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Million-Dollar Case Against Canada Revenue Agency Tossed Out: Was Jury Bewilderment at Play?

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Hal Neumann had a great life, running a successful business in Saanich, British Columbia, until Canada Revenue Agency investigators showed up at his home one morning with two police officers and a search warrant.

Mr. Neumann was the President of Vantage Equipment Company Ltd., a company that bought and sold used mining and construction equipment. He had an office in Duncan, B.C. and a home office.

One of Vantage's associates was Ms. B., who was being investigated by CRA for tax evasion. Taxation investigators learned through a routine audit of Vantage that Mr. Neumann's company had paid commissions of $400,000 to Ms. B. A criminal investigation was also instigated.

Mr. Neumann alleged he suffered post-traumatic stress disorder and depression as a result of CRA's search and seizure of documents from his home. In a jury trial, Neumann made claims for unreasonable search and seizure pursuant to Canada's Charter of Rights and Freedoms and "negligent investigation" by CRA -- a novel action that relied on a 2007 Supreme Court of Canada case, where it was decided that a botched police investigation may give rise to a negligence claim on behalf of a suspect wrongly convicted of a crime.

Psychiatrist Dr. Shabehram Lohrasbe testified that Neumann's stress disorder and depression were legitimate and caused Mr. Neumann's life and business to suffer. He also opined that Neumann's childhood in communist Germany and his escape to West Germany at the age of four compounded his fear and contributed to his mental impairment.

The jury hearing Mr. Neumann's case awarded him damages of $1.3 million -- an extraordinary verdict against CRA. However, in Reasons for Judgment released July 6 (Neumann v. Canada 2011 BCCA 313) by British Columbia's Court of Appeal, Mr. Neumann lost his case and the money.

A unanimous Court granted CRA's appeal and dismissed Mr. Neumann's actions. The Appeal Court considered whether CRA was under a duty to Mr. Neumann to carry out the least intrusive search that was possible in the circumstances.

Neumann's lawyer argued that CRA ought first to have approached Mr. Neumann for a voluntary release of the documents they needed to prove tax evasion and fraud against Ms. B. CRA explained that given the volume of business between Mr. Neumann and Ms. B., they could not take the chance that their business relationship would not cause Mr. Neumann to take steps to protect Ms. B.

Neumann's lawyer also complained that in obtaining the search warrant, CRA failed to advise the judge who granted the warrant that Vantage's place of business was Mr. Neumann's home and that Neumann had fully cooperated in the earlier audit of Vantage, which constituted "material non-disclosure."

CRA investigator George Hodgson testified that he was not aware that Vantage's office was in Neumann's home and the Court of Appeal noted that at trial, Neumann's lawyer advised the trial judge his client was not challenging the validity of the warrant.

The Appeal Court ruled there was no evidence of negligence in respect to the search warrant and no breach of the Charter. However, CRA was not awarded costs against Mr. Neumann, the court finding that in hindsight, Crown lawyers ought to have asked the trial judge to dismiss the lawsuit before beginning the defence case.

A very sensible outcome and perhaps yet another example of jury bewilderment.

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