Cleaver and Walkinshaw Ltd. v. R., 87 DTC 5055, [1987] 1 CTC 200 (BCSC)

Macdonald, J.:—The petitioners apply to quash two search warrants issued November 19, 1985 and November 21, 1985 allowing searches of the offices of their solicitors and the record storage facilities of their solicitors for the purpose of finding evidence relating to the alleged commission of offences against the Income Tax Act. Those warrants were issued by a judge of this court and thus the law applicable to the review by a superior court of the exercise of discretion by a court below must be applied with caution.

In an earlier application in this matter, my brother McKenzie considered the “threshold question” of whether a second judge of this Court is free to review a search warrant issued by another judge. He concluded that the answer to that question is provided by Wilson v. The Queen, [1983] 2 S.C.R. 594; 4 D.L.R. (4th) 577, where it was held, in connection with the review of a wiretap authorization, that:

(1) A second judge has the power to discharge or dissolve the ex parte order of another judge of the same court.

(2) Except in special circumstances (such as where he acts by consent, or by leave of the first judge, or where the first judge is not available) the second judge should not exercise that power.

(3) If the second judge does hear the matter, he should do so de novo as to both the law and facts involved.

(4) The reviewing judge must not substitute his discretion for that of the authorizing judge. Only if the facts proved on the review are found to be different from those upon which the authorization was granted should the authorization be disturbed.

Presumably, the “difference" in the facts must be a material difference which would or might have weighed against the issuance of the authorization and which, in the opinion of the second judge, is of sufficient weight when considered together with all the other facts to satisfy the second judge that the first judge would have made a different order had those additional facts been before him on the ex parte application.

As McKenzie, J. stated on the earlier application before him:

a second judge, when sitting in the place of the issuing judge, (ought) to be free to entertain the thoughts which the first judge would have entertained as second thoughts upon hearing an ample and two-sided argument replete with authorities, an experience denied to the first judge on the ex parte application.

I propose to consider the application before me on the basis outlined above.

The earlier application before McKenzie, J. involved the request of the petitioners that they have leave to cross-examine the individual who swore the 21-page Information on the basis of which the warrants in question here were issued. That order was made on February 7, 1986. I have had the benefit of the transcript of that cross-examination.

The questions of solicitor and client privilege which are raised in every search and seizure involving the offices of solicitors, and in this petition, were not argued before me. Those questions are reserved for future disposition.

The main attack of the petitioners on the two warrants issued in respect of their solicitors is based upon their assertion that the Information was deficient in failing to inform the issuing judge as to:

(a) Whether or not a reasonable alternative source of obtaining the evidence and information was available; and

(b) If available, that reasonable steps had been taken to obtain it from the alternative source.

In Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860; 141 D.L.R. (3d) 590 (S.C.C.), Lamer, J., in writing for the Court, held that:

(1) searches are both a means of gathering evidence and an investigative tool;

(2) because searches are an exception to common law rights, they must be strictly controlled by judicial discretion;

(3) there are places, such as a lawyer's office, for which authorization to search should generally be granted only with reticence, and, where necessary, only subject to conditions.

Lamer, J. then referred with approval to Pacific Press Ltd. v. The Queen, [1977] 5 W.W.R. 507 (B.C.C.A.), a situation involving freedom of the press. In that case, Nemetz, C.J. quashed the search warrant because there was no information before the Justice of the Peace to show:

(a) whether a reasonable alternative source of obtaining the information was available, and

(b) if available, that reasonable steps had been taken to obtain it from that source.

Lamer, J. applied those same requirements to a situation involving the right of a lawyer’s client to confidentiality.

The Information in this case attempted to meet that requirement directly by including paragraph 24, which reads:

24. Based on the experience of the Informant as an auditor and investigator with the Department of National Revenue, Taxation, the informant has reasonable and probable grounds to believe and does believe that originals of the information referred to in paragraph 22 above cannot be obtained elsewhere. [My emphasis.]

The argument of the petitioners on this application was tied closely to the use of the word “originals" in paragraph 24. Yet, an examination of paragraph 22 makes it clear that many of the documents sought to be seized were copies. The use of the word “originals" was unfortunate. If the position of the respondent, Her Majesty the Queen, depended solely upon the averment in paragraph 24 of the Information, this application would succeed.

However, the Information is a lengthy and detailed one, and after reviewing it and the cross-examination of the Informant thereon, I have concluded that it does provide “reasonable information . . . to entitle (the issuing judge) to judicially decide whether such warrant should issue or not”, with specific reference to alternative sources and steps taken to obtain the information therefrom. I find myself able to reach that conclusion without placing any reliance upon the opinion of the Informant expressed in paragraph 24.

Furthermore, the cross-examination of the Informant does not produce any material difference from the facts disclosed by the Information. Admittedly, that cross-examination is an amplification and clarification of the Information, but it does not add any material fact which would, in my opinion, have led to a different result on the initial ex parte application.

The Information discloses the efforts made by the Informant during April and May 1985 to obtain information through the principals of the corporate petitioners (Cleaver and Walkinshaw) and their British Columbia chartered accountant. The investigation involved the records of an off-shore company (the petitioner Cleaver and Walkinshaw International Limited). That company had its registered office in London, England. Its business office was in Switzerland. The chartered accountant in British Columbia had forwarded “all of his records and documents pertaining to CWIL" to its accountants in London, England. Letters from the British Columbia accountants to the English accountants and the Swiss business office requesting the information sought by these search warrants produced no response, despite a six-month wait.

The solicitors had advised on and arranged for the incorporation of the off-shore company. There is no suggestion here of any wrongdoing by the solicitors or the British Columbia accountant. Searches were made of the corporate documents on file in London, England for CWIL and at the records office of the other corporate petitioners in British Columbia. On the basis of the Information as it stood at the time of the ex parte application, as a result of which the two search warrants involving the solicitors were issued, I am of the view that those warrants were properly issued.

Question of privilege were protected and preserved by the special conditions attached to each warrant, and those questions remain to be argued. The Informant had investigated alternative sources and taken reasonable steps to obtain the information therefrom. Those alternatives and the steps taken are disclosed by the Information. The Informant had exhausted his prospects of getting the information from the petitioners voluntarily.

I reject the suggestion of the petitioners that the Informant was obliged to go to Europe to make personal demands for the information before applying for these search warrants. The British Columbia chartered accountant was much more likely to evoke a response to such a request than was the Informant. The unpopularity of foreign taxing statutes, particularly in Switzerland, is notorious. I also reject suggestions of the necessity for further demands on the principals or the British Columbia accountant and the setting of deadlines for production of the information by them. Where the alternative source of the information is, in effect, the taxpayer himself, some care must be exercised in not frightening off the quarry. For that same reason, I am not prepared to entertain the suggestion that these two search warrants involving the solicitors should only have been issued after the results of a search warrant involving the records of the British Columbia chartered accountant had been ascertained. A separate search warrant was issued with respect to the offices of the British Columbia accountant on the same date as the first warrant in issue on this application.

My freedom to set aside the ex parte order of another judge of this Court under the reasoning in Wilson v. The Queen (supra) is not as limited as might be the case if ! were considering a search warrant issued by a Justice of the Peace, where the applicant may have to establish something in the nature of a fraud on the issuing justice (see R. v. Church of Scientology (No.

5) (1985), 18 C.C.C. (3d) 244 (Ont. H.C.)). Despite the de novo approach which II have taken, I am not prepared to reach a different conclusion than did the first judge of this court on the original ex parte application.

As an alternative argument, the petitioners attack the two search warrants issued in respect of the solicitors on the grounds that the list of documents to be searched for are not sufficiently particular and afford a carte blanche to the seizing officer (see Lubell v. The Queen (1973), 11 C.C.C. (2d) 188 (Ont. S.C.) at 189). That argument is effectively countered by the submission on behalf of Her Majesty the Queen that the real complaint of the petitioners is not particularity but scope. I accept the submission of the respondent that there is no problem on the wording of the search warrants here in determining what is to be seized thereunder.

This is not a case such as Re Dobney Holdings v. The Queen (1985), 18 C.C.C. (3d) 238 (B.C.C.A.) where documents relating to “‘the corporate strategies” of the company in question or "the financial state of (the company) and its affiliates” were held to be too broad. On the contrary, this case is closer to The Queen v. Print Three Inc., [1985] 2 C.T.C. 48; 47 C.R.

(3d) 91 (O.C.A.), the only decision involving a seizure of documents for income tax purposes which was referred to on this application. In Print Three Inc., it was argued that the search warrants lacked the necessary specificity and that they should have been limited to the few documents related to the specific breaches of the Income Tax Act alleged in the Information.

However, the offence referred to in the Print Three Inc. Information was "making false and deceptive statements in returns . . . for the taxation years 1981, 1982 and 1983 ... by falsely claiming as deductions . . . certain expenses”. The alleged offence here is almost identical. The court states in Print Three Inc., at 51 (C.R. 95):

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, J. pointed out in Re Lubell and The Queen (1973), 11 C.C.C. (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.

Those comments apply with equal force to the case at bar.

In the result, this petition is dismissed in so far as it relates to the search warrants issued on November 19 and 21, 1985 in respect of Barbeau, McKercher, Collingwood and Facs Filing and Computer Specialists Ltd., save and except as to the questions of solicitor and client privilege which remain outstanding. The costs of this application and of the preliminary application for cross-examination on the Information heard before McKenzie, J. on January 9, 1986 should follow the event of this application, but in the light of the outstanding privilege issue there will be liberty to apply in that regard.

Order accordingly.