The Queen v. Dzagic, 85 DTC 5252, [1985] 1 CTC 346 (S.C.O.), rev'd 86 DTC 6432, [1986] 2 CTC 288 (Ont CA)

Smith, J:—This matter is before me on a case stated at the request of the Attorney General of Canada pursuant to section 762 of the Criminal Code. A second and similar stated case in the matter of Steve Dzagic will follow the result of the first.

The learned Provincial Court Judge formulated the following questions:

(1) Did I err in law in holding that section 231(1)(d) of the Income Tax Act, RSC 1952, chapter 148 is inconsistent with the provisions of section 8 of the Canadian Charter of Rights and Freedoms and that it is therefore of no force and effect?

(2) Did I err in law in holding that the admission into evidence of the seized material at this time would constitute an infringement or denial of the Defendant’s rights or freedoms as guaranteed by the Canadian Charter of Rights and Freedoms!

(3) Did I err in law in holding that having regard to all the circumstances, the admission of the evidence of the Defendant’s records would bring the administration of justice into disrepute and that such evidence should therefore be excluded pursuant to the provisions of section 24(2) of the Canadian Charter of Rights and Freedoms?

(4) Did I err in law in holding that I could, under section 24(1) of the Canadian Charter of Rights and Freedoms, refuse to admit such evidence on the grounds that such refusal is a just and appropriate remedy in the circumstances?

Availability of Subsection 24(1) (Charter)

In the event that the second question is answered in the affirmative, it will not be strictly necessary to give an answer to the fourth. I pause nonetheless to say at the outset that in my view it is not, from a practical point of view, open to a judge of first instance in Ontario to exclude evidence by way of a remedy under subsection 24(1) of the Charter. Four members of a five-man Court in our Ontario Court of Appeal in Regina v Simmons (1984), 11 CCC (3d) 193, were of the opinion that subsection 24(2) alone was intended to govern the exclusion of evidence where Charter rights have been infringed. The fifth member refrained from deciding that issue. The statement of the Court was obiter. It sought still to be accepted (notwithstanding Regina v Therens (1983), 5 CCC (3d) 409, a western case which expressed a contrary view), unless and until the Supreme Court of Canada decides otherwise. I doubt that the distinction between ratio and obiter is anything but academic when the opinion emanates, for instance, from a unanimous Supreme Court of Canada. And the line between the ratio of a case and a mere obiter pronouncement deliberately made is a very fine one indeed, if it exists at all, when the trial judges of this Province are faced with an obiter statement of the kind made in Simmons on an important point of law involving the Charter by a nearly unanimous five-man panel of the Ontario Court of Ap- peal. In my opinion, Regina v Chapman, (1984), 12 CCC (3d) 1, cannot be read to mean that subsection 24(1) of the Charter is available to exclude evidence. The issue there was the return of goods seized.

The Facts

The stated case raises the constitutional question of whether paragraph 231( l)(d) of the Income Tax Act, RSC 1952 c 148 (the Act), is inconsistent with section 8 of the Charter. Subsections (1) and (2) of section 231 are as follows:

(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,

(b) examine property described by an inventory or any property, process or matter an examination of which may, in his opinion, assist him in determining the accuracy of an inventory or in ascertaining the information that is or should be in the books or records or the amount of any tax payable under this Act,

(c) require the owner or manager of the property or business and any other person on the premises or place to give him all reasonable assistance with his audit or examination and to answer all proper questions relating to the audit or examination either orally or, if he so requires, in writing, on oath or by statutory declaration and, for that purpose, require the owner or manager to attend at the premises or place with him, and

(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 (l)(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.

The respondent was charged with a number of counts of unlawfully making false or deceptive statements in his income tax returns by failing to declare certain taxable income in the years 1977 through to 1981 and to have wilfully evaded the payment of taxes during that period. The learned judge initially ruled, on September 18, 1984, that the Charter did not apply and that, if it did apply rendering the seizure unreasonable, the admission in evidence of the seized documents, having regard to all the circumstances, would not bring the administration of justice into disrepute.

Upon receiving further and fuller argument, however, based more particularly on Hunter et al v Southam Inc (1984), 14 CCC (3d) 77, and Re Chapman and The Queen (1984), 46 OR (2d) 65, he set aside his earlier ruling and on November 5, 1984 held the impugned section of the Act to be of no force and effect and went on to exclude the evidence as in his view the admission would bring the administration of justice into disrepute.

Exclusion of Evidence Under Subsection 24(2) (Charter)

In my respectful view, he clearly erred in his decision to exclude. He appears to have held that the unconstitutionality itself (as held by him) of the section authorizing seizure, coupled with the fact that the goods seized were not inherently illicit, constituted circumstances sufficient to trigger the exercise of a discretion to exclude pursuant to subsection 24(2) of the Charter. In fact he specifically found the conduct of the Revenue Department officials to have been unexceptional and such as to not of itself be calculated to bring the administration of justice into disrepute. I refer to a telling passage in the reasons of the Court delivered by Martin, JA in Regina v Rao (1984), 46 OR (2d) 80 which appears at 110:

The trial judge, after carefully weighing all the factors, came to the conclusion that to admit the evidence of the seizure of the narcotics would bring the administration of justice into disrepute. I would not have held (as I think the trial judge would have held) that the admission of the evidence of the seizure of the narcotics would bring the administration of justice into disrepute solely because they were seized during a warrantless search in circumstances where a warrant was required to meet the constitutional standard of reasonableness under s 8 of the Charter, having regard to the fact that the officers were acting under the authority of a statute duly enacted by Parliament which had not previously been determined to be unconstitutional or inoperative in whole or in part.

I also draw attention to the fact that the evidence is prima facie admissible, if relevant, and the onus is upon the respondent upon the Charter being infringed to show cause why the evidence should not be received. It is equally of interest to point to a division among the members of the court hearing The Queen v Duguay et al (unreported) on the correctness of drawing upon subsection 24(2) when the case involved bad faith on the part of experienced officers, and a deliberate breach of the Charter in a non-serious offence. The message it seems to me is that exclusion will not follow a declaration of unconstitutionality unless compelling reasons exist.

I suggested during argument that a decision by me adverse to the respondent on the issue of admission of evidence would make it unnecessary to deal with the constitutionality of paragraph 231(l)(d). The respondent indicated that if the section was unconstitutional, he wished to retain his option to argue anew before the Provincial Court Judge the question of the admission of evidence on the basis of facts that were not before me. I therefore turn to the first and main question put to me.

Constitutionality of Paragraph 231(l)(d) Income Tax Act

The question posed is certainly not free from difficulty. In the area of search and seizure, we are now guided by several Ontario Appeal Court decisions including Regina v Rao (1984), 9 DLR (4th), 542, Regina v Noble (1984), 16 CCC (3d), 146, and of course the landmark decision of Hunter et al v Southam Inc, (supra). As Dickson, CJ did in Southam, I must note at the outset that the concern on this stated case is the constitutional validity of the section and not the reasonableness of the manner in which the statutory authority was carried out.

In order to determine whether the case at hand differs from Southam in substance, it is necessary to look at the approach taken by the court in that case. It spoke of an entitlement to a “reasonable expectation of privacy”. This indicated to the Court that an assessment had to be made “as to whether in a particular situation the public’s interest in being left alone by government must give way to the government’s interest in intruding on the individual’s privacy in order to advance its goals, notably those of law enforcement”.

This should be so in my view even where the official in authority proceeded to seize in the course of a legitimate inspection. I bear in mind the American line of cases that deal with a summons issued for a valid civil purpose and that have refused to invalidate them by reason only that there is a co-existing criminal investigation. A provision such as paragraph 231(l)(d) tends to blur the line between the two even from the moment of entry into the premises.

On the balancing interests referred to in Southam, I find the following passage in the judgment to be virtually determinative of the issue before me:

If the issue to be resolved in assessing the constitutionality of searches under s 10 were whether in fact the governmental interest in carrying out a given search outweighed that of the individual in resisting the governmental intrusion upon his privacy, then it would be appropriate to determine the balance of the competing interests after the search had been conducted. Such a post facto analysis would, however, be seriously at odds with the purpose of s 8. That purpose is, as I have said, to protect individuals from unjustified State intrusion upon their privacy. That purpose requires a means of preventing unjustified searches before they happen, not simply of determining, after the fact, whether they ought to have occurred in the first place. This, in my view, can only be accomplished by a system of prior authorization, not one of subsequent validation.

On this ground alone paragraph 231(1)(d) cannot stand.

I confess to a great deal of hesitation in striking down the section. It appears on cursory reading to be innocuous enough. Attempts at distinguishing it from “the authority to roam at large” as section 10 of the Combines Investigations Act, RSC 1970 c C-23, was characterized, are convincing at first. All the departmental official is doing is to conduct an audit which on the face of things and as conceded by the respondents, is necessary to sustain a system of self-reporting. In the course of exercising his reasonable duties, he is given the power to seize and take away if it appears to him that there has been a violation. The temptation which I ultimately felt the Southam case compelled me to resist, was to declare the provision constitutional, leaving the exercise of the authority to seize subject to judicial control as each case arose. On reflection, this kind of post facto control would resemble the proverbial closing of the barn door.

There is a mechanism of control embodied in subsection 2. Its essential defect is in its inability to prevent unjustified seizures. The argument advanced by the appellant that immediate seizure may be necessary to prevent loss or destruction of potential evidence, is in my view without merit on the issue of the constitutionality of the section although it may conceivably, at least, justify warrantless seizures in special circumstances.

Section 231 of the Act is an investigation section and it should not contain powers of adjudication except upon satisfying the usual safeguards of probable cause as determined judicially by an independent person. Only then were intrusions on privacy traditionally sanctioned by law. Subsection 4, which is in truth a seizure provision, has been struck down by the Federal Court in MNR v Kruger Inc, et al, [1984] CTC 506; 84 DTC 6478. It will no doubt be rewritten in a manner that conforms with the Charter in the event that the Supreme Court of Canada upheld the Federal Court of Canada ruling. The only remaining seizure provision contained in paragraph 23 l(l)(d) should now be declared unconstitutional.

My reading of Southam leads me to view paragraph 231( l)(d) as offensive in the same manner as was described and for the same reasons as given in the Southam case that declared section 10 of the Combines Investigation Act of no force and effect. The degree only of encroachment on privacy may be different. But since there are no safeguards, the potential for abuse even on a plain reading of the whole of subsection 231(1) is enormous in the hands of an unscrupulous official. As an instance of abuse, see Re Frank Pica et al v Attorney General of Canada, [1985] 1 CTC 78; 85 DTC 5112.

I was referred to New Garden Restaurant & Tavern Ltd, et al v MNR, [1983] CTC 332; 43 OR (2d) 417, a decision of my brother White and to Roth v The Queen, [1984] CTC 185; 84 DTC 6181, by Callon, J. I have respectfully declined to follow their well-reasoned judgments. Neither had had the benefit of Southam.

Search and seizure will generally go hand in hand. In this case they do not. What is at issue is seizure only of documents or things that were made available in the course of an audit. I am of the view that no distinction should be drawn between an unreasonable seizure and an unreasonable search. Section 8 is directed to each standing alone or to both together and a provision offending either one will be struck. Any requirement of prior authorization cannot logically apply with less force to seizure by reason only that it does not follow an unauthorized search.

Retrospectivity

The question of retrospectivity in this instance is narrow. Under subsection 231(2) the Department is bound to return the things seized unless a judge otherwise orders on the basis of reasonable and probable grounds that a violation of the Act took place. At the time of the seizure, the legislative authority for the seizure had not been struck down since the Charter had not been adopted and the seizure was therefore lawful and reasonable. The question is whether the continued detention post Charter is a violation since the statutory underpinning for the seizure no longer exists if it is declared unconstitutional as I am hereby holding. The Charter does not apply retrospectively to render unreasonable a search that was not unreasonable or unlawful when it took place. The effect of now ordering the return of what was seized would be to declare as unreasonable what in fact at the material time was reasonable. It seems to me that a judge would not be bound to order the return under subsection 231(2) merely because paragraph 231(1 )(d) had been declared inoperative any more than he would be compelled to exclude the evidence under subsection 24(2) of the Charter.

In the result, the first question is answered in the negative. In so far as the second question is meant to address the question of retrospectivity, the answer is yes and the remaining two questions will also be answered in the affirmative.

Order accordingly.