Huge Damages Award Against the Taxman: Jury Awards Taxpayer $1.3 Million for Breach of Privacy

A British Columbia jury made a stunning statement in tax and privacy law in February when it awarded a B.C. man $1.3 million as damages for a raid that was found to be a breach of the man's Charter right to freedom from unreasonable search and seizure.

Hal Neumann operated a business based in Saanich B.C. selling mining equipment worldwide. In 2004, the business successfully passed a GST audit. The CRA later investigated a woman with whom Neumann had done business. Neumann provided CRA investigators with documentation relating to his dealings with the woman.

Then one morning in September 2005, Neumann answered his door to find five CRA agents and two armed and uniformed police officers with a warrant to search his home for records regarding the investigation of the woman. The search lasted several hours and encompassed Neumann's business documents, computer records, and his on-site cash. As it turns out, the records they were looking for were the very ones he had provided to them previously.

Neumann was quite affected by the search. He claimed it was a high-handed and negligent breach of his privacy rights, and sought general and special damages for the harm that he suffered in the form of depression, paranoia, post-traumatic stress disorder and nightmares. To his surprise, the jury found in his favour and awarded him $1 million for the breach of his privacy, $150,000 for pain, suffering and loss of enjoyment of life, $100,000 for aggravated damages and $50,000 for loss of income. The jury also recommended that the Minister of Revenue apologize to Neumann for the breach of privacy.

Neumann and his counsel have hailed the judgment as a landmark in tax and privacy law, and a victory for Canadian taxpayers "who have been pushed around for far too long." Indeed, the amount of the award far surpasses previous fines or judgments against the CRA. Not surprisingly, the CRA has appealed the judgment, calling it "wholly out of proportion" to damage awards made in similar cases.  Whatever the result, the case surely will force the CRA to reconsider its investigative policies in the future. Stay tuned for an update on this case in future issues of Lawyers Alert.
 
Duane Chris is a non-practicing lawyer providing legal research and writing/editing services in Southern Ontario. Duane can be reached at duane@dcresearch.ca or 519-588-2602.