A $15-million lawsuit against the chair of the Canadian Mint, which turned up evidence that millions of dollars were moved through offshore havens in a "tax avoidance scheme" and much of it was never reported to tax authorities, ended with a pact not to alert the Canada Revenue Agency about the case, CBC News has learned.

As reported last month by CBC, descendants of former prime minister Arthur Meighen sued Toronto lawyer and mint chairman Jim Love, his trust company, his law firm and others in 2008, alleging wrongdoing in how they managed the Meighen family fortune and helped transfer $8 million through tax havens.

The lawsuit contained allegations by Meighen heirs that they could face "liability for taxes, interest and penalties" on the offshore transaction, while court documents show Love hesitated to send information about it because he felt there was "some sensitivity from a taxation perspective."

The litigation was quietly settled in 2011, but CBC News has now discovered that the deal to end it contained a pledge not to alert the Canada Revenue Agency to the case.

"None of the parties … shall initiate contact with the CRA, or any provincial or foreign taxing authority, in connection with any of the issues related to [the lawsuit], except as required by law," reads the settlement, found amid the more than 4,000 pages of documents filed in court.

Former Conservative senator Michael Meighen, who was peripherally involved in the lawsuit, says he didn't know there was a do-not-alert-the-taxman clause in the settlement he signed. 'I would be stunned if it was valid.' (CBC)

What's more, an Ontario Superior Court judge signed off on the deal, including the do-not-contact clause. As requested by the plaintiffs and defendants, Judge David M. Brown issued a court order barring any of the parties, plus six of their minor-age children as young as four, from reaching out to any tax agency, except "as required by law."

CBC News consulted more than a dozen legal experts about the clause. The vast majority said the terms are highly unusual.

"That's not something that I've ever seen happen," said Donald Bowman, former chief justice of the Tax Court of Canada and a one-time head of tax litigation for the federal government.

Though the provision says parties can approach the Canada Revenue Agency if the law requires, there is no legal requirement in Canada for someone to report suspected tax evasion or aggressive tax avoidance by another person.

'Parties to a contract cannot stipulate clauses that run against public policy,' says Sébastien Grammond, dean of civil law at the University of Ottawa. (Radio-Canada)

The clause appears to prohibit any of the parties from notifying the revenue agency's existing whistleblower program, under which people can anonymously report suspected tax non-compliance. It appears it would also prohibit using a new snitch line — announced by Love's close friend Finance Minister Jim Flaherty in his March budget — that the agency is developing specifically to report suspected offshore tax cheating.

"It raises red flags," said Sébastien Grammond, the dean of civil law at the University of Ottawa, who was among the experts who found the no-contact clause troubling.

Grammond said that in general, "Parties to a contract cannot stipulate clauses that run against public policy, and in particular that aim at preventing the application of public legislation such as … tax laws."

Former senator Michael Meighen, a grandson of Arthur Meighen who was a party to the lawsuit and is himself a lawyer, signed the settlement but said nobody told him about the don't-contact-the-taxman clause. "I would be stunned if it was valid," he said.

Judge had questions

Court records indicate Brown, the judge in the case, had questions for the parties' lawyers about the clause before he authorized it.

But it is impossible to determine what those were, or how the lawyers replied: Court officials said they have no recording of the hearing, and in reply to an email from CBC News, Brown said he was not permitted to comment beyond his reasons for judgment.

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Citing broad confidentiality terms in the lawsuit settlement, neither Love nor any of the lawyers or parties, aside from Michael Meighen, would comment either.

The Canada Revenue Agency, too, declined to make a statement.

But another of the agency's former top lawyers said he didn't think the judge in the case was trying to prevent scrutiny by tax authorities.

"It's very common for there to be confidentiality clauses in settlement agreements, and I don't see this as a great departure from that," said Robert McMechan, a onetime senior tax litigator for the revenue agency who recently completed a doctorate in tax law.

"The judge had regard to the complexity of the litigation, its duration, the uncertainty of it — because the allegations which were made were just allegations. There was nothing tested from an evidentiary point of view," he said.

"And so he would have concluded, I expect, that this decision endorsing the private settlement was a matter of public interest and signed the order."

Money not reported

The lawsuit against Love and others revealed that in 2004, one of Arthur Meighen's grandsons received a payment of $2.3 million from the money his relatives had sent offshore. The plaintiffs alleged Love told the grandson he "would be free and clear" of any obligations to report it to tax authorities. "Relying on Love's advice, [the grandson] did not report these funds," the statement of claim said.

Love's defence denied he made any such remarks.

A letter he sent the same year to the grandson shows he was concerned about taxation of the offshore money, however.

"There is, as I have indicated to you before, some sensitivity from a taxation perspective as to the amount of information that should be sent to you in connection with this international structure," Love wrote. "That is not to say that the information should not be made available to you, but only that it would be preferable for it to be reviewed during a meeting."

NDP Leader Tom Mulcair, who called for Love to be dismissed as chairman of the mint following last month's CBC reports, said this latest revelation about the don't-contact-the-taxman clause "is an indication" there's something fishy with how the lawsuit against Love and his co-defendants was settled.

"If everything's above board, why in heaven's name would you impose a clause saying you're not allowed to speak with the revenue agency?" he said. "If there was nothing to hide, if everything was above board, they wouldn't have had that sort of clause."

Judge David M. Brown's court order against contacting the Canada Revenue Agency, or any tax authority. (CBC)

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