Morden, JA:—The Attorney General of Canada on behalf of the Minister of National Revenue appeals, and Usarco Limited cross-appeals, from an order of Mr Justice Linden made on August 21, 1979 quashing, in part, an order of His Honour Judge Scime under subsection 231(2) of the Income Tax Act, RSC 1952 as enacted by SC 1970-71-72, c 63, section 1. Paragraphs 231(1)(a) and (d) (to which subsection 231(2) relates) and subsection 231(2) read:
(1) Any person thereunto authorized by the Minister, for any purpose related to the administration or enforcement of this Act, may, at all reasonable times, enter into any premises or place where any business is carried on or any property is kept or anything is done in connection with any business or any books or records are or should be kept, and
(a) audit or examine the books and records and any account, voucher, letter, telegram or other document which relates or may relate to the information that is or should be in the books or records or the amount of tax payable under this Act,
(d) if, during the course of an audit or examination, it appears to him that there has been a violation of this Act or a regulation, seize and take away any of the documents, books, records, papers or things that may be required as evidence as to the violation of any provision of this Act or a regulation.
(2) The Minister shall,
(a) within 120 days from the date of seizure of any documents, books, records, papers or things pursuant to paragraph (1)(d), or
(b) if within that time an application is made under this subsection that is, after the expiration of that time, rejected, then forthwith upon the disposition of the application,
return the documents, books, records, papers or things to the person from whom they were seized unless a judge of a superior court or county court, on application made by or on behalf of the Minister, supported by evidence on oath establishing that the Minister had reasonable and probable grounds to believe that there has been a violation of this Act or a regulation and that the seized documents, books, records, papers or things are or may be required as evidence in relation thereto, orders that they be retained by the Miniser until they are produced in any court proceedings, which order the judge is hereby empowered to give on ex parte application.
The history of this matter is as follows. On May 24 and June 27, 1977 the documents involved in this application were voluntarily delivered by the Comptroller of Usarco Limited to officials of the Department of National Revenue after they had been briefly examined on Usarco’s premises by these officials or one of them. The fact that they had been briefly examined is not expressly stated in the material but it may be inferred therefrom, and counsel for Usarco fairly stated during his submission that the documents “had been seen on our premises.’’
On December 14, 1977 the documents were returned to Usarco by the Department. Immediately upon their return they were seized by the Department, purportedly under paragraph 231 (1)(d).
On or about March 16, 1978 J R Giles, Director-Taxation, Hamilton District Office of the Department, applied to Judge Scime for a retention order respecting the documents. Judge Scime made the order sought on March 17, 1978. It was typed on the face of the application. The complete document reads:
A PPLICA TION
ON BEHALF OF the Minister of National Revenue, I, J R Giles, Director- Taxation, Hamilton District Office, of the Department of National Revenue, Taxation, hereby apply for an order that the documents, books, records, papers or things, seized on the 14th day of December, 1977, under the authority of the provisions of paragraph 231 (1 )(d) of the Income Tax Act from the premises of USARCO LIMITED at 363 Wellington Street North, Hamilton, Ontario, be returned by the Minister of National Revenue until they are produced in any court proceedings.
IN SUPPORT OF this Application, I produce the Affidavit of Donald D Banks sworn the 14th day of March, 1978, which in my opinion establishes that the Minister of National Revenue has reasonable and probable grounds to believe that there have been violations of the Income Tax Act or a Regulation thereto and that the seized documents, books, records, papers or things are or may be required in relation to proceedings against the said USARCO LIMITED
DATED AT Hamilton, Ontario this 16th day of March, 1978.
“J Ft Giles"
Director-Taxation,
Hamilton District Office
OPDEP
I HEREBY ORDER THAT the documents, books, records, papers or things referred to in the above application made on behalf of the Minister of National Revenue be retained by him until they are produced in any court proceedings. DATED AT Hamilton, Ontario, this 17th day of March, 1978.
“J C Scime"
Judge of the Judicial
District of Hamilton-Wentworth
In his affidavit, referred to in the application, Donald D Banks, after deposing that as an officer of the Department he had inquired into the financial affairs of Usarco Limited and had examined its books and records and T-2 income tax returns for the taxation years 1972, 1973,1974 and 1975, further deposed:
9. Also in the course of my enquiries, I have conferred with Mr Ted Lambersky, Secretary Treasurer of Parkway Iron and Metal Company Limited, Toronto, Ontario, and I have examined the records of the said Parkway Iron and Metal Company Limited for the calendar years 1972, 1973, 1974 and 1975.
6. During the course of my enquiries, the said Ted Lambersky stated that he and Harvey Zinberg, president of Parkway Iron and Metal Company Limited and Judson Knox, manager of the Metal Recovery Division of Usarco Limited entered into an agreement whereby:
(a) Judson Knox caused Usarco Limited to issue a payment to Parkway Iron and Metal Company Limited allegedly for the purchase of non-ferrous metal whereas no such metal had been delivered or sold by Parkway Iron and Metal Company Limited to Usarco Limited.
(b) Ted Lambersky negotiated the cheque issued by Usarco Limited to Parkway Iron and Metal Company Limited at the bank branch regularly used by Parkway Iron and Metal Company Limited and obtained an equivalent amount of currency.
(c) Ted Lambersky kept one-third of the said amount of currency and delivered one-third of the said amount of currency to the said Harvey Zinberg and the said Judson Knox.
7. Also during the course of my enquiries, the said Ted Lambersky identified one hundred and eleven false transaction, as described in paragraph 6 of this my Affidavit, which occurred during the calendar years 1972 to 1975 inclusive as follows:
| No of False | Amount of False |
Year | transactions | transactions |
1972 | 19 | $ 47,643.00 |
1973 | 47 | 160,706.98 |
1974 | 30 | 123,828.25 |
1975 | 15 | 41,129.95 |
TOTAL | 111 | $373,308.18 |
8. In the course of my examination of the books and records and T2 income tax returns of the said Usarco Limited, I determined that all of the one hundred and eleven false transactions in the total value of $373,308.18 as referred to in paragraph 6 and paragraph 7 of this my Affidavit were claimed as a purchase and thereby deducted from income by the said Usarco in its taxation years 1972, 1973, 1974 and 1975.
9. As a result of my enquiries, documents, books, records, papers or things were seized under paragraph 231 (1 )(d) of the Income Tax Act on December 14,1977 from the business premises of the said Usarco Limited.
10. From my experience as an officer of the Department of National Revenue, Taxation, I know that the seized documents, books, records, papers or things are needed to complete the investigation of the said Usarco Limited.
11. As a result of my enquiries and examination of the seized documents, books, records, papers or things, I have reasonable grounds to believe, and do believe, that the time required to complete the investigation will extend beyond the 120 days time limit set forth in subsection 231(2) of the Income Tax Act.
12. Further, as a result of my enquiries, I have reasonable grounds to believe, and do believe, that a violation under Section 239 of the Income Tax Act or a Regulation has been committed and the said documents, books, records, papers or things are or may be required as evidence in any subsequent criminal or civil proceedings against the said Usarco Limited.
Two affidavits of Bruce Robert Shilton, a prosecutor attached to the Department of Justice, were filed before Linden, J. They were sworn on August 2 and 9,1979. In these affidavits Mr Shilton deposed that, some time before June 28, 1979, informations were laid charging offences by Usarco Limited, Judson Knox and others. Those material to this appeal allege that Usarco and Judson Knox, between November 30, 1971 and June 1, 1976, unlawfully did:
make, assent to or acquiesce in the making of false or deceptive entries in records or books of account of the taxpayer USARCO LIMITED, to wit: the receiv- ing/recovery reports of the Metal Recovery Department contrary to Section 239(1)(c) of the Income Tax Act, RSC 1952, Chapter 148, as amended, thereby resulting in the claiming of false purchases as deductions from the income of USARCO LIMITED in the amount of $704,562 for the taxation years 1972, 1973, 1974 and 1975;
and, between the same dates,
wilfully evade payment of taxes imposed by the said Act, upon the said USARCO LIMITED to wit: by claiming false purchases as deductions from income of USARCO LIMITED in the amount of $704,562 for the taxation years 1972, 1973, 1974 and 1975, thereby evading payment of $217,818 in taxes contrary to Section 239(1)(d) of the said Act;
Mr Shilton sent copies of the information to Usarco’s solicitors on June 28, 1979.
In his first affidavit he deposed that, of the $704,562 alleged in the charges mentioned above,
.. . approximately $330,000 of these monies allegedly relate to dealings between Usarco Limited and Sam Allen and Son (sic) Inc, a United States Company, and the remainder of these monies allegedly relate to dealings between Usarco Limited and Parkway Iron and Metal Limited, a Canadian company. The prosecution will require as evidence of the offences alleged against both Usarco Limited and Judson Knox in said Counts documents of Usarco Limited and that relate to Sam Allen and Son (sic) Inc and Parkway Iron and Metal Limited and in particular the following: . . .
There follows a detailed list of cancelled cheques of Usarco Limited respecting Sam Allen and Sons, Inc, cancelled cheques of Minkin Metal Company, customs brokerage-control copies of B-3 forms for Sam Allen and Sons, Inc and Minkin Metal Company, purchase vouchers for Sam Allen and Sons, Inc and for Minkin Metal Company, cancelled cheques re Parkway Iron and Metal Limited and purchase vouchers for Parkway Iron and Metal Limited.
The exhibits filed indicate that both Sam Allen and Sons, Inc and Minkin Metal Company carry on business in the State of Michigan.
By notice of motion dated July 18, 1979 Usarco Limited moved for an order quashing Judge Scime’s order. Linden, J’s endorsed reasons are as follows:
Certiorari granted quashing the Order of Judge Scime insofar as it purported to allow retention of documents relating to anything other that the facts alleged in paragraphs 6, 7 and 8 of Bank’s Affidavit (Paroain & Collavino). These documents to be returned forthwith. As far as the documents relating to the facts in 6, 7 and 8, the material before Judge Scime is unassailable, even though the intitial taking of the documents may have been illegal or not in compliance with Section 231 (1)(d). No costs because of the delay by the Appellant.
The operative part of his formal order reads:
1. THIS COURT DOTH ORDER that certiorari be granted quashing the Order of Judge Scime insofar as it extends to documents relating to anything other than the matters set out in paragraph 6, 7 and 8 of the affidavit of Donald D Banks sworn 14 March 1978. Such documents are to be returned forthwith.
It would be well at this point to say that there is no issue concerning the amendability of subsection 231(2) order made by a County Court Judge to being quashed on an application for certiorari, if jurisdictional error is shown. Nor is there any issue that the judge making a subsection 231(2) order does so in his capacity as a judge and not as a persona designate (see MNR v Coopers & Lybrand, [1979] 1 S.C.R. 495; [1978] CTC 829; 78 DTC 6528, coming to this conclusion with respect to similar powers under subsection 231(4)) and hence that the matter was properly before Linden, J rather than the Federal Court.
It is also not in dispute, although the parties did not formulate their respective submissions in identical terms, that the judge would not have had jurisdiction to make the order if a necessary condition precedent had not been met or if there was no evidence before him upon which he could properly satisfy himself that the statutory requisites had been met. See Rex v Solloway and Mills (1930), 65 OLR 303 at 308-309.
The principal contentions made on behalf of the Attorney General are that Linden, J erred: (1) in setting aside Judge Scime’s order in so far as it related to a portion of the documents seized since there was sufficient evidence to enable him properly to conclude that the Minister had reasonable and probable grounds and, therefore, to make the order that he did under subsection 231(2); (2) in ordering the return to Usarco Limited of documents required as prosecution evidence in relation to charges of tax evasion pending against Usarco Limited; and (3) in exercising his discretion in favour of Usarco Limited and in quashing in part the order of Judge Scime after the applicant had delayed in bringing the application for approximately one year and four months.
Usarco Limited’s position on its cross-appeal is as follows: (1) the order of Judge Scime was invalidly made because there had not been a valid seizure under paragraph 231(1)(d) and subsection (2) (and this states the Submission very broadly) the evidence in support of the application before Judge Scime fell short of justifying a retention order.
In my view, both the appeal and the cross-appeal clearly turn on the substance of the evidence before Judge Scime assessed in the light of the requirements of subsection 231(2). I shall, therefore, concentrate on this and deal more briefly with the other issues raised. Logically, the first issue which should be considered is the validity of the purported seizure under paragraph 231 (1)(d).
The Validity of the December 14, 1977 Seizure and the Effect thereof
I agree with the judgment of Le Dain, J in Royal American Shows, Inc v His Honour Judge R McClelland and MNR, [1978] 1 FC 72; [1977] CTC 52; 77 DTC 5052, that a proper paragraph 231 (1 )(d) seizure is a jurisdictional condition precedent to the making of a valid retention order under subsection 231(2). Accordingly, there should be sufficient evidence before the judge bearing on the seizure to enable him to be satisfied that this condition precedent has been met. In the present case I think there was sufficient evidence. I refer to paragraph 9 of Mr Brown’s affidavit:
As a result of my enquiries, documents, books, records, papers or things were seized under paragraph 231(1)(c) of the Income Tax Act on December 14,1977 from the business premises of the said Usarco Limited.
This, however, does not end the matter. Since a lawful paragraph 231 (1 )(d) seizure is a jurisdictional requirement for a subsection 231(2) order, the judge is not the exclusive arbiter of this issue. His conclusion is susceptible to challenge on an application for certiorari wherein additional evidence may be placed before the court. That has been done in this case. The question now is: was there a lawful paragraph 231 (1 )(d) seizure?
Since the result of the appeals before us does not, in the view that I take, turn on the answer to this question, and because I find the question to be a difficult one, I do not intend to come to a final conclusion on it, but, in view of the arguments addressed to us, I think I should express an opinion on it.
It is reasonable to construe the evidence as showing an entry into Usar- co’s premises, the commencement of an examination, however brief, of the records, the continuation of their examination at the Department’s premises with Usarco’s consent, their return to Usarco’s premises and their immediate seizure. What Usarco’s contention seems to come down to is that if the Departmental officials had re-examined the documents upon their return to note, again, the violation or violations that they had already noted, then the seizure would have been lawful. It appears to me that by reason of the consent of Usarco the examination which was conducted could be considered to have been conducted under paragraph 231 (1 )(a), and the fact that there was a time lag between the noting of the violation and the seizure is not material. Therefore, I incline to the view that there was a valid paragraph 231(1)(d) seizure. The reservations which I have relate to whether one can properly consent to a variation in the application of the provision and whether Usarco, in this case, can be said to have consented to what was in fact and law a paragraph 231(1)(a) audit or examination off its premises.
Was there evidence before Judge Scime capable of supporting his order?
Subsection 232(2) requires the judge to be satisfied by evidence on oath that the Minister has reasonable and probable grounds to believe (1) that there has been a violation of the Act or a regulation and (2) that the seized documents are or may be required as evidence in relation thereto.
In my view, the evidence before the Judge clearly fell short of satisfying requirement (2) but, before I deal with this particular issue there are other aspects of Mr Banks’ affidavit that I should mention.
Subsection 231(2) requires the Minister (or by virtue of Regulation 900(5), it appears, the Director General, Compliance, the Assistant Director General, Compliance for Special Investigations, or any official holding a position of Director in the said Special Investigations, of the Department of National Revenue, Taxation) to have reasonable and probable cause to believe in the existence of the matters to be covered. It may be that the affidavit satisfies this requirment, in an indirect way, in paragraph 12 where Mr Banks says that he has reasonable grounds to believe but I cannot see any practical reason why the affidavit was not addressed to the actual requirements of the provision. In the same vein, the provision (at least, in the English text) requires that there be reasonable and probable grounds. The affidavit refers only to reasonable grounds.
Further, paragraph 12 refers to a violation under section 239 of the Income Tax Act or a regulation. It is clear that the range of documents which may be retained under subsection 231(2) has to relate to the violation which, on reasonable and probable grounds, the Minister believes has been committed. In this case the alleged violations appear to be confined to paragraphs 239(1)(c) and 239(1 )(d) of the Act. There is no suggestion in the material of the violation of any provision in the regulation. Further, the paragraph does not say that the seized documents are or may be required as evidence in relation to the violation in question.
I merely advert to these matters and base no conclusion on them. It may well be that they are simply matters of form but they may, with respect, also be symptomatic of a general lack of attention to the actual requirements of the provision.
At the heart of the matter is the question whether there was evidence capable of showing reasonable and probable grounds for the Minister’s believing (1) that there had been a violation of the Act or a regulation and (2) that the seized documents were or may have been required as evidence in relation thereto. With respect to (1) I cannot say that there was no evidence capable of supporting the requisite belief, although I quite appreciate, on what is stated, the nature of the difficulties the Crown might face in proving its case against Usarco. With respect to (2), it is my opinion that the affidavit contains no statements which could support a belief that the seized documents are or may be required as evidence in relation to any violation. The affidavit simply does not attempt to identify or describe, even in a general way, what documents were seized. This being the case, there was nothing in the affidavit to which the judge could direct his mind on the important question of whether the Mininster had reasonable and probable grounds to believe that the seized documents were, or may have been, required as evidence in relation to the alleged violation.
It is implicit in what I have just said that there has to be something in the affidavit to inform the judge of the alleged grounds so that he can properly exercise his judicial duty and that the mere statement in the affidavit that someone (in this case, the deponent) has such grounds, without a statement of them, is insufficient. It is quite clear from subsection 231(2) that the matter of reasonable and probable grounds is not for the conclusive decision of the Minister. In this regard, the following observations of Lord Radcliffe in Nakkuda Ali v M F De S Jayaratine, [1951] AC 66, which was concerned with a provision reading “where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as a dealer,” are particularly apposite:
After all, words such as these are commonly found when a legislature or law- making authority confers powers on a minister or official. However read, they must be intended to serve in some sense as a condition limiting the exercise of an otherwise arbitrary power. But if the question whether the condition has been satisfied is to be conclusively decided by the man who wields the power the value of the intended restraint is in effect nothing. No doubt he must not exercise the power in bad faith: but the field in which this kind of question arises is such that the reservation for the case of bad faith is hardly more than a formality. Their Lordships therefore treat the words in reg 62, “where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as a dealer’’ as imposing a condition that there must in fact exist such reasonable grounds, known to the Controller, before he can validly exercise the power of cancellation. (p 77)
Not only does the affidavit not even mention the dealing with Sam Allen and Sons, Inc and Minkin Metal Company, but, and this is repetition, since it does not, even in a general way, state what the seized documents were, it is deficient also with respect to dealings with Parkway Iron and Metal Company Limited.
Since it is the decision of the judge, acting under subsection 231(2), based on the evidence before him, which alone can afford a legal ground for retaining seized documents, resort cannot be had, at this stage, to Mr Shilton’s affidavits to supplement the record.
As far as the particularity of the description of the seized documents is concerned, it may be mentioned that there do not appear to be any practical reasons, and none were suggested during the argument, why a relatively careful description of them could not reasonably be given, having regard to their having been in the Minister’s possession for a considerable period of time. This feature of the process clearly distinguishes this kind of case from search warrant cases where great particularity in the information and the search warrant is often not reasonably and practically possible.
I appreciate that the provision does not require that the judge believe in or be satisfied as to, the reasonable and probable grounds—but rather that it be established before him that the Minister has such grounds. Thus it may be that less detailed evidence is required by the provision than if it required the judge, directly to be satisfied. However, accepting this, I do not see how it can be “established” before the judge that there are reasonable and probable grounds for the Minister’s belief unless the evidence on oath furnishes some facts as to the nature of the seized documents and their connection with the violation in question—rather than insulating such facts from the judge’s consideration under statements as to the depondent’s opinion. The nature of the judge’s duty, in this regard, cannot be significantly different from that imposed by subsection 231(4) of the Income Tax Act respecting the approval of search and seizure authorizations, as to which Dickson, J has said: “The judge sits to scrutinize [with utmost care] the intended exercise of the ministerial discretion.” MNR v Coopers and Lybrand, supra.
Quite apart from the omissions in the affidavit to which I have referred there are specific statements in it which cast real doubt on whether the Minister had, or, more directly, believed that he had, at the time of the application, evidence which could satisfy the requirement of subsection 231(2). It is sufficient if, within the 120 days following seizure, the evidence before the judge establishes that there are reasonable and probable grounds for the Minister to believe the documents “are or may be required as evidence.” While the continuance of the investigation after the 120 days is not in itself incompatible with subsection 231(2) being satisfied (paragraph 10), the specific statement in paragraph 11 “that the time required to complete the investigation will extend beyond the 120 days time limit set forth in subsection 231(2) of the Income Tax Act’’ carries the strong implication, notwithstanding the very general statement in paragraph 12, that at the time of the application the Minister did not have reasonable and probable grounds to believe that the seized documents were, or may have been, required as evidence. He was, in effect, seeking more time in an attempt to ascertain if the relevant grounds existed.
Having regard to the foregoing I am obliged to conclude that there was no evidence before Judge Scime capable of supporting his order. If I am wrong in this, and it could be said that there was evidence supporting his order, in so far as it extended to documents relating to the matters set forth in paragraphs 6, 7 and 8 of Mr Banks’ affidavit, then I think that, since the order is not couched in terms which are severable, directly or by incorporation by reference (see Re Hoggendoorn and Greening Metal Products & Screening Equipment Co et al, [1967] 1 OR 712 at 730 and 733, reversed on other grounds, by [1968] S.C.R. 30), it should be quashed outright, if it is to be quashed at all. The court on a certiorari application does not exercise an appellate function which may, depending on the terms of the applicable Statute, include the power to make the order which should have been made by the tribunal whose decision is being reviewed.
The Defence Based on Delay
I deal now with the matter of delay. Judge Scime’s order was made on March 17, 1978. Usarco and its solicitors had the order and all of the material and evidence upon which the order was based since about April 6, 1978. Usarco had full knowledge of all of the documents which were seized. It did not move to quash the order until July 18, 1979. In the meantime, the Government, having seized the documents because, to the knowledge of Usarco, it considered that they were or may be required as evidence in relation to tax evasion on the amount of at least $330,000, considered them further and, on the advice of counsel for the Attorney General of Canada, commenced a prosecution against Usarco. According to the affidavit of Mr Shilton, which was not cross-examination upon, all of the seized documents are relevant to the prosecution.
Certiorari is, of course, a discretionary remedy and may be refused on the ground of delay in seeking it. The discretion to withhold certiorari, since it may make inroads on the rule of law, should be exercised with the greatest care. See Wade, Administrative Law, 4th ed (1977) at 561. It is also trite law that we should not reverse Linden, J’s exercise of discretion unless he erred in principle or a clear injustice has resulted from it.
By reason of the particular disposition which I propose with respect to Usarco’s ancilliary application for an order directing the return to it of all documents seized I do not think that I I need pursue my consideration of this defence further than to say that the matter of delay is relevant to the exercise of our discretion to order the return of the documents, and that, as a defence to the application, I would not be prepared to interfere with the exercise of Linden, J’s discretion on this issue.
Order of the Court Ancilliary to that of Certiorari Quashing the subsection 231(2) Order
Considerable argument was submitted to us, based on search warrant decisions, as to our inherent power to order the return of the seized documents, having regard to the existing prosecution. Mr Olsson also submitted that if the order of Judge Scime were quashed we should remit the matter back to him so that he could decide it again on more complete evidence. As far as this latter option is concerned I am not satisfied that, since the 120 day time period has long expired, there is any jurisdiction for a fresh order to be made.
Mr Nathanson submits that, having regard to the mandatory terms of subsection 231(2) (“The Minister shall . . . return the documents ...) the court, upon the quashing of the retention order, has no choice but to order that this be done. This appears to have been the view of Linden, J. With respect, I do not share this view. I do not think that subsection 231(2) dictates what a court, in every case, is obliged to do upon the granting of an order of certiorari quashing a retention order. The subsection is intended to provide for the return of seized documents in cases where no retention order is obtained within 120 days of the seizure. It is a natural and logical part of the statutory scheme. However, I do not think that the subsection extends to ousting the discretion of a court to refuse to order the Crown to return evidence to an accused person where there is evidence that it is required for a pending prosecution. A refusal to exercise such a discretion has been recently affirmed by this Court: Regina v Model Power (A Division of Master Miniatures Ltd), January 25, 1980, unreported. While such a discretion is one which should be exercised with great care, I am satisfied that, in the present case, it is the better course to refuse to order the return of the documents. As I have just indicated, the long delay of the applicant is a factor to be considered on this issue.
For the foregoing reasons, I would dismiss the appeal, allow the crossappeal, set aside the order of Linden, J, and, in its place, substitute an order quashing the order of Judge Scime in toto. I would refuse to order the Crown to return the seized documents to the applicant.
Weatherston, JA (dissenting):—Some time in 1977 officers of the Department of National Revenue, Taxation, became interested in the affairs of Usarco Limited. At their request, Usarco’s comptroller voluntarily delivered “certain documents, books, records, papers or things” to them. On December 14, 1977 officers of the Department returned the documents to Usarco Limited, but immediately seized and took them away again under the authority of paragraph 231 (1 )(d of the Income Tax Act, RSC 1952, c 148, (as enacted by SC 1970-71-72, c 63). By an order dated the 17th day of March, 1978, on an application made on behalf of the Department, supported by the affidavit of Donald D Banks, His Honour Judge J C Scime ordered that the documents be retained until they are produced in any court proceedings. The application was necessary because, by subsection 231(2) of the Income Tax Act, the Minister would otherwise have been required to return the documents within 120 days from the date of their seizure.
On the application of Usarco for an order in lieu of certiorari, Linden, J quashed the order made by Judge Scime “insofar as it extends to documents relating to anything other than the matters set out in paragraphs 6, 7 and 8 of the affidavit of Donald D Banks sworn 14 March 1978. Such documents are to be returned forthwith”. The Attorney General and Usarco both appeal.
Counsel for Usarco argued that the documents were not lawfully seized in the first place and, hence, there was no foundation for the making of a valid retention order. He argued that because the documents were seized immediately on their return to Usarco, they were not seized during the course of an audit or examination, as provided in paragraph 231 (1 )(d) of the Income Tax Act. I do not agree. The officers of the Department of National Revenue, Taxation, had had possession of the documents since May or June with Usarco’s consent; the application for a retention order was not made until the following March. It offends common sense to suggest that the examination had not commenced or was completed on December 14.
subsection 231(2) of the Income Tax Act is as follows:
The Minister shall,
(a) within 120 days from the date of seizure of any documents, books, records, papers or things pursuant to paragraph (1)(d), or
(b) if within that time an application is made under this subsection that is, after the expiration of that time, rejected, then forthwith upon the disposition of the application,
return the documents, books, records, papers or things to the person from whom they were seized unless a judge of a superior court or county court, on application made by or on behalf of the Minister, supported by evidence on oath establishing that the Minister has reasonable and probable grounds to believe that there has been a violation of this Act or a regulation and that the seized documents, books, records, papers or things are or may be required as evidence in relation thereto, orders that they be retained by the Minister until they are produced in any court proceedings, which order the judge is hereby empowered to give on ex parte application.
An application for a retention order must, therefore, be supported by evidence on oath establishing that the Minister has reasonable and probable grounds to believe
(a) that there has been a violation of the Act or a regulation; and
(b) that the seized documents are or may be required as evidence in relation to that violation.
The jurisdiction to make a retention order depends on the existence of that evidence. As Lord Esher, MR pointed out in The Queen v The Commissioners For Special Purposes of the Income Tax (1888), 21 QBD 313 at 319, when a statute says that a tribunal shall have jurisdiction if certain facts exist, the tribunal has jurisdiction to enquire into the existence of those facts. However, while its decision is final, if jurisdiction is established, the determination that its jurisdiction has been established is open to examination on certiorari by a Superior court. See also R v London, etc, Rent Tribunal Ex parte Honig, [1951] 1 KB 641, and R v Fulham, Hammersmith and Kensington Rent Tribunal; Ex parte Zerek, [1951] 2 KB 1, per Devlin, J at 10.
The only evidence before Judge Scime was Mr Banks’ affidavit, but that satisfied the judge that the Minister had reasonable and probable grounds to believe that the two requirements of the statute had been met. The affidavit must be examined as to its sufficiency to support the judge’s finding. The sufficiency of the evidence should be viewed objectively. Nevertheless, two observations should be made. First, it is the Minister, and not a judge, who must be shown to have reasonable and probable grounds to believe that the statutory requirements have been met. It must be recognized that the Minister in charge of a large government department must rely to a large extent on his subordinates. The Minister would have reasonable and probable grounds to believe in a state of facts if they were related to him by a trusted subordinate; and perhaps, too, if those facts were no more than deductions made by the subordinate from his own observations. While the decision is that of the Minister, he surely is entitled to rely on the competence and integrity of those under him. The second observation is that at this stage, although a violation of the Act or a regulation must be shown, no specific charge will have been formulated, and so it will be impossible to say with precision what documents are or may be required as evidence.
In paragraphs 6, 7 and 8 of his affidavit, Mr Banks, an officer of the Department of National Revenue, Taxation, deposed as to false transactions between Usarco and Parkway Iron and Metal Company Limited, which were entered in Usarco’s books as purchases and, thereby, deducted from income by Usarco in its taxation years 1972,1973, 1974 and 1975. This is clear evidence of the making of false entries and, probably, of the evasion of payment of income tax, both offences under the Income Tax Act. The first evidentiary requirement was met.
I have more difficulty with the sufficiency of the evidence that the seized documents were or might be required as evidence in relation to those violation. Was it shown that all the seized documents were or might be required for that purpose?
I have said that the affidavit contained clear evidence of the making of false entries and, probably, income tax evasion. If, as was the case, further examination of the documents revealed evidence of other false transactions, those would not necessarily be separate violations of the Income Tax Act—they would be further evidence of the offences already evidenced in the affidavit. Moreover, some tax must be payable before there can be an evasion. An examination of all the financial records would surely be re- quired to see if tax was payable in any or each of the taxation years, and these records would be required as evidence in any prosecution for income tax evasion.
The difficulty is that Mr Banks, in his affidavit, has largely followed the form of the statute, and has not stated the actual facts. He said:
9. As a result of my enquiries, documents, books, records, papers or things were seized under paragraph 231 (1 )(d) of the Income Tax Act on December 14, 1977 from the business premises of the said Usarco Limited.
10. From my experience as an officer of the Department of National Revenue, Taxation, I know that the seized documents, books, records, papers or things are needed to complete the investigation of the said Usarco Limited.
11. As a result of my enquiries and examination of the seized documents, books, records, papers or things, I have reasonable grounds to believe, and do believe, that the time required to complete the investigation will extend beyond the 120 days time limit set forth in subsection 231(2) of the Income Tax Act.
12. Further, as a result of my enquiries, I have reasonable grounds to believe, and do believe, that a violation under Section 239 of the Income Tax Act or a Regulation has been committed and the said documents, books, records, papers or things are or may be required as evidence in any subsequent criminal or civil proceedings against the said Usarco Limited.
The need for time to complete the investigation was not a valid ground for the making of a retention order—the documents had to be required as evidence in relation to a violation already disclosed. All Mr Banks said, on this branch of the evidentiary requirements, is that he believes that a violation under section 239 of the Income Tax Act has been committed and that the seized documents are or may be required as evidence. He does not describe the documents or show for what purpose they might be required. Nevertheless, I think he has said enough to justify Judge Scime’s finding that it had been established that the Minister had reasonable and probable grounds to believe that the seized documents might be required as evidence. Judge Scime would not expect the Minister personally to look at all the documents. It was open to him to find that the Minister was entitled to rely on the sworn statement of his own officer, who had examined the documents, that they were or might be required as evidence in relation to the shown violations. At that stage the question was little more than one of the relevancy of the documents to any charge that might be laid arising out of the transactions described in the affidavit.
In my opinion, Judge Scime’s retention order ought not to have been quashed, in whole or in part. The appeal by the Attorney General of Canada should be allowed, and the order of Linden, J set aside. The cross-appeal should be dismissed.