The Queen v. Print Three Inc., 85 DTC 5303, [1985] 2 CTC 48 (Ont CA)

MacKinnon, ACJO:—On March 19, 1985, the Honourable Mr Justice Potts granted an order quashing three search warrants purportedly issued under the authority of section 443 of the Criminal Code, RSC 1970, c C-34. The warrants authorized certain named officers of the Department of National Revenue to search the premises of the three respondents for evidence of an alleged offence contrary to section 239 of the Income Tax Act, SC 1970-71-72, c 63, as amended. He also ordered that all documents seized be returned to the respondents and awarded costs of the application to the respondents. The Attorney General of Canada appeals all three aspects of the order.

The basis for the learned judge’s order was his conclusion that section 443 of the Criminal Code was not available in respect of offences contrary to the Income Tax Act because that Act contains, in its subsection 231(4), a complete code of search and seizure. He pointed out that subsection 27(2) of the Interpretation Act, RSC 1970, c 1-23 states that all provisions of the Criminal Code relating to indictable and summary conviction offences apply to all offences created by statute "except to the extent that the enactment otherwise provides". As noted, he held that the Income Tax Act did "otherwise provide” and therefore section 443 of the Criminal Code could not be used to secure search warrants with relation to alleged breaches of the Income Tax Act. Section 443, of course, sets out the conditions necessary to the granting of a search warrant by a justice of the peace.

Subsections 231(4) and (5) of the Income Tax Act read:

(4) Search. Where the Minister has reasonable and probable grounds to believe that a violation of this Act or a regulation has been committed or is likely to be committed, he may, with the approval of a judge of a superior or county court, which approval the judge is hereby empowered to give on ex parte application, authorize in writing any officer of the Department of National Revenue, together with such members of the Royal Canadian Canadian Mounted Police or other peace officers as he calls on to assist him and such other persons as may be named therein, to enter and search, if necessary by force, any building, receptacle or place for documents, books, records, papers or things that may afford evidence as to the violation of any provision of this Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings.

(5) An application to a judge under subsection (4) shall be supported by evidence on oath establishing the facts upon which the application is based.

It was argued before the learned Motions Court judge by counsel for the Attorney General of Canada, in a rare turnaround, that subsection 231(4) was of no force and effect in that it was in breach of section 8 of the Canadian Charter of Rights and Freedoms and in support of his position he relied on two judgments of the Federal Court of Appeal.

Section 8 of the Charter reads:

Everyone has the right to be secure against unreasonable search and seizure.

In MNR et al v Kruger Inc et al, [1984] CTC 506 at 512; 84 DTC 6478 at 6483, Pratte, J, speaking for the majority of the Federal Court of Appeal, said:

I would be ready to concede that, in certain circumstances, the fact that a taxpayer has committed a serious offence under the Income Tax Act may justify the inference that he probably also committed other offences under the Act. However, I cannot accept the general proposition that the mere fact that a taxpayer has, at a particular time, committed an offence under the Income Tax Act or the Regulations, however trifling that offence, affords sufficient justification for the general power of search and seizure conferred by subsection 231(4). In my view, that subsection violates section 8 of the Constitution Act, 1982 in that it contravenes the right of the taxpayer “to be secure against unreasonable search or seizure/’

This position was affirmed by the Federal Court of Appeal in Vespoli et al v The Queen et al, [1984] CTC 519; 84 DTC 6489.

In reviewing these authorities, the Motions Court judge concluded that there seemed to be an inherent conflict in the reasons of the Federal Court of Appeal and that the Court had gone too far in holding the whole of subsection 231(4) to be of no force and effect. He was of the view that subsection 231(4) could be “read down"' and, if so, it did not violate section 8 “insofar as it gives the Minister, when he has valid grounds for believing that an offence has been committed by a taxpayer, the power to authorize a search and seizure/'

It is of some interest, if not significance, to note that the Crown has not sought leave to appeal the two decisions of the Federal Court of Appeal, and is content to accept the determination that subsection 231(4) is no longer of any force or effect.

We are all of the view that subsection 231(4) cannot be severed into good and bad parts, constitutionally speaking, and that the Motions Court judge erred in holding its constitutional validity could be sustained by a reading down — a form of severance in this case. It is agreed by all counsel that the section, in authorizing entry into any building to search for all documents that may afford evidence “‘as to the violation of any provision of this Act or a regulation”, is so wide and unrestrained as to breach section 8. However, it is argued that the section can be read so as to provide that where the Minister has reasonable and probable grounds to believe there has been a violation of the Act, he may, with the approval of a judge, enter and search for documents affording evidence of that violation. However, the section is not cast in those terms and the provisions are so intertwined it would require a re-writing of the subsection and, of course, a similar re-writing of subsection (5). As Dickson, CJC said in Hunter et al v Southam Inc (1984), 14 CCC (3d) 97 at 115: “It should not fall to the courts to fill in the details that will render legislative lacunae constitutional/'

In our view, there are additional reasons to those relied upon by the Federal Court of Appeal for holding the subsection to be in breach of section 8. It is clear that to meet the standards of reasonableness there must first be an independent arbiter (judge) who is satisfied that there are reasonable grounds for believing that an offence has been committed (see Hunter et al v Southam Inc, supra). In subsections 231(4) and (5), it is the Minister who has to have the reasonable and probable grounds and there is no standard or conditions precedent set out for the judge on which to base his assessment of whether the Minister's belief is properly founded. Mr Kelly argued that the only reasonable construction of subsection (5) is that facts must be laid before the judge so he can be satisfied that the Minister has reasonable and probable grounds. Even if the subsection could be so construed, there are, as we have noted, additional flaws in subsections 231(4) and (5). There is no requirement that the Minister have grounds to believe that evidence is likely to be found at the place of the search and there is no requirement that he present such grounds to the judge. There is, equally, no direction as to what is to be issued by the judge in granting his “approval”. It is the Minister who issues what is, in essence, the warrant. Finally, the Minister is not required in the authorization to specify the things to be searched for.

It is clear, in our view, that subsection 231(4) is in breach of section 8 and there is no code of search and seizure in the Income Tax Act. Resort, accordingly, may be had to the search and seizure provisions of the Criminal Code (R v Rao (1984), 12 CCC (3d) 97).

Counsel for the respondents had a secondary position if he lost on the ground relied upon by the Motions Court judge. He submitted that the search warrants that were issued under the Criminal Code in the instant case lacked the necessary specificity required by section 443 and by the authorities. He argued that the search warrants were drawn in such broad terms that they breached the respondents' rights to be safe from unreasonable search and seizure guaranteed by section 8 of the Charter. His position was that, as the income tax inspector had already conducted an exhaustive investigation of the respondents’ records and referred to three instances of possible breaches of the Income Tax Act in the informations, the warrants should have been limited to the few documents relating to those breaches.

The offence referred to in the informations and warrants may be summarized as follows:

[The respondent] . . . has committed an offence as defined by Section 239 of the Income Tax Act by making false or deceptive statements in the T2 returns of income filed by [the respondent] for the taxation years 1981, 1982 and 1983, that is by falsely claiming as deductions from income, certain expenses and certain amounts of capital cost allowance.

Mr Kelly argues forcefully that the offence is limited to the three claims for deductions referred to in the information. We do not believe the offence described is so limited. The offence is the making of false statements for specific years and there is no evidence that all the records were thoroughly examined by the income tax inspector, much less seen. There is prima facie evidence, however, that there have been some fraudulent claims. Other instances of the same offence may be established and any book or record which confirms the allegation is relevant evidence.

The warrants describe distinct categories of items to be searched for depending on the specific company or individual; they are restricted to specific years; the descriptions conclude with the words “relating to or necessary for the determination of taxable income and tax payable . . ." for specific years. As counsel for the Attorney General pointed out, because of the extent and complexity of business affairs made possible by modern technology and merchandising methods, it is impossible to define with exact precision the documents sought in cases involving fraud or tax evasion. Zuber, JA pointed out in Re Lubell and The Queen (1973), 11 CCC (2d) 188 at 189:

The second ground upon which it is moved to quash both search warrants is that the materials sought to be found at the premises are too vaguely described. I think one has to remember that at this stage the authorities are still at an investigative stage in their procedure and by virtue of that fact are likely not able to name the things for which they are looking with precision. A search warrant is not intended to be a carte blanche, but at the same time the applicants must be afforded a reasonable latitude in describing the things that they have reasonable ground to believe they might find.

In our view, having regard to the nature of the offence, there is sufficient specificity and particularity in the warrants, and they do not, in that regard, breach section 8 of the Charter. Any necessary inferences could be properly drawn by the justice of the peace from the informations and there was no jurisdictional error that would warrant certiorari.

In view of our conclusion, it is not necessary to deal with the argument for the return of documents and the issue of costs.

The appeal is allowed, the order of Potts, J set aside, and the application brought by the respondents is dismissed.

Appeal allowed.