Date: 20070918
Docket: T-2124-06
Citation: 2007 FC 930
Toronto, Ontario, September 18,
2007
PRESENT: The Honourable Mr. Justice Hughes
BETWEEN:
eBAY
CANADA LIMITED and eBAY CS VANCOUVER INC.
Applicants
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND PARTIAL
JUDGMENT
[1]
This
is an application for review of an Order which I issued ex parte on
November 6, 2006, in Court file No. T-1868-06 under the provisions of section
231.2 of the Income Tax Act R.S.C. 1985, C-1 (5th Supp.). That
Order was directed against the Applicants eBay Canada Limited and eBay CS
Vancouver Inc. and required, inter alia, that they provide to the
Respondent Minister of National Revenue:
“…the following information
and documents for any person having a Canadian address according to your
records (including individual, corporation and joint venture) who qualified for
the PowerSeller status under eBay’s PowerSeller program in Canada at any time
during the two calendar years 2004 and 2005:
a) account information
– full name, user id, mailing address, billing address, telephone number, fax
number and email address; and
b) merchandise sales
information – gross annual sales
Original documents in their
original forms are required. Photocopies of information or documents will not
be sufficient. Where these records exist in electronic format, I require that
the records be provided in electronically readable format.
[2]
Subsection
231.2(5) of the Income Tax Act provides that the Applicants may apply to
the Judge who granted the Order, for a review of that Order, which they have
done. Subsection 231.2(6) provides that I may, on this review, amend or vary
that Order. I am assisted in this review with further evidence provided by the
parties.
eBay
[3]
The
Applicants eBay Canada Limited (eBay Canada) and eBay CS Vancouver
Limited (eBay Vancouver) against
whom the ex parte Order was directed are part of a larger eBay
organization. eBay Inc., a United States corporation with
facilities including computer servers located in that country, is apparently
the ultimate parent organization. eBay AG, a Swiss entity with its operations
located in that country, is a wholly owned subsidiary of eBay Inc. eBay Canada is a wholly
owned subsidiary of eBay AG. eBay Vancouver is a wholly owned subsidiary
of eBay Inc.
[4]
The
eBay community as it sometimes describes itself in its Memorandum of Argument
(and I will refer to this community generally as just eBay), claims to be the
world’s largest online marketplace which includes hundreds of millions of
registered members around the world. An individual member who wishes to sell
an item through eBay posts information respecting that item on one of eBay’s
websites whereby other members place bids to purchase that item over a fixed
period of time or buy the item immediately. The sale and transfer occurs
between buyer and seller directly. eBay does not enter the transaction. eBay’s
activities appear to be limited to providing a marketplace for such
transactions and to the advertisement and promotion of such marketplace. eBay
receives fees based on initial placement of the item, the value of the final sale
and an optional promotion fee.
[5]
Outside
the United
States,
eBay’s activities are largely conducted by eBay AG. With respect to Canada,
eBay AG provides among other things a website platform directed at the Canada market and a
website identified by the domain name eBay.ca. Members may conduct
transactions including advertising items for sale and purchasing those items
through that website. The exact “ownership” the domain name “eBay.ca” is not
clear on the record, however it is clear that eBay Canada is a lawful user of
that domain name though a scheme administered by the Canadian Internet
Registration Authority (CIRA).
[6]
The
physical location of the computer servers that host the eBay.ca website is
outside Canada. No
computer server is located in Canada.
[7]
It
appears that the principal and perhaps only function of eBay Canada is to
provide marketing assistance, market research and administrative services to
eBay AG. All billing and banking operations respecting those using the eBay.ca
website is done by eBay AG. eBay Canada apparently does not involve
itself in receipt of payments from users, nor in billing or debt collection.
[8]
Any
information respecting users’ sales transactions and the like is stored on the
computer servers located in the United States apparently under the control
of eBay Inc. That information is not “owned” or controlled by eBay Canada, however
eBay Canada appears to have
had the ability to access and avail itself of at least some of that
information.
Power
Sellers
[9]
eBay,
as part of its promotional activities respecting its marketplace, has
instituted a concept of “PowerSellers”. Persons who have, over a certain
period of time, sold items totalling in value an amount over a certain level
and are essentially free from complaints, are recognized by eBay as
“PowerSellers”. There are apparently five levels of such “PowerSellers”
depending on levels of sales from US $1000 to US $150,000 per month. Certain
benefits are afforded to PowerSellers by eBay. The PowerSeller program is
displayed with pertinent information on the eBay.ca website. Reference is made
to “the Canadian program” as well as a “US program” and
to “eBay’s international sites (which) have PowerSeller programs”.
[10]
There
is in evidence a printout from the eBay.ca website which addresses PowerSellers.
Under “Frequently Asked Questions”, there is the following question posed:
“12. The country where I
live does not have an eBay site. Can I join the Canadian Program?”
to which the following answer
is given:
No. However, the users who
reside in countries that do not have an eBay site should be able to join the US program. However, some
benefits may not apply to you due to geographic restrictions. When your
country has its own PowerSeller Program, you will be automatically transferred
to that program.
COMPUTERS AND INFORMATION
[11]
eBay
Canada and eBay Vancouver take the position that they do not own or possess
in Canada any information
as to PowerSellers whether Canadian or otherwise. They assert that such
information resides in computer data banks located outside Canada, largely in San Jose, California. The
ownership of that information is said to reside in eBay Inc. or eBay AG but not
in eBay Canada or eBay Vancouver. The Minister does not
take issue with the assertion that neither eBay Canada nor eBay Vancouver “own” the
information.
[12]
The
more important issue in the circumstances of this case is the ability,
particularly of eBay Canada, to access and use the information such as
that in respect of PowerSellers. It is conceded by eBay’s counsel that eBay Canada can, as a
technological matter, access that information regardless where the servers are
located. More importantly the evidence, through the cross-examination of
Banks, Country Manager of eBay Canada, is that eBay Canada in fact does
access that information and use it in the course of its business operations in Canada. To quote
from part of that cross-examination:
31. Q. Now, for
eBay Canada, is eBay Canada concerned mainly with the
Canadian users?
A. Yeah.
32. Q. They deal
with users outside of Canada, as well, or just the
Canadian users?
A. No, in
our office just Canadian users.
33. Q. Okay.
Could you go through the procedure with me as to how a person, resident in Canada, becomes, I guess, an eBay
seller?
A. eBay
seller?
34. Q. Let’s say
they go onto your website, let’s just say they go on eBay.com, to begin with,
so what happens from there?
A. Well,
if they go onto eBay, you need to register as a buyer before you can register
as a seller. You’re automatically defaulted to a Canadian registration page.
35. Q. Is that
eBay.ca
A. It’s
eBay.ca web page.
36. Q. Okay.
A. Where
you need to enter into a User Agreement with eBay AG agreeing to a bunch of
different things.
At
that point in time if you want to become a seller, you need to do a few more
things, we need some more information from you, we need a credit card on file,
and that would probably be about it.
. . .
40. Q. Okay. So
all this information that you then get from the person that was signing up to
be a seller, where would this information be stored?
A. It’s
stored on a server.
41. Q. Yes?
Where is the server located?
A. I think
the servers are located in San Jose.
42. Q. Now, but
eBay Canada would have access to that
information?
A. We do
have access to it.
43. Q. Now, I
just want to make sure I’m clear in my question, though, when you say you have
access to information, you mean you would have access to the name, the address,
whatever credit card information is there? The number of sales, perhaps, that
a person has done for the year, or the month, or however it is that you break
it down?
A. Yes, we
would have access to that.
44. Q. Okay.
Now, with respect to sending out of emails, it is eBay Canada that sends out targeted
e-mails to the Canadian community, the Canadian users?
A. When
you say it is eBay Canada that sends, what do you mean?
45. Q. Well,
let’s say you need to communicate with the Canadians who have registered with
you on your website---
A. Mm-humm
46. Q. --- how do
you do that?
A. Well,
we would decide what the appropriate message is for the segment that we’re
targeting.
47. Q. Yes?
A. We
would formulate that content, and an email would be sent to that list.
Q. Now
would you send different emails, I guess, to different segments that you’re
trying to target?
A. Yeah.
48. Q. So, i.e.,
you may have a particular type of email to your power sellers and a different
type of email to, I guess, your regular users, if I can call it that?
A. We
target – like, literally hundreds of different segments.
. . .
148. Q. So, you
would have statistics, then, in eBay Canada as to users who are exceeding a certain
sales volume, for example?
A. We have
access to the information.
[13]
From
the evidence and concessions from counsel I am satisfied that:
1. eBay
Canada and eBay Vancouver do not “own” information in
respect of PowerSellers.
2. The
information respecting “PowerSellers” is stored electronically on computer
servers located outside Canada which servers are owned or
controlled by others;
3. eBay
Canada can access this information and does so as part of its business
conducted in Canada.
ISSUES
[14]
The
fundamental issue before me is whether I should set aside or vary my ex
parte Order of November 6, 2006. The Minister proposes, and the Applicants
do not object that, if I do not set aside the Order, then it should be varied
to replace the words:
“…having a Canadian address according
to your records…”
with the words:
“…registered as having a
Canadian address…”
[15]
The
Applicants raised in oral argument but not in their written memorandum, an
argument as to the sufficiency of the evidence on the record directed to
whether the Minister was conducting a genuine and serious inquiry into the
group identified namely PowerSellers. The Applicants rely on a decision of Justice
Gauthier of this Court in Canada (MNR) v. Chambre
immobilière du Grand Montréal, 2006 FC 1069. I am advised by Counsel that
this decision is under appeal and is scheduled to be argued in the next two
months. Counsel for both sets of parties agree that I should issue my decision
in the present case while holding any further argument on this point in reserve
for argument and determination later. Given the agreement of Counsel on this
point, I will give partial judgment based on the issues argued before me,
reserving on the issue as to the sufficiency of evidence as to a genuine and
serious inquiry, but not reserving forever. I will reserve until the later of
sixty (60) days following final determination whether judicially or otherwise,
of the matter in the Federal Court of Appeal or ninety (90) days from the date
of the issuing of these Reasons whichever is earlier. At or before that time
the Applicants will be required to make an application for a fixing of the time
and place for the hearing of argument on this issue or to advise that this
reserved issue has been abandoned or settled.
I will also
reserve as to costs until Judgment has been given on all issues or the
remaining issue has been abandoned or settled.
[16]
The
issue before me is, therefore, whether section 231.2 of the Income Tax Act
permits an Order that will require a Canadian resident to provide information
to which it has access in Canada but is stored in data facilities owned by
another party located outside Canada.
I find that
in respect of that issue the answer is, at least in the circumstances of this
case, yes, for the following reasons.
REASONING
[17]
The
old maxim that taxing statutes are to be strictly construed must give way to
the modern approach in interpretation of statutes generally which is to
construe legislation reasonably, having regard to its object and purpose. To
quote from Justice Dickson in Covert v. Nova Scotia (Minister of
Finance), [1980]
2 S.C.R. 774 at 806 and 807:
In all Courts the appellants advanced a number of
propositions regarding principles of statutory construction of fiscal legislation
that require comment. It is said taxing statutes are to be strictly construed.
The Court, it is contended, can only look to the express words of the statute
and cannot explore and give effect to the intention or purpose of the Act. A
passage from the judgment of Lord Halsbury in Tennant v. Smith [[1892] A.C.
150.], at p. 154, is cited. Then it is said there is no equity in the Crown's
favour in a taxing statute. Reliance is placed on a passage from
Attorney-General v. The Earl of Selborne [[1902] 1 K.B. 388.], in which Collins
M.R. adopted this principle, at p. 396:
If
the person sought to be taxed comes within the letter of the law he must be
taxed, however great the hardship may appear to the judicial mind to be. On the
other hand, if the Crown, seeking to recover the tax, cannot bring the subject
within the letter of the law, the subject is free, however apparently within
the spirit of the law the case might otherwise appear to be.
.
. .
Fiscal legislation does not stand in a category by itself.
Persons whose conduct a statute seeks to regulate should know in advance what
it is that the statute prescribes. A court should ask--what would the words of
the statute be reasonably understood to mean by those governed by the statute?
Unnatural or artificial constructions are to be avoided.
The
correct approach, applicable to statutory construction generally, is to
construe the legislation with reasonable regard to its object and purpose and
to give it such interpretation as best ensures the attainment of such object
and purpose. The primary object of a succession duty statute, such as the
legislation under consideration, is to capture such amounts for the fiscal
coffers as the words of the statutory net can catch. No legislative intention
can be assumed other than to collect such tax as the statute imposes, no more
and no less.
[18]
I
appreciate that Justice Dickson was speaking for the minority however; these
are words of general import and instruction.
[19]
Section
231.2 of the Income Tax Act is directed to permitting the Minister to engage
in what amounts to some sort of fishing expedition. The wording of subsection
231.2(1) is very broad; it enables the Minister to require “any person” to
provide “any information”. The only constraint is that the request must be
made ‘for any purpose related to the administration or enforcement of this
Act”. It is common ground between Counsel that section 231.2 was enacted
following the decision of the Supreme Court of Canada in James Richardson
& Sons, Limited v. Canada (MNR) [1984] 1 S.C.R. 614 which held that the
previous legislation was only available to the Minister to obtain information
relevant to the tax liability of some specific person or persons if the tax
liability of such person or persons was the subject of a genuine and serious
inquiry.
[20]
Counsel
for the Applicants concedes that under the provisions of section 231.2 of the Income
Tax Act as they now stand, if the information at issue in the present case
was located in the electronic memory of computer servers located in Canada, the
Applicants would be required to divulge that information. Illustrative of this
circumstance is the case of R. v. Spencer, [1985] 2 S.C.R. 278 where a
bank manager located in Canada had in his memory recollection of certain
transactions conducted by a Canadian taxpayer in the Bahamas. The bank manager
was required to divulge that information lodged in his memory.
[21]
The
decision of the Prince Edward Island Court of Appeal in Pierlot (H.) v. R.,
[1994] 1 C.T.C. 134 provides a little illumination in these matters. In that
case, the taxpayer had inherited a good sum of money from Belgian sources. He
claimed that the inheritance was not subject to tax. He was required to
provide “…information that he has”. The Court commented that either the
provisions of section 231.6 or section 231.2 of the Income Tax Act could
have been used for that purpose.
[22]
The
Applicants argue that since section 231.6 makes express provision whereby the
Minister can seek information from foreign sources, section 231.2 must be read
such that it contemplates only information resident in Canada. Counsel
for the Minister argues that section 231.6 is more restrictive than section
231.2 in that section 231.6 pertains only to information as to a particular
taxpayer in question whereas section 231.2 pertains to “any information” and to
“any person” so long as the purposes are genuinely those contemplated by the Income
Tax Act.
[23]
The
issue as to the reach of section 231.2 when information, though stored
electronically outside Canada, is available to and used by those in Canada,
must be approached from the point of view of the realities of today’s world.
Such information cannot truly be said to “reside” only in one place or be “owned”
by only one person. The reality is that the information is readily and instantaneously
available to those within the group of eBay entities in a variety of places.
It is irrelevant where the electronically-stored information is located or who
as among those entities, if any, by agreement or otherwise asserts “ownership”
of the information. It is “both here and there” to use the words of Justice
Binnie in Society of Composers, Authors and Music Publishers of Canada v.
Canadian Ass’n of Internet Providers, [2004] 2 S.C.R. 427 at paragraph 59.
It is instructive to review his reasons, for the Court, at paragraphs 57 to 63
in dealing with whether jurisdiction may be exercised in Canada respecting
certain Internet communications, including an important reference to Libman
v. The Queen, [1985] 2 S.C.R. 178 and the concept of a “real and substantial link”.
57 The
applicability of our Copyright Act to communications that have international
participants will depend on whether there is a sufficient connection between
this country and the communication in question for Canada to apply its law
consistent with the "principles of order and fairness ... that ensure
security of [cross-border] transactions with justice"; see Morguard
Investments, supra, at p. 1097; see also Unifund Assurance Co. v. Insurance
Corp. of British Columbia, [2003] 2 S.C.R. 63, 2003 SCC 40, at para. 56; Sullivan and Driedger [page455]
on the Construction of Statutes (4th ed. 2002), at pp. 601-2.
58 Helpful
guidance on the jurisdictional point is offered by La Forest J. in Libman v.
The Queen, [1985] 2 S.C.R. 178. That case involved a fraudulent stock
scheme. U.S. purchasers were solicited by telephone from Toronto, and their
investment monies (which the Toronto
accused caused to be routed through Central America) wound up in Canada.
The accused contended that the crime, if any, had occurred in the United
States, but La Forest J. took the view that "[t]his kind of thinking has,
perhaps not altogether fairly, given rise to the reproach that a lawyer is a
person who can look at a thing connected with another as not being so connected.
For everyone knows that the transaction in the present case is both here and
there" (p. 208 (emphasis added)). Speaking for the Court, he stated
the relevant territorial principle as follows (at pp. 212-13):
I might summarize my approach to the limits of
territoriality in this way. As I see it, all that is necessary to make an
offence subject to the jurisdiction of our courts is that a significant
portion of the activities constituting that offence took place in Canada.
As it is put by modern academics, it is sufficient that there be a "real
and substantial link" between an offence and this country ... . [Emphasis
added.]
59 So
also, in my view, a telecommunication from a foreign state to Canada, or a
telecommunication from Canada to a
foreign state, "is both here and there". Receipt may be no less
"significant" a connecting factor than the point of origin (not to
mention the physical location of the host server, which may be in a third
country). To the same effect, see Canada
(Human Rights Commission) v. Canadian Liberty
Net, [1998] 1 S.C.R. 626, at para. 52; Kitakufe v. Oloya, [1998] O.J. No. 2537 (QL) (Gen. Div.). In the factual
situation at issue in Citron v. Zundel, supra, for example, the fact that the
host server was located in California was scarcely conclusive in a situation
where both the content provider (Zundel) and a major part of his target
audience were located in Canada. The Zundel
case was [page456] decided on grounds related to the provisions of the Canadian
Human Rights Act, but for present purposes the object lesson of those facts is
nevertheless instructive.
60 The
"real and substantial connection" test was adopted and developed by
this Court in Morguard Investments, supra, at pp. 1108-9; Hunt v. T&N plc, [1993] 4 S.C.R. 289, at pp. 325-26 and 328; and Tolofson,
supra, at p. 1049. The test has been reaffirmed and applied more recently in
cases such as Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90, at para. 71; Spar Aerospace Ltd. v. American
Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78; Unifund, supra, at para. 54; and Beals v.
Saldanha, [2003] 3 S.C.R. 416, 2003 SCC 72. From the outset, the real and substantial
connection test has been viewed as an appropriate way to "prevent
overreaching ... and [to restrict] the exercise of jurisdiction over
extraterritorial and transnational transactions" (La Forest J. in Tolofson,
supra, at p. 1049). The test reflects the underlying reality of "the
territorial limits of law under the international legal order" and respect
for the legitimate actions of other states inherent in the principle of
international comity (Tolofson, at p. 1047). A real and substantial connection
to Canada is sufficient to support the application of
our Copyright Act to international Internet transmissions in a way that will
accord with international comity and be consistent with the objectives of order
and fairness.
61 In
terms of the Internet, relevant connecting factors would include the situs of
the content provider, the host server, the intermediaries and the end user. The
weight to be given to any particular factor will vary with the circumstances
and the nature of the dispute.
62 Canada
clearly has a significant interest in the flow of information in and out of the
country. Canada regulates the reception of broadcasting signals in Canada
wherever originated; see Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42. Our courts and tribunals regularly take
jurisdiction in matters of civil liability arising out of foreign transmissions
which are received and [page457] have their impact here; see WIC Premium
Television Ltd. v. General Instrument Corp. (2000), 8 C.P.R. (4th) 1 (Alta. C.A.); Re World Stock
Exchange (2000), 9 A.S.C.S. 658.
63 Generally
speaking, this Court has recognized, as a sufficient "connection" for
taking jurisdiction, situations where Canada is the country of transmission (Libman,
supra) or the country of reception (Liberty Net, supra). This jurisdictional
posture is consistent with international copyright practice.
[24]
In
the present case, eBay Canada has access to and uses information
respecting PowerSellers. It is not determinative of the issue that the
electronic apparatus storing the information which eBay Canada accesses is
outside Canada. The
information can be summoned up in Canada and for the usual business purposes of
eBay Canada. The
situation may be different if the information never had been used in Canada.
[25]
To
analogize to R. v. Spencer, supra, the information that the bank manager
had is summonable from his memory but it was placed in his memory through transactions
he witnessed in the Bahamas. Nonetheless, he was required to summon up the
information in Canada. Here eBay Canada has access
to and uses information stored in a computer for the very purpose of dealing
with Canadian PowerSellers. For perhaps corporate efficiency the information
is stored elsewhere, but its purpose is in respect of Canadian business. The
information is not foreign but within Canada for the purposes of
section 231.2 of the Income Tax Act.
[26]
Therefore,
I affirm my Order of November 6, 2006 amended as requested by the Minister. As
indicated other issues will be dealt with later.
PARTIAL JUDGMENT
For the Reasons
provided:
THIS COURT ADJUDGES that:
1. The
Order of this Court dated November 6, 2006 in Court File No. T-1868-06 is
affirmed
except
that the following words:
“…having
a Canadian address according to your records…”
are
varied to read:
“…registered
as having a Canadian address…”
2. The
issue as to whether the Minister has provided sufficient evidence to
demonstrate that there is a genuine and serious inquiry will be dealt with by
this Court at a time and place to be applied for and set down no later than
sixty (60) days following the final disposition by the Federal Court of Appeal
of the appeal from the decision of this Court reported at 2006 FC 1069 or other
termination of that appeal or ninety (90) days from the issuing of the Reasons
in this matter, T-2124-06 whichever is the earlier. At or before said earlier
time, the Applicants shall make such application to fix a time and place to fix
such hearing.
3. Costs
are reserved until the final Judgment in this proceeding.
“Roger T. Hughes”
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