There are many lawyers in the country who chafe at the name appropriated by the Department of Justice given the Orwellian connotation that it has a monopoly on its dispensation. In reality, the DoJ is the law firm for the federal government and thus acts as other law firms, providing advice to all government departments. That advice is either accepted or ignored by their clients. But unlike lawyers of the private bar whose paramount duty is to their clients DoJ lawyers must (or at least should) ensure that their clients’ instructions are in the best interests of justice even where that conflicts with their clients’ best interests.
Tax litigation ends in one of four ways. A Justice of the Court renders a decision, the taxpayer gives up, the parties execute a consent to judgement or they sign minutes of settlement. Typically, the consent to judgement is a document that is incorporated into a judgement of the Court. While minutes of a settlement could be read into the court record, typically they are a way of settling disputes without formal notice to the Court. Often this allows for some creativity in resolving a dispute in a way which makes sense for the parties but which might be outside the jurisdiction of the Court to order. For example, minutes of a settlement may include with them an abatement of interest on the tax in question – something that would not appear in a judgement of the Court.
However, the flexibility of the minutes of settlement also allows for the unequal imposition of the law amongst different parties – specifically because they are not part of the official court record. Notwithstanding settlements of tax disputes, different deals may be negotiated by different taxpayers without public notification of the arrangement. (This may happen for instance where the circumstances of the litigation lead the CRA to decide that it is wiser to conclude the litigation than to continue it.)
Nothing prevents the CRA from ensuring that minutes of settlement allow for the equal application of the law amongst different taxpayers. However, this possibility is undermined by the occasional practice of including confidentiality clauses in the minutes banning taxpayers from discussing the deal reached to settle the litigation. Typically, private parties litigating sensitive issues will use such clauses because the release of the information will have a detrimental effect on the parties’ interests. But the use of such (ostensibly) binding clauses by the government in the settlement of tax disputes is suspicious.
In our recent experience, we have seen the use of such a clause as a condition of settling a dispute related to one of the thousands of donation credit case wending their way through the system. The resolution itself was both unique and advantageous to the taxpayers involved. It appears that the CRA was concerned that the method of resolution would be applied more broadly and so it insisted on a confidentiality clause as a condition of settlement. From our discussions with other tax litigators elsewhere in the country, similar clauses have been requested in other circumstances including at least one case involving a large corporation. We suspect the use of these provisions is more than just occasional and it would be useful if tax litigators across the country saw fit to come forward when the DoJ negotiates such clauses to resolve disputes.
The use of these provisions, because either the taxpayer found a way to negotiate a better than usual settlement or because the government was for some reason concerned that the settlement would be of public interest (read to avoid embarrassment), is completely inappropriate. It is a basic tenet of the rule of law that it applies to everyone equally. To ensure that happens democratic societies ensure that the dispensation of justice is public and transparent. Governments are not only forbidden from striking certain arrangements with some citizens and different ones with others but they cannot even be seen to be doing so. To risk the appearance that some individuals receive better treatment undermines the entire system of publicly accessible courtrooms designed to ensure that justice is meted out publicly.
From time to time cases find their way to the Court which allows the Tax Court or the Federal Court to opine on certain practices of the CRA or the DoJ in prosecuting tax appeals. Sometimes it is beyond the jurisdiction of the Court to change the practice but nevertheless, Justices of the Court take it upon themselves to provide their comments either because they are trying to correct a specific injustice or generally trying to improve the administration of the law. However, the use of minutes of settlement will generally avoid scrutiny by the Courts because they are, as a matter of course, designed to resolve disputes without judicial comment. For that reason alone it is incumbent on the tax bar to raise this issue with the CRA and our DoJ colleagues. Such secret deals are a dangerous practice in a democracy and if the Department of Justice has any hope of earning its name it will seriously reconsider the use of confidentiality clauses in resolving tax disputes.
By: Adam Aptowitzer
Originally published in “The Canadian Taxpayer”, Volume XXXVII, February 6, 2015, P.17-19