CRA Ordered To Pay $1.7 Million in Damages for Malicious Prosecution

In Samaroo v. Canada Revenue Agency (2018 BCSC 324), the Supreme Court of British Columbia held that a CRA investigator both suppressed and misrepresented evidence in prosecuting a BC couple for tax evasion. The court ordered the CRA to pay nearly $1.7 million in compensatory, aggravated, and punitive damages, noting the damage to the taxpayers' reputations and the impact on their business and personal lives.

Mr. and Mrs. Samaroo operated a restaurant, motel, and nightclub. The CRA undertook an investigation of the Samaroos' restaurant based on (1) a net worth analysis, (2) a theory that the Samaroos were not reporting the revenue from one of three daily restaurant shifts, and (3) the fact that Mr. Samaroo had been making cash deposits into his personal bank account.

The CRA filed 21 separate tax evasion charges. However, the Provincial Court of British Columbia acquitted the Samaroos on all charges, finding that Mr. Samaroo was a credible witness whose demeanour was impressive and whose explanations were plausible and consistent with the evidence (R v. Samaroo, 2011 BCPC 503). Further, the CRA's underreporting theory was unproved, and its net worth analysis was plagued by major omissions and plainly wrong assumptions. The Samaroos sued the CRA and the prosecutor for malicious prosecution.

The test for malicious prosecution is found in Miazga v. Kvello Estate (2009 SCC 51):
  1. the defendant must have initiated or continued the prosecution;

  2. the prosecution must have terminated in the plaintiffs' favour;

  3. the prosecution must have been undertaken without reasonable and probable cause; and

  4. the prosecution must have been motivated by malice or by a primary purpose other than that of carrying the law into effect.

On points 1 through 3 above, Punnett J wrote that throughout the investigation and prosecution "the [CRA] lacked evidence of the overt acts or actus reus of tax evasion." In particular, the theory of the prosecution was founded on an unproved assumption; moreover, no one ever advanced a theory of how Mr. Samaroo supposedly skimmed the cash from the restaurant but still accounted for debit and credit sales. The court found that the prosecution's only explanation was that it was done by "magic."

With respect to point 4 above—motivation—Punnett J (quoting from Casey v. Auto Renault Canada Ltd., 1965 CanLII 72 (SCC)) found that the CRA investigator "'caused everything to be done which could be done wrongfully to set the law in motion' against the Samaroos." Among other serious faults, the investigator
  • created, concealed, and wrongly attributed evidence and information, all in a way designed to mislead;

  • acted as an advocate, not an investigator; and

  • demonstrated no remorse and testified that he "would, if given the chance, prosecute [the Samaroos] again on the same theory and the same evidentiary basis."

The conduct of at least one other CRA employee was also egregious. An employee bragged about the charges in an e-mail: "Front page of Wednesday's Nanaimo Daily News. I can't wait to read the edition after the guilty verdict." Another e-mail mockingly asked: "[D]oesn't a guilty verdict call for a guillotine?" Punnett J reprimanded them: "Here, the CRA employees looked forward with unprofessional glee to the plaintiffs' anticipated conviction and sentencing and their resulting ruination."

Punnett J concluded that the investigator and the CRA had maliciously prosecuted the Samaroos. Punnett J also found that the prosecutor, "[whether] through negligence or otherwise, gave up control of the prosecution to [the investigator] and the CRA and in so doing risked a miscarriage of justice." Although this conduct was deplorable, it did not rise to the level of malicious intent, and so the claims against the prosecutor were dismissed. One wonders whether the fact that the prosecutor was not an employee of the Department of Justice, but was engaged on an ad hoc contractual basis, contributed to this tendency to rely excessively on the CRA investigator rather than to evaluate the evidence independently.

Joel Scheuerman
BCF LLP, Montreal
[email protected]

Canadian Tax Focus
Volume 8, Number 2, May 2018
©2018, Canadian Tax Foundation