It is often said that, in a tax appeal, the Canada Revenue Agency is the client and the Department of Justice is its lawyer. As the client, the CRA gives instructions to Justice about how to conduct a tax case. Whether a case can be settled, it is thought, depends on the litigation officer from the CRA who is giving instructions to Justice. Indeed, Justice lawyers themselves often talk this way.
Garber v. The Queen, 2005 TCC 635, suggests that the situation is more complex than that.
In his reasons in Garber, Chief Justice Bowman wrote:
Department of Justice lawyers sometimes refer to the Department of National Revenue as their “client”. This is a convenient shorthand turn of phrase but it is not entirely accurate, even though the relationship between the Attorney General and the various government departments in whose interests the Department of Justice acts may have some incidents that are analogous to a solicitor-client relationship. [at ¶36]
In fact, the Department of Justice has its own powers and duties under the Department of Justice Act, R.S.C. 1985, c. J-2. As a result, Justice is free to reject a settlement reached by a taxpayer and the CRA:
I think it was within the authority of the Department of Justice to repudiate the agreement. It was an agreement made within the context of Crown litigation and was therefore clearly within the ambit of the responsibility conferred on the Attorney General under paragraph 5(d) of the Department of Justice Act which accords to him the conduct and regulation of all Crown litigation.
According to Garber, then, a taxpayer must convince the Department of Justice and the CRA that a settlement is in the best interests of the public fisc. In theory, a taxpayer who reaches a settlement with one party, must still convince the other.
And when trying to convince the other agency, the taxpayer must keep in mind some other elements of the settlement process highlighted by the Chief Justice:
- The Tax Court cannot force the parties to settle a case.
- The Tax Court cannot even force the parties to negotiate or to negotiate in good faith. The Court can do nothing other than admonish a Justice lawyer, a CRA litigation officer or a taxpayer who is being unreasonable.
- The Tax Court can enforce a settlement once it is concluded.
Despite what one might think in light of Garber, most tax cases are settled before they proceed to court. Nevertheless, the case is an important reminder of some of the obstacles along the way.
