Mark G. Smerchanski (Appellant)
v.
Minister of National Revenue (Respondent)
Trial Division, Collier J.-Winnipeg, January
17, 18, 19, 20, 24, 25, 26, 27, 31 and February
1, 2, 3, 9, 10, 16, 17, 18, 21, 22, 23, 24, 25, 28;
Ottawa, March 13, 1972.
Income tax-Waiver of right of appeal from assessment-
Not against public policy.
On July 8, 1964, appellant was assessed for income tax,
interest and penalties for the years 1945 to 1959 in the
amount of approximately $951,000. On July 10, 1964, on
his solicitor's advice, to avoid a prosecution for fraud, he
freely signed an admission in writing of his liability and a
waiver of his right of appeal from the assessment. On
October 5, 1964, he filed a notice of objection against the
assessment and on February 22, 1965, filed a notice of
appeal.
Held, dismissing his appeal, the taxpayer's waiver of his
right of appeal from the assessment was binding on him and
not against public policy.
Griffiths v. Dudley (1882) 9 Q.B.D. 357; Toronto v.
Russell [1908] A.C. 493; credit Foncier Franco -
Canadien v. Edmonton Airport Hotel Co. (1964) 43
D.L.R. (2d) 174, applied.
INCOME tax appeal.
A. J. Irving for appellant.
W. B. Williston, Q.C. and G. J. Kroft for
respondent.
COLLIER J.- This appeal, and another appeal
in which Eco Exploration Company Limited
(hereafter "Eco") is the appellant, were heard
in part commencing January 17, 1972. It was
agreed the evidence in this particular appeal
(Smerchanski) would be evidence, where appli
cable, in the Eco appeal. The evidence at the
hearing was lengthy and at times complicated,
and after the respondent had completed his
prima facie case an agreement was reached
among the parties and the Court: the taxpayers
would adduce evidence on two issues, then
after argument a preliminary judgment would
be given by me on the two issues, with rights to
appeal, and further evidence and argument on
the remaining issues would be postponed, pend
ing the outcome of any appeals. The reason for
the agreement was that it had become apparent
that the evidence and argument on what I have
roforro.7 r„ rho ran,m,,,,n ,, ;celiac .,,oro ...,,., ..
to consume a great deal of time (very much
longer than the 23 days these appeals to date
have taken) and if the ultimate outcome of the
judgment on one of the two issues was adverse
to the taxpayer, then the remaining issues could
not be gone into.
These appeals, in form at least, are from
re-assessments by the Minister dated July 8,
1964, against the appellant (hereafter "the tax
payer") for the years 1945 to 1959 inclusive
and against Eco for the years 1946, 1947 and
1951 to 1957 inclusive, in respect to income tax
for those years. The additional tax, interest and
penalties assessed against the taxpayer was
$951,610.81, against Eco $117,177.89. The
Minister computed these amounts as follows:
The taxpayer:
Evasion [sic] $354,041.00
Assessment adjustment 174,905.85
Interest 272,663.96
Penalty (sec. 56(1)) 150,000.00
Eco:
Evasion [sic] 70,056.27
Interest 32,031.40
Penalty (sec. 56(1)) 15,090.22
The first issue for decision is whether the
taxpayer and Eco are barred from appealing
these re-assessments.
The respondent relies on two documents
signed by the taxpayer and Eco, both dated July
10, 1964. I set them out in full:
I, Mark Gerald Smerchanski, of the City of Winnipeg, in
Manitoba, Mining Engineer, do hereby acknowledge receipt
of Notices of Re-assessment made under the Income War
Tax Act, being Chapter 97, Revised Statutes of Canada,
1927, The Income Tax Act, being Chapter 52, Statutes of
Canada, 1948 and the Income Tax Act, being Chapter 148,
Revised Statutes of Canada, 1952, in regard to my income
tax for the taxation years 1945 to 1959, both inclusive, in
the following amounts:
1945 $124,453.47
1946 173,413.76
1947 47,303.19
1948 2,292.65
1949 4,562.24
1950 3,751.45
1951 6,046.75
1952 16,125.99
1953 10,304.69
1954 12,567.53
1955 94,231.07
1956 288,994.87
1957 96,739.51
1958 54,858.82
1959 15,964.82
$951,610.81
I do hereby approve of and consent to the individual
amounts involved in each re-assessment, which I under
stand are inclusive of taxes, interest and penalties for each
of the said years. I do hereby admit my liability for the
amount of the same and I do hereby waive any right of
appeal I now or may have in regard to any of the said
re-assessments.
I do hereby further acknowledge that the said re-assess
ments for the years 1955 to 1958, both inclusive, are in
substitution for the provisional re-assessments made for
those years under dates March 14, 1960, May 1, 1961, April
16, 1962, and June 28, 1963, and I do hereby withdraw the
Notices of Objection dated June 10, 1960, June 8, 1961,
June 5, 1962 and September 23, 1963, I previously filed in
regard to the said provisional re-assessments.
It, is understood and agreed that this document is binding
upon my heirs, executors and administrators.
IN WITNESS WHEREOF I have hereunto set my hand
and seal at Winnipeg, in Manitoba, this 10th day of July,
1964.
"Harry Walsh" "M. G. Smerchanski" (Seal)
Witness Mark Gerald Smerchanski
The above acknowledgment, consent and waiver was
voluntarily executed before me by the said Mark Gerald
Smerchanski of his own free will and accord. The said Mark
Gerald Smerchanski has further acknowledged to me that
he understands and is fully aware of the nature and effect
of the said document.
DATED at Winnipeg, in Manitoba, this 10th day of July,
1964.
"Harry Walsh"
A Barrister-at-Law entitled to practise in and for the
Province of Manitoba.
Eco Exploration Company Limited does hereby acknowl
edge receipt of Notices of Re-assessment made under the
Income War Tax Act, being Chapter 97, Revised Statutes of
Canada, 1927, The Income Tax Act, being Chapter 52,
Statutes of Canada, 1948 and the Income Tax Act, being
Chapter 148, Revised Statutes of Canada, 1952, in regard to
its income tax for the years 1946, 1947 and 1951 to 1957,
both inclusive, in the following amounts:
1946 $14,546.26
1947 1,038.46
1951 7,116.31
1952 244.18
1953 26,717.40
1954 3,124.85
1955 19,652.48
1956 24,274.45
1957 20,463.50
$117,177.89
Eco Exploration Company Limited does hereby approve
of and consent to the individual amounts involved in each
re-assessment, which it understands are inclusive of taxes,
interest and penalties for each of the said years. Eco
Exploration Company Limited does hereby admit its liabili
ty for the amount of the same and it does hereby waive any
right of appeal it now or may have in regard to any of the
said re-assessments.
It is understood and agreed that this document is binding
upon the successors and assigns of Eco Exploration Com
pany Limited.
IN WITNESS WHEREOF ECO EXPLORATION COM
PANY LIMITED has hereunto affixed its Corporate Seal
duly attested by the hands of its proper officers in that
behalf this 10th day of July, 1964.
ECO EXPLORATION COMPANY LIMITED
(No personal liability)
Per:
"P. N. Smerchanski"
President
"Phillip Smerchanski"
Secretary.
These documents followed from an earlier
document dated July 2, 1964, which I shall
refer to later.
On July 10, 1964, a certified cheque for
$868,788.70 and an authorization to apply
$200,000 paid earlier in the year by the taxpay
er to the Receiver General of Canada, were
given to a legal agent of the Department of
Justice.
The respondent also contends that the tax
payer and Eco are estopped by their conduct
from asserting a right to appeal or pursuing the
present appeals.
The taxpayer, in his pleadings, alleges the
July 10, 1964 documents are against public
policy and public morality and "void of legal
effect by reason of illegality of consideration
and by reason of undue influence and duress."
Coercion, in respect to the documents, is plead
ed as well.
In argument, the main contention advanced
by counsel for the taxpayer was that the Minis
ter had no power or authority under the Income
Tax Act to stipulate (as was allegedly done) for
the waiver of the right to appeal the re-assess
ments. The plea that the agreements were
obtained by undue influence or duress was not
abandoned, but was not strongly pressed.
I have concluded that the documents dated
July 10, 1964, are valid agreements, are binding
on the taxpayer and Eco, and are not against
public policy and morality as contended.
In my view, the conclusion I have come to is
basically a decision on facts, and it is necessary
therefore to review the evidence in some detail.
The taxpayer is a mining geologist who grad
uated in 1937. In the early years his activities
were mainly in the mining field, but it is appar
ent he later became a "business man" as well,
and a successful one. He has been an M.L.A.
for the Province of Manitoba, and is presently a
Member of Parliament. Eco, at all material
times, was under his control.
In the fall of 1959, a field audit of the taxpay
ers was commenced by a Department of
National Revenue assessor, E. T. Elliott. I
accept Elliott's evidence that he asked from the
outset for all books and records. There is no
doubt on the evidence Elliott was not given all
the material records, and I refer particularly to
detailed records kept by the taxpayer's wife at
their home. These records have been called
throughout "Pat's Statements" and "Pat's Bank
Write-Ups." (See Exhibit A 170 and Exhibits A
67-71.) What records he was given, Elliott had
to press for.
He was given a net worth statement (Exhibit
339) which covered the period from January 1,
1948 to December 31, 1958, prepared by the
taxpayer's auditor. It was inaccurate and mis
leading and did not disclose substantial assets.
The taxpayer's wife prepared a statement of a
substantial part of the undisclosed assets
(amounting to approximately $93,000) but the
accountant did not include these in the net
worth statement. Unfortunately the auditor is
dead, as are several persons who could have
given, I have no doubt, important evidence in
respect to many of the matters gone into at this
hearing. In any event, the taxpayer admitted he
was given a copy of Exhibit 339 at approxi
mately the same time it was given to the asses
sor. He said nothing then or later to see the
omissions were brought to the attention of the
Department.
From the records made available, Elliott, in
the course of his investigation came to the
opinion there were fairly large sums which
might be subject to tax. He also came to the
opinion that in some instances, sums properly
income, had not been declared by the taxpayer.
The file was then referred to the Special Inves
tigation section. An authorization, approved by
the Exchequer Court, to enter and search the
taxpayer's business premises and his home and
to seize any documents and records relative to
suspected violations of the Income Tax Act was
obtained, and the search and seizure was car
ried out on February 21, 1961. A vast amount
of material was seized.
The staff in the Winnipeg office of the
Department then commenced a detailed and
thorough investigation. It lasted a long time and
was substantially completed by June of 1964.
The time taken is understandable. To illustrate,
particulars to the respondent's pleadings in the
taxpayer's case alone are 170 pages in length,
the book of references to the evidence support
ing the particulars, (which does not include
copies of actual exhibits) is 262 pages in length;
there were approximately 380 exhibits filed at
this hearing, most of which were bound
volumes varying in size from small to large
(these exhibits of course did not include all the
material examined by the Departmental staff:
only that felt to be relevant). I have mentioned
the above because the taxpayer complained
during the trial of the length of time his records
had been kept by the Department.
During the course of the investigation, the
Departmental staff made photostatic copies of
many, but not all, of the seized documents and
records. This fact is important and I shall refer
to it later.
In May of 1963 an interim investigation
report was written by F. Reynolds (now
deceased), then supervisor of the Special Inves
tigations Section in Winnipeg. At that time the
years which had been investigated were from
1949 to 1959 inclusive. Although the investiga
tion was not complete Reynolds felt there was
approximately $633,000 of undeclared income
involved. It was apparently his view that this
amount involved misrepresentation or fraud and
he recommended in a report to the Deputy
Minister of National Revenue, dated June 3,
1963, the taxpayer should be prosecuted by
way of indictment.'
The file of the Special Investigations Section,
including the reports mentioned, was referred to
J. L. Gourlay, then the senior legal adviser to
the Department of National Revenue, and the
person in charge of legal enforcement. He felt
there was sufficient evidence to justify the
appointment of legal counsel to review the
whole matter with a view to prosecution, and so
advised the Deputy Minister, J. G. McEntyre.
Around this time, or shortly after, the taxpay
er had been endeavouring to obtain an interview
with the Minister of National Revenue. A meet
ing with the Deputy Minister was arranged and
took place on August 28, 1963, in Ottawa.
Present were the Deputy Minister, Mr. Gourlay,
a Mr. E. C. Hauch of the Department, the
taxpayer, and Mr. Archie Micay, an ex
perienced Manitoba lawyer who had acted for
the taxpayer for some time. There is really no
dispute as to what went on at the meeting. The
taxpayer was present throughout most of the
meeting, but Mr. Micay made full notes and
showed them and gave a copy to the taxpayer
afterwards. I have gone to those notes (Exhibit
332, Tab 1) to summarize this meeting.
The Deputy Minister produced a sheet made
up of items under nine heads of alleged sup
pressed income totalling $633,538.37. Micay
was allowed to take notes of the headings and
amounts. I point out here that item number 6,
mortgage and loan interest of $23,278.53, is
recorded in Mr. Micay's notes along with the
other items, including item 9, an alleged taxable
profit from New Manitoba Mines Limited, pro
motions and underwritings, of $251,465.80.
Other material, including some evidence, was
produced by the Deputy Minister.
The Deputy Minister was not prepared to
give details of the facts and materials the
Department had. He felt the matter should be
turned over to the Department of Justice so that
the Courts could resolve the matter. Mr. McEn-
tyre further said that Mr. Gourlay was going to
Winnipeg to review the evidence first-hand and
would report to him. Then a decision would be
made as to whether prosecution would be
recommended.
It is clear from all the evidence given in
respect to this meeting there were no threats
made, by or on behalf of the respondent, nor
any promises, implied or otherwise, that any tax
liability could possibly be settled without prose
cution. It is equally clear the Deputy Minister
and his advisers felt there was a case for prose
cution and so advised Mr. Micay. Mr. Micay
was told a further meeting could be arranged
with the Deputy Minister.
The date of this first meeting with the Deputy
Minister (August 28, 1963) is important because
the Department subsequently proceeded on the
basis that any charges against the taxpayer
would have to be laid by August 28, 1964. 2 It
was admitted that opinions varied in the Depart-
ment as to the interpretation of ... "the day on
which evidence, sufficient in the opinion of the
Minister to justify a prosecution for the
offence, came to his knowledge". However, Mr.
Gourlay was in over-all charge in respect to the
investigation going on, and he held the view that
the "day" was August 28, 1963. Mr. Micay
learned of Gourlay's view on this point at a
subsequent meeting on December 20, 1963, and
I find, on Mr. Micay's evidence, the taxpayer
was told by Mr. Micay of this, as well as other
details of that December meeting.
Gourlay went to Winnipeg in September,
1963, and reviewed the evidence with the staff
there. He felt satisfied fraud in the criminal
sense could be proved to the extent of approxi
mately $277,000.00 (under various heads). In
addition there were other large sums which he
felt could be assessed as income, but there
might be difficulty proving fraud in respect to
those items if they were included in charges to
be laid. On the same visit, because of some
further information which had come to light, he
instructed the Departmental staff to investigate
the years 1945 to 1949, which up to that point
had not been reviewed.
On October 2, 1963, a lengthy meeting was
held in the Departmental office in Winnipeg.
This was referred to in the evidence as the
"Final Interview" meeting.
This meeting, which began in the early after
noon, was called to present to the taxpayer the
gist of the Department's case, to give selected
examples in respect to general heads of alleged
evasion or alleged tax liability, and to give the
taxpayer an opportunity to make any explana
tion he wished. Mr. Micay, his partner Mr.
Harry Walsh (a well-known and very ex
perienced barrister) and Mr. B. W. Nitikman,
a chartered accountant, attended with the tax
payer. Mr. Reynolds conducted the meeting.
Mr. James Mackay and Mr. R. Pinilo of the
Department were also present. I need not go
into the evidence in respect to that meeting in
detail. Again Mr. Micay took elaborate notes, as
did others present. It is sufficient to say that
quite a number of examples of alleged evasion,
suppression, or fraud were presented. The
documents which the Department relied on
were in the room where the meeting was held
including photostatic copies of a few pages
taken from journals or diaries kept by the tax
payer. I shall refer to this fact again later.
Reynolds went through all his examples and
then there was an adjournment while the tax
payer consulted his advisers. The meeting then
resumed and certain explanations were given
through Mr. Micay. I accept the taxpayer's as
sertion that he could not explain at that moment
all the matters that had been brought out
because some of them had occurred some years
before and he did not have his records. At the
same time I must say that the explanation he
gave in respect to some of the items was to say
the least, inaccurate, and in respect to two
particular items, untrue. Firstly, with respect to
a letter he had written (Exhibit A 330, p. 17), he
said it was a method of paying the addressee
money so that it would not appear to that
person to be charity. The explanation is not
supportable. Secondly, Reynolds had alleged
suppression of $23,276.53 in mortgage interest
over the years and gave as examples, what was
called the Cobb mortgage and the Broadway
Florist mortgage. The taxpayer denied ever
having received interest from Cobb (his wife's
personal records in fact recorded it) and in
respect to the other mortgage interest, he said
they were mortgages actually held by other
members of his family, but in his name, and that
those other members of his family actually
received the moneys. The taxpayer at trial
conceded this explanation was not correct. I go
further and say it was untrue. This explanation
was substantially given again in writing on the
taxpayer's behalf when a submission was made
to the Deputy Minister in Ottawa in April, 1964.
It is conceded that at that meeting of October
2, 1963 no threats were made, nor was there
any discussion as to possible settlement or dis
position of the matter, short of prosecution. I
think it obvious the taxpayer and his advisers
knew as a result of that meeting that the
Departmental officials in Winnipeg certainly
were proceeding on the basis of prosecution,
and that large amounts of potential income tax
were in the minds of those officials.
The report on the final meeting by the Win-
nipeg office is dated October 4, 1963. On Octo-
ber 10, 1963 Mr. Micay telephoned the Deputy
Minister in Ottawa indicating he was prepared
to discuss settlement on behalf of his client. It
is unclear from the evidence whether Mr.
McEntyre at that time had actually read the
October 4 report, but he knew the interview had
taken place. No commitment of any kind was
given, other than an assurance that Mr. Micay
would be advised of the Department's ultimate
decision.
Shortly after this telephone call the Deputy
Minister reviewed the file, together with the
report on the final interview, and an appoint
ment with Mr. Micay was made for December
20, 1963. There also were present Mr. Gourlay
and Mr. Potvin (one of the Departmental offi
cials). Again Mr. Micay made extensive notes
which are part of Exhibit B 332. Again there is
not too much dispute as to what went on at the
meeting. Mr. McEntyre indicated the Depart
ment's calculation of the tax owing had
increased since the previous meeting in Ottawa.
In my view, Mr. Micay's main object at this
meeting was to see if some settlement short of
prosecution could be reached. A figure of
$400,000 was mentioned by Mr. Micay but no
commitment of any kind was given by Mr.
McEntyre. The Deputy Minister indicated he
felt charges should be laid and a Court should
fix the penalty. He said he did not intend to
bargain in the matter.
Shortly thereafter the Department substan
tially completed its investigation of the years
1945 to 1949 and the local office submitted
their figures to Ottawa. On January 6, 1964,
Mr. Micay had a conference with the taxpayer
and the accountant Mr. Nitikman, in which the
taxpayer's involvement in New Manitoba Mines
Limited was discussed (Exhibit 334).
A further meeting with the Deputy Minister
and Mr. Micay took place in Ottawa on January
16th. Mr. Gourlay was again present along with
a Mr. Bradshaw, also of the Department. Mr.
Micay was advised by the Deputy that the total
tax claim against Eco was $156,307, the total
tax claim against the taxpayer was $686,000
plus interest of $344,000. These figures did not
include any penalties. The figures given by the
Deputy Minister at this time included figures
for the years 1944 to 1959.
Mr. Micay was given some details of the
Department's views concerning the substantial
ly increased figures Mr. Micay was given. Again
Mr. Micay endeavoured to discuss settlement
but the Deputy Minister was not interested even
when the suggested figures approached $600,-
000. Both the Deputy Minister and Mr. Gourlay
expressed the view this was the kind of case
that should be determined in the Courts. I take
it from that, they meant the criminal courts in
respect to alleged fraud, and the civil courts in
respect to mere disputes as to assessments.
Again at this meeting, as at all previous meet
ings with Mr. Micay, there were no threats, nor
any promises of any kind in respect to
settlement.
On February 26, 1964, Mr. Micay had a
further meeting with the taxpayer and repre
sentatives of his accounting firm. Mr. Walsh
was also present. Again the taxpayer's position
in respect to New Manitoba Mines Limited was
discussed with him. It will be remembered that
the Department of National Revenue was and
had been alleging a tax involvement of $250,-
000 in respect to the taxpayer's dealings with
that company.
In March of 1964 the file was referred by
Revenue to the Department of Justice with a
recommendation that counsel be appointed. Mr.
C. G. Dilts, of Winnipeg, was, by letter dated
March 31, 1964, appointed as agent to review
the file with a view to prosecution and to report
and make his recommendations to the Depart
ment of Justice. The taxpayer was advised of
the appointment of counsel by letter dated April
1, 1964. Mr. Dilts started working on the docu
ments in the latter part of March, 1964, and
spent a great deal of time on this matter from
then on.
On April 8, 1964, he wrote an interim report
to the Department of Justice indicating he had
spent some time reviewing the Department's
material. He expressed the view then that the
evidence he had looked at clearly supported
charges being laid against the taxpayer, Eco,
and possibly against the taxpayer's wife. He
submitted a further report to the Department of
Justice on April 22, 1964, commenting on
representations that had been made on behalf of
the taxpayer to the Deputy Minister by a Toron-
to law firm on April 7, 1964.
By June 22, 1964, Mr. Dilts had reviewed in
detail 90% of the documentary evidence which
the Department had and he had decided to
recommend that charges should be laid under
section 132(1)(d) of the Income Tax Act: wilful
evasion. Around that date he met with Mr.
Gourlay and Mr. J. M. Bentley of the Criminal
Law Section, Department of Justice, in Win-
nipeg, to try and separate the various items,
those which would be the subject of prosecu
tion and those which would be for re-assess
ment only. Mr. Dilts knew there was a deadline
in August and Mr. Gourlay wanted the pro
posed charges in his hands by the 1st of August,
1964.
Up to this point Mr. Dilts had had no discus
sion with the taxpayer or his representatives,
although Mr. Micay and Mr. Dubin, a Toronto
lawyer apparently engaged by the taxpayer
through Mr. Micay in April of 1964, had been in
touch with him. Mr. Dilts had been unwilling to
discuss the matter because he was still review
ing it.
On June 24, 1964, Mr. Walsh came to Mr.
Dilts' office. Mr. Dilts did not make any notes
of this first meeting between the two of them
and neither did Mr. Walsh. Both these gentle-
men were excellent witnesses and both have the
highest regard for each other. Mr. Walsh cannot
recall exactly why he decided to see Mr. Dilts.
It may have been that he met Mr. Gourlay who
was in Winnipeg around that time or he may
have heard that Mr. Dilts was working on the
prosecution aspect of the case. In any event Mr.
Dilts told him that he was in the process of
drawing up charges against the taxpayer and
Eco.
Mr. Walsh expressed concern about the pub
licity which would occur just by the mere laying
of charges, that it would probably be the end of
the taxpayer's political career, and would, of
course, hurt his family. Mr. Walsh inquired
whether the matter could be settled and Mr.
Dilts, although he held out little hope, said he
would have to take instructions from Ottawa.
In my view Mr. Dilts got the impression from
Mr. Walsh that it was possible the taxpayer
might concede full tax liability.
On the next day, June 25, 1964, Mr. Dilts
telephoned Mr. Bentley and Mr. Gourlay in
Ottawa. He told Mr. Gourlay of his meeting
with Mr. Walsh. Mr. Gourlay indicated he
would have to speak with the Deputy Minister
but expressed his own view there might be a
chance of the case being resolved providing
certain conditions were met. These tentative
conditions were that the taxpayer and Eco
would accept the Department's figures, there
would be no particulars supplied, and there
would have to be a waiver of appeal from the
re-assessments. Gourlay also felt there would
have to be some commitment in writing before
he could discuss the matter with the Deputy
Minister.
Mr. Dilts called Mr. Walsh and told him brief
ly of his conversation with Mr. Gourlay. He
also told Mr. Walsh the total figure involved
would be in the neighborhood of $1,200,000.
On June 26, 1964, Mr. Walsh saw Mr. Dilts.
Mr. Dilts said no decision had been made but an
offer would be considered and that he wanted a
letter of commitment from the taxpayer, and
from Mr. Walsh.
A draft letter of commitment was drawn up
by Mr. Walsh and as I follow the evidence was
revised somewhat by Mr. Dilts and that revision
revised somewhat by Mr. Walsh. The final
product was typed in Mr. Walsh's office. A
deadline of July 2, 1964, was set. The letter of
commitment was signed on July 2. It is as
follows:
Mr. C. Gordon Dilts,
Barrister & Solicitor,
503 Electric Railway Chambers,
WINNIPEG, Manitoba.
Dear Mr. Dilts:
Re: Mark Gerald Smerchanski and
Eco Exploration Company Limited
(no personal liability)
We, Mark Gerald Smerchanski and Harry Walsh, hereby
jointly and severally commit ourselves unconditionally to
the payment in cash of the total income tax liability of Mark
Gerald Smerchanski and Eco Exploration Company Limited
(no personal liability) (including interest and penalties) for
the years 1945 to 1959, both inclusive, as determined by the
Department of National Revenue, such payment to be made
upon our being advised by the said Department of the total
amount of such liability. It is agreed and understood that the
total amount of such liability will be accepted and approved
by us without question or reservation and without any
demand whatsoever being made of the Department of
National Revenue for particulars of the total amount
involved. It is further agreed and understood that Mark
Gerald Smerchanski will personally assume payment of the
total liability as assessed against Eco Exploration Company
Limited (no personal liability).
We, Mark Gerald Smerchanski and Eco Exploration
Company Limited (no personal liability) do hereby further
unconditionally waive any and all right of appeal from the
income tax assessments or re-assessments that are now
made or about to be made by the Department of National
Revenue for the said years.
This letter will also serve to confirm that all counsel and
accountants that have been retained for or on behalf of
Mark Gerald Smerchanski and Eco Exploration Company
Limited (no personal liability) have been familiarized with
the contents of this letter, and that they are all in accord
with it and are prepared to the extent applicable to be bound
by it.
It is further agreed and understood that the commitments
contained in this letter are binding upon the heirs, executors
and administrators of Mark Gerald Smerchanski and upon
the successors and assigns of Eco Exploration Company
Limited (no personal liability).
DATED at Winnipeg, in Manitoba, this 2nd day of July,
1964.
"M. G. Smerchanski"
"Harry Walsh"
ECO EXPLORATION COMPANY LIMITED
(NO PERSONAL LIABILITY)
Per: "P. N. Smerchanski"
President
"Phillip Smerchanski"
Secretary.
Mr. Walsh candidly testified there was no
promise of any kind given that a prosecution
still would not take place although obviously it
was in the minds of all concerned that if the
terms of the commitment were carried out a
prosecution would probably not take place.
There is no doubt these discussions between
Mr. Walsh and Mr. Dilts which commenced on
June 24, 1964, were communicated to the tax
payer by Mr. Walsh. Mr. Micay was also kept
advised.
The documents of July 10, 1964, previously
set out in these reasons were signed on that
date in the presence of Mr. Walsh.
In the early discussions between Mr. Dilts
and Mr. Walsh the question of particulars was
brought up and Mr. Walsh said that Mr. Dilts
advised him his instructions were there were to
be no particulars. Mr. Walsh so informed the
taxpayer, and I reject the taxpayer's suggestion
that he was not so told.
Mr. Walsh has a clear recollection that he and
the taxpayer persuaded a bank to open its doors
on the July 1, 1964 holiday in order for Mr.
Smerchanski to make arrangements to raise the
sum of $1,200,000 which was the outside figure
that Mr. Dilts had given. The actual amounts set
out in the document of July 10, 1964, for each
year were finally decided by Mr. Dilts after
discussions with Winnipeg officials: that is,
which items involved misrepresentation where a
penalty could be levied, or which items were
merely a matter of Fe-assessment.
On July 8, 1964, Mr. Dilts, by letter delivered
to Mr. Walsh, enclosed notices of re-assessment
for the years 1945 to 1959 inclusive, the docu
ments ultimately signed on July 10, 1964, and
the draft authorization in respect to the $200,-
000.00 paid to the Receiver General earlier.
I now return to the taxpayer's contention he
was subjected to undue influence or duress in
respect to the signing of the letter of commit
ment and the documents of July 10, 1964, and
that these agreements are voidable. The taxpay
er says he met with Mr. Walsh in the latter part
of June of 1964, and was told by him that Mr.
Dilts was getting ready to lay charges by way of
indictment. The taxpayer said he was "sur-
prised and flabbergasted". I cannot accept that
statement. I am sure he was frightened and
concerned that what had been in the offing for
so long, was now about to happen. The taxpay
er in my view knew as early as the meeting in
August of 1963 with the Deputy Minister in
Ottawa that the Department was intending to
prosecute and there was nothing said in the
subsequent meetings in Ottawa which I have
referred to, which could have led him to believe
there would be no prosecution. I accept his
evidence he was assured from time to time by
his many advisers including Mr. Micay there
was in their minds a possibility of some
settlement.
The taxpayer saw Mr. Walsh on June 25,
1964. He says Mr. Walsh informed him there
could be a settlement in the amount of approxi
mately $1,200,000.00, otherwise there would be
a prosecution by indictment. He describes the
advice given to him by his legal advisers as an
ultimatum—"sign, or go to jail." If there were
an "ultimatum" it did not come from the Minis
ter or any of his representatives. The taxpayer
had competent legal advisers, and they obvious
ly felt he was in serious trouble.
The taxpayer admits signing the letter of
commitment dated July 2, 1964, of making
arrangements with the bank on the July 1st
holiday, and signing the documents of July 10,
1964.
He says he felt he was being unfairly treated
and there should have been some explanation or
breakdown of the amount assessed by the
Minister.
On the other hand the evidence of Mr. Micay
and Mr. Walsh as to these matters is clear. Mr.
Micay knew as a result of his meetings with the
Deputy Minister the amounts of tax the Depart
ment alleged were owing and the general areas
in which those amounts fell. Mr. Micay had
several meetings with his client prior to the
events of late June and July. I have already
mentioned two of these meetings at which New
Manitoba Mines Limited was discussed, and I
surmise the taxpayer's general tax position was
canvassed at the same time. Mr. Micay says
both he and Mr. Walsh gave advice to the
taxpayer in respect to the agreements of July,
1964. It was Mr. Micay's opinion, and he says
Mr. Walsh's, that if the taxpayer were prosecut
ed he would be found guilty of fraud and would
go to jail. I set out his evidence:
Q. You have expressed the opinion that you thought that
Mr. Smerchanski would be found guilty on the evi
dence the Crown had, are those your words?
A. No, I said, or I thought that the prosecution on indict
ment, if it went ahead, he would be found guilty and
go to jail, yes.
Q. Was this because of your examination of the
evidence?
A. On the basis of everything we knew on the matter up
to that date.
Q. This is what I am trying to ascertain, whether you had
examined any material with the Department?
A. I heard the Department's allegations. I heard what he
had to say about them and it conformed to the consen
sus of our best opinion. That's what we were there
for.
Q. And so what you are saying, then, if I can put it this
way is that on the assumption that the allegations were
correct, this would be your conclusion?
A. I am saying to you, sir, that—
HIS LORDSHIP: You are getting close to cross-examin
ing your client. I think I understood his answer. It was
quite clear to me that he heard the Department's
allegations and on the basis of what he said, that is not
what Mr. Smerchanski said.
THE WITNESS: I suggest to you that Mr. Walsh was the
chief man on that aspect of the matter and it was
really his opinion more than mine in the matter. It
happens to coincide but you will have an opportunity
to go into that with him.
MR. IRVING: Q. I am trying to understand what the
opinion was based on?
A. Based on everything we knew about the matter.
Q. Which was what?
A. Which—most of which you have heard here today.
The explanations that were given to us, not all of
which have been read, the meetings that were held—
HIS LORDSHIP: The explanations by whom?
THE WITNESS: From our client. That is in the presence
of his accounting advisers, the allegations that were
made and the extent to which they were unanswered
or the answers that were given. There was no question
at all in my mind and there was no question in Mr.
Walsh's and we both expressed this opinion to Mr.
Smerchanski that he would be found guilty and go to
jail if the matter proceeded.
MR. IRVING: Q. Do you examine the material that the
allegations were based on?
A. No, I have given you a complete answer on that point,
Mr. Irving. We examined everything we knew about
the matter and they would only give us certain things,
which is what we were objecting to, but we had heard
enough to satisfy us what the conclusions would be, in
our opinion, and we so advised our client.
MR. IRVING: That is fine, thank you.
Mr. Walsh's evidence is as follows:
HIS LORDSHIP: And we were talking here about a
very, very substantial sum of money. Mr. Micay in
answer to a question, said that on the basis of what he
had heard in the Department's allegations and on the
basis of what Mr. Smerchanski said, that he felt that
there was a great risk that any prosecution was going
to find your firm's client guilty and added that Mr.
Walsh had the same opinion.
THE WITNESS: I did and I still have it, my lord.
HIS LORDSHIP' I take it you knew, perhaps not in
detail, but the main allegations being made and you
also had had the benefit, you and Mr. Micay, of
discussing some of these things with your client?
THE WITNESS: I knew of the great risk not so much
from Mr. Smerchanski as I knew from the six-hour
meeting that had taken place in October of 1963
which I sat through listening to the allegations that
were being made.
HIS LORDSHIP: So it was partly on that that you came
to the conclusion that you did that there was a great
risk to your client?
THE WITNESS: Yes, there was a great risk not only
from the aspect of the adverse publicity and the
smashing of Mr. Smerchanski in the process, even if
he was acquitted, but there was also a risk of being
convicted and on indictment the risk of a minimum jail
term of two months.
HIS LORDSHIP: And it was the basis, considering all
those matters, that you recommended that he sign
these documents?
THE WITNESS: Yes, my lord.
I point out here that at the hearing, solicitor-
client privilege was waived.
It seems to me the taxpayer's chief complaint
in respect to the events which occurred in early
July, 1964, was that he was not given particu
lars in respect to the Departmental figures. I
find that he was advised by Mr. Walsh that
particulars would not be given and with that in
mind he nevertheless signed the letter of com
mitment and the documents of July 10, 1964.
There is, in my mind, no evidence to support
the plea of undue influence or duress exerted
by the Department or any one of the officials
who dealt with what I will call the Smerchanski
file. In cross-examination the taxpayer admitted
he could not identify any one person. He vague
ly made reference to the Department officials
who were responsible for the terms set out in
the documents he signed. The taxpayer was and
is neither naive nor untutored. He knew there
were serious allegations being made against him
and it is obvious he knew some matters, at
least, could not be explained. I cite again the
example of the failure to declare interest on
mortgages.
In my view he had competent legal advice,
accepted it, and acted on it.
I now turn to what the taxpayer's counsel
described as the main thrust of his argument:
that the documents or agreements of July 10,
1964 are against public policy and morality in
that the Minister had no authority to stipulate
for the terms set out: particularly the waiver of
the right of appeal.
In essence, the agreements of July 10, 1964
provided:
(1) The taxpayer approved the amount of
each re-assessment and acknowledged they
included tax, interest, and penalties;
(2) The taxpayer expressly admitted liability
for the amounts;
(3) The taxpayer expressly waived any right
of appeal.
In the letter of commitment he expressly
agreed not to demand particulars of any re
assessment. This is now one of his reasons for
attempting to appeal the assessments. I find no
merit in the contention. Under the Income Tax
Act there is no requirement that the Minister
must give particulars of any assessment or
re-assessment.
It seems to me the position was this: The
Minister had several alternatives in respect to
the Smerchanski case. He could prosecute
under section 132(1)(d) of the Act by indict
ment or by summary conviction. The proposed
prosecution was not going to embrace all the
income the Department thought taxable, but
only that portion where it was felt wilful eva
sion or attempted evasion could be successfully
established. Another avenue open to the Minis
ter was to re-assess under section 46 of the Act
and impose penalties under section 56(1) of the
Act on those portions of the tax in which it was
considered there had been wilful evasion.
In this case the taxpayer, through Mr. Walsh,
(at what might be called the eleventh hour when
the formal prosecution had almost started) ini
tiated the so-called settlement. He was not
invited to do so by anyone in or connected with
the Department of National Revenue or the
Department of Justice. As Mr. Gourlay
expressed it, this was the first indication, from
the Department's point of view, of any change
in the attitude of the taxpayer. Because there
had been a number of advisers, both account
ants and lawyers, acting for the taxpayer (par-
ticularly in the spring and early summer of
1964) with a series of representations plus
requests for access to all the records, the
Department, as I see it, would not consider
proceeding under sections 46 and 56 unless the
whole matter could be completely and finally
concluded.
In my view, the Minister through his repre
sentatives merely indicated to the taxpayer,
(through Mr. Walsh) some basic conditions,
which if agreed to, would be considered. The
essential ones were an admission of liability,
and the waiver of appeals. I repeat here that
Mr. Walsh's testimony was very definite: there
was no undertaking on behalf of the Minister
that even if these conditions were met, there
would be no prosecution.
In fact, the Minister considered the commit
ment offered by the taxpayer and Mr. Walsh
and then decided to conclude the whole matter
by proceeding under sections 46 and 56: re
assessment, including tax, interest, and penalty.
The taxpayer agreed to waive his rights of
appeal from any re-assessments and as I view
the sequence of events, with full knowledge of
what this meant, and before any decision was
made by the Minister. He signed the commit
ment of July 2, 1964. Between that date and
July 10, 1964, the Minister, on the basis that
this promise and others would be carried out,
came to the decision I have earlier stated. The
taxpayer then expressly waived his rights of
appeal in the agreements of July 10.
In my opinion the taxpayer's right to appeal
assessments is a private right, and not a public
right in the sense that the appeal provisions in
the Act express a public policy. I am also of the
view that the right can be waived by a taxpayer,
and that it was done in this case. In Griffiths v.
The Earl of Dudley (1882) 9 Q.B.D. 357 the
Court held that a contract whereby a workman
expressly agreed not to claim compensation for
personal injuries under the Employees Liability
Act 1880 was not against public policy. In
Toronto v. Russell [1908] A.C. 493 the Privy
Council decided that a provision in a municipal
taxing statute requiring notice of the sale of
property for tax arrears could be waived by the
taxpayer. I cite from a portion of the head note
in Credit Foncier Franco -Canadien v. Edmon-
ton Airport Hotel Co. (1964) 43 D.L.R. (2d)
174:
Although s. 34 (17), (18) of the Judicature Act, R.S.A.
1955, c. 164, precludes a mortgagee from enforcing the
personal covenant to pay in a land mortgage and limits his
rights to the land, the benefit of this provision may be
waived by a guarantor of the debt since it was not passed
for the public benefit or as expressing a public policy but
for the personal benefit of those whom it seeks to protect.
While the facts in those cases are dissimilar
to the facts in this case, I think the principles
discussed there are applicable here.
At the beginning of the argument, counsel for
the taxpayer stated he would abandon any con
tention that the agreements of July 10 were
invalid on the grounds they involved the stifling
of a prosecution. Mr. Irving frankly expressed
his opinion there was no evidence to support
such an argument. I agree.
At some point in this hearing, it was contend
ed that the re-assessment notices for the years
in question had not been personally sent or
given to the taxpayer, and the Minister there
fore had not strictly complied with the statute.
This was not pursued in the final argument. In
any event, the evidence is clear the assessments
were delivered on July 8, 1964 to Mr. Walsh,
his counsel, and the taxpayer expressly
acknowledges receipt of them in the agreements
of July 10, 1964. I find against this objection.
As I said early in these reasons, I have con
cluded these appeals must be dismissed.
A further argument, however, was advanced
on behalf of the respondent in support of his
position that the taxpayer has no right to pursue
these appeals. It is contended the taxpayer is
estopped by his conduct. Some further facts
must be outlined to appreciate this submission.
After the agreements of July 10, 1964 were
signed, the taxpayer requested the return of all
his records. They were delivered to him on July
20, 1964. The date of August 28, 1964 passed
with no charges laid against the taxpayer.
Within the 90 day period provided by section
58(1) of the Income Tax Act, notices of objec
tion were filed. They are dated October 5, 1964.
Notices of appeal to the Exchequer Court were
filed on February 22, 1965.
In November of 1966 it was agreed by the
parties, in order to prepare for these appeals,
that all the taxpayer's relevant records would be
placed in a room in the Mall Building in Win-
nipeg under joint control of the appellants and
the respondent. As preparation of the appeals
proceeded, it was discovered that quite a
number of documents were missing, some of
them, from the respondent's point of view,
quite significant. Some were eventually located,
but a large number have not been found. I
stated earlier the Departmental staff in the
course of their investigation, had made photo-
static copies of a large number of documents
and records. These photostatic copies had been
retained.
The respondent accuses the taxpayer of
responsibility for the missing documents. I
make no finding in this respect.
Among the documents and records originally
seized were seventeen daily journals kept by
the taxpayer. These are the type of journal or
diary kept by many businessmen on their desks
and have one page for each day of the year,
plus additional pages. In this case the journals
were for the years under review here. They
contain many entries and notations and general
ly speaking, though not always, the notes are
written in the present tense and appear to have
been made contemporaneously. Some time after
the records were placed under joint control it
was discovered, by comparison with earlier
photostats of pages, that a large number of
additions had been made to these journals, that
certain typewritten memoranda originally
pasted in the journals were missing, and some
pages were missing. The taxpayer denies
removing any memoranda or pages, but admits
he made the additions. Two large volumes con
taining photostats of many original diary pages
and the pages as added to were filed as exhibits.
(A 342 and A 351.) The latter exhibit was
prepared during the course of this hearing.
The taxpayer said the additions were made by
him in 1965 and 1966, after consulting with
other persons (mainly his brother Phillip, now
deceased) who refreshed his memory or had
records of matters referred to in the original
pages, or not mentioned in the original pages.
He said the additions were in fact true state
ments of things which had occurred and he did
not feel he was doing anything which could be
construed as wrong in making these additions.
These were, he says, to try and bring the
chronology of events together, and were not
intended to mislead or give the appearance of
contemporaneous entries.
The Minister alleges he was misled by these
additions because of the manner in which they
were done. He further asserts, and this is true,
that the taxpayer's wife and his accountant gave
certain evidence on behalf of the taxpayer on
examination for discovery relying on entries on
diary pages, which proved to be additions made
many years later by the taxpayer. The taxpayer
testified he did not tell his wife or his account
ant prior to examination for discovery that he
had made additions to these diaries. There is no
doubt the taxpayer's accountant knew nothing
of these additions.
I do not propose to review all the evidence
relating to the making of these additions or the
taxpayer's explanations. The taxpayer's expla
nations, given on examination for discovery and
at the hearing as to how he obtained the infor
mation to warrant these additions, for whose
benefit the information was intended, and his
purpose, are, in my judgment, contradictory and
unsatisfactory. The majority of the additions
and insertions are written in the present tense
and, again in many instances, are inserted at
places on a particular page which alter the
meaning of what was there originally, or lead
one to a different inference than one might have
drawn from the original page. I shall refer only
to one general example. Many original notations
could lead one to the inference or conclusion
the taxpayer was an active promoter in dealing
in shares of New Manitoba Mines Limited. In
1963 and 1964 the taxpayer knew the Minister
took the position the taxpayer was liable for
very substantial tax in respect to the New
Manitoba matters. The taxpayer took the oppo
site view. I have not heard all the evidence in
respect to the New Manitoba allegations, and it
may therefore be the taxpayer's position was
and is the correct one. But the added notations,
in my opinion, were inserted to create the
impression they were made contemporaneously
and to influence the mind of anyone reading the
relevant pages as they now appear, that the
taxpayer could not be classed as a promoter.
I find that regardless of whatever other
reason there may have been for these additions,
one purpose in adding them in the diaries, was
to give the appearance of having been made at
the time, and so to assist or provide support for
the alleged defences to some, at least, of the
matters alleged taxable by the Minister.
The respondent's position on this question of
estoppel can be stated this way:
1. The taxpayer by the agreement of July 10
led the Minister to believe there would be no
appeal from the re-assessments.
2. The Minister relying on this promise, and
the taxpayer's act in paying the amounts of
tax assessed did not prosecute, and returned
all records.
3. The time for prosecution, in the opinion of
the Minister, expired before the appeal proce
dure was begun.
4. The taxpayer, by adding to the diaries,
endeavoured to create a misleading or false
state of facts on these appeals.
I do not feel it necessary to decide whether
the above submissions amount in law to estop-
pel by conduct. I have already expressed other
reasons on which I base my opinion that these
appeals must fail. Because, however, this judg
ment may well be appealed, and because of the
extent of the evidence (documentary and oral)
adduced in respect to these diaries, I felt it
necessary to express my views and findings in
respect to them.
There is a second main issue to be decided at
this stage of the hearing. Strictly speaking, in
view of what I have already written, it is not
necessary to decide it, but in the event I am
wrong in the conclusion I have come to above, I
shall deal with it so that it too may, if neces
sary, be considered on appeal.
In order to justify the re-assessments for the
years in question, (that is going back beyond the
four year period set out in section 46(4) of the
Income Tax Act) it was necessary for the Minis
ter, at the hearing, to prove misrepresentation in
each of those years. It was agreed by counsel
that so-called innocent misrepresentation, even
to the extent of $1.00 in each year, was suffi
cient to re-open that year and that the re-assess
ment then made could cover not only the
amounts alleged to have been misrepresented
by the taxpayer, but other sums where there
may have been no misrepresentation, such as
the question of capital gain versus income.
The Minister at the hearing took examples of
misrepresentation in each year (under various
headings) and adduced evidence to prove them.
At the close of the Minister's case in respect to
the validity of the agreement and the question
of re-opening each taxation year, counsel for
the appellants conceded misrepresentation (in
the sense I have previously described) had been
proved in respect to the taxpayer, and said he
had been instructed by his client not to contest
the re-opening of the years applicable to the
re-assessments against Eco. He did, however,
contest the right of the Minister to re-assess the
years 1945 to 1951 in respect to the taxpayer.
His point was concise. The originals of the tax
returns filed with the Department for those
years, were, in the course of Departmental rou
tine in respect to removal of files, destroyed. To
bring himself within section 46(4)(a)(î) the Min
ister must show the "... taxpayer ... has made
.misrepresentation. .in filing the return...."
He must therefore, in my view, produce the
actual return filed, or adduce proof of its filing
and misrepresentation in its contents.
In this case, when the taxpayer's records
were seized, there were among them, copies of
what appeared to be the actual returns filed for
1945 to 1951. Evidence given on behalf of the
Minister was to the effect that Departmental
officials had checked what I shall call the
copies (which contained assessment notices,
and sometimes re-assessment notices, and
receipts) and had reconciled all the figures set
out in the copies and the additional material
found with the copies, with account cards kept
by the Department. The account cards were
missing at the time of trial, but the evidence
given by the Departmental officials was they
were satisfied, from their reconciliation, the
copies found in the possession of the taxpayer
were in all probability true copies of the original
returns. In examination in chief, the taxpayer
gave evidence in regard to the copies of the
returns in question. His signature appeared on
all copies except that for 1951. He candidly
said it was more than likely or probable that
these copies were carbon or true copies of the
returns filed with the Department, but could not
swear they were exact copies. On the evidence
of the Departmental officials who made the
reconciliation, and on the admission made by
the taxpayer, I find the Minister has proved, on
a balance of probabilities, the returns for those
particular years.
I have now finished dealing with the two
preliminary issues. It was agreed by the parties,
and concurred in by me, that each side would
have the right to appeal this judgment (even
though the hearing on all issues was not com
pleted) to the Appeal Division and to the
Supreme Court of Canada if either side so
desired. It was further agreed, and concurred in
by me, that if the result of any ultimate appeal
was in favour of the taxpayers, then I would be
seized of the case, and would resume the hear
ing in respect to the correctness or otherwise of
the re-assessments.
At the present hearing, the taxpayer (by
agreement) did not adduce evidence to attack
the individual items making up the assessments.
He, and the other witnesses called on his
behalf, testified in chief only in respect to the
two issues I have decided.
I add some last few words to a judgment
which is already too lengthy. I have made some
limited findings in respect to the credibility of
the taxpayer. A strong attack on his credibility
was made by the respondent at the hearing, but
because I have not heard all the evidence, and
because I at some future time may have to hear
and evaluate the rest of the evidence, I have
endeavoured not to state, or come to any final
conclusions at this time, on the over-all ques
tion of credibility. In fairness to the taxpayer,
whose credibility and motives, as I have said,
were strenuously attacked, I point out that the
matter of formal and technical proof by the
Minister of a mass of documents was waived,
solicitor-client privilege in respect to Mr. Walsh
and Mr. Micay was waived, and while the pro
ceedings before me were in camera as request
ed by the taxpayer, he consented to these rea
sons being made public.
These reasons apply in the Eco appeal. The
appeals are therefore dismissed. The respond
ent is entitled to costs.
The relevant section of the Income Tax Act then, as in
1964, provided that on a conviction by indictment, an
offender was liable to a minimum jail sentence of 2 months,
in addition to whatever other fines and penalties were
imposed.
2 Section 136(4) of the Income Tax Act reads:
An information or complaint under the provisions of the
Criminal Code relating to summary convictions, in
respect of an offence under this Act, may be laid or made
on or before a day 5 years from the time when the matter
of the information or complaint arose or within one year
from the day on which evidence, sufficient in the opinion
of the Minister to justify a prosecution for the offence,
came to his knowledge ....
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.