Lexpert US Guides

14 | LEXPERT • December 2017 | www.lexpert.ca/usguide-litigation/ "express authorization is not required. Ms. Power was very well informed about Spears Framing and its financial circumstances and obligations, and was comprehensively engaged in dealing with those obligations on the company's behalf. "[A]s an experi- enced accountant she would have understood the significance of discussions with CRA." e only reasonable inference, Justice Derrick concluded, "is that Power interacted with CRA on behalf of the company as part of her broad range of duties. I therefore have determined that Alex Grover's CRA diarizations of communications with Ms. Power are admissible into evidence as statements … for the truth of their contents." Ted Sawa, a member of the taxation law team at Halifax- based BOYNECLARKE LLP, which acted for Spears, says the takeaway is that companies that use outside accountants, and authorize them to speak to the taxman, need to be very careful about the level of authority they give them. ere are two possible levels, he says: the first allows them to receive information from the tax department; the second permits them to request changes to a tax return. "Consider, if possible, a lower level of authorization. In this case the accountant obviously had a very broad scope with the company and that influenced the judge's decision." So while companies oen need to authorize their outside accountants to speak to the CRA — especially if they are not domiciled in Canada — in light of this decision they may want to consider decreasing their level of authority to level one. "To the greatest extent possible, limit the authority of the external accountant to when it's absolutely necessary." Meghji of Osler says the bumper sticker is be very careful about who you use as your representative in dealing with the Canada Revenue Agency "because what they say to the CRA may become binding on you in the event of litigation. Up to now it was gener- ally thought that if your accountant said something to the CRA while they were trying to solve your tax problem, you were not bound by that in the event that the matter ended up in litigation. is case says: 'Not so fast. What your accountant or lawyer says might bind you.' "When business owners and managers leave their tax matters exclusively up to hired professionals, they ought to be aware that those professionals' statements can be used as evidence against them in court proceedings." — S.R. 6. Eli Lilly v. Canada US companies that do business under the North American Free Trade Agreement (NAFTA) will want to read Eli Lilly v. Canada (UNCT/14/2), in which the pharmaceutical giant filed a NAFTA Chapter 11 challenge aer losing a patent case before Canada's highest court. Chapter 11 allows foreign investors to sue the host government if they are subject to unfair and inequit- able treatment or unlawful expropriation. and owner of Power Accounting, who had been doing Spears's work for some time. e company had submitted a form to the CRA making her its "authorized representative" when dealing with them — a common arrangement between businesses and their accounting firms. Power testified that she spoke with CRA officials when they called about Spears Framing, and she cooperated with them when they came to her office to do a trust examination. Grover testified that he spoke with her about the company's situation several times given that she was its authorized representative — tax matters are otherwise confidential. As part of his duties, Grover made notes of their conversations on an online CRA diary system, including recording whenever she sent him something on the file. ose notes became the center of a legal storm in terms of their admissibility in a criminal proceeding against the company for willful or attempted tax evasion. Lawyers for the state argued that Power, in her interactions with CRA, was acting as the agent of the company and, as such, her statements as recorded in Grover's diary entries were admissions against the company. e defense countered that Power could not be character- ized as an agent of the company because she was an independent contractor. It also argued that under the general rule against hearsay, an out-of-court statement is generally inadmissible as evidence to prove the truth of a statement's contents. But the court disagreed, and found they were admissible. In her decision, Justice Anne Derrick noted off the bat that Power was not an employee of Spears and that there was no evidence Spears Framing expressly designated her as its agent. Still, she wrote, "I am entitled to draw reasonable inferences from the evidence about the scope of Ms. Power's remit as the accountant for Spears Framing." She noted Power had a broad range of duties for the company, which she continued to discharge even aer the company folded, including signing sales tax returns on its behalf. "I have found no bright lines around the role of independent contractors that precludes them being bestowed with agency powers by the principal who has engaged their services," the judge wrote, adding that, even though there was no evidence of an express authorization by Spears making Power its agent, CROSS-BORDER SIGNIFICANCE Al Meghji Osler, Hoskin & Harcourt LLP "Up to now it was generally thought that if your accountant said something to the [Canada Revenue Agency] while they were trying to solve your tax problem, you were not bound by that in the event that the matter ended up in litigation. [R. v. Spears] says: 'Not so fast.'"

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