Date: 20000310
Dockets: 96-4601-IT-G; 95-3362-IT-G; 96-2263-IT-G
BETWEEN:
DANIEL G. NADORYK, MEWA SIDHU, NIRMAL RAI,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
[1] After the presentation of the testimony of the three Appellants during the hearing of these appeals, the Respondent presented John Bakator ("Bakator"), auditor with Revenue Canada, to give evidence on the evolution of the formula used by the Respondent in determining and assessing income from taxicab operations of the Appellants. Early in the presentation of Bakator's evidence, Appellants' counsel objected to the admission of certain documents on the basis that they constituted hearsay and were, therefore, inadmissible. After a number of objections and after hearing brief submissions of each counsel and after observing that the proposed evidence of Bakator would be greeted by many ensuing objections, I issued an Order reciting that the hearing had continued for two weeks and would require an additional two weeks. The Order provided that:
1. Respondent's counsel file with the Court and serve on Appellants' counsel a list of reports and documents to which he intended to refer without producing the authors thereof, and a brief of law setting out authorities in support of his position that they were admissible in evidence,
2. Appellants' counsel file a written response to that submission, and
3. Respondent's counsel file a response to the Appellants' Reply if so desired.
I have not read any portion of the reports and documents.
Respondent's Position:
[2] Respondent's counsel submitted a list of the documents which he wished to produce through the testimony of Bakator, namely:
i) "Taxicab Project Report". Report prepared by John Bakator & Ed Gorber, Revenue Canada, Winnipeg, (45 pages). #1 from Nirmal Rai List of Documents. This report details the research and conclusions yielding the 44.8% paid kilometre ratio and the $1.46 dollars per paid kilometre figures specified in the assumptions in the Replies to the Notices of Appeal.
ii) 1991 Fuel Consumption Guide, Transport Canada, (37 pages), Document #12 from Respondent's List of Documents - Common Documents. This report details the fuel consumption of common vehicles used in Canada, including the types of vehicles used in the Winnipeg taxicab industry.
iii) "Market Segment Specialization Program - Taxicabs". U.S. Department of Treasury. Internal Revenue Service. 1993. (22 pages). #38 from the Respondent's List of Documents - Common Documents. This report details the audit approach and methodology used to assess income of taxi owners in the Los Angeles taxicab industry.
iv) "1992 Speed and Delay", Report prepared by City of Winnipeg, Streets and Transportation Dept., (142 pages), #10 from Mewa Sidhu List of Documents. Report detailing the total time and distances to travel between various locations in Winnipeg, using the standard methodology employed across North America for such purposes.
v) "Report and Recommendations of Winnipeg Taxicab Service and Regulation". Manitoba, The Taxicab Board, March, 1990. (114 pages). #8 from Nirmal Rai List of Documents. All-encompassing report relating to Winnipeg taxicab industry.
vi) "Greater Winnipeg Taxicab Industry, Rebuttal and Counter-proposal, 1990". Unicity Taxi Ltd. and Duffy's Taxi. (87 pages). *9 from Nirmal Rai List of Documents. Response of the Winnipeg taxicab industry to the report noted above.
vii) Memorandum with attachments dated April 9, 1990 from Terry Smythe, Chief Administrator, Motor Transport Board to D.S. Norquay, Chairman, Taxicab Board entitled "Review of Taxi Industry Response", (29 pages), #10 from Nirmal Rai List of Documents. Relates to report noted in vii) above.
viii) "1992 Brokerage Budget", Report prepared by Winnipeg Handi-Transit detailing amounts paid and number and type of Handi-Transit trips. (One page).
[3] Respondent's counsel stated that the assessments of the income of the three Appellant taxicab drivers were based upon "an income reconstruction formula developed by" Bakator and another auditor. He stated that they were based upon a paid kilometre ratio (percentage of total kilometres driven by a cab in which there was a fare in the car) and an assumed amount per paid kilometre. Counsel stated that auditors, at the assessment stage were not bound by the rules of evidence applicable to courtroom proceedings and were "entitled to consider any information which is reliable, hearsay or not". He submitted further that the only requirement should be whether the assumptions or findings of fact made at the assessment stage were sufficient to ground the assessment. He then stated that if so, and if a matter came before this Court, and assuming that the Minister's Reply to the Notice of Appeal records those assumptions, "then the route by which the assumptions were arrived at ought to be admissible".
[4] Respondent's counsel continued, as follows:
Reduced to its essentials, the appellants' position would have it that the assumptions relating to paid kilometre ratio and dollars per paid kilometre would stand until refuted (or "demolished" to use the terminology from Johnston, supra.,) but that the auditors should not be able to bring forward in evidence the supporting documents used to arrive at and confirm the numbers. Respondent submits that such a position in untenable.
[5] He then stated by way of analogy that every piece of supporting documentation relied upon by an auditor in net worth assessments, was usually from financial institutions and admissible through the testimony of the assessing auditor. He submitted further that Bakator would testify as to the paid kilometre ratio and the dollars per paid kilometre but would not be able, if the Appellants' objections were successful, to refer to the source documents supporting his conclusions. He stated that this result is neither reasonable or consistent with section 49(1)(d) of the Tax Court of Canada Rules (General Procedure) ("Rules") or the principle that assumptions stand unless refuted by the taxpayer.
Appellants' Position:
[6] Respondent's counsel stated agreement with the settled principle that the onus rests upon the Appellants to "demolish" the assumptions made by the Minister in reassessing the Appellants' income. He submitted that Bakator was not an expert witness and was not entitled to give opinion evidence. He said that Bakator was not entitled to refer to third party information "which is hearsay evidence and inadmissible".
[7] Appellants' counsel stated that he did not object to the production of the 1991 Fuel Consumption Guide from Transport Canada and that it could be admitted in evidence. He then referred to the other documents which the Respondent wished to tender in evidence stating that they were inadmissible on the basis that they were hearsay. He stated that if the author of any such document was called as a witness in the hearing to introduce the document it would be opinion evidence and the author would have to be qualified as an expert in the subjects referred to in the report. He then said that the time for filing expert reports had expired.
[8] Appellants' counsel submitted also that the admissibility of the above documents is a separate issue from whether the Respondent had the right to make assumptions and where the onus lies once such assumptions have been made. He added that the Appellants' evidence met the onus to rebut the Minister's assumptions. He submitted that Respondent's counsel wanted to produce evidence challenging the Appellants' evidence and supporting the assumptions on which the assessments were based, saying that the Minister, in so doing, must comply with the rules of evidence, stating that:
Before a report can even be proffered, the maker must be examined to determine whether or not the maker is an expert who is offering an opinion and whether that opinion falls within the maker's expertise.
Respondents Response:
[9] Respondent's counsel submitted, in response, that Revenue Canada, at the assessment stage, is entitled to rely on hearsay information as the basis of an assessment. He said further:
If the Appellants demonstrate and the Court concludes that the data relied on is not reliable or reasonable, then it will be disregarded and the Appellants will succeed in their appeals. However, a refusal to allow Revenue Canada to bring forward evidence as to how the assessments were arrived at effectively neuters the evidentiary onus which operates in the Minister's favour in a self-assessing system.
Analysis and Conclusion:
[10] I do not agree with the Respondent's position. A document cannot be admissible in evidence simply because an assessor relied on it to make assumptions in assessing.
[11] In R. v. O'Brien, [1978] 1 S.C.R. 591, Dickson, J. said, at 593-94:
It is settled law that evidence of a statement made to a witness by a person who is not himself called as a witness is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement; it is not hearsay and is admissible when it is proposed to establish by the evidence, not the truth of the statement but the fact that it was made ...
[12] I agree that the tax auditors are, in making assumptions for the purpose of issuing assessments, not bound by the rules of evidence applicable to courtroom proceedings. However the statement of Respondent's counsel that in this Court, "the route by which the assumptions were arrived at ought to be admissible" can have validity only if the rules of evidence are observed. The auditor can describe the method by which he concluded what assessment should be made but cannot, in so doing, produce a document "when the object of the evidence is to establish the truth of what is contained in the statement." What other reason would the Respondent have for seeking to admit such documents when the auditor can simply describe how he arrived at his formula.
[13] In R. v. Abbey [1982] 2 S.C.R. 24, 138 D.L.R. (3d) 202 at page 41 (D.L.R. 216), Dickson, J. said:
The main concern of the hearsay rule is the veracity of the statements made. The principal justification for the exclusion of hearsay evidence is the abhorrence of the common law to proof which is unsworn and has not been subjected to the trial by fire of cross-examination. Testimony under oath, and cross-examination, have been considered to be the best assurances of the truth of the statements of facts presented.
[14] It is the purpose for which the statement is made that is determinative of whether the statement is hearsay. In R. Baltzer (1974), 10 N.S.R. (2d) 561, 27 C.C.C. (2d) 118, at 143 (C.A.), MacDonald, J.A. emphasized this point:
Essentially it is not the form of the statement that gives it its hearsay or non-hearsay characteristics but the use to which it is put. Whenever a witness testifies that someone said something, immediately one should then ask, "what is the relevance of the fact that someone said something". If, therefore, the relevance of the statement lies in the fact that it was made, it is the making of the statement that is the evidence - the truth or falsity of the statement is of no consequence: if the relevance of the statement lies in the fact, then it is the truth or falsity of the statement that is in issue. The former is not hearsay, the latter is.
[15] The documents that the Respondent seeks to have admitted as evidence seem to fall squarely within the realm of hearsay evidence. Counsel for the Respondent submits that he is not seeking to admit the documents for the truth of any statements contained therein, but rather to corroborate the formula derived by the author. Counsel for the Appellants objects to the admission of these documents in evidence as this would deprive him of the opportunity to cross-examine the authors of the documents. The opportunity to cross-examine is a critical weapon in the arsenal of any party involved in litigation. In my opinion, unless the documents fall into a common law or statutory exception to the rule against hearsay evidence, the admission of the documents would violate the rules of evidence. I am aware of no such exception that would assist the Respondent here.
[16] Section 49(1)(d) of the Rules reads:
Subject to subsection (1.1) every reply shall state ... the findings or assumptions of fact made by the Minister when making the assessment ...
[17] The inadmissibility of the above documents has nothing to do with such obligation. With respect to Respondent's Counsel's statement respecting net worth assessments, documents from financial institutions are not automatically admissible through an auditor's testimony unless they fall under some provision of the Canada Evidence Act. In many net worth assessments an Appellant is not represented by counsel and has no knowledge of the rules of evidence. If he is so represented, counsel might not object to the admissibility simply to save the attendant expenditure of time and expense in bringing an officer of the relevant institution into Court.
[18] I agree with the Appellants' position that the admissibility of the above documents is an issue separate and apart from whether the Minister has the right to make assumptions and where the onus lies once the Minister has made assumptions. If the Respondent wishes to bring forth evidence to challenge that of the Appellants and which supports the Minister's assumptions, the Respondent must do so in compliance with the rules of evidence. While the reports fall within the rule against the admission of hearsay evidence, this would not necessarily have precluded them from being admitted. The procedure for such admission was not followed.
Signed at Vancouver, Canada this 10th day of March, 2000.
"R.D. Bell"
J.T.C.C.