

C’s income tax return shows no income because sales “on approval” are not regarded as income until “approved.” C need not reveal the names of C’s customers to the IRS until the sales are “approved” and the sale invoices become part of C’s income tax records or NY state sales tax records.

A submits A’s first GST return one month after the end of A’s quarterly reporting period (A estimated only $6,000,000.00 in annual sales, and so files GST returns quarterly until the $6,000,000.00 threshold is exceeded). A shows no sales because A writes them all off as bad debts at the end of the reporting period, feeling that if they have not been “approved” by the user by then, they never will be. (This writing off may be disallowed after an audit, but by the time the audit is done, it may be time to allow them.)

As required by the contracts of sale, A, B, and C do not retain copies of the software specifications, software, or software manual in order to ensure that the end user will have exclusive use of the custom software.

Despite never getting paid, C continues to supply C’s customers because C receives software from B on approval, so if software is rejected by a customer, C can return it to B.

Despite never getting paid, B continues to supply C because B receives from A a guarantee “Goods satisfactory or money refunded,” so if software is returned by C, B can return it to A.

Despite never getting paid, A continues to supply B because

(a) B has given A assurances that approval takes years with large software programs,

(b) A’s costs of production are very low, and

(c) B has given A some security in the form of bearer treasury bonds which A holds in an offshore safety deposit box along with B’s assurance that an amount equal to the value of the bonds will be spent by B on A’s software, in any event.

When B is audited, B has only:

(a) purchase invoices from A, and

(b) sale invoices to C;

B has:

(a) no inventory

(b) no copies of inventory

(c) no production facilities

(d) no sales facilities

(e) no knowledge of how A produces software

(f) no knowledge of how or where C sells software

(g) no appearance of having done any work

When A is audited, as a result of the audit of B (A’s nil GST returns will not attract an audit), A has only:

(a) sale invoices to B

(b) a computer;

A has:

(a) no purchase invoices (he discarded them)

(b) no knowledge of where B sells the software “on approval”

(c) no inventory

(d) no copies of inventory

(e) no sales facilities

When asked how he produces millions of dollars worth of software yearly by himself, A confesses that he modified off-the-shelf software and uses cheap labour from India.

He has no receipts because:

(a) A did not want his secret production methods to become known;

(b) A’s costs of production are insignificant compared to A’s selling prices.

In defence of A’s apparently unscrupulous methods, A points our that Bill Gates used a similar trick on IBM when starting Microsoft.

C is probably immune to audit by Revenue Canada, but even if the IRS were to audit C, C has only purchase invoices. C has never made a completed sale and so need not produce sale invoices or customer names. Nor need C show any sales facilities. Even his purchase invoices (“on approval”) need not be produced.

If Revenue Canada says that B need not pay GST on the software since it is destined for export, B replies that B must pay GST because:

(a) B might not export the software immediately

(b) B might alter the software before exporting it

(c) proof of exporting could tell A about C and hurt B’s position

[Excise Tax Act, Schedule VI, Part 5, s. 1(a), (c), and (d)]

If Revenue Canada says that B acquired the software without a reasonable expectation of profit [Excise Tax Act, s. 141.1(2)(a)(iii)], that is irrelevant because B is incorporated; i.e., B is neither an individual nor a partnership of individuals only.

If Revenue Canada says that treasury bond deposits from B to A are taxable, Excise Tax Act s. 168(9) says they are not until applied to the consideration.

If Revenue Canada says that when A writes off A’s accounts receivable from B as bad debts, they are forgiven; Interpretation Bulletin IT-442R, at paragraph 4, says they are not and are still owing. So B does not lose B’s input tax credits in respect of them.

If Revenue Canada says the transactions are artificial, A and B say they are not because all transactions are primarily for a bona fide business purpose.

If Revenue Canada says that the sales from A to B are non-arm’s-length transactions, that will not cause a price adjustment for GST purposes because:

(a) the consideration is not below fair market value; also B is a registrant acquiring for business purposes [Excise Tax Act s. 155].

(b) the goods are not used; and the vendor is a registrant [Excise Tax Act s. 176].

However, non-arm’s-length dealing between A and B will prevent A from writing off A’s accounts receivable from B as bad debts.

Although A and B appear to be at arm’s length, when A continues to supply B despite non-payment, with security being posted for past debts written off, A may have difficulty convincing auditors that A had the right to write-off the accounts receivable from B as bad debts.

If A is successful in convincing auditors that the debts can be considered bad, then once a debt is written off as a bad debt, the depositing of security does not make it good. Only if it is paid does it become taxable.

Moreover, by the time an audit is done, A’s accounts receivable from B will have become bad debts, even if they could not properly have been so classified at the times A wrote them off as bad debts. So A will then be able to write them off and be liable only for the interest on the GST that A failed to pay, provided A has dealt with B at arm’s length.

A has limited liability and A’s assets are its accounts receivable from B. Revenue Canada could seize these accounts receivable and enforce them against B in an attempt to seize any future GST refunds to B to pay whatever A owes to Revenue Canada for interest, and for GST if Revenue Canada claims that A and B are not dealing at arm’s length.

If Revenue Canada denies A’s right to write-off bad debts, and intercepts GST refunds to B, then A and B will have to incorporate new companies and start again with new directors (GST registration now requires at least one Social Insurance Number).

CONCLUSION:

(a) A has no taxable income and claims to owe no GST, but may owe some interest on GST, and possibly the GST also. A’s only asset is accounts receivable from B which could be seized by Revenue Canada to intercept future GST refunds to B.

(b) B is legally entitled to all GST refunds and owes no income tax (sales are all “on approval”).

(c) C owes no income tax to the IRS (sales are all “on approval”).

Possible complaints from tax auditors:

1. Scarcity of Evidence of Supplies

Relying on the limited amount of evidence for the existence of software, which is intangible, the tax department may say that the transactions were shams, which means that they did not exist and that the taxpayer merely pretended that they existed. But the government has remedied this scarcity of evidence with Excise Tax Act subsection 133(a), which deems an agreement to make a supply to be a supply. So, if A agreed to sell to B supplies as described in the invoices, then the agreements to make those supplies are deemed to be supplies and are taxable and give rise to a right to a refund.

That this is so is not dependent on the goods described in the invoices ever being delivered or ever being paid for or ever existing. In fact, Excise Tax Act subsection 133(b) goes on to say that “the provision, if any, of property or a service under the agreement shall be deemed to be a part of the supply referred to in paragraph (a) and not a separate supply.” [Emphasis added]

So, the lack of an actual eventual supply is contemplated by the Excise Tax Act, and the consequence of non-supply is merely that the parties together MAY reduce the price, in which case either party to the transaction MAY avail himself of Excise Tax Act section 232 and issue either a credit note or a debit note, but neither party MUST so avail himself. (Section 232 of the Excise Tax Act provides for a method of making adjustments for refunds if goods or services are not provided, or if there is a need to lower the price. A credit note is issued by the vendor to the purchaser to adjust for a refund or a price reduction or a complete refund. Or, a debit note can be issued by the purchaser to the vendor to get the same result.) So, the government has given the parties the option of NOT reducing the price or issuing a debit note or credit note, and of allowing for the refund claimant to get a refund without paying for or getting paid for any supplies, and without any actual supply ever getting delivered or even coming into existence.

2. Is Payment Required for a GST Refund?

If the government had wanted to make payment necessary to qualify registrants for GST refunds, it would have done so expressly. Where the government wanted to introduce non-payment into the eligibility requirements for tax benefits, it did so expressly, as, for instance in s. 78(1)(a) of the Income Tax Act which makes an unpaid amount in respect of a deductible expense taxable in the third year after the year in which it was deducted, and s. 78(4) of the Income Tax Act which makes an unpaid amount in respect of salary not deductible unless it is paid within 180 days of the end of the taxation year in which it is incurred. In neither case is the deductible amount, whether expense or salary, considered to be a sham.

This is similar to Canada Trustco, 2005 SCC 54, where the Supreme Court of Canada found at para. 75, that “Where Parliament wanted to introduce economic risk into the meaning of cost related to CCA [Capital Cost Allowance] provisions, it did so expressly, as, for instance, in s. 13(7.1) and (7.2) of the [Income Tax] Act, which makes adjustments to the cost of depreciable property when a taxpayer receives government assistance.” At para. 77, the Supreme Court of Canada noted that the Minister of National Revenue had properly abandoned the submission that the transaction was a sham before the Federal Court of Appeal.

Procedure:

After approving the tax plan that was presented to me, here is how I proceeded:

1. In August 1995, I incorporated Sheffield International Corporation (Sheffield), with a friend as sole director, sole officer, and sole shareholder, and its office was located in Toronto.

2. Sheffield’s business activity, when the friend was managing the company, was metal sales.

3. In October 1995, Sheffield purchased two billets of metal from Patriot Forge for $182,325 plus 7% GST ($12,764.64) and obtained a GST refund for the GST paid or owing.

4. There was no further business for Sheffield until I started using Sheffield to buy and sell computer software several months later.

5. Sheffield, with myself as manager, bought software from myself (I used the trademark Heavy Metal Software™) and resold it to Frontier Metals Inc., a New York corporation in Buffalo, related to me, where a Mr. Singh was alleged to be operating a division that licensed the software to customers.

6. Sheffield claimed and received refunds for the GST that it owed for the software it purchased from me.

7. Canada Revenue Agency (CRA) audited Sheffield in June 2000 and raided my residence in December 2003 and found no evidence of software (other than invoices and oral statements from me). I told the auditor that software was not kept by Sheffield because to do so would be a violation of the principle of selling all the rights in respect of the software. Consequently, it would be illegal to keep copies of the software. CRA found no documentary evidence of any payment for the software, either from Sheffield to me, or from Frontier Metals to Sheffield.

8. Around the same time, at the request of tax authorities not aware of the raid, I filed five of my own personal overdue annual GST returns and claimed bad debts for unpaid amounts from Sheffield, thereby enabling me to claim that I owed no money to CRA for GST for the previous five years.

Observation:

While tax investigator George Misiak (along with eight other tax officials) was conducting a raid on my residence in Grimsby in December 2003, I requested of him that if anything needed explaining, to tell me so that I could provide an explanation. He said that that was his practice, and he would present me with all evidence against me and allow me to explain it before any prosecution would take place.

Seven months later he sent me a letter saying that he was going to recommend a prosecution against me.

I called him to ask what happened to my right to know what the evidence was against me so that I could offer an explanation before a decision was made to prosecute.

He said that he did not have to disclose what the evidence was until disclosure (the provision to me of copies of all documents that could be used as evidence). When I mentioned his earlier promise to give me that opportunity, he said that we were not getting anywhere.

I asked these two questions repeatedly for forty minutes on the telephone, receiving the same two replies repeatedly, and then resigned myself to waiting for disclosure.

The disclosure consisted of 25,000 pages (starting with 21,000 pages, and then increasing at each court hearing) that did not indicate what the issues were. It contained a “prosecution report” with a large empty space (a full page) entitled “final interview” referring to the one I never was allowed to have.

So, at the preliminary inquiry, I would not be able to know what I had to argue against, because the prosecutor refused to let me know what formed the legal basis of the charges against me. As things turned out, it would have been very easy for me to rebut the charge, had I known what argument was to be used against me.

Since I was not able to get this tax investigator (George Misiak) to discuss the case with me, I went to the Department of Justice, which handles tax prosecutions.

Lynne Kelly, the person at the Department of Justice who assigns tax cases to prosecutors, told me that Charles Criminisi was handling the case, so I faxed him a memo as follows:

Memo to Charles Criminisi: (905) 527-6877

24 August 2004

You represent Canada Revenue Agency in an action against me regarding GST.

George Misiak told me that when they have everything all together they will present it to me and say, “What do you have to say?”

But instead, he now refuses to tell me on what evidence he bases his recommendation for a charge of fraud.

He says that I have been given every opportunity to provide information.

But without knowing on what evidence he is basing his conclusions, I am stabbing in the dark.

It is like being charged with murder without being told the name of the victim.

He asked for a lot of information, but it appears he is trying to build a case, and doesn’t want me to be able to say anything that would hurt the case.

This is unfair, and I would like to be able to give you my explanations for any apparently incrimination evidence so that you can base your decision on whether to lay a charge on all the relevant material, including any explanations I may have.

I have nothing to hide.

I am a lawyer, though not practicing, and this is the third time that the government has tried taking action against me for business practices they disapprove of. I won both cases so far, the most recent being an Excise Tax case before the Canadian International Trade Tribunal, after all four (4) of their cases regarding Excise Tax last year were won by Canada Revenue Agency.

They are just trying to pull the wool over your eyes so that you get the blame for all the time they have spent on this case.

At the very least you should be aware of what you are up against. I have nothing to hide.

I would like to give you my explanations for anything they believe supports a finding of illegality.

So far, I have never been told what they are complaining about.

Charles Criminisi

Charles Criminisi told me that he had not seen the case yet, and so I corresponded with the Department of Justice

as follows:

27 August, 2004

Mr. Stephane Marnier

Department of Justice

The Exchange Tower

130 King Street West, Suite 3400

Toronto, Ontario

M5X 1K6

Dear Sir:

Further to our discussion today, please see attached the following:

1. My statement of facts upon which my objection to the assessment is based and a summary of my reasons (This was sent to CRA on 2 August 2004).

2. My letter of 16 August 2004 to CRA following my subsequent discussion with CRA.

CRA adamantly refuses to disclose to me on what evidence they base their conclusion that there was illegality on the part of Sheffield International Corporation and myself.

If I had that information, I would be able to explain everything, but George Misiak says he doesn’t want explanations. He is being unreasonable and unfair.

He obviously knows that my explanations would ruin his case.

Accordingly, I would like to discuss the matter with someone in your office so that I can offer explanations for any apparently incriminating evidence before any charges are laid.

Only then can a fair decision be made as to whether to lay charges at all.

Sincerely,

Peter Eickmeier

Mr. Marnier never replied to my letter, so I called him and, after speaking with him on the telephone, I sent the following letter:

30 August, 2004

Mr. Stephane Marnier

Department of Justice

The Exchange Tower

130 King Street West, Suite 3400

Toronto, Ontario

M5X 1K6

Dear Sir:

Re: Sheffield International Corporation

Further to my FAX of Friday, August 27, 2004, I would like to respond to your suggestion that the Department of Justice has no obligation to disclose any evidence to me until a charge is laid:

No investigation can be considered proper or complete if it omits readily available evidence, namely my explanations for any apparently incriminating evidence.

And no charge can be laid in good faith when the investigators have prevented readily available evidence from being revealed to those in the Department of Justice who make the decision whether to lay charges.

And the Department of Justice does have an obligation to act in good faith.

Accordingly, I am requesting that I be allowed to discuss this matter with someone in your office so that I can give explanations for any apparently incriminating evidence before any decision is made as to whether charges are to be laid.

Only then can a fair decision be made as to whether to lay charges at all.

Sincerely,

Peter Eickmeier

This correspondence got me nowhere, so I kept in touch with Charles Criminisi.

After seeing George Misiak and another CRA official (Al Horbatiuk), Charles Criminisi informed me that he was no longer handling the case. George Misiak said that the reason for this was that Criminisi was consulted merely to get an opinion about whether a prosecution should be made, and not to handle the prosecution. This is contrary to what Lynne Kelly of the Department of Justice told me both before and after the meeting with Criminisi. After the meeting, she said that she had just gotten back from vacation and was unaware that Criminisi was not handling the case. (Lynne Kelly is the person at the Department of Justice who chooses a lawyer to handle the case.)

A reasonable conclusion from these discussions with Lynne Kelly, George Misiak, and Charles Criminisi is that Charles Criminisi did not believe that there was any evidence of any offence being committed by me, and that, accordingly, he refused to handle the case.

Peter Wenglowski

Then Peter Wenglowski took over for several months with his partner Roy Atamanuk doing the work, and then they dropped it and Damien Frost took over.

Damien Frost

A reasonable conclusion from this abandonment of several months of work (at considerable expense) is that Peter Wenglowski and Roy Atamanuk concluded that there was no evidence of any offence being committed by me, and that, accordingly, they refused to handle the case any longer, despite months of time spent on it.

Another reasonable conclusion is that Damien Frost is a prosecutor who will take on a case regardless of its merits. Such behaviour is not disallowed by the code of ethics of lawyers if the client is the accused, but a prosecutor who does not believe in a case will not usually proceed with it.

Canada Revenue Agency (CRA) had charges brought against me under section 327 of the Excise Tax Act (“ETA”) for allegedly defrauding the government of money by obtaining GST refunds improperly.

I asked the investigators and the prosecution to disclose to me what they alleged that my claims for GST refunds lacked that made them improper, but they refused to disclose this information to me.

So, at the preliminary inquiry, I was not allowed to know exactly what I was charged with. Thus, I did not know what I had to argue against.

Nevertheless, the judge managed to make a decision; so did she understand the issues better than I did? To find out whether she did, I obtained a transcript of the prosecution’s final submissions at the preliminary inquiry, and it confirmed my suspicion that the operative part of the judge’s decision closely resembled the prosecution’s final submissions. So, perhaps the judge was merely following the guidance of the prosecutor (taking dictation).

It emerged in the judgment from the preliminary inquiry that the alleged basis of the charges against me was that I was not engaged in a “commercial activity” (a requirement for eligibility for GST refunds) thereby depriving me of the right to get GST refunds.

At a preliminary inquiry and the subsequent hearings for certiorari and at the Court of Appeal, the onus of proof for the accused is very high because any evidence at all is enough to prevent the accused from winning. However, since the facts were not in issue, but only the law, this could not create a problem for me in this case.

In this case the issue was a legal one, namely the meaning of the term “commercial activity,” and whether my activity and that of Sheffield constituted a “commercial activity.” Since the definition of commercial activity in the Excise Tax Act (“ETA”) included a “business,” and the definition of “business” in the ETA included an undertaking of any kind whatever, both Sheffield and I must have been engaged in a “commercial activity” within the meaning of the ETA, since both Sheffield and I were obviously engaged in an undertaking of some kind.

Accordingly, I challenged the committal order arising from the preliminary inquiry by an application for certiorari (a form of partial appeal that is used when no appeal procedure is provided for by legislation).

Before describing the behaviour of the judge at the application for certiorari, I will first describe the standard procedure that judges use at a hearing: Each party submits a factum (a statement of the law and facts), and the judge reads these documents before the hearing. So, when the hearing begins, the judge knows who the winner is likely to be. He may ask each party to introduce his case briefly. But that is not required. Instead he usually asks the apparent loser to speak first, and if that party cannot convince the judge to change his mind about who should be the winner, the case is decided without the other side being heard. If he can convince the judge to change his mind, then the judge asks the other party to speak. The judge keeps going back and forth with each lawyer until a winner is determined. The loser speaks last, but is unsuccessful in convincing the judge that he is right. If the judge is unable to decide without further thought, he reserves judgment after hearing argument from both sides, and gives a written judgment later.

Now, here is what happened at my case.

At the application for certiorari, my factum referred to ETA S. 123(1) to get a proper definition of “commercial activity”, but the judge avoided this issue in the following way:

At the application for certiorari, I used three arguments (set out in a factum 163 pages long). Judge Quinn asked the prosecutor to give a reply to my first argument, and after receiving a reply, he asked the prosecutor to give a reply to my second argument, and after receiving a reply he asked the prosecutor to give a reply to my third argument, to which the prosecutor gave a reply. Then he asked the prosecutor for replies to these same three arguments two more times, each time getting a set of replies. Then he said that he would deliver his decision the following morning.

Since, he did not ask me to give any response to the prosecutor’s replies, I assumed that I would be the winner for the reasons set out above in my description of the procedure at a hearing, namely, that the judge always asks for a rebuttal from the opposing party if the judge disagrees with that party’s argument.

But, the following morning, instead of giving a decision, Judge Quinn asked the prosecutor whether he had addressed my three arguments in his factum. The prosecutor said that he hadn’t directly, but rather had only set out the rules governing certiorari proceedings generally, so Judge Quinn told him to prepare a supplementary factum and address my three arguments because they needed to be addressed. Judge Quinn said to the prosecutor, “You’ve got to give me something” while holding out his hands and shaking them, and with desperation in his voice.

After that part of the hearing, my co-accused told me that Judge Quinn was being unfair by giving the prosecution so much help to prepare his case and allowing him to submit a supplementary factum. But I replied that Judge Quinn was merely being extremely thorough because he wanted to be sure that his judgment would not set a bad precedent, and that by being so thorough with the prosecutor, he was setting a precedent for how he would treat me if it ever appeared that the prosecution’s case were stronger than mine. If that were to occur, I said, then the judge would question me intently to extract from me every possible argument that I could make to support my case.

At the next part of the hearing, Judge Quinn asked the prosecutor for replies to my three arguments, and when Judge Quinn and the prosecutor were finished talking, Judge Quinn said he would deliver his decision after lunch. I then asked Judge Quinn if there was anything needed from me, and he said, “No.” So, again I assumed I would be the winner.

I assumed that I had won because after so assiduously demanding explanations from the prosecutor –– even getting him to submit a supplementary factum (something rarely done) –– he was setting the standard for how he would deal with me if there were any apparent weaknesses in my case. I believed that it would be outrageous and a gross violation of proper judicial procedure for the judge to rule against me after giving all that help to a prosecutor who had thirty years experience in criminal litigation, and was certified by the Law Society as being a specialist in criminal law, and not even offering me an opportunity to make a reply, even after I offered to make a reply.

Judge Quinn then returned and said that he was ruling in favour of the prosecution, and the prosecutor appeared surprised.

When the oral judgment came, against me, I wondered how Judge Quinn could word the written judgment and still make sense. When the written judgment became available, it became apparent that he did it by omitting any mention of the main issue, namely, whether Sheffield was engaged in an undertaking of any kind whatever, whether for profit.

Instead, he said that he agreed with the prosecutor that a purposive interpretation of the statutory definitions of “commercial activity” and “business” in subsection 123(1) excludes from either definition the pretense of either being in business or being engaged in commercial activity. [R. v. Eickmeier, 2007 CanLII 18024 (ON SC)]

Although this statement seems necessarily true because of its logical form, it is easily rebutted, because a pretense of a commercial activity is an undertaking (because it entails the application of mental or physical effort to a purpose). So, although it is not the “commercial activity” pretended, it is an undertaking, and therefore a “business,” and therefore a “commercial activity” in its own right, using the definitions of “commercial activity” and “business” in ETA subsection 123(1), and a definition of “undertaking” in the Oxford English Reference Dictionary.

I believe that Judge Quinn knew that this would be quickly rebutted by me, and that that is why he did not ask me for a rebuttal after hearing from the prosecutor, so that my reply would not be on the transcript of the hearing.

In addition, although he referred to a pretense of a “commercial activity” and a pretense of a “business,” he never mentioned a pretense of an “undertaking.” I believe that that is because a reference to a pretense of an undertaking would obviously be an undertaking in itself, and would make his judgment look ridiculous. So I believe he confined his pretense references to “commercial activity” and “business” so an error in his judgment would not stand out so glaringly.

His behaviour in not asking me for a reply, particularly after asking the prosecutor for replies three times, and then asking for a supplementary factum, and then asking the prosecutor for a reply again, and then me asking if anything is needed from me, and then him saying, “No,” clearly shows how determined Judge Quinn was to rule against me, even though he was not able to come up with anything that rebutted my argument that I was acting in accordance with the law. If he could have come up with a real rebuttal of my argument, supported by law, he surely would have. That is why he pleaded desperately with the prosecutor, “You’ve got to give me something.” But there was nothing to give. Judge Quinn did not deal with the issue of whether I was engaged in an undertaking because he could not come up with anything that sounded like a plausible rebuttal of my argument. After all, how could anyone plausibly say that I was not engaged in an undertaking of some kind? It is not possible. So, I believe that the best he could do was use the dictionary meaning of “commercial activity” and “business,” disregarding the statutory definition of each of these words, and pretend that the statutory definitions did not exist, thereby avoiding the word “undertaking” completely.

I was amazed at the behaviour of Judge Quinn at this hearing. It was something that I had never expected and had never even dreamed possible. To me, it was unthinkable that a judge would disregard the law completely. He was extremely diligent when it came to extracting arguments from the prosecutor, but absolutely avoided anything from me that would help my case. I had never heard, either at law school or in practice, that any such judicial behaviour was possible. That is why I had reassured my co-accused that Judge Quinn was not being unfair by giving helpful suggestions to the prosecutor and asking the prosecutor for a supplementary factum, and that Judge Quinn would treat me the same if it ever appeared that the prosecution’s case were stronger than mine.

After the hearing had come to an end, Judge Quinn told the court reporter that she could stop recording, as the proceedings were over. And after he had ensured that she had stopped recording what was being said, he addressed everyone present, but was obviously directing his comments to me: Appearing helpful, and exuding kindliness and wisdom, Judge Quinn said that in a proceeding like this, where there are technical legal issues, it would be to the advantage of the accused to have a trial by judge alone, rather than trial by jury, because juries are usually unsympathetic towards a technical legal defence, which they don’t understand as well as a judge, and are more prone to rule against the accused. Whereas a judge, who can understand legal technicalities, may, depending on the judge, be more sympathetic towards the use of a technical legal defence by the accused.

I believed that what he was saying was true, and had already chosen trial by judge alone for that very reason, and had no intention of changing that. But after Judge Quinn himself appeared to me to be disregarding the wording of the Excise Tax Act in order to rule against me, I couldn’t understand why he would be helping me with this friendly legal advice.

It wasn’t until the Court of Appeal ruled against me, avoiding any discussion in their judgment of what I considered to be the main issue remaining in the case, and even failing to give a reason for their decision, that I felt that I understood why Judge Quinn wanted me to have trial by judge alone.

It was not my understanding of the legal system that a lawyer was to take on one client, then approach the opposing party, concealing the identity of his real client, then insinuate himself into the affairs of that opposing party, become the trusted legal advisor of that opposing party, and then give false legal advice to that opposing party, thereby inducing that opposing party to act in a manner that would put that opposing party at a procedural disadvantage in the dispute. Nor did I think that a judge was to act that way towards litigants. But this is the impression I was getting from Judge Quinn after he and the three judges at the Ontario Court of Appeal acted the way they did.

Although I was convinced that Judge Quinn was looking for a way to have me convicted, rather than judging in accordance with the provisions of the Excise Tax Act, it wasn’t until recently that I came across a case that provided the strongest evidence of why he was recommending that I choose trial by judge alone rather than trial by judge and jury:

R. v. Klundert, 2008 ONCA 767, was an appeal from an acquittal of a jury verdict in a case heard by Judge Quinn. In that case, the accused had had a trial by judge and jury in a tax matter in 2002, where he was convicted on one of two counts, and the Court of Appeal ordered a new trial on both counts in 2004. Then, at the new trial, by judge and jury, before Judge Quinn, the accused was acquitted on both counts, and the matter was appealed by the prosecution.

It was obvious that the prosecution was having trouble with tax cases where there was trial by judge and jury. And, since the Court of Appeal, in 2008, ultimately ordered yet another new trial because Judge Quinn gave incorrect directions to the jury, which was the same reason that the Court of Appeal ordered a new trial in the previous hearing before a judge and jury, this case suggests that Judge Quinn doesn’t understand tax law. Obviously, without a jury, the lack of understanding of tax law would be more easily concealed (there would be no instruction to a jury, which an appellate court could find to be improper), and a conviction could be more easily obtained.

After my certiorari application was dismissed, and the central issue, whether Sheffield had been engaged in an undertaking [referred to in the definition of “business”, which is referred to in the definition of “commercial activity”, in subsection 123(1) of the ETA] was not mentioned in the decision, with Judge Quinn dealing with the main issue –– whether Sheffield was engaged in an undertaking of any kind whatever –– by not mentioning it, I came to the conclusion that, based on Judge Quinn not asking me for a reply to what the prosecutor said, at the end of the hearing, and not mentioning the main issue in his decision, Judge Quinn could not bring himself to following a law that he hated so intensely because it would allow one to get GST refunds without ever being in a business whose main purpose was to earn money, but was merely to get GST refunds. Even so, it was my understanding of the legal system that a judge is to uphold the law, regardless of whether he likes the law.

The strongest evidence that Judge Quinn was not acting properly was his failure to ask me for a reply after hearing the three sets of replies from the prosecutor, especially after setting the standard for how intensely he should question each party by his intense interrogation of the prosecutor and his demand for a Supplementary Respondent’s Factum. It violates standard judicial practice, because a judge is supposed to seek rebuttals from litigants of arguments against that litigant, particularly after so assiduously and repeatedly seeking rebuttals of my arguments from the prosecutor. And it suggests that he was avoiding any argument that would go against what he wanted for his decision. That way there would be less on the transcript that would make his decision look bad.

His refusal to address the issue of whether I had engaged in an undertaking (of any kind whatever, whether for profit) is next in evidentiary strength that Judge Quinn was not acting properly, because it is the actual avoidance of the final issue remaining before the court. If I were engaged in an undertaking, then I would be engaged in a “business.” And if I were engaged in a “business,” then I would be engaged in a “commercial activity.” And if I were engaged in a “commercial activity,” I should win the case, because no other requirement for my getting GST refunds was mentioned by the judge as lacking. And it is obvious that I was engaged in some undertaking, because an undertaking exists if there is nothing more that the application of mental or physical effort to a purpose.

The question of whether there was an actual product was raised, but since there was no evidence of any lack of an actual product, that issue was not discussed much. But, even if there had been evidence of a lack of an actual product, ETA subsection 133(a) makes a product unnecessary, because it deems an agreement to make a supply (of a product) to be the supply, thereby eliminating the need for a product to get GST refunds.

I believed that the decision in this application for certiorari was wrong (and there was nothing in the judgment of the Judge Quinn to indicate that he disagreed with me, because he avoided the issue in the case completely) so I appealed to the Court of Appeal.

My explanation of the case was set out in my Factum. And the government’s explanation was set out in their Reply (also available in a slow-opening version).

In the Court of Appeal, the three judges said that, if accepted, my argument, “based on a strictly literal interpretation of the Excise Tax Act,” would have the astonishing result that GST credits could be properly claimed by businesses that neither charge nor collect GST for which they claim credit and that have no purpose or activity apart from claiming GST credits. (Actually, all businesses that are only exporters never charge or collect GST for which they claim credit.)

I replied (without suggesting that Sheffield had gotten GST refunds in respect of transactions that were not done for earning money) that that was what happened in Canada Trustco, referring to the fact that the transaction in Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 was an artificial transaction (had no purpose or activity apart from getting a tax benefit) and the taxpayer was still allowed to get the tax benefit.

Here, the Court of Appeal was saying that my strictly literal interpretation of the law would mean that even if the transaction were artificial, one could still be eligible for GST refunds, and that was astonishing, and therefore it must be illegal. My response proved that even if the transactions were artificial, GST refunds would not necessarily be disallowed. (And my factum set out how my case was like the Canada Trustco case to make me eligible for GST refunds.)

So, my reply was a complete rebuttal of their argument against my interpretation. Their response was as follows: two of the three judges were so angry that they turned red in the face, all three judges gave me an angry look, and none of the three judges said anything. In their written judgment, they dealt with this issue by not mentioning it at all. [R. v. P.E., 2008 ONCA 190] In their written decision, they referred to my interpretation of the law as “a strictly literal interpretation”.

I interpreted this to mean that they were saying that I was strictly literally in compliance with a strictly literal interpretation of the law, and that that was a crime. They had narrowed the case down to one issue, for which I had given a compelling rebuttal argument. And in their decision, they dealt with my compelling rebuttal argument on this main issue by not mentioning it, exactly as Judge Quinn had done before. (It is no surprise that the prosecution, in its Reply for the Court of Appeal, had done exactly the same thing –– not mentioning the main issue –– whether Sheffield was engaged in an undertaking of any kind whatever, whether for profit. The same turned out to be the case in the Tax Court, where the government’s Reply avoided any mention of whether Sheffield was engaged in an undertaking.)

The decision of the Court of Appeal (available in its entirety by clicking here) contained the following explanation:

[4] The appellants’ essential argument is that the preliminary inquiry judge erred in her interpretation of the Excise Tax Act when she required some valid business or commercial purpose other than claiming GST credits. As they put it in their factums, even if the impugned transactions were constructed to create an impression or appearance of valid commercial activity, the sole purpose of which was to obtain public money from the government, they say that on a strictly literal interpretation of the Excise Tax Act, they are entitled to claim GST credits.

[5] If accepted, the appellants’ argument would have the astonishing result that GST credits could be properly claimed by businesses that neither charge nor collect GST for which they claim credit and that have no purpose or activity apart from claiming GST credits. We do not agree that the preliminary inquiry judge’s interpretation of the Excise Tax Act rejecting that interpretation amounted to jurisdictional error and accordingly, the application judge did not err in dismissing the application for certiorari.

[Please note that this judgment does not say WHY they do not agree that the preliminary inquiry judge’s interpretation of the Excise Tax Act rejecting that interpretation amounted to jurisdictional error (other than “astonishing”). And, in fact, that issue was never raised at the preliminary inquiry, and the preliminary inquiry judge did not even address that issue.]

Canada Trustco, 2005 SCC 54 goes directly against this insofar as it allows the taxpayer (Canada Trustco Mortgage Company) to get the tax benefit ($120,000,000.00 in tax deductions) by means of an artificial transaction (a transaction that had no purpose other than to get the tax benefit). This compares to my argument where “they have no purpose or activity apart from claiming GST credits” because for export transactions, businesses never charge or collect GST for which they claim, and are entitled to, GST credits.

Judge David Watt

It is obvious that all three judges hated the Canada Trustco decision and would never follow it, even though they are compelled by law to do so. One of the judges who turned red in the face was Judge Watt who was a silver medalist at Queen’s University Law School. And all he could do when confronted with this central legal issue was to get angry, turn red in the face, give me an angry look, and say nothing, and avoid the issue in his written judgment. The same applies to Judge Sharpe, and to Judge Armstrong, except that he did not turn red.

Judge Robert Sharpe

Judge Robert Armstrong

I had expected more from three judges of the Court of Appeal. I believed that even if one of them were like Judge Quinn and avoided the issue of whether I was engaged in an undertaking of any kind whatever, then the other two would ask him what he was doing, and he would be too embarrassed to continue avoiding that issue. But I was wrong. The three judges had no problem with unanimously avoiding that issue. If they could have written a rebuttal, based on law, to my “strictly literal interpretation of the Excise Tax Act,” they certainly would have. Their failure to do so speaks for itself.

The Court of Appeal ruled against me.

I then realized what Judge Quinn was doing by ensuring that the court reporter was no longer recording what was being said, and by suggesting that I choose a trial by judge alone (without a jury). If a jury were used, they would likely rule against me, but that could never be certain. (And R. v. Klundert, 2008 ONCA 767, referred to above, showed that a jury does sometime rule in favour of the taxpayer.) However, if a judge alone were used, then, based on what I had seen, I believed that it could be certain that the ruling would be against me, and that a reason need not be given. All judges, I believed, could be relied upon to disregard a literal interpretation of the law in cases where they didn’t like the result that the law provides.

So, in the decision of the Court of Appeal for Ontario, the appeal was dismissed, and the final and central issue that had been raised by the Court and my response –– whether the Canada Trustco case, where the transactions had no income-earning purpose, rebutted the suggestion that the Excise Tax Act should not be allowed to give a tax benefit for a transaction that was not entered into for gain other than the tax benefit –– was dealt with by making no mention of it at all.

The Court of Appeal for Ontario refused my request for a stay to allow for an application to the Supreme Court of Canada for leave to appeal.

These two court appearances left me with the impression that the judges in the criminal courts would not allow tax law to be used to get a result that they did not like.

The Trial:

The next proceeding was the trial before Madam Justice Walters.

Prior to that hearing, I had called the Hamilton Court House (not the court house where the trial would be heard) and asked whether, when a judge was chosen for a case, the special expertise of judges was considered in making the choice, or was the judge chosen at random. I was assured that the requirements of the case and the expertise of the judges were considered to get a suitable judge for a case that merited a particular expertise. I then felt relieved that I would not be stuck with a family-law judge, since I considered family law to be the legal subject most remote from tax law.

When I found out that Madam Justice Walters was going to hear the case, I was told by the lawyer for my co-accused that Madam Justice Walters had been a specialist in family law from when she became a lawyer until she became a judge. I was surprised that a more tax-oriented judge was not chosen. But since both that lawyer and the prosecutor both wanted her to hear the case, I did not believe that I would be successful in asking for a different judge, and didn’t want to alienate her by making such a request when the chance of success was poor.

This choice of judge left me with the impression that she was chosen, not because of her expertise in the relevant field, but because of her lack of such expertise, so that I would be unable to succeed with my technical defence based on what the Court of Appeal called a “strictly literal interpretation” of the Excise Tax Act.

Then, during the trial, the prosecutor asked many leading questions of its witnesses about matters relating to the issues being disputed in the case, and so I objected to the leading questions (which are not allowed for a lawyer questioning his own witnesses on matters in dispute). Madam Justice Walters said that even though the answer to each question would be “yes” or “no,” that did not mean that they were leading questions, because a leading question was one where the question suggested the answer. [One dictionary definition of a leading question reads, “A leading question is a question which suggests an answer; usually answerable by yes or no.”] This refusal to exclude what were, to me, obviously leading questions, suggested to me that she was not applying the rules of evidence in the case, and similarly would not apply the applicable provisions of the Excise Tax Act.

In addition, during cross-examination, when I questioned the income-tax-department auditor about whether Sheffield was engaged in an undertaking [referred to in the definition of “business”, which is referred to in the definition of “commercial activity”, in subsection 123(1) of the ETA], Madam Justice Walters ordered me to stop cross-examining him on that issue, saying, sarcastically, that I could argue that point of law in my closing argument. Since Sheffield was obviously engaged in some undertaking, and since determining whether Sheffield was doing so was necessary for an auditor to determine whether GST refunds were payable, I considered my questions proper.

So I got the impression that Madam Justice Walters did not want to allow anything that could exonerate me. I concluded from the attitude of Madam Justice Walters, and from the impressions that I had gotten from the decisions in the two previous proceedings, that she would not allow the use of a literal interpretation of the ETA as a defence, and that it might be advisable to settle the matter as best I could.

These things all suggested to me that the judges were not trying to reach a decision based on the law, but rather were trying to find an excuse for convicting me. To me, they were not coming up with a convincing excuse, and were not being candid about what they were obviously doing.

So, I felt that the best thing I could do was to make the best deal I could with the prosecutor, who had already made an offer to settle by plea-bargaining. And the prosecutor told me that agreeing to the facts set out in the agreement prepared by the prosecution was a necessary part of that deal.

Then Madam Justice Walters told me that she did not have to give the three-year sentence specified in the plea bargain agreement, but could give a sentence as high as ten years. Then she asked me if the admissions of fact that I made in the plea-bargain agreement prepared by the prosecutor were true. Bearing in mind what she said about her not being limited to giving a three-year sentence, and being able to give up to a ten-year sentence, I said, “yes.” I believed that had I said “No, they are not true, but they are deemed to be true for the purposes of sentencing, pursuant to the provisions of the plea-bargain agreement,” I believe that she would have said that she did not like my attitude, and that she would then have sentenced me to a longer period. The three-year sentence lasted six months, and then I was out on parole.

Tax Court:

Next, I took the matter to the Tax Court to have the civil aspect of the case heard. The documents for this case were my Notice of Appeal, the government’s Reply (also available in a slow-opening version, and my Answer to that Reply. Judge Rossiter relied heavily on the plea-bargain agreement that I was required to sign in the criminal proceedings. Of the seventy pages in the tax-court judgment, (also available in a slow-opening version) half of them were a reciting of the plea bargain. And the judge would not have spent so much of the judgment on the plea bargain if he didn’t need it to decide the case against me.

Judge Eugene Rossiter

In relying on the admissions made in the plea bargain, he said that I made them voluntarily. (That is because an admission is admissible only if it was made voluntarily.) But there is no such thing as a voluntarily made plea bargain. A plea bargain is by definition not voluntary. Voluntary, when it concerns admissibility of admissions or confessions (the legal meaning of voluntary), means “not obtained by fear of prejudice or hope of advantage exercised or held out by a person in authority.” [McWilliams: Canadian Criminal Evidence]. Another legal definition of voluntary is “without threat or promise.” And all plea-bargain admissions are obtained with a promise of hope for leniency if the accused signs the agreement, and the threat of a greater penalty if the accused does not sign the agreement. A third legal definition of voluntary is “without consideration.” And all plea-bargain admissions are obtained with consideration: the accused changes his plea from not guilty to guilty, and the prosecutor agrees to request a reduced sentence, and, in some cases (such as this one) to drop some of the charges. Each of these things, the change of plea and the request for a reduced sentence (and dropping of some charges) is consideration.

So, all plea bargain admissions are involuntary: they are obtained by fear of prejudice and hope of advantage exercised or held out by a person in authority. One dictionary definition of plea bargain is “an arrangement between a prosecutor and a defendant whereby the defendant pleads guilty to a lesser charge in the expectation of leniency.” So, a plea-bargain agreement signed voluntarily (in the legal sense of the word “voluntary”) is an impossibility. So the absence of strong-arm tactics mentioned by the CRA lawyer Laurent Bartleman and the presence of legal advice mentioned by both he and Judge Rossiter do not make plea bargain admissions voluntary.

Laurent Bartleman

In his closing submissions to the Court, at page 10, Laurent Bartleman said, “this is not the Hurricane Carter or Hurricane Reuben situation where an innocent man pleads guilty after being strong-armed” and “I would submit, your Honour, that the evidence doesn’t disclose any actual pressuring of the appellant into conceding a fact which is not true for the sole purpose of resolving a conflict.” This clearly shows that Laurent Bartleman, a lawyer acting for the government, cannot comprehend the legal meaning of the word “voluntary.” Involuntary not only includes strong-arming and pressure, but also includes any offer of leniency. And an offer of leniency is an integral part of all plea-bargain agreements.

And when Judge Rossiter accepts this submission, it becomes clear that Judge Rossiter, the Associate Chief Justice of the Tax Court of Canada, has the same inability to comprehend the legal meaning of the word “voluntary.”

The following paragraphs discuss parts of the closing submissions of Laurent Bartleman (which can be seen by clicking here), and each paragraph is numbered to show the page of the decision to which it relates:

4. At lines 5 to 7, Laurent Bartleman says, “Are the facts and circumstances before your Honour more consistent with fraudulent sham? Or are they more consistent with bona fide commercial activity?” However, the Excise Tax Act does not require “bona fide commercial activity” for one to be entitled to GST refunds. All that is necessary is an “undertaking of any kind whatever,” whether the undertaking is engaged in for profit. So Laurent Bartleman is relying on the common misconception that one must engage in “bona fide commercial activity” to be eligible for GST refunds. He is using the term “commercial activity” that is used in the Excise Tax Act as though it meant what the dictionary says it means, rather than what the definition section of the Excise Tax Act defines it to mean, and that includes an undertaking. The evidence of this case showed that I was engaged in an undertaking, and that is all that is required for obtaining GST refunds. So, the proper question is, “was I engaged in an undertaking or merely a sham of an undertaking, i.e., a pretense of an undertaking?” However, since even a pretense of an undertaking is an undertaking, even though not the undertaking pretended, a sham of an undertaking is still a bona fide undertaking. So, the sham doctrine is not applicable in this case, because the Excise Tax Act says that an undertaking of any king whatever is enough to entitle one to a GST refund because the term “commercial activity” is defined to include an undertaking of any kind whatever, and, so, would include an undertaking that consists only of a pretense of an undertaking, i.e., a sham of an undertaking. So, why does Laurent Bartleman refer to a commercial activity rather than an undertaking? Either it is because he is trying to trick the judge, or else he is merely stupid and cannot understand the idea of words being defined to mean something other than what the word means in ordinary language.

8. At lines 19 to 22, Laurent Bartleman says, “Well, the first piece of evidence, your Honour, is the guilty plea. Now, at law, a guilty plea is an admission of all material facts that make up the offence.” Here, Laurent Bartleman is using this admission as evidence, even though the law says that an admission is admissible as evidence only if it is voluntary (in the legal sense of the word), and the legal meaning of voluntary is “without threat or promise” or “without consideration” or “not obtained by fear of prejudice or hope of advantage exercised or held out by a person in authority.” So, there is no such thing as a “voluntary” guilty plea obtained as a plea bargain agreement, which was the case here.

9 & 10. On these pages, Laurent Bartleman refers to a case where there was a plea of guilty that arose from a fine imposed because of spilling oil. There was no plea bargain agreement in that case, so the accused paid the fine rather than go to the trouble of going to court. So, the plea of guilty is not obviously involuntary. So, if the accused wants to say that he did not actually commit the offence, he must appear in court and testify to that effect. By using this case, Laurent Bartleman is pretending that the admissibility of that plea of guilty applies to every plea of guilty, including those arising from a plea bargain, which automatically makes the admissions contained in it involuntary because they are obtained with consideration (hope of leniency if one signs the plea bargain agreement), and fear of prejudice if one does not sign it.

10. On this page, Laurent Bartleman says, “However, your Honour, this is not the hurricane Carter or Hurricane Reuben situation where an innocent man pleads guilty after being strong-armed.” Here, Laurent Bartleman is pretending that “involuntary” means obtained by physical force being applied to the person making the admission. But, in fact, “voluntary” means not obtained by fear of prejudice or hope of advantage exercised or held out by a person in authority, or without threat or promise, or without consideration. And so an admission is involuntary if there is an offer of hope of advantage, such as hope of leniency. So, why does Laurent Bartleman do this? Either it is because he is trying to trick the judge, or else he is merely stupid and cannot understand the legal meaning of the word “voluntary,” perhaps because of confusion with the physiological meaning of the word “voluntary,” which means “under the conscious control of the brain.”

11. At line 9, Laurent Bartleman refers to a fake name as contact person for GST returns. In fact, K. C. Tiow called Sheffield International and left his name and telephone number on the voicemail, but without any mention of Canada Revenue Agency. When I called that number, the voicemail said to leave a message, but did not mention Canada Revenue Agency. So, I assumed that it was nothing important and did not call again. Then, a month later, I received a registered letter from K. C. Tiow, Canada Revenue Agency auditor, requesting a date for a pre-payment audit for the last GST return. I had been waiting for that pre-payment audit because I knew that the large GST refund I was waiting for could not be paid out without an audit, because it was the first large refund for this business. So, I was delayed a month in getting the first large refund because of K. C. Tiow not disclosing that he was from CRA. So, I decided that to prevent this problem from happening again, I would use a contact name that would reveal that the caller was from CRA in the event that the auditor failed to disclose this. That way I would never again have my refund cheque delayed.

So, Laurent Bartleman was trying to use this fake name as a way of complaining about me, instead of complaining about the auditor of CRA not disclosing that he was from CRA.

At line 17, Laurent Bartleman recommends that I not call the number given by the anonymous caller. But this does nothing to help me get my GST refund as quickly as possible.

At line 21 to 23, Laurent Bartleman says, “But if you’re running a scam, you absolutely want to know when the Agency is onto you.” But this is ridiculous because any sensible auditor from CRA would always identify himself as being from CRA, and so you would always know if CRA was “onto you” if they called you on the telephone.

12. In the first paragraph, Laurent Bartleman mentions that Sheffield International did not care whether it ever got paid, and says that a real company would want to get paid. But, why would any company care about getting paid if it received $3,200,000.00 in GST refunds in a few years for very little work?

Then in the second paragraph, he asks whether this resonates more consistently with a sham or with a real commercial business. This question is based on the common (but false) belief that, to be entitled to GST refunds, one must be engaged in a real commercial business. But no statute says this. Instead, the Excise Tax Act says that one must merely be engaged in an undertaking (of any kind whatever) to be entitled to GST refunds. And the undertaking need not be engaged in for profit.

13. At line 15, Laurent Bartleman says that the activities of Frontier Metals in not being concerned about making any money is consistent with a sham. But he doesn’t say a sham of what. In might appear to be a sham of a real profit-oriented business. But one need not be engaged in a real profit-oriented business to be entitled to GST refunds. So, the question that should be asked is, is this activity consistent with a sham of an undertaking? Or is it consistent with a real undertaking. It is obviously consistent with a real undertaking, because a sham of an undertaking is, in itself, a real undertaking, even though it is not the real undertaking that it is pretending to be. So, the statutory requirement to be engaged in an undertaking has the strange characteristic that it is impossible to not be in compliance with the law. Because even a sham of an undertaking is an undertaking, since it is an undertaking to pretend to be engaged in an undertaking. And a sham is merely an act of pretending to be doing something that one is not doing.

14. At lines 11 and 12, Laurent Bartleman says, “he couldn’t describe it because it didn’t exist” but this is commonly the case with vendors of software. They often do not know what a particular program does, especially if the customer does not look to them for advice. So, this is no reason to say that ignorance indicates a sham, especially since the law does not require that the undertaking be engaged in for profit.

15. At lines 5 and 6, Laurent Bartleman raises the question of the goods ever existing. But since Section 133(a) of the Excise Tax Act says that an agreement to make a supply is deemed to be the supply, there is no need for any goods ever existing to make one eligible for GST refunds. All that one needs is an agreement to supply something, and then one is entitled to GST refunds.

16. At line 24, Laurent Bartleman refers to his reliance on “his admission in the guilty plea that this was a fictitious sale,” even though an admission in a guilty plea is actually a plea bargain. And a plea bargain is inherently involuntary because it is obtained for consideration, and by fear of prejudice and hope of advantage exercised by or held out by a person in authority (the prosecutor), and is therefore inadmissible. So, why does Laurent Bartleman rely on it? Is he too stupid to know the rules of evidence? Is he too stupid to understand the legal meaning of the word “voluntary”? Or, is he merely lying to the judge in order to trick the judge into believing the lie?

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The following paragraphs discuss parts of the Tax Court’s decision (which can be seen by clicking here), and each paragraph is numbered to show the page of the decision to which it relates:

1 & 2. Judge Rossiter says, “Essentially the issue is this: Was Sheffield entitled to the net tax refunds? Or were the transactions shams that do not qualify as bona fide transactions?” This begs the question. It assumes that there is a statutory requirement for “bona fide transactions.” In fact, there is not. In fact, the definition of “commercial activity” in the Excise Tax Act is so wide that even commercial activities that are shams qualify for net tax refunds. A “commercial activity” includes a “business,” which includes an undertaking, and a sham is a pretense, which is an undertaking, and is therefore a “commercial activity,” as that term is defined in the Excise Tax Act. So, Judge Rossiter is getting the result he wants without looking at the law, which, if examined, would prevent him from getting the result he wants.

[At the Court of Appeal, the three judges were told that the reason that GST refunds are allowed for artificial transactions is that the ETA has such a wide definition for “commercial activity,” and Judge Sharpe said, “We know” with an air of “That’s obvious to us, but we don’t like it.” The only reason they gave for their refusal to use what they referred to as my “strictly literal interpretation of the Excise Tax Act” was that it led to an “astonishing” result.]

5. Judge Rossiter quotes “the record before Madam Justice L. Walters” “because I think it’s important for the record.” He is referring to the plea bargain agreement, signed by me, and including admissions of the truth of all the facts alleged by the prosecutor.

Judge Rossiter does not deal with the question of whether it is admissible: an admission is not admissible unless it is voluntary, i.e., without threat or promise (or without consideration), and all plea bargain agreements are made with the prosecutor’s promise to ask for a lesser penalty than if the plea bargain is not accepted by the accused, and the corresponding threat to seek a greater penalty if the plea bargain offer is not accepted by the accused. So, there is no such thing as a plea bargain agreement being signed voluntarily by the accused, because there is always both a threat and a promise, express or implied. And there is always consideration given by the prosecutor in a plea bargain.

17. Judge Rossiter referred to the plea-bargain agreement by saying, “There was no extortion. There was no threat.” The plea bargain agreement did not contain the agreement to seek a shorter prison term. So the threat and the promise were not expressly stated in the agreement. But it was certainly expressed in the offer to me. And extortion merely means getting something by threat. So, it is odd that he would say that there was no threat or extortion. But he never actually stated that the admissions made by me in the plea bargain agreement were admissible. He merely said that they were important, and then went on to act as though they were part of my argument, as follows (at page 42):

42. Judge Rossiter attributes to me the words “Fraud is okay to support a claim against the government of Canada”. Obviously I never said that. But Judge Rossiter uses the word “fraud” in the plea-bargain agreement prepared by the prosecutor and which I was required to sign to get the reduced sentence, even though an admission is not admissible in a subsequent proceeding, such is this one at the Tax Court, unless it is voluntary. [As I mentioned earlier, when the trial judge asked me whether the admissions of fact that I made in the plea-bargain agreement prepared by the prosecutor were true, I was confronted with what she had said about her not being limited to giving a three-year sentence, and being able to give up to a ten-year sentence, and, that being the case, I said, “yes.” If I had said “No, they are not true, but they are deemed to be true for the purposes of sentencing, pursuant to the provisions of the plea-bargain agreement,” I believe that she would have said that she did not like my attitude, and that she would then have sentenced me to a longer period.]

43. While answering questions, I do not merely give a short answer, but, in accordance with the oath to tell the whole truth, I give a proper explanation to support my case and avoid an adverse inference from the opposition’s questions that are tailored to incriminate me and would create an adverse impression if I didn’t answer fully and with a proper explanation. Judge Rossiter refers to this giving of proper explanations by saying that I was confused, wandered, rambled. It appears to me that Judge Rossiter did not like it when I explained away all of the negative inferences that would have arisen if I hadn’t given these explanations. It appears to me that he wanted material to write a negative judgment against me, and I was preventing such material from arising. If I had merely given the answer sought by the questioner, Judge Rossiter would have had an easier time using my answers against me.

44. Judge Rossiter refers to my use of the Oxford English Reference Dictionary as “some dictionary”, even though it is standard legal procedure to use a dictionary to obtain the meaning of words used in statutes (in this case, the Excise Tax Act) if those words are not defined in the statute. One must wonder how Judge Rossiter wants people to find the meaning of a word. Obviously, the meaning that the dictionary provided did not please him and did not help him decide the case the way he wanted. (Any other large dictionary would have provided the same result.)

48. The Excise Tax Act contains the GAAR (General Anti-avoidance Rule), which is also found in the Income Tax Act. The landmark decision of the Supreme Court of Canada that interprets this case is Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, where the taxpayer was allowed to get the tax benefit even though the transaction was an artificial transaction, i.e., one where the sole purpose of the transaction was to get a tax benefit. And I have shown in my Notice of Appeal why my case is governed by this case, and is accordingly entitled to the tax benefit even if the transactions were artificial. In this case, Judge Rossiter mentions the GAAR in the Excise Tax Act at section 274, but he never addresses my argument that brings my case within the rule in the Canada Trustco case. One can only assume that he didn’t address my argument because he could not provide a rational rebuttal. So, as others have done before him, he avoids the argument completely.

50. Judge Rossiter says the case is a sham, just like CRA did in the Canada Trustco case. And, while that charge was withdrawn in the Canada Trustco case, it is maintained here by claiming that the transaction must be for a bona fide purpose (i.e., not an artificial transaction) even though the Excise Tax Act does not mention any requirement for any bona fide transaction, but rather taxes transactions of an undertaking of any kind whatever. This includes transactions that have no purpose other than getting the tax benefit. So, to be a sham, the transaction would have to merely pretend to be done solely to get a tax benefit, and not really be done solely to get a tax benefit. But, if, in fact, the transaction really was done solely to get the tax benefit, then the transaction would not be a sham. This is so even if the parties to the transaction did not intend to complete the transaction because Section 133(a) of the Excise Tax Act says that if a party agrees to make a supply, the agreement is deemed to be the supply. And Section 133(b) goes on to say that if the supply is actually made, then it is not considered a separate supply. So, the non-completion if the agreement is contemplated by the statute, and even with this non-completion, tax is payable by one party, and a refund is to be given to the other party to the agreement. So, merely agreeing to make a supply without intending to complete the transaction is enough to get a GST refund, and so an absence of an intention to complete the transaction is not grounds for saying that the transaction is a sham, because there is no need to have any intention to complete the transaction. Needless to say, Judge Rossiter never addressed this issue. He merely acts as though the Canada Trustco case did not exist, even though he mentions it in his judgment.

It is hard to imagine that Judge Rossiter does not understand the Canada Trustco case, since he indicated to me that he was familiar with the case, and everyone involved with tax matters is very familiar with that important case. But what is most difficult to imagine is that he doesn’t know the meaning of the word “voluntary” as it applies to the admissibility of an admission found in a plea bargain agreement.

One can only wonder whether Judge Rossiter was chosen by the chief justice because of Judge Rossiter’s willingness to comply with the wishes of CRA (just as I thought that Judge Walters was chosen because of her lack of knowledge of tax law).

Needless to say, this case was not reported. No judge would want to report the conclusions that could not be rationally supported by law (only by reasons that have no logical basis).

Judge Gerald Rip

It must be mentioned that Chief Justice Rip (the Chief Justice of the Tax Court) told me that my Notice of Appeal to the Tax Court was poorly written because it anticipated arguments and then rebutted them, far more than a Notice of Appeal should do. So, I removed these things from my new Notice of Appeal that he required me to prepare, thinking that if these arguments were raised at the trial, I could provide the counter arguments at that time. But the arguments were not raised at trial, but they were in the judgment of Judge Rossiter, who presided at the appeal. So, I was never able to present my arguments. So, one wonders whether Chief Justice Rip deliberately tricked me into removing some arguments from the Notice of Appeal so that there would be nothing on the court record that would make the ultimate decision of Judge Rossiter look bad.

Conclusion:

These experiences of mine raise the following questions:

1. Do judges uphold the law if they dislike the result that the law would give?

[I have been unable to find any law that requires a judge to uphold the law. Apparently the only remedy for a judge not upholding the law is an appeal. And the appellate judges may be like-minded. Even though the judges in my case do not appear to me to be upholding the law, they all appear to have tried to appear to be upholding the law by not mentioning the issue in the case that they could not deal with. This leads us all to wonder how often this “not mentioning” occurs in other cases so that the judge appears to be ruling in accordance with the law.]

2. Does the Chief Justice (the judge who is in charge of the court, and who chooses the judge for each case) ever choose the judge that will most likely give a decision that the chief justice wants, including choosing the judge who is most ignorant of the relevant law if doing so will prevent a defence based on law from being successful? There is some evidence that this type of behaviour was occurring in my case. (A family-law-expert judge that is totally ignorant of tax law, and who doesn’t know a leading question when she sees one, is not likely to happen by accident. And a judge that cannot understand the meaning of the word “voluntary” may raise questions about his choice as the judge, particularly after the Chief Justice succeeds in getting me to remove some of my legal explanations from my factum so that they do not show up in the proceedings because the issues are not raised except in the final judgment, after it is too late to provide these legal explanations.)

[I have been unable to find any law that prohibits this type of behaviour.]

3. How good are lawyers, including judges, at understanding the law?

[My observations suggest that most lawyers are confused by words that have more than one meaning, such as “voluntary” which has the physiological meaning of “under the conscious control of” and the legal meaning of “without threat or promise, or without consideration.” Most difficult of all for them are words that are defined to mean something other than the dictionary meaning, especially if there are two or more steps to the definition, such as in the definition of “commercial activity.” In the Excise Tax Act, this means business or adventure or concern in the nature of trade. And in the Excise Tax Act, “business” means profession, trade, calling, manufacture, or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit. And “undertaking” has many meanings, one of which is “taking part in the application of mental or physical effort to a purpose.” So, this includes almost anything, including pretending to engage in a commercial activity, because pretending entails the application of mental or physical effort to a purpose, and is therefore an undertaking, and therefore a business, and therefore a commercial activity (as defined in the Excise Tax Act). (And since the taxpayer can qualify for GST refunds by engaging in ANY undertaking, he can choose whatever definition of undertaking is easiest for him to do to get GST refunds.) So, this may be one of the reasons that judges do not always appear to be upholding the law: perhaps their mental faculties are better at memorizing the law and reciting it than they are at understanding law, or even understanding a complex sentence. Needless to say, I have been unable to find any law that requires a judge to be more intelligent than he or she is.]

4. Do prosecutors try to prevent an accused person from knowing exactly what he is being charged with by using vague generalities in their charges to make it difficult for the accused to prepare a defence. That way when he finally finds out what charge to address, the case is over.

[My experience is that they try everything they can to hide the charge from the accused, including vague charges, refusal to discuss the issues before or after the charges are laid, and 25,000 pages of disclosure with no indication of what the complaint is. There is case law to the effect that disclosure must be concise and relevant, but this law is obviously not followed. In my case, I brought a motion for particulars before the preliminary inquiry, but the judge refused my request for requiring the prosecutor to provide more particulars of what the case was about. And when I made a demand for particulars to Laurent Bartleman, the lawyer for the government at the Tax Court, Laurent Bartleman refused my request.]

5. Do judges lie? Normally when one lies, one says something that could be true and so could be believed. One does not normally say, “2 + 2 = 5” because no one would be fooled. No one would believe it. The liar would be exposed by his own statement when he made it. So, is the judge stupid? You be the judge.

I can think of four possible explanations for this type of behaviour in a judge: stupidity, ignorance, insanity, and mendacity.

Since Judge Rossiter was apparently one of Prince Edward Island’s top litigators before he became a judge at the Tax Court of Canada, it is hard to think that he is stupid, ignorant, or even insane. And mendacity (untruthfulness) does not seem to apply to this situation because liars try to trick their victims. And one can never trick any lawyer by saying something that is so obviously false: that a plea bargain agreement is voluntary (i.e., without consideration, without threat, without promise, without fear of prejudice, and without hope of advantage from a person in authority) because all plea bargain agreements are contracts accompanied by consideration, a threat, a promise, and, from a person in authority, both fear of prejudice and hope of advantage. The consideration is the dropping of some charges and/or the prosecutor’s request of the judge for a reduced sentence. The threat is to ask the judge for a longer sentence than that which he would seek if the accused were not to sign the plea-bargain agreement. The promise is to request a reduced sentence if the accused does sign the plea-bargain agreement. The fear of prejudice is the fear of a longer sentence if the accused does not sign the plea-bargain agreement. The hope of advantage is what the accused gets from the promise to ask the judge for a reduced sentence.

However, there is still an explanation that makes sense. To become a lawyer (or judge), one needs to be successful at law-school examinations, and that requires two things: (1) the ability to memorize great quantities of material from law reports, and (2) a tiny amount of thinking ability. And tax law in actual practice (as opposed to on law-school examinations) can be slightly more complicated than other types of law because it can become convoluted. So, in some cases, tax law could require more thinking ability than other areas of law. But that amount of thinking ability is still very little, because tax law can never be very complicated. The tax issues that I have dealt with in this review are about as complicated as tax law ever gets. But some lawyers cannot even understand something that simple, no matter how hard and how long they try. These lawyers have an intellectual ability that consists almost entirely of the ability to memorize great quantities of information, but they have almost no ability to understand what it is that they are memorizing. So, although they can do well on law-school examinations, which deal exclusively with straightforward cases (even income-tax examinations), they run into problems if they are confronted with a tax case that is even slightly convoluted. And whether an admission is voluntary may be a concept that is simply too complicated for a judge to understand. Perhaps this is because of the existence of other meanings of the word “voluntary,” such as “done, given, or acting of one’s own free will.”

So, it may well be that Judge Rossiter’s claim that the plea bargain was voluntary arises from his lack of ability to think. But that does not mean that he is not a great intellectual. It just means that his intellectual capacity is limited to memorizing and reciting great quantities of material, even though he may not be able to understand what it is that he is memorizing and reciting.

However, we must put this great memorizing ability into perspective. Human beings are not superior to animals in all respects. Human beings are not the strongest creatures on Earth. Nor are they the fastest runners. Nor do they have the best vision, or the best hearing, or the best sense of smell. And, apparently, they do not have the greatest ability to memorize.

Recent scientific research in Japan has proven that chimpanzees are far superior to humans when it comes to memorizing. Research scientists in Japan had nine numerals (1 to 9 inclusive) appear on a computer screen, randomly placed, for one quarter of a second, while a chimpanzee was watching the computer screen. Then, after this one-quarter-of-a-second viewing of the computer screen with nine randomly placed numerals, the chimpanzee was actually able to touch the screen in each of the nine locations where the numerals were, in their correct sequence. (Of course, the chimpanzees had to be taught how to read numerals, and understand their sequence, before this experiment could be carried out.)

Human beings, on the other hand, can succeed at this experiment only occasionally, and only if the best memorizers in the human race are used in the experiment, and only after a longer period of viewing the computer screen with the numerals, rather than merely one quarter of a second.

So, not only can chimpanzees be taught to read numerals, and understand in what sequence they belong, they can even memorize them much faster and in greater quantity than humans.

So, it appears that the intellectual ability of Judge Rossiter consists of something at which a chimpanzee is better than any human being.

Now, in all fairness, the chimpanzee chosen for this experiment was not an average chimp. He was the best in his group. But then Judge Rossiter was one of the top litigators on Prince Edward Island when he became a judge of the Tax Court of Canada. So it is not unfair to compare him to the smartest chimp in a small group of chimps.

And while we are assessing the intellectual ability of Judge Rossiter, we might as well assess the intellectual ability of Laurent Bartleman, the lawyer representing Canada Revenue Agency in my tax case at the Tax Court of Canada. He, also, appears to have difficulty understanding the legal meaning of the word “voluntary,” as opposed to any other meaning it may have.

In his closing argument in my tax case, he said that the plea-bargain agreement containing the plea of guilty was voluntary because no one was strong-arming me to get me to sign. And there was no evidence of anyone pressuring me to sign. As mentioned earlier, this shows that Laurent Bartleman cannot comprehend the legal meaning of the word “voluntary,” because “voluntary” not only includes an absence of strong-arming and pressure, but also an absence of any offer of leniency, which is an integral part of all plea-bargain agreements.

As Laurent Bartleman exemplifies by using his own self as an example, the intelligence of a lawyer is well below that of a chimpanzee, and is more like that of a baboon, which has a brain half the size of the brain of a chimpanzee. So, why do civil-service lawyers (and judges) succeed so well? To find out, we need only look at the baboon itself.

While the smarter chimpanzee is an endangered species, the baboons, with half the brain, have become known as the “rats of Africa” because they are so abundant. How is this possible?

The answer comes from Howard Bloom (an author and scientific thinker), who developed the idea of “Group IQ” in a short article that you can view or download by clicking here: Baboons & Group IQ. In this article, Howard Bloom shows that baboons learn from experience and share that experience with other baboons in their group, which is much larger than a chimpanzee group. So, with their sharing of experiences, and the group learning that results, they are able to turn hardship into a benefit. When they are driven from their foraging grounds by humans developing the land, they learn to forage on the dumps near areas of housing development. So, the disaster of losing their foraging area becomes a bonanza of easy-to-get food.

But it is not just animals that have high group intelligence. Gypsies (Roma) are another group that has succeeded because of their superior group intelligence.

Gypsies have an average IQ of 80 and they are known for having occupations like sharpening knives and pickpocketing. But with the advent of permanently sharp knives, and constant video surveillance in crowded areas, these old occupations have been hurt badly. And the low IQ does not help one get a job working for high tech industries, especially in an era of exporting unskilled jobs to developing countries. So, the outlook for Gypsies was bleak. Or so it seemed.

But the Gypsies were undaunted. These geniuses of Group IQ are flourishing in Europe precisely because of their superiority in this area. When one family of Gypsies successfully applies for welfare, the word spreads instantly, and immediately the whole clan is on welfare. No longer do they have to wander around neighbourhoods sharpening knives for housewives who cannot do it themselves. No longer do they have to sneak up on unsuspecting tourists and engage their nimble fingers in the age-old art of pickpocketing. Now, the postman delivers their welfare payment directly to their home. And in a few years, every one of these geniuses of Group IQ will be on direct deposit. So they won’t even have to leave home to get their money. They will be able to spend their money with their American Express debit card.

The civil service has done the same thing. Civil servants are the least intelligent and least motivated members of society, and would have a difficult time as entrepreneurs in our highly competitive society. As we become an increasingly skilled society, with our unskilled jobs being exported to developing countries like China and India, we would expect that the unskilled and the stupid would be facing disaster. But by becoming civil servants, they do not have to compete with anyone. They merely live off the work of others by taking the tax revenues, which are over 50% of the gross national product. So, the lowest class in society gets the lion’s share of the riches produced by the “more intelligent” and harder-working middle and upper classes. But these supposedly more intelligent middle and upper classes are too gullible, and too busy working, to see what is going on. So, they continue to pay their hard-earned money as taxes to an inefficient, and often parasitic, civil service.

Contrary to what many people believe, the legal profession is a great reservoir of stupid people. As I have shown, the five lawyers mentioned (four being judges), have practically no ability to think. And they have demonstrated this themselves by their own words, which I have quoted. And one can reasonably conclude that at least 90% of all lawyers are in the same boat: their intellect is mainly memory, and they have little ability to think. And in this respect, though they lack the superior memorizing ability of the chimpanzee, they can at least match the intelligence of the baboon. And, like baboons, they have learned to work together at working the system. In the legal system, if someone is not doing what the civil service wants him to do (i.e., if he is doing something that restricts the ability of civil servants to mooch), the civil servants join forces to attack that person. Here are some examples:

1. In my case, there is some evidence that the chief justice chose a family-court judge for my tax case in criminal court because the judge’s ignorance of tax law would enable the prosecutor to win more easily despite what the law actually says, since the judge would not be able to understand that area of the law.

2. In my certiorari application, there is abundant evidence that the judge was looking for an excuse to rule against me. His question to the prosecutor, about what options a certiorari judge had, indicated that remitting the case to the preliminary-hearing judge for reconsideration, “for further evidence or further reasons,” would be his preference, since he wanted to rule against me but lacked an adequate case to rule against me. But when the judge found that this was not allowed, he went to great efforts to get an excuse to rule against me, including asking for a supplementary factum (something that is rarely done). And then, in his decision, he avoided the main issue of whether I was engaged in an undertaking, because it was so obvious that I was engaged in an undertaking, particularly since I was charged with engaging in an undertaking, {i.e., defrauding the government of money is obviously an undertaking, consisting of getting money from the government, doing something to get the money, and illegality, the second of these three things (doing something to get the money) being the undertaking, and precluding the third part of the charge (the illegality)}.

3. In the Court of Appeal, the judges accused me of using a strictly literal interpretation of the statute, and they provided no reason for their decision. The closest they came to a reason was their statement that the result of my strictly literal interpretation would be astonishing, even though the example they gave (a taxpayer getting GST credits without charging or receiving GST) is standard practice for exporters. (Actually, I never said that I was relying on a “strictly literal interpretation of the Excise Tax Act,” but rather, I quoted the actual words of the Excise Tax Act. The Court of Appeal called these actual quoted words an “interpretation” because they did not like them.) And when I mentioned that the result in the Canada Trustco case illustrates that tax benefits are allowed for artificial transactions (i.e., for transactions where the sole purpose of the transaction is to get a tax benefit), they each gave me a dirty look, but said nothing, not even a mutter, and avoided that issue in their decision.

To accuse someone of using a strictly literal interpretation of the law seems absurd, especially when one is merely reading the statute, because it means that if one strictly does what the law strictly says, then one is guilty of something. Yet one of the judges at the Court of Appeal was a Silver Medalist at Queen’s University Law School. So, he stood almost at the top of his class. And if a lawyer with such high academic standing makes this type of statement, then one wonders about the level of intelligence of other lawyers, who are not even as smart. (Are they even as smart as baboons?)

4. At the trial, one tax auditor (K. C. Tiow) even admitted that he answers the prosecutor quickly but avoids answering questions from the accused if the answer would benefit the accused. Although this is not telling lies, it is avoiding telling the truth.

5. At the Tax Court of Canada, the lawyer for the government makes the impossible allegation that an admission contained in a plea bargain is voluntary, and therefore should be admitted as evidence (an admission made by a party to a legal proceeding is admissible in evidence in another case only if it is made voluntarily).

6. And then the judge at the Tax Court of Canada accepts that admission made in the plea bargain even though it is impossible for a plea bargain to be made voluntarily, and bases his decision on it, quoting thirty-six pages of the plea bargain in his seventy-page decision.

7. Thanks to laws created by civil servants, there is no penalty whatsoever for civil servants that do what productive members of society would call dishonest or crooked, because there are no restrictions on the decision-making of a judge, and the chief justice can choose any judge for a case, with no reason being given. And the prosecutor is able to say the most ridiculous things, that no lawyer would even think necessary to contradict, and the judge can accept it in all of its absurdity. This case stands for the proposition that what productive members of society would call dishonesty is perfectly legal, honourable, and respectable, and what they would call a total disregard for the law is perfectly acceptable if the perpetrator is a civil servant. It also stands for the proposition that for the rest of society, compliance with the law is no guarantee of not being found guilty. So, one must govern oneself accordingly.

The civil service has flourished despite its inefficiency. While the private sector has doubled its output in the last few decades, the productivity of the civil service has remained steady, despite the timesaving technology now available with computers. The civil service is interested primarily in keeping the civil service employed, at the expense of the private sector, while the private sector struggles to stay alive, all the time funding the civil service through paying income tax. It is obvious that the civil service has the greater Group IQ, despite their lower capability in standard IQ tests, and despite their laziness and lack of productivity.

As Harold Bloom concludes in his article on Group IQ, “to raise our own Group IQ, it’s time for us humans to dig a little deeper and to study the inner secrets of social organization among our fellow organisms on this planet –– bacteria, chimps, and baboons.” And, I might add, civil servants, especially those who are lawyers.

The rule of law depends for its existence on the people who administer the law, their level of intelligence, and their level of honesty. If these people lack the intelligence necessary to understand law, or if they lack the honesty to apply the law in cases that do not serve the personal interests of those who administer the law, then no one except civil servants can depend on the law. So, what does one do then? One would do well to observe the words of Andrew Carnegie, in his most famous quote: “As I grow older, I pay less attention to what men say. I just watch what they do.”

So, as long as you realize that lawyers and judges merely say that they follow the rule of law, and then do otherwise, you will not depend on the rule of law, and you will not be disappointed when you find out that it does not exist, and never did.

Questions, comments, and rebuttals relating to the matters mentioned herein should be directed to Peter Eickmeier by email by clicking here.