Bookkeeper fraud sentence appeal, MS Teams court decorum, and the General Anti-Avoidance Rule
This week on Legally Speaking with Michael Mulligan:
The BC Court of Appeal recently allowed a sentence appeal by the Crown and converted a two-year conditional sentence, sometimes called house arrest, into a regular jail sentence for a bookkeeper convicted of defrauding her employer.
Because the bookkeeper had a previous conviction for similar behaviour and was acting in a position of trust, the two-year jail sentence was not surprising. A theft or fraud committed by someone in a position of trust is more serious than theft or fraud committed by a stranger.
A sentence appeal is not, however, a matter of asking the Court of Appeal to substitute its judgment for that of a trial judge. Trial judges have a wide discretion to determine an appropriate sentence.
The sentence appeal was allowed because the trial judge had accepted as true a submission by the defence that the offending occurred as a result of depression and drug addiction when that was denied by the Crown.
At a sentencing hearing, the Crown and defence can make submissions about aggravating, or mitigating, factors that would have an impact on the sentence. Where the other party doesn’t deny the aggravating or mitigating factor a judge can proceed on the basis that it’s true.
In this case, however, the Crown denied that depression or drug use was the reason for the fraud. Where a factor like this is denied, the other party should be given an opportunity to prove it and, if that is not done, the judge should not consider the alleged factor.
Also on the show, the evolving directions for virtual court appearances in Provincial Court are discussed.
As a result of COVID, the BC Provincial Court has made significant use of MS Teams for virtual court appearances. In addition to health considerations, this has allowed for increased efficiency with suitable matters being dealt with remotely and judges from across the province being able to deal with cases in other locations.
Rules of decorum for virtual court appearances have been evolving. They now include a desire for neutral backgrounds, as well as what would have seemed obvious like not eating, drinking, or smoking during a court appearance.
Finally, a Supreme Court of Canada case dealing with the Income Tax Act provision referred to as the GAAR or the General Anti-Avoidance Rule is discussed.
The GAAR is controversial because it purports to prohibit “abusive” tax transactions that are permitted by the wording of the Income Tax Act.
The GAAR acts as a limit on both tax certainty and the well-accepted principle that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable.
The legal test to determine if the GAAR prohibits a transaction turns on whether it’s “abusive”. This, in turn, is based on an assessment of the “object, spirit, and purpose” of whatever rule is at issue.
In the case discussed, which involved a complicated corporate structure that relied on a tax treaty with Luxembourg, the GAAR was found not to apply because the purpose of the tax treaty was to encourage investment in Canada even if less tax might be collected in Canada.
Legally Speaking with Michael Mulligan is live on CFAX 1070 every Thursday at 10:30 am. It’s also available on Apple Podcasts or wherever you get your podcasts.
Automated transcript of the show:
Legally Speaking Dec 3, 2021
Adam Stirling [00:00:00] It’s time for, Legally Speaking, joined, as always, by Michael Mulligan Barrister and Solicitor with Mulligan Defence Lawyers. Morning, Michael, how are you doing?
Michael T. Mulligan [00:00:07] I’m doing great so far we’ve avoided Omicron, so I can’t complain.
Adam Stirling [00:00:11] I was going to say all of us casting that wary eye at yet another variant and the prospect of yet another set of possible restrictions. But we are very appreciative of the guidance that you have given us through this in terms of explaining how the Emergency Act works and our emergency health orders work. So regardless of what happens next, I am confident that we will understand the legalities of it if, if not anything else.
Michael T. Mulligan [00:00:34] That it always helps to know why things are happening, right?
Adam Stirling [00:00:37] All right. Let’s take a look at today’s agenda. I’m looking here BC court of appeal increasing a sentence now. Oftentimes, I would imagine that an offender would appeal a sentence to try to lessen the punishment. Or perhaps a crown would appeal the sentence, try to change it. Set this up for us.
Michael T. Mulligan [00:00:53] Yeah. So, it can certainly go both ways. And this was an example of Crown Counsel appealing seeking a higher sentence than what the judge imposed after a person pled guilty. The background of it is a woman, who’s the accused in this case, was a bookkeeper for a family-owned forestry company up near Qualicum Beach in Errington. And in her role as a bookkeeper, she manipulated the payroll system to cause money to be paid out to her bank account. By putting into the system, the previous employees were still being paid and then changed their banking information to her banking information.
Adam Stirling [00:01:38] Oh, that’s not good.
Michael T. Mulligan [00:01:38] That scheme went on for about 10 months, and she wound up with $109,000.
Adam Stirling [00:01:43] Wow.
Michael T. Mulligan [00:01:45] She pled guilty to the offence, and the original judge that sentenced her, sentenced her to a period of two years of a conditional sentence, which is like house arrest, followed by a period of probation. And Crown appealed that sentence to the Court of Appeal, asking that the sentence should be served in prison rather than the on-house arrest. And as we’ve talked about before, when you appeal a sentence, it’s not a matter of going and asking the Court of Appeal for a do over. You’ve got to point out why what the original judge did was fundamentally mistaken, right. Sort of the sentence has to be outside of the range or demonstrably unfit, right.
Adam Stirling [00:02:25] yes.
Michael T. Mulligan [00:02:25] It’s not just let’s try again to see what might stick with some different judges. And here the Crown was successful, which I must say isn’t a terrible surprise, given some of the background, including the fact that this bookkeeper had a serious previous record, including doing something similar to a previous employer.
Adam Stirling [00:02:44] Wow.
Michael T. Mulligan [00:02:45] And given the fact that where there is what’s referred to as a breach of trust, it’s viewed as a serious aggravating factor; or it is viewed as much more serious, if you’re the bookkeeper and you steal money than somebody who, I don’t know, happens by and sees some something you just on the spur of the moment takes the equivalent amount of money, right?
Adam Stirling [00:03:07] Yes.
Michael T. Mulligan [00:03:07] The idea is that she was trusted in this role, and so the Court of Appeal increased the sentence to a two-year jail sentence, so she has to serve it in the jail rather than on house arrest at home. But when they did that, the way the Court of Appeal did that, bearing in mind the fact that it’s not just a do over was interesting, and I think it’s something people might be interested to know about in terms of, you know. How does a sentencing hearing work in terms of the facts for the judge to decide what the sentence should be?
Adam Stirling [00:03:42] Yes.
Michael T. Mulligan [00:03:43] And when somebody is found guilty or pleads guilty, one of the advantages of that is that not all of the witnesses have to come to court to testify about what happened. You don’t need to call, you know, all the employees to come and say, yes, I didn’t work there any longer or, you know, people from the bank and so on. That’s part of the benefit of a guilty plea. But then on the sentencing, what is the judge to do in terms of the factual matrix the judge in sentencing somebody on. The way that ordinarily works is that the lawyers involved, Crown and Defence, would make submissions to the judge about what they say the appropriate sentence should be and the factual basis for the sentencing. And so, the Crown would stay up, stand up and say something like she was the bookkeeper. She manipulated the payroll system. She got a $109,000. Right. So, the judge has some idea of what bases about sentencing the person.
Adam Stirling [00:04:37] Yeah.
Michael T. Mulligan [00:04:38] And ordinarily, you don’t need to then call all those witnesses to prove it. It’s just the lawyers saying, this is what I say happened, right?
Adam Stirling [00:04:45] Okay.
Michael T. Mulligan [00:04:46] And the way that works, however, is that in this case, the lawyer for the woman said that some of the mitigating factors included that she was using opioids and had mental health difficulties, including depression.
Adam Stirling [00:05:00] hmm.
Michael T. Mulligan [00:05:00] And the Crown took issue with that and didn’t agree that those things were so and that they affected what the woman did or why she did it. And the way that works is that if either side disagrees on some point, like if the Crown says, I don’t agree that you were addicted to opioids and that’s what caused this to happen. Then it’s up to the other side to prove it. So, the idea is that both sides can make submissions. She was a bookkeeper. She stole $109,000. If nobody’s objecting to that, the judge operates on the basis that that’s true.
Adam Stirling [00:05:33] Okay.
Michael T. Mulligan [00:05:33] And if the Crown alleges something aggravating like she did this before? Right?
[00:05:40] She was convicted of it again, the judge would assume, Yeah, OK, that’s true. Unless there’s some somebody is objecting to that. But if there’s an objection, like if the accused said I wasn’t convicted before, that must have been somebody else. Okay. Well, then the Crown would have to prove that if the judge is going to take that into account as a factor, that would make it more serious or aggravating. But the same is true on the other side. So, when the lawyer for the woman said, well, this (indiscernible) did this act in part because she was addicted to opioids and his depression. If the Crown doesn’t agree with that, you know, we don’t agree that that played a part of it. Then the judge is not supposed to take that into account unless it’s proven right.
Adam Stirling [00:06:23] hmmm.
Michael T. Mulligan [00:06:23] So it’s sort of an each side can say what they want to say about aggravating or mitigating factors. And if there’s no objection to it, the judge accepts what’s being said is true. But if there’s an objection to it, then either side has to prove it one way or the other. And here, because there is an objection, the Court of Appeal said, well, that wasn’t prove it like there was no evidence about how often she was using opioids or how her depression would have played some role in this theft of money over a long period of time. And so that was the core of the basis of the Court of Appeal used to get in and interfere with the sentence, even though it was not a do over. They said, well, that was just a fundamental problem when something is denied or denied that it’s relevant to what happened. The other sides got to prove it. And the Court of Appeal did it in this case and a pretty strict way. And then at the end of so, they increased the sentences the Crown asked for. But on the other hand, there was probation to follow, which had conditions like not to consume alcohol. And on that one, the grounds the Court of Appeal said, well, that condition wasn’t appropriate. There is no evidence that alcohol had anything to do with this. Right?
Adam Stirling [00:07:27] Yeah.
Michael T. Mulligan [00:07:27] And so they deleted that condition from her probation. Hmm. And so, the takeaway is just to know how sentencings work. And it does avoid witnesses coming usually. But if there is a disagreement on either something that makes it more or less serious, then either side should be given a chance to try and prove that thing that they say is more or less serious. And if they can fine, the judge would proceed on the basis of that’s so; but if they are given an opportunity and don’t, then a judge would not take something into account as either an aggravating or mitigating factor. And so that’s why, in this case, the Court of Appeal was able to allow the Crown’s appeal and increase the sentence given to the bookkeeper.
Adam Stirling [00:08:11] Fascinating. So that’s how all of that fits together. Let’s take our first break because up next, it’s interesting it talks about the use of MS Teams in the provincial court, as well as what role that might play going forward if we ever do find our way out of yet another variant in yet another wave in this pandemic. But I don’t want to sound overly glum today, so we’ll talk about that coming up in just a moment as Legally Speaking with Michael Mulligan for Mulligan Defence Lawyers continue. Stay with us.
Adam Stirling [00:08:36] Back on the air and here at CFAX 1070 with Michael Mulligan for Mulligan Defence Lawyers. Up next, the provincial court and MS Teams video rules. Now, Michael, what you think of very few places in which decorum and procedure is more important than a court of law, whether it’s conducted in person or over the internet. What’s the latest update?
Michael T. Mulligan [00:08:55] Well, the provincial court has really fully embraced the use of MS Teams and remote video technology. It came, of course, the impetus, of course, was COVID. But it’s now being used to really pretty good effect in terms of both keeping people at a social distance. Endless streams of variants seem to arise, but also, I think it’s adding quite a bit to efficiency for appropriate proceedings, right.
Adam Stirling [00:09:22] mmm.
Michael T. Mulligan [00:09:23] There’s not going to be suitable for a trial, but there are all kinds of things that are short of a trial that it works really well for. It’s also quite stark change if you walk into like a courthouse in Victoria courtroom 101, used to be the sort of main remand court with a judge in it.
Adam Stirling [00:09:39] Yes,.
Michael T. Mulligan [00:09:39] And now on most days there is no judge physically present. There’s a video screen upon which the judge appears, or somebody were to show up there. You’re appearing in front of a video screen.
Adam Stirling [00:09:51] hmm.
Michael T. Mulligan [00:09:51] But one of the interesting things that’s sort of arisen is and it’s sort of like where they locate guardrails on highways, you know, where there’s a problem, we get these sort of, you know, semiweekly, it seems like updates to the rules of decorum for appearances on video. And I must say, as I read these things, it causes me to think that each one of these things is, of course, the result of some unsatisfactory previous effort. For example, landscape mode, if using a smartphone, flip your phone horizontally in landscape mode so that your full head shot is displayed. So, you know, no doubt there’s some video of a talking mouth with no top or bottom of the head, or somebody doesn’t position their phone in the right way. One of the one of the most recent ones, which was is a requirement to use a neutral background.
Adam Stirling [00:10:40] Yes.
Michael T. Mulligan [00:10:41] Counsel are required to do it. Others are encouraged to do it, which calls to mind for me, somebody who’s probably got some, you know, the tropical island background or something going on that may not be in keeping with the solemnity of the proceeding. Other interesting things include focus on your camera. They say direct eye contact is important for looking into the camera that see,.
Adam Stirling [00:11:04] Is that an issue because you’ve made arguments over MS Teams and whatnot. Do you find it disconcerting because you don’t actually make eye contact with the person on the screen you’re supposed to look at the camera? Is that difficult?
Michael T. Mulligan [00:11:15] Yeah, that’s an interesting one. I mean, I just sort of look at the screen and off we go. I know that’s actually a cultural issue at trials. There’s actually appellate authority for the proposition that when judges are assessing the credibility of witnesses, one of the things which can be culturally misleading is that idea of, eye contact, and in some cultures is viewed as a sign of truth, telling when you’re looking straight at the person when you’re speaking.
Adam Stirling [00:11:41] hmm.
Michael T. Mulligan [00:11:41] But that’s not universal. And so, it would be unwise to draw the conclusion that somebody who’s not making direct eye contact with you is necessarily less truthful.
Adam Stirling [00:11:53] hmm.
Michael T. Mulligan [00:11:53] Because in some cultures that would be considered inappropriate or rude. And so, it’s interesting that one of the express directions in the guide here from the provincial court is the importance of direct eye contact. Other requirements seem reasonable, dress appropriately and so forth. There’s also a prohibition on recording what’s going on and links. People should be aware of that. That’s not allowed. There’s an exception to that for accredited media who are permitted to make audio recordings as an aide to note taking. Not that they could replace them or broadcast them, but to make sure that they’ve got an accurate recording for reporting purposes. Other admonitions include not to take notes on a computer because the typing sound can be annoying, and they want you to use a pen and paper. And then they also don’t want you to smoke, vape, eat, or drink proceedings.
Adam Stirling [00:12:43] Can you imagine?
Michael T. Mulligan [00:12:44] understandable. Lighting up a cigarette during your court proceeding is not encouraged.
Adam Stirling [00:12:51] A bite out of the ham sandwich. Is somebody talking? Yeah, I can see that
Michael T. Mulligan [00:12:54] that’s frowned upon. Maintain a contact, put down the ham sandwich and turn your phone to landscape, sir. So anyway, these are endlessly updated, but I think one of the things people should know about is that generally it’s working very well.
Adam Stirling [00:13:06] hmm.
Michael T. Mulligan [00:13:06] And the COVID resulted, I think, in some money being put into the system. So, there could be adequate internet connections with cameras in and all of it. The interesting thing with the judges is many of them are working remotely. They’ve got a background they can put up that looks like a fake wood paneling with a fake cork crest behind it. And one of the other efficiencies of permits is you can have judges from different areas of the province. And so, like if you had a judge, you know, if all the judges in Victoria were busy and you needed another judge for some kind of a hearing where you could do it remotely, they can now just pull in a judge that might be available in Kelowna.
Adam Stirling [00:13:45] Interesting.
Michael T. Mulligan [00:13:46] Or wherever else it might be. And so that’s one of the other things, which is really added efficiency. Just make sure you’ve got a neutral background and don’t smoke.
Adam Stirling [00:13:54] I can’t believe, you just know somebody did. Like you say, every rule comes from someone somewhere doing something that they shouldn’t have. But there was technically not a rule against this one had to be created. Speaking about rules that are against something so had to be technically created, we’ve talked in the past often on about what exactly the rules are about income tax avoidance versus evasion and how far somebody can actually stretch the letter of the law before they’re actually found to have either failed to fulfil their obligations or even potentially committed an offence. I see that there’s actually an update on that isn’t there.
Michael T. Mulligan [00:14:31] There is. From the Supreme Court of Canada. And the starting point principle that the court recites in this case includes the idea that it’s a well-accepted principle that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable. Right. And you think about that for a moment? Yes, of course. That’s going to be so right, right?
Adam Stirling [00:14:52] Al right.
Michael T. Mulligan [00:14:52] You could, for example, say, Look, I know how the Income Tax Act works and may be a good idea to put some money into your RRSP and reduce your tax obligations, right, nothing wrong with that, you looked at the act and you’ve complied with it. Now the Income Tax Act is like if you get it in paper, it makes the Criminal Code look like a pamphlet. I think it weighs about twice as much and they’re printing it on paper now that’s virtually transparent. And so, there’s a lot going on in there. But as if all the provisions in there weren’t enough, there is a particular provision. I think people would find interesting, referred to as G.A.A.R. Sounds kind of threatening G.A.A.R. So that’s General Anti-Avoidance Rule. And it’s sort of the rough equivalent of if you inserted into the Criminal Code, an extra provision that said something like: if you do something bad, we haven’t thought of, that might also be a crime.
Adam Stirling [00:15:48] That’s terrifying. That is a terrifying thing to have in the criminal code.
Michael T. Mulligan [00:15:52] Indeed. We have that in the Income Tax Act in the form of this G.A.A. R, right? And so the idea there is that and the court acknowledges that having this general provision, which is the General Anti-Avoidance Rule, limits both, certainty, because you can’t just look up what the wording says in the criminal in the Income Tax Act and say, Oh yes, I see here I can, you know, put this much money into my RRSP or something.
Adam Stirling [00:16:17] Yes.
Michael T. Mulligan [00:16:19] The wording may not be the end of it. Right. And it also interferes with that general concept that you can organize your affairs to minimize the amount of tax payable.
Adam Stirling [00:16:27] Yeah.
Michael T. Mulligan [00:16:28] Now the fact pattern, in this case, that went to the Court of…Supreme Court of Canada, involved an American oil and gas company that created a Luxembourg subsidiary called Alta Luxembourg, which in turn had its own subsidiary in Canada, called Alta Canada.
Adam Stirling [00:16:44] Interesting.
Michael T. Mulligan [00:16:46] And then eventually, eventually the Alta Canada made a big profit, and the way the thing worked is that they then sold the shares of this Luxembourg company, and they did so in accordance with a tax treaty that Canada has with Luxembourg. Okay. And in so doing, avoided having to pay income tax on this $380 million profit. Now, the government didn’t like that, but it seemed to accord with what the tax treaty permitted. Right. There’s provision that allowed this to happen under this tax treaty we’ve got with Luxembourg. And so, the government argued G.A.A.R. This is contrary to the General Anti-Avoidance Rule. We didn’t, this can’t, you can’t do this. And so that went to the Supreme Court of Canada and the Supreme Court of Canada applied, well, how do you know whether something violates this generalized idea.
Adam Stirling [00:17:45] Yeah.
Michael T. Mulligan [00:17:45] That you can’t do anything which would be, you know, G.A.A.R? And so, there’s a test for it. But the test, I don’t know if it really clears things up. This is a three-part test.
Adam Stirling [00:17:56] Yeah.
Michael T. Mulligan [00:17:57] First of all, whether there’s a tax benefit to the transaction well of course that, so it wouldn’t be there to whether the transaction is an avoidance transaction. So, you know, I don’t know how that helps to fight it because really, have you engaged in a transaction to pay more tax? Probably, not.
Adam Stirling [00:18:15] Probably not.
Michael T. Mulligan [00:18:17] And so that brings us really to the third part of it, which is whether the avoidance transaction is abusive. How does that clarify what on earth this means? Well, we have created a legal test for what is abusive, and here’s the language, and we can think about whether that is going to clarify it for people.
Adam Stirling [00:18:34] Mm-Hmm.
Michael T. Mulligan [00:18:34] Now the issue there, when you’re determining whether something is abusive, is whether it is contrary to the object, spirit, and purpose of the legislation.
Adam Stirling [00:18:45] Object, spirit, and purpose. Okay
Michael T. Mulligan [00:18:47] So, what is exactly does that mean? it would be like, you know, don’t do anything that the other criminal, you know, don’t do anything bad that we didn’t think of in the Criminal Code. You know, the spirit of the whole thing, right? Well, how am I supposed to, what am I supposed to do? And so here what the Supreme Court of Canada did, trying to sort out whether what this US company did was allowed or not because it fit within the wording of the tax treaty, what was in there, it’s permitted. They looked at the object, spirit, and purpose of the treaty. So, they looked at the treaty and the language in the treaty, and they concluded that the purpose of the treaty was to encourage international investment. So, they looked at, why might you have put this wording into the treaty that allowed for this transaction, that meant that they didn’t have to pay tax on the $380 million from operations in Canada. And they concluded, well, the purpose of this treaty was to encourage international investment. And so, the fact that somebody carefully read the treaty and structured the company in such a way that allowed them to have the subsidiary of Alexa Luxembourg Company, own the company in Canada. They looked at I said. Yes. Not only does that fit within the wording of it, you carefully read the rule book and you fit, stuck your transaction into the wording. But they found that the government’s argument about G.A.A.R. Didn’t stop it because the object, spirit and purpose of that treaty was to encourage international investment. And I guess this sort of did.
Adam Stirling [00:20:23] Interesting.
Michael T. Mulligan [00:20:24] And so people should be aware of it. And I think there is really a legitimate public policy consideration thereof, you know, is it really acceptable in terms of, you know, we want to live in a place where the rule of law applies, such that you can know what am I allowed to do and what am I not allowed to do so I can order my affairs accordingly. It shouldn’t just be the length of the foot of the person looking at it after the fact. And we’ve defined it in this way. That means that it turns on whether the spirit or purpose of the whole thing, which, you know, the Supreme Court of Canada acknowledges that the fact that they have that provision in the otherwise enormous Income Tax Act does erode certainty. And so, any time some transaction like this was proposed, ultimately the accountant or tax lawyer who’d be setting.
Adam Stirling [00:21:14] The tax solicitor, Yeah, exactly.
Michael T. Mulligan [00:21:16] Yeah, right is going to be saying ultimately, well, you know, this might or might not get caught by G.A.A.R. And so, it produces litigation like this, that went to the Supreme Court of Canada, because you really can’t figure it out just by looking at the wording.
Adam Stirling [00:21:32] There we go.
Michael T. Mulligan [00:21:32] So it was really bizarre. That is there. But in this case, the Luxembourg subsidiary operation worked out and no tax payable.
Adam Stirling [00:21:40] All right. Michael Mulligan with Legally Speaking, out a time. Have to run. Thanks, as always. We’ll talk to you next week.
Michael T. Mulligan [00:21:45] Thanks so much. Always a pleasure.
Automatically Transcribed on December 13, 2021 – MULLIGAN DEFENCE LAWYERS