Hennessey v. Canada

Hennessey v. Canada
Court (s) Database
Federal Court Decisions
Date
2014-03-24
Neutral citation
2014 FC 286
File numbers
T-953-10
Decision Content
Date: 20140324
Docket: T-953-10
Citation: 2014 FC 286
Ottawa, Ontario, March 24, 2014
PRESENT: The Honourable Mr. Justice Barnes
BETWEEN:
GARY HENNESSEY
Plaintiff
and
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an action by Gary Hennessey claiming damages from the federal Crown said to arise from the conduct of several officials of the Canada Revenue Agency (CRA) in St. John’s, Newfoundland. Mr. Hennessey maintains that CRA officials acted maliciously and unlawfully in their efforts to collect payroll remittance arrears and, in so doing, caused the collapse of his payroll management business, Administrative Services.
[2] The Statement of Claim filed on behalf of Mr. Hennessey is not a model of legal or factual clarity. For the most part it sets out a litany of complaints about the conduct of CRA officials in their treatment of his business as a payroll administrator.
[3] Mr. Hennessey’s primary allegation is that CRA officials intentionally, maliciously, negligently, arbitrarily and unlawfully conspired to pursue him for the recovery of payroll remittances that were owed by his clients and for which, he says, he bore no legal responsibility. The CRA’s collection actions are described as strong arm tactics and a form of blackmail. Mr. Hennessey also alleges wrongdoing by the CRA in the initiation of criminal charges against him for tax evasion and fraud and for conducting an illegal search and seizure of his records. All of this, he asserts, led to the collapse of his business and to personal bankruptcy.
[4] The specific causes of action that are pleaded include negligence, Charter breaches and the torts of misfeasance in public office, defamation and malicious prosecution. The claim for relief includes damages for the loss of business and personal income, the loss of credit, reputational harm, damage to his physical and mental health and for various Charter violations.
Background
[5] For approximately 19 years Mr. Hennessey ran a business in Newfoundland that provided payroll management on behalf of clients. The business operated until 2007 as a proprietorship under the name “Administrative Services”.
[6] Most of the clients of Administrative Services were persons living with disabilities who required on-going provincially funded home and respite care (the clients). As it was initially conceived, the Province of Newfoundland (Province) or, later in this case, the Eastern Health Board (Eastern Health) assessed the needs of the clients and authorized them to engage the services of the necessary care providers. The Province funded these services by paying to the clients the amounts required to meet their payroll obligations including the portion required for payroll remittances (ie. income tax, Canada Pension Plan, Employment Insurance). Under this model the clients were the intended employers of the care workers. The clients were, accordingly, responsible to pay the wages and payroll remittances and to prepare the required T4 documentation. Not surprisingly this model was mostly unworkable. Many of the clients or their guardians lacked the training, experience or capacity to act as employers and could not fulfill the requirements of managing a payroll. Over time several hundred of the clients fell into arrears in making payroll remittances and the CRA naturally became quite concerned about the growing problem. Discussions with the Province ensued and it was decided that the solution lay in the engagement of payroll service providers. These payroll providers would act as agents for the clients in fulfilling their payroll obligations. The Province, in turn, agreed to pay an administrative fee to the payroll providers for each payroll transaction.
[7] Mr. Hennessey ultimately became the largest payroll provider in St. John’s and in the surrounding area. Much of the growth of his business came from referrals including recommendations from staff at Eastern Health (see, for example, the evidence of Mary Tobin at page 158, Volume 1 of the trial transcript). Before the collapse of his business, Mr. Hennessey managed several hundred home and respite care accounts. When Administrative Services went out of business in 2007, the accrued liabilities of its clients to the CRA for outstanding payroll remittances exceeded $1 million. The culminating event that caused Mr. Hennessey to close the business was the issuance of a Requirement to Pay by the CRA to Eastern Health to intercept 30% of payments due to the business for ongoing payroll remittances.
Issues
[8] Is the Defendant liable to the Plaintiff for damages arising from the closure of his proprietorship, Administrative Services?
The Evidence
[9] Although the Plaintiff called numerous witnesses, including several current and past employees of the CRA, very little of the testimony that emerged had any relevance to Mr. Hennessey’s liability allegations. No precise financial accounting of what occurred was established, but the general outline of events was mostly not a matter of controversy or disagreement among the witnesses. Set out below are those parts of the evidence that I consider to be the most relevant.
Betty Farrell
[10] Ms. Farrell was employed for 21 years with the Newfoundland Department of Social Services and, later, for more than 15 years as an administrative clerk for the Eastern Health Board. Her responsibilities included the receipt of approvals for respite and home care from field staff and the preparation of the necessary authorizations to support the hiring of care workers. She described the process for authorizing home care in the following way:
A. Our clients are people who are physically, developmentally handicapped and they would have a bookkeeper do their bookkeeping for the home care workers. Like the home care workers would be hired to come in and do the home care, the respite, and a bookkeeper would do the payroll on behalf of the client to the home care worker. So then the bookkeeper would submit their invoices to Eastern Health, which I was the person who would enter the invoices into the system based on the authorization, which would have been the approval that was done for that client.
[11] Under the system described by Ms. Farrell, once a client had engaged a payroll provider, the necessary financial and administrative transactions were carried out among the provincial funding agency, the payroll provider and the care workers. Although the clients were notionally the employers of the care workers, all of the payroll obligations fell to the payroll provider to perform.
[12] One fundamental weakness remained with this system. Although the clients typically required long-term and uninterrupted service from their care workers, the administrative model could not always keep pace and funding delays were common. Ms. Farrell explained the funding delays in the following testimony:
Q. So if you can explain to your lordship just a hypothetical, if I was Administrative Services and provided Eastern Health with an invoice saying that in fact, okay, this is the number of hours that were worked and I want my pay for that, were there any delays? Could there be any delays in be obtaining that invoice amount that I put forward?
A. Oh yes, it could be delays from a month to six months.
Q. And why would that -
A. An invoice may not get paid for six months.
Q. And why would that be, Ms. Farrell?
A. That could be, it could be several different reasons. You could be just waiting on the financial assistance officer to enter the authorization into the system, to enter the approval into the system, or you could be waiting for the social worker to send the information the financial assistance officer. That’s about–and invoices, it could take often probably six months.
JUSTICE:
Q. How often did that happen? How many invoices were you dealing with every month?
A. You dealt with your invoices on a biweekly. The invoices were sent in biweekly.
Q. How many accounts were you looking at? How many different client accounts were you dealing with?
A. Probably over a thousand.
Q. A thousand. And of those, how many might be running more than a month late in terms of payment?
A. It varied. Like your authorization was generated, the approval could be for a month. It could be for three months. It could be six months. It was no longer than a year. That’s as long as your approval could be. So when you generated that authorization, you either generated it for a month, three, six or a year. So those authorizations would expire. So, you could take - it could take three months to get a new approval from a worker. Now it was verbal approval given to the bookkeeper to go ahead to keep paying the invoices because the client was eligible but the authorization would not get done until the worker got around to generating the authorization and getting the approval into the system.
Q. So are you able to say approximately how many of those situations would arise? Of the thousand accounts, how many of them were falling -
A. Oh, on a biweekly pay period, you could have three or four clients every biweekly pay period like that, because some could be done for a month, so you could be waiting for another two months before you could get another approval and then that might be approved for six months and you’re okay for six months.
Q. But three or four out of how many in total might get into that situation where payment was being made quite late?
A. Oh, it was a lot. It was always - it was a continuous basis.
Q. No, I’m sure there was always a situation from what you’ve described where there would be late payments, but I’m just trying to get a sense of how many of the accounts, the client accounts, would fall into that category in the run of a pay period, as a percentage. Is it three percent, five percent, ten percent?
A. On a biweekly pay period, like I could have probably five or six clients, invoices that I could not pay on every biweekly pay period.
Q. Five or six out of how many?
A. We have about a thousand. At that time when I was doing this, we had about a thousand.
[13] According to Ms. Farrell the systemic funding deficiencies that created payment delays to the payroll providers were exacerbated during a period of several months in 2005 when she was off work on sick leave. In the case of Mr. Hennessey’s business, biweekly funding shortfalls of several thousand dollars were “very common”. Despite this problem Mr. Hennessey continued to pay at least some of the wages of the care providers while the necessary approvals were pending.
[14] Ms. Farrell testified that she would often provide a verbal assurance of funding eligibility to Mr. Hennessey in the expectation that he would cover the payroll until the required paperwork was in place. Needless to say Mr. Hennessey frequently contacted Ms. Farrell to press for reimbursement for payroll accounts in arrears. On other occasions the clients or their care workers would call Ms. Farrell to request payment when Mr. Hennessey was either unwilling or unable to cover a payroll obligation. Despite these funding delays, Ms. Farrell acknowledged that Mr. Hennessey was ultimately reimbursed when “the invoices eventually got entered into the system” (see page 87 and 96, Volume 1 of the trial transcript). She also confirmed that in about 2003, the Province attempted to address the funding delay problem by making lump sum advances to Mr. Hennessey. According to Ms. Farrell this was not an ideal solution because the advances had to be reconciled first from subsequently issued approved funding.
Michelle Simmons
[15] Ms. Simmons worked as a financial assistance officer with Eastern Health for a number of years. In that capacity she was responsible for determining client eligibility for home care. Once an approval was generated, she would issue an authorization to a payroll administrator chosen by the client. The payroll administrator would, in turn, send biweekly invoices to Eastern Health for payment and a cheque would then issue.
[16] Ms. Simmons dealt frequently with Mr. Hennessey mainly concerning payment delays. Like Ms. Farrell, she confirmed that payments “were constantly being delayed” and that payment arrears due to Mr. Hennessey were often in the thousands of dollars.
[17] Ms. Simmons also acknowledged that before the involvement of payroll administrators many clients were unable to manage a payroll and fell behind on their remittances to the CRA. She described the problem in the following way:
A. Yes, and it all started basically back in 1996 when a CRA representative came into our program to show the caregivers how to do payroll and how to remit because the government wasn’t going to be paying administrative fees. So when I came on in ‘99 what happened was we were getting phone calls from these people that, you know, “I have - I don’t know how to do this. I don’t know what I’m doing. I need someone to have a look at this” or, you know, “I don’t know how to do the payroll. Why should we be doing this?” and this is the kind of things we got. So they started to send me out to do - in the homes to do the audit and basically just about everyone I’ve done, that was their response, “we don’t know how to be doing this. We don’t know what we’re doing.” And some, some were legitimately doing it wrong and intentionally doing it wrong and not doing what they’re supposed to be doing and not remitting.
Q. So the benefit of bringing in a professional administrator is you get the remittances looked after?
A. Yes.
Q. Hopefully in a professional way and in a proper way?
A. Yes.
[18] According to Ms. Simmons, when Mr. Hennessey took over an account with existing remittance arrears, no arrangements were made by Eastern Health to protect or to otherwise isolate him from the client’s prior obligations including the accrual of associated interest and penalties.
[19] In 2005 a meeting between representatives from Eastern Health and the CRA was convened to discuss the problem of client remittance arrears. The conclusion reached was that the money would not be collected from the clients because of the likelihood of a public outcry and because most could not pay in any event.
Carlson Young
[20] Mr. Young is employed as a Trust Examiner with the CRA in St. John’s Newfoundland. He commenced employment with CRA in 1981 and in 1985 he became a Payroll Auditor (now titled a Trust Examiner).
[21] In 1995 Mr. Young met with provincial officials to discuss the growing problem of payroll remittance arrears in the provincial home care program. In the course of that meeting, the parties discussed the provincial concern that it not be deemed the employer of home care workers. Mr. Young explained the hallmarks of an employment relationship and recommended that the Province avoid taking control over the management of the program. In particular, he advised that the choice of a payroll provider be left to the individual client.
[22] In the course of Mr. Young’s employment as a Trust Examiner he had frequent contact with home care payroll providers including Mr. Hennessey and his staff. This involved periodic audits of home care payroll accounts. Although these accounts were maintained by the CRA in the names of the individual clients, a client authorization permitted the CRA to deal directly with Mr. Hennessey. Periodic statements of client accounts from the CRA would also be sent to Mr. Hennessey on behalf of his clients.
[23] During Mr. Young’s audits of Mr. Hennessey’s client accounts between 2002 and 2004, he identified remittance shortages and brought them to Mr. Hennessey’s attention. Mr. Hennessey explained to Mr. Young that part of the problem stemmed from pre-existing arrears balances that had accrued before his involvement. According to Mr. Hennessey, this problem was compounded when the CRA applied some of his clients’ current remittances to arrears that pre-dated his involvement. Mr. Young explained that this could happen if a current remittance was not correctly designated as payable to the current year, in which case it would be applied to arrears.
[24] Mr. Young attempted to work with Mr. Hennessey to identify these problem accounts. He testified that “every account that [Mr. Hennessey] addressed to me that he thought was wrong or incorrect I addressed it and replied to Mr. Hennessey”. These discussions and adjustments are reflected in some of the communications between Mr. Hennessey and Mr. Young particularly in the early part of 2004 (Exhibits D-3, D-4, D-5, D-6, D-7, D-8, D-9, D-10, D-11, D-12 and D-13).
[25] Mr. Young also confirmed that Mr. Hennessey could have protected his business from the problem of pre-existing arrears by simply requesting that the CRA create a new payroll account when he took on a new client. In the absence of such a change, the CRA managed each client account as a continuous obligation and without regard to Mr. Hennessey’s intervening involvement.
Amanda Dawe
[26] Ms. Dawe is a former client of Mr. Hennessey. She testified that when Mr. Hennessey took over the management of the home care payroll account for her daughter in 2007 she owed remittance arrears to the CRA. In a letter prepared on her behalf by Mr. Hennessey dated March 21, 2009 (Exhibit P-2), Ms. Dawe stated that, to the best of her knowledge, Mr. Hennessey paid off the outstanding balance to the CRA. Under cross-examination, however, it was apparent she had no direct knowledge that the arrears had been paid. She assumed that to be the case because she was never approached again by the CRA for payment.
Ed Brown
[27] Mr. Brown had been employed by the CRA for over 25 years. During the last 10 years of his employment he worked as a Rulings Officer. He is now retired.
[28] In 2007 Mr. Brown was asked to prepare a ruling to identify the “employer” of home and respite care workers on one payroll account managed by Mr. Hennessey. This ruling was intended to sort out which of the involved parties was responsible for the payment of payroll remittances. Mr. Brown determined that a payroll provider “performing a payroll service only, is not considered an employer or deemed employer for purposes of EI/CPP Legislation (Exhibit P-4 and the testimony at page 114, Volume 2 of the trial transcript). In the matters under consideration, Mr. Brown found that neither Mr. Hennessey nor Eastern Health “can be considered the deemed employer” (Exhibit P-5).
Robert Fitzpatrick
[29] Mr. Fitzpatrick worked for Mr. Hennessey as an administrative assistant for about 2 years in the 1990s. On a later visit to Mr. Hennessey’s office in 2004, he overheard a telephone conversation between Mr. Hennessey and a Mr. Moffatt of the CRA. Mr. Fitzpatrick testified that Mr. Moffatt threatened to seize Mr. Hennessey’s assets unless outstanding client payroll remittances were brought up to date. Mr. Fitzpatrick also said he overheard similar speaker phone conversations during other visits to Mr. Hennessey’s office and was present on one occasion when two CRA auditors arrived. He described their “tone” on that occasion as aggressive. Mr. Moffatt is now deceased.
William Collins
[30] Mr. Collins is a chartered accountant. He took over one client payroll account from Mr. Hennessey. He also worked briefly as a payroll provider on a few other home care accounts. He prudently gave up the work out of frustration with funding delays by Eastern Health and the corresponding need to cover the payroll in the interim from his own resources.
Susan Norman
[31] Ms. Norman is a lawyer practising with the Stewart McKelvey firm in St. John’s. In early 2007 she represented Eastern Health in its dealings with the CRA concerning the problem of outstanding source deductions on home care payroll accounts. In that capacity she wrote to the CRA to counter its suggestion that Eastern Health carried some legal responsibility for the accrued arrears (Exhibit P-7). Despite taking the position that neither Eastern Health nor Mr. Hennessey carried any liability, Ms. Norman’s letter contained a without prejudice offer of settlement of $100,000.00. The offer was conditional on the clearance by the CRA of “all pre-2007 arrears, penalties and interest owing on the various client accounts”. The offer was subsequently rejected by the CRA and no resolution was ever achieved.
George Butt
[32] Mr. Butt is a chartered accountant who has worked for the Province of Newfoundland for many years. Since 1990 he has been employed in a number of senior administrative positions in the health care field. At the time of his testimony he was the Vice President of Corporate Services for Eastern Health reporting to its Chief Executive Officer.
[33] Mr. Butt explained that Eastern Health was created in 2005 from the consolidation of seven legacy health boards in eastern Newfoundland.
[34] Mr. Butt first learned about the problem of outstanding remittances on home care payroll accounts in 2006. The problem came to his attention when he was contacted by a CRA representative who was looking for payment. Mr. Butt looked into the matter and concluded that the situation had “spiralled pretty well out of control” and that there was some merit to Mr. Hennessey’s concern about his assumption of unfunded liabilities. Later Mr. Butt described the situation as a “mess” (see page 86, Volume 3 of the trial transcript).
[35] The situation as perceived by Mr. Butt at the time is summarized in his letter of November 7, 2006 (Exhibit P-8) to the Assistant Deputy Minister for the Department of Health and Community Services:
Administrative Services is an accounting/bookkeeping service used by Eastern Health to facilitate payroll services for employees of clients in receipt of home support services. Administrative Services has been providing, this service to clients for approximately 18 years, back to the period when Human Resources and Employment administered the home support program. Throughout this period Administrative Services has been responsible for the payroll accounts of approximately 540 clients and caregivers.
As you are aware, Eastern Health has been brought into the middle of a dispute between Canada Revenue Agency (CRA) and Administrative Services regarding outstanding payroll remittances. CRA prepared two reports listing the outstanding balances for client accounts administered by Administrative Services. The first report presented on January 09, 2006 listed the total amount due as $442,300 on 132 accounts. A second report presented on January 20, 2006 listed the total amount due as $463,400 on 134 accounts. Both amounts include penalties, interest, and principal (tax, CPP, El). CRA is demanding that Eastern Health settle the debt or they will take action against Eastern Health and the clients directly.
Administrative Services claims that this situation is the “snowballing” effect of having assumed at Eastern Health’s request, 50 accounts with delinquent balances totalling $175,900 ($44,800 in P&I and $131,100 in principal). Administrative Services also attributes the outstanding arrears to the fact that there were delays in receiving funding from the former Health and Community Services Board and before that the Department of Human Resources and Employment. Administrative services paid interest and penalties on these accounts, which they claim to be in the area of $800,000 to $1 million from their regular cash flow, resulting in current accounts slipping into arrears. Administrative Services indicate that they have made Eastern Health (then HCCSJ) and government aware of the problems that they have experienced, although they provide little in the way of documentation.
On becoming aware of this, our first concern was that money intended for payment of the cost of client services may have been misappropriated. We engaged the firm of Grant Thornton to do a review of the situation and they found no evidence of wrongdoing on the part of Administrative Services, and confirmed their portrayal of the problem as the “snowballing” effect of paying from their current cash flow, penalties, interest and arrears on inherited delinquent accounts.
We also asked the law firm of Stewart, McKelvey, Stirling Scales to review our exposure in this situation and their opinion is attached. They outline a number of options that we feel require the concurrence of government, involving both the Department of Health and Community Services and the Department of Finance.
It would be very helpful if you could arrange a meeting between you, ourselves, and who ever in government you feel should be involved. This situation is worsening and needs a response.
[36] It was presumably out of the meeting proposed by Mr. Butt that Eastern Health authorized its legal counsel to propose a $100,000.00 settlement of the CRA claim. That offer was not taken up because, as Mr. Butt recalled it, the CRA ultimately concluded that Eastern Health bore no liability for the client remittance arrears.
[37] Mr. Butt went on to say that the reference in his letter to $800,000.00 to $1 million of accrued penalties and interest assumed by Mr. Hennessey came anecdotally from Administrative Services and was not verified by the Province. When he was asked if Eastern Health had attempted to quantify the amounts that Mr. Hennessey was claiming, he said “it was virtually impossible to do” (see page 63, Volume 3 of the trial transcript). The most Mr. Butt was able to do was to describe the genesis of the problem as follows:
A. As I understood it, the previous model for this program, and again this was before my time, was that the care recipients themselves were responsible for paying their own employees and doing their own remittances, and I think for some care recipients that became a problem, and the remittances weren’t being made. I think initially back maybe in the 90s when the decision was made to move these accounts from the clients to payroll services like Administrative Services, some of these accounts when they were transferred had amounts owing on them that weren’t funded to Mr. Hennessey’s firm. In other words, he was passed a bunch of accounts to manage that were already in arrears.
Q. Okay.
A. And as I understand it–the number that I recall hearing, and I can’t recall why–I can’t verify it, was, like, $60,000.00 of these amounts were–of these accounts–cumulative balance of these accounts that weren’t properly funded or had fallen into arrears in the hands of the clients themselves were, in fact, transferred to Administrative Services, and this was sort of the seed of all these problems, in that it wasn’t addressed and then in efforts to meet obligations on one account, the amounts were transferred from another, and attracting penalty and interest to that one, and these penalties, as I understand it, were 10 percent every time you’re late, so it doesn’t take long to see how this would go in a hurry. So that’s what I understood to be sort of the genesis of this whole situation.
[38] Mr. Butt also testified that the $100,000.00 settlement offer proposed by Eastern Health to the CRA was based on Mr. Hennessey’s likely assumption of about $60,000.00 in pre-existing arrears along with $40,000.00 in accumulated interest and penalties to that date.
[39] Under cross-examination Mr. Butt confirmed that Eastern Health had failed to impose any financial conditions on the payroll providers and had no means to know if payroll remittances were actually being made. He also said that Eastern Health had an expectation, albeit undocumented, that its payroll providers would cover unfunded home care payrolls from their own resources on a short term basis. At the same time Mr. Butt said that it would not have been the responsibility of Eastern Health to reimburse the clients or the payroll providers for interest and penalties that arose from any delay in funding.
[40] Notwithstanding the expectation that Mr. Hennessey would meet home care payrolls that were awaiting formal approval from his own resources, Mr. Butt took the seemingly contradictory position that Mr. Hennessey could not reimburse his business for those advances. This view is apparent in the following exchange:
Q. And there’s an expectation, as you’ve said earlier, that payroll service providers remit funds to the worker, the funds, and to the Canada Revenue Agency?
A. Right.
Q. But if he instead of remitting funds to Canada Revenue Agency used those funds to pay his personal debt, you would have no problem with that?
A. Oh, absolutely, I would have a problem with that, yes.
Q. All right, so he was - according to Eastern Health, he was not supposed to be doing that?
A. Our expectation would be that the money that we gave Mr. Hennessey for remittance to Revenue Canada would be remitted to Revenue Canada.
Gerald Power
[41] Mr. Power is a past employee of the Department of Health and Community Services. He retired in about 2005. His responsibilities included the supervision of the provincial home care program in the St. John’s region. He described the program in some detail along with the process for obtaining approvals for home care service. He said that many “situations were very fluid, requiring very immediate high intensity kinds of services” that could change from time to time.
[42] Mr. Power was aware of Administrative Services and knew it to be the largest payroll provider in the St. John’s area. He also acknowledged the delays that were experienced in getting some payroll cheques out on a timely basis. He explained the problem in the following exchange:
A. Clients would call and say I’ve got a situation, I don’t seem to have the funding in place or whatever, so, yes, there were disruptions and there were delays, no question.
Q. And would these delays be more of a recurring thing or an anomaly?
A. Keep in mind, I’m trying to be fair here now. Most times we were–I mean, 96 percent of the time we had it perfect.
Q. Okay.
A. There were situations that were for various reasons like I describe where, no, it did not happen and delays were - sometimes they were weeks on end, and it could be a situation where, like I said, a social worker was trying to gather up more information or an FAO was trying to gather up more information. Sometimes simply because of the workload, simply because of sick leave, a lot of things intervened to cause the delays.
[43] Mr. Power testified that in the case of Mr. Hennessey’s clients, payroll arrears were often in the tens of thousands of dollars and, at times, exceeded $100,000.00. Nevertheless, Mr. Hennessey knew “that various cheques would show up in due course to be applied to various client situations” and with that expectation, Mr. Hennessey covered the payroll. Mr. Power also testified that other payroll providers “took the approach that if you guys don’t have the money to me, I’m not paying anything out, I’m not putting one cent of my money into it, you deal with the client, you deal with the caregiver.” According to Mr. Power it was Mr. Hennessey who made “some decisions along the way that he would put his money into it.” Under cross-examination he conceded that he was uncertain about whether Mr. Hennessey was personally covering unfunded payroll accounts or did so from lump sum payroll advances made by Eastern Health.
Gerard Ennis
[44] Mr. Ennis is now retired from the CRA. For about 6 years before retiring in 2011 he was employed as a Collections Officer. Prior to that he worked for a number of years as a Source Deductions Auditor.
[45] Mr. Ennis first met Mr. Hennessey in early 2006. After that they had frequent contact. Mr. Ennis’ sole responsibility at that point was working on Mr. Hennessey’s outstanding accounts. He said that the initial meeting was introductory and intended to inform Mr. Hennessey that he had been assigned to manage Mr. Hennessey’s home care payroll accounts. Mr. Ennis told Mr. Hennessey that they would work together to attempt to bring some resolution to the problem of remittance arrears: specifically, “to identify Mr. Hennessey’s accounts, to work with him to clear up any balances that existed and to even adjust for balances that may not be accurate, that we could confirm.”
[46] Mr. Ennis was made aware of the concern that Mr. Hennessey had taken over client accounts with pre-existing balances and that some current remittances had been applied by the CRA to those arrears. He said that after he began to examine the accounts he was, with the assistance of Mr. Hennessey, able to identify some accounts with pre-existing arrears.
[47] Mr. Ennis testified that between January 2006 and July 2007 he devoted all of his time to reviewing Mr. Hennessey’s payroll accounts and making adjustments to arrears balances. The culmination of his work is reflected in Exhibit P-14.
[48] Mr. Ennis made the point that the CRA had no means of knowing if Mr. Hennessey had made a payment on a client account from his own resources. The working assumption by the CRA was always that the funds came from the client and account credits accrued to the benefit of the client. Arrears were also collected “specifically on that particular account” (page 132, Volume 4 of the trial transcript).
[49] Part of Mr. Ennis’ work involved the identification of client accounts that had come to Mr. Hennessey with pre-existing arrears or where arrears had arisen after his involvement had ceased. In an email dated March 15, 2007, Mr. Ennis identified 10 such accounts with a total credit balance of $138,547.15 (Exhibit P-15). Whether and to what extent Mr. Hennessey had made payments against those amounts was not clearly established. Mr. Ennis did say, however, that absent advice from Mr. Hennessey, the CRA had no definitive way to determine when he actually took over the administration of a particular client account.
[50] Under cross-examination Mr. Ennis identified a communication from Mr. Hennessey dated July 23, 2007 where he acknowledged payroll remittance arrears for the 2006 calendar year in the amount of $615,188.46 (Exhibit D-14). According to Mr. Hennessey’s own calculations, in 2006 he ought to have remitted $1,038,404.65 but paid only $423,216.19. For the first 6 months of 2007, Mr. Hennessey admitted a further shortfall of $188,003.70.
Mary Benson
[51] Ms. Benson retired from the CRA in 2012 having worked there for over 20 years in a number of capacities. Her testimony was focused mainly on her involvement with Mr. Hennessey’s Access to Information (ATIP) requests. She described the process of handling such matters and said that they were initiated and concluded within the CRA’s ATIP directorate in Ottawa. The local office was responsible for collecting and forwarding all relevant materials to Ottawa, sometimes with recommendations concerning redactions. Nevertheless, it was the role of the ATIP directorate to determine what could be lawfully disclosed or withheld and to make all necessary redactions:
A. The people at the ATIP directorate would make the decision as to whether or not the information is released. They do not come back and say whether or not they agree with us or don’t agree with us. We just make the recommendation and they make the decision as to what gets sent out to the client. We don’t get to decide that.
[Also see page 30, Volume 5 of the trial transcript]
[52] Ms. Benson was asked about the handling of Mr. Hennessey’s ATIP requests and confirmed that she followed the usual process. She also knew that Mr. Hennessey was not satisfied with the level of disclosure that was initially provided. This is evident from the following exchange:
A. I don’t remember all the details. I know that there were several requests received from Mr. Hennessey, and I know that the division was searched more than once for information to try and see if there was anything that was there that we hadn’t sent to him. I never did understand what was missing so I couldn’t go to a specific division and say, “Mr. Hennessey is looking for something from your division.” I just know that—and unless I got another request, that would not be my responsibility.
Q. Are you aware that Mr. Hennessey was complaining not only that he didn’t get all the documents, that the documents were altered, the ones that he got, and they were blocked out and redacted? Were you aware of that, and I’m talking about -
A. The first thing I ever heard about any information being altered was this morning, here today.
[53] After 2009 Ms. Benson was no longer involved with the matter and had no knowledge of what transpired thereafter.
Glenda Bartlett
[54] Ms. Bartlett worked for the CRA for 28 years. She retired in 2008. At the time of her dealings with Mr. Hennessey she was a team leader in collections. In early 2006 provincial officials asked the CRA to calculate penalties and interest on all of the client accounts from the dates Mr. Hennessey took them over (Exhibit P-19). Ms. Bartlett was of the view that this task would take months to accomplish. An agreement was reached with the Province that this information would be provided for 20 sample accounts that had previously been examined by the CRA. Ms. Bartlett was questioned about Exhibit P-19 and gave the following evidence:
Q. And it says, “As of today’s date, we have provided Gary Hennessey with additional information that Health and Community Services requested. Both parties have been advised that we have been very co-operative and that we can no long dedicate resources to this issue.” What do you mean by that?
A. What I mean by that is there were so many accounts that Gary Hennessey was involved with Administrative Services that it would have taken full-time resources several months to determine the information that the province was looking for. Gary Hennessey himself would have had a great deal of this information, or should have had, in his own bookkeeping. We did dedicate the resources to do these 20 as a sample, but the function of CRA is not, really, to provide this information so we did not have the resources available in our budget to be able to do that for them.
Q. As far as you know, is there any legislative right as a–for a taxpayer to come to you and say, “I want this information.” Do you have to provide that information, whether it takes a day or 10 days or–
A. If he had asked for it, I’m not sure what the procedure would’ve been, if Gary himself had come and asked for those specific accounts, but he would’ve had to have been very specific. Like, he would have to come and say, “I want the information for this particular account.”
Q. Okay. In this case, Mr. Grandy has talked to you and said, “Give me a breakdown of the penalty and interests,” and then from that you’ve generated 20 accounts.
A. Yes.
Q. But to get all the accounts of payroll services, you didn’t have the resources to do that.
A. That’s correct, yes.
Q. And you didn’t feel that it was an obligation of the CRA to provide that.
A. Sorry?
Q. You didn’t feel that there was an obligation on CRA to provide the full accounting of the penalties and interest.
A. Not under those circumstances, no.
[55] Ms. Bartlett went on to observe that Mr. Hennessey’s own accounting records ought to have been sufficient to identify the arrears that had accrued on the payroll accounts he administered. The information would also have come to him in the CRA’s periodic requests for payment on every account in arrears. She also said that Mr. Hennessey was looking to Eastern Health for reimbursement for remittance arrears. Accordingly, it was not the responsibility of the CRA to gratuitously provide him with additional evidence to support his claim.
[56] One of Mr. Hennessey’s assertions was that the CRA had a responsibility to directly reimburse him for current remittances that the CRA had applied to pre-existing client arrears. Ms. Bartlett did not agree as