MNR v. Kruger Inc., 84 DTC 6478, [1984] CTC 506, [1984] CTC 519, [1984] DTC 6489 (FCA)

Pratte, J:—This is an appeal from a judgment of the Trial Division dismissing an action brought by the appellants in respect of seizures of documents made under subsection 231(4) of the Income Tax Act and section 443 of the Criminal Code.

On June 10, 1982, Mr Alain Ducharme, an officer of the Department of National Revenue, swore an affidavit stating facts which gave him reasonable grounds to believe

(a) that Precision Mechanics Ltd, Domenico Vespoli and Gregorio Posca had violated the Income Tax Act by making false and deceptive statements in the income tax returns of Precision Mechanics Ltd for the 1976 and 1978 taxation years; and

(b) that Precision Mechanics Ltd and Domenico Vespoli had violated section 239 of the Income Tax Act by making false and deceptive statements in the income tax return of Precision Mechanics Ltd for the 1979 taxation year and by making false or deceptive entries in the books of that company for the 1980 taxation year.

After the swearing of that affidavit, Mr Gerard Leblond, Director, Special Investigations Division of the Department of National Revenue, Taxation, acting pursuant to subsection 231(4) of the Income Tax Act, signed a document whereby he authorized named officers of the Department of National Revenue to enter and search

(a) the business premises of Precision Mechanics Ltd at 11880 and 11890 56th Avenue, Rivières-des-Prairies, Montreal, Quebec, and the residences of Domenico Vespoli and Gregorio Posca “for documents, books, records, papers or things that may afford evidence as to the violation of any provision of the Income Tax Act or a regulation and to seize and take away any such documents, books records, papers or things and retain them until they are produced in any court proceedings”; and

(b) the business premises of Paradis Vespoli Ltée at 10190 Hôtel de Ville Avenue, Montreal North, Quebec, and the offices of Verchère, Noël and Eddy, lawyers, and Bernard Goodman, CA, “for documents, records, papers or things pertaining or relating to Precision Mechanics Limited, Domenico Vespoli and Gregorio Posca, that may afford evidence as to the violation of any provision of the Income Tax Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings”.

On June 25, 1982, that authorization was approved by Mr Justice Gratton of the Superior Court of the Province of Quebec for the years 1976, 1977, 1978, 1979 and 1980.

The officers of the Department were about to proceed to the searches authorized by Mr Leblond when they learned that Paradis Vespoli Ltée and Precision Mechanics Ltd had moved to a new address. Instead of going back to Mr Leblond and to the Superior Court Judge, they obtained a search warrant pursuant to section 443 of the Criminal Code authorizing them to enter and search the new premises of Paradis Vespoli Ltée and Precision Mechanics Ltd.

On July 8, 1982, the premises described in the authorization signed by Mr Leblond and those described in the warrant were searched and numerous documents were seized.

The appellants thus applied to the Superior Court for an order quashing the search warrant issued pursuant to section 443 of the Criminal Code on the ground that the Criminal Code provisions dealing with search and seizure were superseded by those of the Income Tax Act on the same subject. That application was granted and, as a consequence, all documents that had been seized pursuant to the warrant were returned to the appellants.

A few days later, a new authorization to search and seize was signed pursuant to subsection 231(4) of the Income Tax Act. That authorization mentioned the new address of Precision Mechanics Ltd and Paradis Vespoli Ltée but made no reference to the offices of Bernard Goodman, CA, and of Verchère, Noël and Eddy; otherwise, it was couched in the same terms as the authorization signed by Mr Leblond on June 23, 1982. That new authorization was approved by Mr Justice Beauregard of the Superior Court on August 4, 1982, and, on August 9, 1982, the new premises of Precision Mechanics Ltd and Paradis Vespoli Ltée were searched and a number of things were seized.

The appellants commenced their action on October 21, 1982. They sought:

(a) a declaration that the seizures made on July 8 and August 9, 1982, were illegal and an order that all documents and things that were seized should be returned to the appellants; and

(b) damages in the amount of $50,000.

The first issue raised by this appeal, therefore, is whether the seizures were validly made. That question must, in my view, be answered in the appellants’ favour. In my reasons for judgment in the case of The Minister of National Revenue v Kruger Inc (File No A-l 153-83), which reasons will be filed at the same time as these, I express the view that subsection 231(4) of the Income Tax Act contravenes section 8 of the Constitution Act, 1982 in that it empowers the Minister, when he has reasons to believe that a taxpayer committed an offence under the Income Tax Act, to authorize a search for documents and things that may afford evidence not only of that offence but, also, of the violation of any other provision of the Income Tax Act. I need not repeat here what I say in those reasons. It follows, therefore, that the seizures made on July 8 and August 9, 1982, pursuant to subsection 231(4) of the Income Tax Act, were illegal. It also follows, in my view, that everything that was then seized should be returned to the appellants. As the Crown is the main respondent in this appeal, no useful purpose would be served by making a formal order to that effect; a simple declaration will suffice.

It is not necessary to consider here the question of the validity of the warrant issued under section 443 of the Criminal Code. That warrant was set aside by the Superior Court and everything that was seized pursuant to it has been returned to the appellants.

I now come to the appellants’ claim for damages. The appellants rest that claim on paragraph 3(1 )(a) of the Crown Liability Act (RS 1970, Chap C-38); they also invoke subsection 24(1) of the Constitution Act, 1982.

In so far as the claim is founded on the Crown Liability Act, the appellants could not succeed unless they established that they had suffered damage as a consequence of a tort committed by a servant of the Crown.

The appellants contended that they were entitled to damages, irrespective of the constitutional invalidity of subsection 231(4), for the reason that the officers of the Department of National Revenue had seized documents and things that the authorizations signed pursuant to subsection 231(4) did not authorize them to seize. There is no merit in that contention. First, assuming that the officers of the Department seized certain things that the authorizations did not empower them to seize, that irregularity would not necessarily imply negligence or any other tort on their part; second, there is not a shred of evidence that any damage was suffered by the appellants as a consequence of that alleged irregularity.

The appellants also claimed to be entitled to be compensated for the legal costs they had incurred with respect to the seizure made under section 443 of the Criminal Code. The appellants assumed that the officers of the Department of National Revenue who had applied for and obtained a warrant pursuant to the Criminal Code had acted negligently or had otherwise committed a tort. In the absence of any evidence on that point, I cannot agree with that assumption.

The appellants finally argued that they were entitled to be compensated under the Crown Liability Act for the loss suffered as a consequence of a seizure made pursuant to an unconstitutional provision of the Income Tax Act. That argument must be rejected. In the absence of proof of bad faith, I see no tort or fault in acting pursuant to a statute that is subsequently found to be unconstitutional.

The appellants’ claim for damages, in so far as it is founded on the Crown Liability Act, must therefore be rejected

The appellants also invoked subsection 24(1) of the Charter according to which

Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.

I do not doubt that the Court, under that subsection, has the power to award damages to those whose rights and freedoms have been infringed. However, the Court may exercise that power only when it is of opinion that an award of damages is appropriate and just in the circumstances. In the present case, I am not of that opinion because I can find in the record no solid evidence that the appellants really suffered damage as a consequence of the illegal seizures.

I would, for these reasons, allow the appeal, set aside the judgment of the Trial Division and declare

(1) that subsection 231(4) of the Income Tax Act contravenes section 8 of the Canadian Charter of Rights and Freedoms and 1s, for that reason, inoperative;

(2) that the seizures of the appellants’ documents, books and records executed on July 8 and August 9, 1982, pursuant to authorizations issued under subsection 231(4) of the Income Tax Act, were unlawful; and

(3) that the appellants are therefore entitled to the return of all documents and things illegally seized on July 8 and August 9, 1982.

I would grant the appellants their costs, both in first instance and in appeal.

Marceau, J:—The features of this appeal and the facts that gave rise to it are set forth in the reasons for judgment prepared by Mr Justice Pratte. It is essentially an attack on the validity of seizures carried out on the authority of an authorization issued by the Minister of National Revenue pursuant to subsection 231(4) of the Income Tax Act, on the ground that the authorization in itself and the section of the Act relied on both offend section 8 of the Constitution Act, 1982. The appeal was heard immediately after the appeal in the case of The Minister of National Revenue v Kruger Inc (File No A-l 153-83). Naturally, the factual context was not exactly the same in the two cases and the procedural avenues followed by the two groups of litigants were different but basically both cases were raising the same constitutional issue. In the reasons for judgment filed today in the case of The Minister of National Revenue v Kruger Inc, I expressed my respectful disagreement with the views of my brother judges on that issue. I tried in those reasons to explain why I could not agree with the proposition that a Minister’s authorization issued in conformity with subsection 231(4) of the Income Tax Act violates section 8 of the Constitution Act, 1982. I can only repeat here those reasons (herewith attached).

This, to me, disposes of the matter. The Appellants, in their argument, have tried to raise some incidental issues but it was clear that if their main contention was to be rejected, those incidental points could have no weight and no bearing: they need not be discussed.

I would deny the appeal and affirm the judgment of the Trial Division with costs.