Galligan, J:—By this application the applicants seek to challenge the constitutional validity of a demand served personally upon their lawyer pursuant to paragraph 231 (3)(b) of the Income Tax Act and of that statutory provision itself. The constitutional challenge is based upon section 8 of the Charter which protects against unreasonable search and seizure. The fundamental argument is that the effect of that provision when coupled with the provisions of subsection 232(3) of the Act is the authorization of a search and seizure which, for the reasons given by the Supreme Court of Canada in Hunter v Southam Inc (1984), 14 CCC (3d) 97, violates section 8 of the Charter.
It is not necessary to review the facts in detail. The scenario is familiar to most lawyers. On March 19, 1985, two investigators from the Department of National Revenue appeared, without prior notification or an appointment, at the office of the applicant’s solicitor and served him with a demand notice which read as follows:
Dear Sir:
Re: Robert D Joseph
Charmaine E Joseph
501 Video Limited
For purposes related to the administration or enforcement of the Income Tax Act pursuant to the provisions of paragraph 231(3)(b) of the said Act, I require from you, without delay, production of books and records as follows:
All books, letters, accounts, invoices, statements (financial or otherwise) or other documents pertaining or relating to the above-noted parties.
To comply with this requirement you should produce the books and records hereby required to the officer of this Department presenting this requirement to you.
Your attention is directed to the penalties provided in subsection 238(2) of the Income Tax Act for failure to comply with this requirement.
Yours truly,
Mr Reilly was in possession of some files relating to work he had done for the applicants over the years. He claimed that the applicants had solicitor/ client privilege respecting the documents contained in them. In compliance with subsection 232(3) of the Act, the investigators without examining or copying any documents, seized the files and their contents, sealed them and delivered them to the custody of the sheriff.
The relevant provisions of the Act are the following:
S. 231(3) The Minister may, for any purposes related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person
(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents,
within such reasonable time as may be stipulated therein.
And:
S. 232(3) Where an officer is about to examine or seize a document in the possession of a lawyer and the lawyer claims that a named client of his has a solicitor/client privilege in respect of that document, the officer shall, without examining or making copies of the document,
(a) seize the document and place it, together with any other document in respect of which the lawyer at the time makes the same claim on behalf of.the same client, in a package and suitably seal and identify the package; and
(b) place the package in the custody of the sheriff of the district or county in which the seizure was made, or, if the officer and the lawyer agree in writing upon a person to act as custodian, in the custody of such person.
When a claim is made for solicitor/client privilege the Act, by subsections 232(4) and (5), provides for a judicial determination of which of the seized documents are privileged and which are not. It is not necessary to review those legal provisions in any detail. I note in passing that by virtue of subsection 232(9) no costs may be awarded in connection with the hearing of an application to determine the privilege issue.
I emphasize that subsection 231(3) provides that the demand served pursuant to it requires production of the documents “‘within such reasonable time as may be stipulated therein". The demand in this case required their production "without delay". The words "without delay" are in their ordinary sense the meaning of the word "immediate". See Shorter Oxford Dictionary (1973), vol 1, p 1025, col 1:
Immediate ... 4. Of time: ... b. Taking effect without delay; ...
[Emphasis added.]
During the course of argument I asked counsel whether a demand which required production without delay ie immediately, was sanctioned by a statute which authorized the requirement of production within such reasonable time as may be stipulated in the demand. It had occurred to me that if Parliament had intended to authorize the requiring of immediate production it might reasonably have been expected to say so.
Mr Reilly answered that he felt that the decision of the Federal Court of Appeal in James Richardson & Sons Ltd v MNR, [1982] CTC 239; 82 DTC 6204, precluded him from attacking the validity of the demand on other than constitutional grounds. However he pointed to the words “without delay” as evidence of the unreasonableness of what he called the search and seizure. (In the course of these reasons I specifically refrain from expressing my opinion as to whether or not what transpired on March 19, 1985 constituted a search.) Mr Pinos replied that the Richardson case decided the matter and that it was determinative of the question. Both counsel indicated clear preference to have this case decided on the Charter constitutional issues rather than on the narrow issue of the legal validity of the demand. Argument proceeded on that basis.
During my reflection on this case since reserving judgment upon it I have been reminded of the comments of the Supreme Court of Canada delivered by Estey, J in Re Skapinker v The Law Society of Upper Canada (1984), 9 DLR (4th) 161 at 181:
The development of the Charter as it takes its place in our constitutional law, must necessarily be a careful process. Where issues do not compel commentary on these new Charter provisions, none should be undertaken.
Service Employees v Broadway Manor (1984), 48 O.R. (2d) 225 and Information Retailers v Metropolitan Toronto (1984), 48 O.R. (2d) 290, are decisions of the Court of Appeal and the Divisional Court respectively, to like effect. It seems therefore that the courts should only decide cases based upon Charter considerations where they are compelled to do so. Therefore, notwithstanding counsel's preference to have this case decided upon Charter considerations, it is my opinion that if the demand served on March 19, 1985 was an invalid one there would be no compelling reason to decide the Charter arguments. It would indeed be inappropriate for me to do so. I therefore intend to decide whether or not, in my opinion, the demand is legally valid.
My reading of subsection 231(3) of the Act leads me to the conclusion that in effect it entitles the Minister to production of documents upon reasonable notice. What the demand in this case does on its face is demand production without any notice.
Subsection 231(3) forms part of a scheme whereby, if production is demanded of a taxpayer's lawyer, solicitor/client privilege is protected if the lawyer claims it for his client. Often, as apparently was the case here, some or all of the files in a lawyer’s possession are inactive ones or ones that the lawyer has not had occasion to look at for weeks, months or even years. No lawyer can fairly be expected to remember immediately every document which is in the files and immediately make a considered decision about which documents are privileged and which are not. Thus, in order properly to protect the client, the lawyer must claim privilege for all of the documents in the file. This invariably leads to a subsection 232(4) application.
Those can be lengthy (one at which I recently presided lasted two or three full days), and are invariably expensive to the client because the Act prevents costs being awarded to him if his lawyer's claim of privilege turns out to be well-founded for some or all of the documents for which privilege has been claimed.
If the lawyer is given reasonable time between receipt of the demand and the time when production is required to be made, it would allow time for a considered decision about which documents ought to call for a claim of privilege and which would not. Reasonable time for a considered decision would permit a lawyer to decide to produce documents that were not privileged thereby reducing the length of the subsection 232(4) application, and the expense to the client. Perhaps, indeed, it could eliminate the need for such an application.
The scheme for protection of solicitor/client privilege, as is apparent from subsection 232(3), requires that immediately upon the claim of privilege being raised the documents must be seized, sealed and removed from the lawyer pending the subsection 232(4) application. The lawyer can only have access to the documents pending that application with leave of a judge pursuant to subsection 232(13) (and a judge with juridsiction to permit such access is not always conveniently available in all parts of Canada).
In the case of active files the consequences of such a seizure could have seriously prejudicial consequences upon the legitimate advancement of the client's affairs. For example the seizure of a litigation file from a lawyer on the eve of trial might cause grave prejudice to the client.
In the event reasonable time were given between the service of the demand and the time when production was required a lawyer could make copies of the documents for which he intended to claim privilege, so that after the seizure was made he could continue in the legitimate prosecution of his client’s affairs without being deprived of the contents of the files, or being subjected to the inconvenience of having to apply to a judge to get access to them.
If reasonable notice were given it would enable the lawyer to consult with his client and perhaps obtain instructions to waive a claim for privilege to some or all of the documents in the files, thus either eliminating the need for a subsection 232(4) application or at least reducing the length of it. Any suggestion that if notice was given certain documents or files might disappear before production was made, would amount to an unwarranted slur upon the legal profession as a whole whose members are officers of the courts of this land and who are generally honest, conscientious and responsible and do not obstruct the course of justice. Indeed, when it enacted subsection 231(3) with the knowledge that demands would be served on lawyers, Parliament in providing for reasonable time before production was required obviously assumed that members of the legal profession could be relied upon not to destroy or hide documents that they were being called upon to produce. If the Minister has reasonable grounds to believe that a particular lawyer would act improperly if given reasonable notice he has the option to try to convince a judge of that fact and obtain prior judicial approval and then search the lawyer's office pursuant to subsection 231(4).
The last paragraph of the demand draws the recipient's attention to certain penal provisions of the Act. In effect it says comply with the demand or face prosecution. It is not difficult to imagine the extent of the disruption of the lawyer's day when he was told that he must search his files and produce those of the applicants immediately or face prosecution. What if he was about to leave the office to represent a client who was due to appear in court? What if he was scheduled to be in the registry office to close a real estate transaction on behalf of a client? What if he was leaving for the hospital to have a will signed by a dying client? What of the inconvenience of clients who are waiting to see him? I cannot conceive that Parliament in enacting subsection 231(3) intended that everything must stop when the taxman arrives unannounced, that everyone's convenience is subordinate to that of the Minister and his agents. Reasonable time to comply with the requirement to produce would eliminate the disruption of the lawyer’s day and the inconvenience and potential prejudice to others.
It seems to me therefore that there are sound practical considerations that weigh against interpreting “within such reasonable time" as meaning “without delay” or “immediately" in the case of a demand served upon a taxpayer's lawyer.
The location of these provisions suggests to me that Parliament intended that the provisions of subsection 231(3) were to be used for routine nonurgent investigations. They are found immediately before provisions providing for the obtaining of prior judicial approval to search when the Minister has reasonable and probable grounds to believe that an offence has been or is likely to be committed and to seize documents which might provide evidence of that offence. I cannot imagine that Parliament intended that a subsection 231(3) demand could be used as an easy alternative to the necessity of obtaining prior judicial approval under subsection 231(4), or perhaps a search warrant under the Criminal Code if that latter remedy is legally available.
It is interesting to observe from the material filed by the respondent that the Minister in fact, well before March 19, 1985, had formed the opinion upon what he swore were reasonable and probable grounds that the applicant Robert D. Joseph had committed an offence under the Act. Upon information under oath the Minister applied for and obtained a warrant, apparently under the provisions of the Criminal Code, to search his premises (I specifically make no comment upon the legal validity of such a warrant in the light of such cases as Goodbaum v Q (1977), 38 CCC (2d) 473; Attorney General v Doe (1979), 49 CCC (2d) 533; IMP Group Limited v Q (1981), 58 CCC (2d) 510; and Coulson v Q (1979), 51 CCC (2d) 471). That warrant was executed on March 19, 1985, the day the demand under subsection 231(3) was served upon Mr Joseph's lawyer. The only conclusion that I can draw from the background and the coincidence of events is that the demand pursuant to subsection 231(3) was used in lieu of getting a judicial authorization to search under subsection 231(4) of the Act, or a warrant under the provisions of the Criminal Code to search for documents which might afford evidence of the offence which the Minister believed had been committed by Mr Joseph. I cannot accept that the justifiable wish of the Minister to find evidence of a suspected offence should lead a court to interpret the words “reasonable time” as meaning “without delay” or “immediately".
From the scheme of the Act I think I must infer that by enacting the provisions contained in subsections 231(3) and (4), and locating them one after the other, Parliament intended to give the Minister the option of obtaining prior judicial authorization and conducting a search or of requiring production of documents upon reasonable notice. If he thinks an offence has been committed and that there is a real danger that documents may disappear if he gives notice, then he has the option of trying to convince a judicial officer of that fact. If successful he can then conduct his search and if anything is found his seizure. I do not think that Parliament intended the Minister to be able to use subsection 231(3) as a half-way house of immediate production without prior judicial authorization by the transparent device of changing a statutory requirement of reasonable notice into one of no notice.
In my view a “reasonable time” is not “without delay” or “immediately”. The concepts are mutually exclusive. A reasonable time contemplates some delay. It is my opinion that a statute which authorizes a demand requiring the recipient thereof to be given a reasonable time to act, does not authorize a demand that requires the recipient to act without delay or immediately.
Before holding this demand to be void I must examine Richardson's case to see if it prevents me from so doing. In that case there are statements which at first glance appear to be authority for the legal proposition that a demand to produce without delay is validly authorized by a statute requiring production within a reasonable time. However after examining the reasons for judgment in that case I am convinced that the Court made no such general pronouncement and that the case is one that turned on its own peculiar facts and lays down no general proposition of law respecting the validity of demands made pursuant to subsection 231(3).
Richardson is a Winnipeg broker. There had been correspondence and discussions during the years 1976 through 1980 between the Minister and Richardson concerning a certain income tax compliance project. The project involved computer access by the Minister to certain commodity trading records of Richardson's clients. The negotiations between the parties and indeed the various activities respecting the project were extensive but they need not be reviewed in any detail.
On December 21, 1979 the Minister wrote to Richardson confirming an earlier telephone explanation of certain requests by the Minister and requesting the production of certain documentation. On February 25, 1980, Richardson's solicitors wrote to the Minister and expressed their legal opinion that Richardson was not obliged to produce the documents which had been requested. On May 8, 1980 the Minister served a demand to produce the documents “without delay”.
In the context of that factual background it is not surprising that the Court gave short shrift to an argument that the demand was defective because it did not specify a reasonable time in which to comply with it. Richardson in fact had had almost five months' notice of the precise documents of which production was required. Indeed the Court held that the stipulation of compliance “without delay” must be seen in the light of the fact that Richrdson had been on notice of the Minister's requirement from Decmber 1979 until the time of the demand in May of 1980. The facts bear not the slightest resemblance to those of this case.
Nowhere in that case do I find support for a general proposition that “without delay” is a “reasonable time”. Thus I do not think that the decision in Richardson's case is any bar to my holding that the demand in this case is void.
It is my opinion that the demand served upon the applicant's lawyer requiring production without delay was not lawfully authorized by the statutory provision which authorized a demand for production within a reasona- ble time. What is a reasonable time will vary depending upon the circumstances. In the case of lawyers, having regard to their need to review files in order to make considered decisions about whether or not to claim privilege for documents in their files, their right to consult their clients to see whether privilege might be waived, their right to make copies of privileged documents so that their files are not stripped, and their right to arrange their schedules so that the legitimate conduct of the affairs of their clients is not disrupted by the making of production, I cannot imagine holding a period of less than seven to ten days to be reasonable notice. Whatever the period may be, it is certainly greater than no time at all.
An order will therefore issue declaring that the demand dated March 19, 1985 directed to Murray W Reilly was made without statutory authority and is null, void and of no legal effect, as is the seizure under subsection 232(3) which was made pursuant to it. The order will direct the custodian to return all of the files in his possession pursuant to that seizure to Murray W Reilly forthwith.
Having regard to my finding respecting the validity of the demand served upon Mr Reilly no Charter issue arises and therefore it would be inappropriate for me to make any comment about the Charter arguments that were addressed to me.
The applicants shall have their costs of the application forthwith after taxation.
Application granted.
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