Date: 20090605
Docket: A-358-08
Citation: 2009 FCA 190
CORAM: DESJARDINS
J.A.
NOËL
J.A.
BLAIS
J.A.
BETWEEN:
THE MINISTER OF NATIONAL
REVENUE
Appellant
and
NASSEREDDIN DERAKHSHANI
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an
appeal from a decision by Justice Martineau (the Federal Court judge or the
trial judge) refusing to give effect to the ex parte application filed
by the Minister of National Revenue (the Minister) for authorization to issue a
requirement to provide information relating to unnamed persons pursuant to section 231.2
of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act).
[2]
The brief
order dismissing the application reads as follows:
[translation]
The
applicant’s ex parte application for an order requiring the provision of
information and the production of documents regarding unnamed persons is
dismissed, without costs. For the reasons delivered from the bench at the
hearing, the Court is not satisfied, in view of the evidence in the record and
the applicant’s submissions, that both of the conditions set forth at
subsection 231.2(3) of the Income Tax Act, as they are interpreted
in the case law, have been met in this case.
[3]
The
reasons delivered from the bench were not entered in the minutes. According to
counsel for the Minister, the judge made the following comments in the course
of the proceedings (Appellant’s Memorandum, at paragraph 10):
[translation]
- The
CRA could not justify an extensive audit of the tax returns prepared by
Mr. Derakhshani solely on the basis of the results of audits on three
taxpayers’ returns;
- The
audit would likely involve the returns of taxpayers who are blameless.
[4]
Initially,
the Minister attempted to appeal this decision by filing a notice of appeal
that was not served on the respondent. Since, according to the Federal
Courts Rules, a notice of appeal cannot be filed before having been served,
a registry officer referred the notice of appeal to the motions judge. On
August 19, 2008, Justice Pelletier issued the following direction:
[translation]
The Income
Tax Act contains no provision authorizing the filing of an ex parte
notice of appeal. The Federal Courts Rules contain some provisions
dealing with motions filed ex parte, Rule 361 for example, but there is
nothing in the Rules or the Federal Courts Act that authorizes the
filing of an ex parte notice of appeal. Such a notice of appeal cannot
be filed without prior authorization through a Court order made further to a
motion that can itself be filed ex parte.
The terms of the direction granted the Minster a 30-day time
limit to request, by ex parte motion, leave to pursue the appeal without
notice and seek any ancillary relief.
[5]
Counsel
for the Minister did not make use of this invitation. Instead, he chose to
pursue the appeal in accordance with the normal rules (Order dated October 27, 2008). The notice of appeal was
therefore served, the memoranda filed and argument and counter-argument
presented at the appeal hearing.
Preliminary objection
[6]
First, the
respondent argues that section 231.2 of the Act provides no right of appeal
from a decision of a Federal Court judge dismissing the Minister’s ex parte
application. Therefore, this Court has no jurisdiction to hear the Minister’s
appeal. According to the respondent, this bar would also apply if the motion
had been brought before a judge of the Superior Court.
[7]
It is true
that the only relief provided in the Act against an order made under
section 231.2 of the Act is found at subsection 231.2(5), which
entitles a third party to apply for a review of the authorization once it has
been granted. However, we must take into account section 27 of the Federal
Courts Act, which provides for a general right of appeal from any final or
interlocutory judgment of the Federal Court. In this case, the ruling by the
Federal Court judge is necessarily one of those two types of judgments.
[8]
The
respondent nonetheless submits, on the basis of the Supreme Court of Canada’s
decision in Kourtessis v. M.N.R., [1993] 2 S.C.R. 53 (Kourtessis),
that the right of appeal provided at section 27 is not applicable here. In
that case, which concerned a criminal investigation, the Supreme Court of
Canada ruled that the British Columbia Court of Appeal did not have
jurisdiction to hear an appeal from a decision of the B.C. Supreme Court
authorizing the issue of a search warrant pursuant to section 231.3 of the
Act. The dissenting judges, referring to section 27 of what was then the Federal
Court Act, had argued in support of the contrary opinion that it would be
incongruous for different rights of appeal to exist depending on whether the
motion is brought before a judge of a provincial superior court or a judge of
the Federal Court.
[9]
Justice La
Forest, writing for the majority, set aside that argument by explaining that it
would be unsafe, in the absence of argument, to take for granted that the
general right of appeal set forth at section 27 applies to a proceeding
provided in a separate statute. According to him, the minor grant of an
untypical jurisdiction in criminal matters to the Federal Court afforded a
basis to doubt that Parliament would have intended for the general right of
appeal provided at section 27 to apply in that type of case (Kourtessis,
above, at page 85).
[10]
There is
no such concern here. The case at hand concerns the Federal Court’s exercise of
its superintending power over the Minister’s actions in administering and
enforcing the Act (see, in this regard, the distinction made by the Supreme
Court of Canada in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627,
at page 641) (McKinlay Transport Ltd.). This jurisdiction is in no way
unusual or exceptional. Furthermore, the Supreme Court of Canada has since
recognized that the general right of appeal provided at section 27 applies
to an appeal arising from a separate statute unless it is expressly excluded by
that statute (Canada (Minister of Citizenship and Immigration) v. Tobiass,
[1997] 3 S.C.R. 391, at paragraph 47).
[11]
In my
view, there is no basis for calling into question the right of appeal arising
from the clear and unequivocal language of section 27 of the Federal
Courts Act. Therefore, I would dismiss the respondent’s preliminary
objection.
Procedural issue
[12]
In
addition to requesting the reversal of the decision of the Federal Court judge
to refuse to authorize the application, the Minister advanced the following
collateral issue at paragraph 13(b) of his memorandum:
[translation]
Must the
appeal of a decision dismissing an application for authorization that is heard ex
parte proceed ex parte?
[13]
As
evidenced by this appeal, nothing prevents an appeal from an ex parte
decision from proceeding in accordance with the normal rules. At the hearing, I
understood that the issue submitted to the Court was instead whether the appeal
of a decision dismissing an application for authorization filed ex parte
could proceed without notice so as to preserve the surprise effect sought by
the original application.
[14]
As Justice
Pelletier indicated in his direction, a motion can be brought before a judge of
the Court of Appeal without notice, such that there is a procedure for
submitting the issue to a judge. In the case at bar, the Minister did not
choose to make use of that opportunity. Each case is distinguishable on its
facts, and it is preferable to leave it up to the judge who hears such an
application to decide whether it is appropriate, in light of the facts
presented to him or her, to allow an appeal to be heard without notice (by way
of comparison, see the comments of the British Columbia Court of Appeal in Canada
(Deputy Minister of National Revenue – M.N.R.) v. Tioseco, 2000 BCCA 673,
at paragraph 25).
Substantive issue
[15]
In support
of the Minister’s appeal, counsel for the Minister alleges that the Federal
Court judge should have granted the requested authorization since the evidence
filed established that the two conditions provided at subsection 231.2(3) of
the Act were met:
|
231.2 …
(3) On ex parte application by the Minister, a
judge may, subject to such conditions as the judge considers appropriate,
authorize the Minister to impose on a third party a requirement under
subsection 231.2(1) relating to an unnamed person or more than one unnamed
person (in this section referred to as the “group”) where the judge is
satisfied by information on oath that
(a)
the person or group is ascertainable; and
(b)
the requirement is made to verify compliance by the person or persons
in the group with any duty or obligation under this Act.
|
231.2 […]
(3) Sur
requête ex parte du ministre, un juge peut, aux conditions qu’il
estime indiquées, autoriser le ministre à exiger d’un tiers la fourniture de
renseignements ou production de documents prévue au paragraphe (1) concernant
une personne non désignée nommément ou plus d’une personne non désignée
nommément — appelée « groupe » au présent article —, s’il est convaincu,
sur dénonciation sous serment, de ce qui suit :
a) cette
personne ou ce groupe est identifiable;
b) la
fourniture ou la production est exigée pour vérifier si cette personne ou
les personnes de ce groupe ont respecté quelque devoir ou obligation prévu
par la présente loi;
|
[Minister’s emphasis.]
[16]
According
to counsel for the Minister, the record clearly establishes that the group of
persons to whom the required information refers is ascertainable and that the
provision of that information is necessary for the purposes of enforcing the
Act. It follows that it was the duty of the Federal Court judge to issue the
authorization; he had no discretion in the matter.
[17]
That being
said, counsel for the Minister is misreading subsection 231.2(3) of the Act. The
judge hearing an application under this provision is the one who must be
satisfied (“est convaincu” in the French text) that the required conditions are
met. Clearly, such discretion must be exercised judicially, but, where it has
been, the judge has the final say.
[18]
Contrary
to what counsel for the Minister asserts, I do not believe that the decision of
our Court in M.N.R. v. Greater Montréal Real Estate Board, 2007 FCA 346,
[2008] 3 F.C.R. 366, supports the argument he advances (Memorandum, at
paragraph 22). In that case, our Court began its analysis with the following
statement (at paragraph 5):
This
provision clearly states that the ex parte order will be made
if the person or group referred to is ascertainable and if the
information or documents are required to verify compliance with any duty or
obligation under the Act.
[Double
underlining added.]
In that case, it was not a matter of establishing whether
the judge hearing an application under subsection 231.2(3) has any
residual discretion. The dispute pertained to the contents of the two
conditions under that provision and, more specifically, to the question of
whether a “genuine and serious” inquiry remains one of the applicable
conditions. After having explained that this criterion has its origins in case
law dating from when the Act read differently, the Court ruled that it did not
apply. That was the context in which the Court explained that an authorization
“will be made” when the two conditions now found at subsection 231.2(3) are
satisfied.
[19]
It is
useful to recall that the existence of judicial discretion is essential to the
constitutional validity of this type of provision, which is comparable to a
seizure even when used in a regulatory (or even non-criminal) context (McKinlay
Transport Ltd., above, at page 642). It is this discretion,
conferred upon an independent judge, which protects individuals from the
damaging use of this kind of power and brings it in line with the requirements
of section 8 of the Canadian Charter of Rights and Freedoms (Baron v.
Canada, [1993] 1 S.C.R. 416, at page 443). In this case, the wording of
paragraph 231.2(3), according to which the judge “. . . may, subject to such
conditions as the judge considers appropriate . . .” authorize the requirement
“. . . where the judge is satisfied . . .” that the prescribed conditions are
met, leaves no doubt as to the existence of this discretion.
[20]
In the
alternative, the Minister alleges that the Federal Court judge clearly misused
his discretion. This brings into question the use that can be made of the oral
“reasons” related by counsel for the Minister and reproduced at the beginning
of this analysis (at paragraph 3).
[21]
At the
hearing, counsel for the Minister explained that he felt uneasy relying on the
words of the judge that he himself had related and are not entered in the
minutes. After being reminded by the Court that the respondent had not raised
any objection in that regard, counsel for the Minister hinted at another
problem. He explained that after having informed counsel for the Minister that
his application would be dismissed, the Federal Court judge had given him a
number of options, including that of dismissing his application with or without
reasons. Counsel for the Minister had opted for dismissal without reasons, which
explains why the reasons are not reported in the minutes.
[22]
In the
circumstances, I understand better why counsel for the Minister did not rely on
the statements he related to attack the trial judge’s exercise of discretion.
In my opinion, it would have been inappropriate to do so.
[23]
In the
absence of reasons, we can only review the case as it was made to the trial
judge by the Minister and ask ourselves whether, in light of that case, it was
open to the trial judge to exercise his discretion as he did.
[24]
The
affidavit filed in support of the application is brief. It is signed by Francis
Goulet, the Canada Revenue Agency auditor in charge of the respondent’s file.
The inquiry was part of an audit project aimed at taxi drivers. The affidavit
reveals that the respondent does business under the legal name “Service d’impôt
Bilan Enr.” and prepares tax returns for others. The inquiry revealed that the
returns of three taxi drivers prepared by the respondent between 2002 and 2006
were prepared [translation] “without
the necessary documentation and based on an estimation of earnings and
expenditures” in two cases and [translation]
“without supporting documentation on income and by estimating expenditures from
receipts” in the other case (Affidavit of Francis Goulet, at paragraphs 9, 10
and 11).
[25]
At
paragraph 13, the auditor explained having been unable to obtain the
information sought because
[translation]
[The respondent] did not send the CRA
his clients’ tax returns using the electronic filing system. I am unable to
establish the identity or number of his clients because that information is not
manually recorded in the CRA’s databases.
[26]
Lastly,
the auditor explained that once the information is obtained, he will be able to
conduct the necessary audits on the respondent’s clients and determine, if
applicable, the assessments and penalties that are required (idem. at
paragraph 14).
[27]
What is
astounding, in reading this affidavit, is that it does not provide the judge
with a single piece of information regarding the requirement to provide
information that he is being asked to authorize. Accepting that the number of
individuals affected by the requirement is unknown, the auditor in charge of
the respondent’s file still has knowledge of the respondent’s business. In that
respect, no reference is made to the respondent’s tax returns or to the
information likely to be found therein about his business, including the amount
of income from the business. I must observe that the affidavit filed in support
of the requirement does not point to any suspicion of inaccuracy in the
information appearing on the respondents’ tax returns.
[28]
The
affidavit also seems incomplete in another respect. Normally, the name of a
professional who prepares a tax return on behalf of another person must appear
on the return. That is part of the required information. The affidavit is
silent on the subject. I clarify, in that respect, that nowhere is it stated in
the affidavit that the required information is not available, but indeed that
such information is not manually recorded in the databases (see
paragraph 13, quoted at paragraph 25, above). This implies, without
it being possible to know for certain, that the required information could be
obtained other than by a requirement to provide information.
[29]
The fact
that it may be possible to obtain the information using other means does not
exclude the possibility that a requirement might be authorized, but that is
information that must be provided to the judge. A judge must not be left in the
dark on such an important point.
[30]
In my
view, the affidavit filed in support of the requirement shows a fundamental
lack of rigour, and the Federal Court judge exercised his power appropriately
in declaring that he was not satisfied.
[31]
I would
dismiss the appeal with costs.
“Marc
Noël”
“I concur.
Alice Desjardins J.A.”
“I
agree.
Pierre Blais J.A.”
Certified true
translation
Sarah Burns
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