A few weeks ago, in R. c. Goldberg, 2020 QCCQ 4548, the Court of Québec (Criminal and Penal Division) granted the most drastic remedy by ordering a stay of the charges brought against Bouclair Inc. (Bouclair), Peter Goldberg and Erwin Fligel, respectively the company's Chief Executive Officer (CEO) and vice-president, for alleged tax evasion offences.
In 2011, the Québec fiscal authority, the Agence du Revenu du Québec (ARQ), began a routine tax audit of Bouclair. In the early stages of the audit, the ARQ's auditor discovered the diversion of the CEO's personal expenses through the company's books. The audit continued without being referred to the Investigations Division of the ARQ and in that context, the ARQ obtained documents, confessions and admissions by the company's representatives. At the end of the audit, the ARQ imposed administrative penalties to Bouclair and Mr. Goldberg in the total amount of $268,677 for gross negligence, in addition to the taxes payable and interest. They made submissions but ultimately paid all the outstanding amounts including the hefty penalties. According to the Court of Québec, it was understood for Bouclair and Mr. Goldberg that the file would be closed and that no criminal investigation or charges would be brought.
The Canada Revenue Agency (CRA) then conducted its own audit for the same fiscal years relying on the ARQ auditor's report. The CRA reassessed Bouclair and Mr. Goldberg and added $373,052 of penalties all of which were paid. Even if the CRA considered the matter to be closed, its Investigations Division selected Bouclair's file for investigation 18 months later. According to the Court of Québec, the CRA Investigations Division was then looking "for a creative way to increase its internal workload" and chose Bouclair, a high-profile company, from a list of closed files as it offered a "good pool of candidates who had potentially committed criminal tax evasion".1 The CRA investigators then got access to the ARQ auditor's file which contained incriminating statements and obtained search warrants.
This case raises multiple issues, which were addressed by Justice Galiatstatos of the Court of Québec in a 80-page decision. Our discussion below focuses on the accused's violation of their constitutional rights on the basis of the Jarvis principles, ultimately resulting in the stay of proceedings.
As was discussed in a previous blog post2, the Supreme Court of Canada in R. v. Jarvis, 2002 SCC 73 identified criteria to assist the Court in determining whether an inquiry's purpose is to administer and enforce the law or to investigate penal or criminal liability. If the dominant purpose is to assess whether a penal or criminal offence has been committed, the protection afforded by the Canadian Charter applies, including the right of every person to be secure against unreasonable search or seizure. The Supreme Court acknowledged that while an audit may continue after the institution of a criminal or penal investigation, the results of this audit cannot be used in pursuance of this investigation or prosecution.
In the present case, Justice Galiatstatos analyzed the principles established in Jarvis3 and noted that the case at hand was different from the "usual course", in that the investigation step occurred years after the completion of the audit step, and that the CRA used information obtained entirely by the ARQ. The ARQ did not transfer the materials obtained during the audit to the CRA's investigators in the course of its audit and had no intention of doing so.
Faced with this usual situation, Justice Galiatstatos held that it had to assess the history of the case to see whether the "net result was a curtailment of the Jarvis protections". He concluded that it was the case here. In his view, concluding otherwise would simply remove the effect and application of the Jarvis protections.
Justice Galiatstatos then turned to the determination of the moment when the Rubicon had been crossed (i.e. when the investigation became criminal or penal), an exercise that he found to be challenging and "rooted in fiction" as a result of the method of file selection put in place by the CRA. Following an analysis of the evidence, he ruled that the ARQ's auditor had found evidence of tax evasion very early in the process and that the Rubicon had been crossed from the moment the ARQ required production of invoices for one of Bouclair's subcontractor. While the ARQ had no intention of ever seeking criminal charges, criminal charges were in fact ultimately laid. As such, the Court concluded that the accused's constitutional rights were violated and excluded the illegally obtained evidence under subsection 24(2) of the Canadian Charter. The Court noted, among other elements, the obvious nature of the breach in this case, where Bouclair and its CEO provided incriminating documents and statements that served as the basis of the criminal charges later brought against them.
Even if the illegally obtained evidence was excluded, the Court of Québec expressed that holding the trial would "manifest, perpetuate and aggravate the disrepute to the administration of justice".4 The stay of proceedings was then granted on the basis of the findings that the accused's constitutional rights violations were serious, multiple and systemic.
This decision underscores the importance of the Jarvis protections and of the distinction between regulatory audit and criminal or penal investigations. It conveys a strong message to state auditors and investigations that they should be familiar with these principles in order to prevent serious constitutional rights violations. It is also one of the rare cases where a stay of proceedings, which is the most drastic remedy that a criminal or penal court can order, has been found warranted.
1. R. v. Goldberg, 2020 QCCQ 4548, para. 470.
2. See blog post entitled "The Quebec Court of Appeal provides useful guidance as to when a regulatory audit may actually be a penal investigation in disguise".
3. R. v. Jarvis, 2002 SCC 73.
4. R. v. Goldberg, 2020 QCCQ 4548, at para. 470.
The author would like to thank Mareine Gervais Cloutier for her contributions.
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