Date: 20041117
Docket: T-752-03
Citation: 2004 FC 1602
BETWEEN:
THE MINISTER OF NATIONAL REVENUE
Applicant
and
OREST IWASCHUK AND
ZOWTRA INVESTMENTS INC.
Respondents
[1] This decision follows a show cause hearing which was held further to Madam Justice Dawson's ex parte order of April 19, 2004 (the "Show Cause Order") in which she found that Orest Iwaschuk (the "Respondent") had allegedly failed to comply with a compliance order made by Mr. Justice Blanchard on August 13, 2003 (the "Compliance Order"). It required the Respondent to produce certain records, including the accounting records for Zowtra Investments, to the Applicant on or before October 1, 2003.
[2] The Applicant, the Canada Revenue Agency (the "CRA") relied on the testimony of Mohammed Sharif. He is an accountant with the CRA and was asked to audit the books and records of Zowtra Investments Inc. (the "Company"). To that end, he conducted a search which revealed that the Respondent was the Company's sole director. He testified that on December 23, 2002, he personally delivered a notice to the Applicant requiring the production of documents under subsection 231.12 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Requirement"). Since no documents were produced in response to the Requirement, the CRA sought the Compliance Order.
[3] Mr. Sharif provided detailed evidence about his efforts to obtain the Company's accounting records. The following chronology summarizes his evidence:
November 2002 Mr. Sharif's first contact with Respondent by phone to obtain his office address.
November 29, 2002 Mr. Sharif personally delivered a letter of this date to the Respondent at his office. No response was received.
December 23, 2002 Mr. Sharif personally delivered the Requirement to the Respondent at his office. No response was received.
August 13, 2003 The Compliance Order was signed by Mr. Justice Blanchard.
September 23, 2003 A letter was written by the Mr. Orest Rusnak ("Rusnak") and signed by the Respondent which purported to respond to the Compliance Order (the "Response Letter").
October 1, 2003 The deadline for compliance with the Compliance Order.
April 19, 2004 The Show Cause Order was signed by Madam Justice Dawson. It required service of certain documents on the Respondent.
April 27, 2004 Mr. Sharif served the Respondent with the documents referred to in the Show Cause Order by handing him the documents.
[4] The Respondent acknowledges that he was the Company's sole director at the date of the Compliance Order (August 13, 2003) and at its effective date (October 1, 2003). He says, however, that before that time, he had told the Company he wished to resign due to ill health. He eventually did resign, but his resignation did not occur until January 27, 2004. Accordingly, he was the Company's sole director at all material times and there is no evidence that any health problems affected his dealings with the Applicant.
[5] According to the Respondent's oral testimony of events, the Company was incorporated in 2002 by Rusnak to develop a ten acre property owned by the Respondent. It was to become a campground with a pond for fishing. The Respondent testified that he transferred his land to the Company for a nominal sum and that Rusnak operated the Company. He further testified that he had no involvement with or information about the Company's operations. His role was limited to driving a surveyor to look at the property on one occasion and signing the Company's annual income tax returns. He acknowledged, with respect to the income tax returns for the year ending August 31, 2000, that he signed as the Company's authorized signing officer and contact person. Yet, he said, he didn't read the income tax return and had no idea that it showed that the Company had assets of $7,000,000. The Respondent testified that the Property was never developed, that he never saw the Company's financial or corporate records and that he had no idea what the Company's day to day business involved.
[6] The Respondent's other version of events was that he became a Director of the Company because of a proposed merger with a public company. This evidence was found in his affidavit of June 17, 2003. It made no mention of any plan to develop a campground.
[7] The Respondent testified that Rusnak operated the Company and that, when the CRA asked him for information, he repeatedly told it that he had none and that it should ask Rusnak for any documents relating to the Company. Every time there was a request he said he "kicked it over" to Rusnak. He testified that he didn't open the letter containing the Requirement even though it was hand delivered to his office on December 23, 2002. He simply gave it to Rusnak.
[8] The "Response Letter" of September 23, 2003 was written by Rusnak but the Respondent signed it. It is written in the first person so it reads as if the Respondent was actually responsible for the information it contained but, when asked if he read it before he signed it, his first answer was "probably not". His second response was "I may have read it, but what does it mean? Do I know whether he answered it right or wrong? Would it matter?"
[9] The following facts are not in dispute:
· The Company produced no records pursuant to the Requirement.
· The Respondent and the Company received the Requirement, the Compliance Order and the Show Cause Order.
· The Respondent and Rusnak have been business acquaintances for many years and they spoke the day before the hearing.
· The Respondent did not subpoena Rusnak to give evidence.
· The Response Letter of September 23, 2003 did not comply with the Compliance Order and there has, to date, been no compliance with that Order.
· The Respondent is a director of "lots" of other Companies and understands that Directors must "answer" for whatever happens.
· There is no allegation that the Respondent ever had custody of or in any way destroyed the records listed in the Requirement.
[10] Against this background, the issue can be narrowly framed. If I simplify matters by leaving credibility issues aside and accept that the Respondent had no control over and no knowledge of the Company's records and operations, the question becomes, am I satisfied beyond a reasonable doubt that he acted in contempt of the Compliance Order?
[11] Respondent's counsel says that the Response Letter makes it clear that the Respondent tried to have Rusnak comply and that, in these circumstances, the intent necessary to justify a finding of contempt cannot be found.
[12] I do not find this submission persuasive. I am satisfied that the Respondent did not read either the Requirement or the Response Letter. He had no idea and clearly didn't care whether the information over his signature in the Response Letter was accurate or complete. There is no evidence that he asked Rusnak any questions or made any attempt to ensure that the Response Letter, in fact, responded to the Requirement.
[13] There is also no evidence that Rusnak refused to provide answers or material or that communications between them broke down in any way. In these circumstances, the Respondent cannot be said to have done all he could to ensure that the Company complied with the Compliance Order. In this regard, see paragraph 23 of Long Shong Pictures (H.K.) Ltd. v. NTC Entertainment Ltd. (2000), 190 F.T.R. 123, [2000] F.C.J. No. 557 (QL).
[14] If the Applicant had read the Requirement and the Response Letter, had been dissatisfied with the Response Letter and had tried to have it improved or refused to sign it, I would view the matter differently. However, on the evidence before me, it is clear that the Respondent had no
interest in whether the information in the Response Letter was in compliance. This blatant disregard for the Compliance Order satisfies me beyond a reasonable doubt that the Respondent is guilty of contempt. Pursuant to Rule 472 of the Federal Court Rules, 1998, SOR/98-106, an order will be made imposing a fine of $2,500.00, which he will have ninety (90) days to pay. In default, he is to be imprisoned for thirty (30) days.
"Sandra J. Simpson"
JUDGE
Ottawa, Ontario
November 17, 2004
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: MINISTER OF NATIONAL REVENUE v.
OREST IWASCHUK AND ZOWTRA INVESTMENTS INC
PLACE OF HEARING: EDMONTON, AB
DATE OF HEARING: SEPTEMBER 15, 2004
APPEARANCES:
SOLICITORS OF RECORD:
Morris Rosenberg, Deputy Attorney General of Canada
J. Macleod Walker, Barrister and Solicitor