Solvent Petroleum Extraction Inc. v. MNR, 88 DTC 6224, [1988] 1 CTC 325 (FCTD), aff'd 89 DTC 5381 (FCA)

Dubé, J.:—These motions challenge the validity of warrants to enter and search the premises of the applicants issued by Mr. Justice John C. McNair in May 1987.

The applications for those warrants were supported by lengthy affidavits of Maurice Kin Chung Ma, a registered industrial accountant working for the Department of National Revenue, at the Vancouver District Office. The affidavits set out in great detail the materials required and the reasons why they are required. With the support material, they fill four large binders. Mr. Ma was cross-examined by the applicants before the hearing of the instant motion. The warrants are challenged on four separate grounds with which I will deal separately.

First, the applicants claim that full disclosure of the information available to the respondent was not made to McNair, J. resulting in material nondisclosure. Basically, the applicants contend that the documents sought had already been willingly produced, that there had been voluntary compliance and that, generally, the applicants had cooperated fully with the respondent: that information was not brought to the attention of the Judge and resulted in material non-disclosure.

At the opening of the hearing, counsel for the applicants moved to file an affidavit of Robert James Crump, a counsel for one of the applicants. Counsel for the respondent objected to the late filing, and with good cause, as Rule 319 specifies that such an affidavit must be filed at least two clear days before the hearing. However, I allowed the filing of the affidavit on condition that the affiant be produced for cross-examination if required by the respondent.

In his affidavit the affiant alleges, inter alia, that “all documents requested by Revenue Canada employees prior to the issuance of the warrants in disputes in this matter were turned over to Revenue Canada”. In response, I allowed the respondent to examine viva voce an officer of the Department, Mr. William Lucas, a supervisor who was familiar with the file. His version of the events, and most particularly of the last meeting held between departmental officers and counsel for the applicants on October 1, 1986, varied with that of Mr. Crump. He produced a memo that he prepared immediately after that meeting wherein it appears that the discussions were not particularly harmonious and that counsel for the applicants had refused to produce some documents.

In one instance Mr. Lucas, according to his own memo, reminded Mr. Crump of "the outstanding demand". Mr. Crump replied that "our defence in court will be that Wilder gave you the information previously and that it was unreasonable to have to do it again". My appreciation of the situation is that the applicants did indeed supply reams of documents but that the respondent wanted more.

The applicants rely on a Supreme Court of British Columbia decision, Hellenic Import-Export Co. v. M.N.R., [1987] 1 C.T C. 281; 87 D.T.C. 5213. The judge who had granted the application for warrants under section 231 of the Income Tax Act had not been apprised of what had transpired between the respondent and the petitioners and their solicitors and more particularly of the fact that the petitioners' solicitor was informed by the investigating officer that no further documents were required. Madam Justice Proudfoot quashed the warrants on the basis of material non-disclosure. She said at page 284 (D.T.C. 5215) that

The failure to disclose the material facts referred to matters which were not of a trivial or technical nature to the judge who signed the warrant, and is in itself, fatal . it was not for the informant, for whatever reason, to make the decision as to what Callaghan, J. would be told.

However, another judge of the same Court took a different position in Constantine Kourtessis et al. v. M.N.R., [1987] 2 C.T.C. 36; 87 D.T.C. 5299. Madam Justice Southin said as follows at page 46 (D.T.C. 5305):

As I have indicated I think that only fraud or perhaps an absence of any evidence can vitiate a warrant issued under this section. With the greatest of deference, I do not agree with much of what Madam Justice Proudfoot said in her reasons quashing the earlier warrant.

The applicants also rely on Pacific Press Limited v. The Queen (1977), 37 C.C.C. (2d) 487; 38 C.R.N.S. 295 wherein Nemetz, C.J. of the B.C. Supreme Court quashed a search warrant issued under the Criminal Code. He said at page 495 (C.R.N.S. 305) that

The issuing of any search warrant is a serious matter, especially when its issuance against a newspaper may have, as it did, the effect of impeding its publication. . . . the Justice of the Peace "should have reasonable information before him to entitle him to judicially decide whether such warrant should issue or not". In my opinion no such reasonable information was before him, since there was no material to show:

1. whether a reasonable alternative source of obtaining the information was or was not available, and

2. if available, that reasonable steps have been taken to obtain it from that alternative source.

In that case, it appears that there was no material information before the justice as to what steps had been taken to obtain the information. In the case at bar, as mentioned earlier, there are very substantial affidavits outlining all steps taken to obtain the information from the applicants.

In a recent case before the Supreme Court of Ontario, McLeod and Red Lake Supermarkets v. The Queen, wherein O'Leary, J. gave oral reasons in October 1987, the complaint of the applicant was that there had been a nondisclosure, "that the applicant co-operated" and had turned over "numerous records". The applicant argued that the first judge had therefore the discretion not to issue the warrant. The third paragraph of the transcript of the oral reasons for judgment reads as follows:

I am of the view there is no such discretion in the judge. If he is satisfied that the requirements of s. 231.3(3) have been met, then the statute says he shall issue the warrant. At that point it is of no consequence that the judge thinks that the Director already has enough evidence or that the taxpayers would allow the search and deliver the documents without the warrant.

I share the view expressed by O'Leary, J. It was not for the first judge nor is it for me to decide whether or not the taxpayers have sufficiently cooperated and whether or not the investigators need more documents to complete their investigation.

This takes us to the second ground advanced by the applicants, namely that Revenue Canada had other means of getting the information it sought than by applying for warrants to enter and search. Of course, I must not substitute my own discretion for that of McNair, J. (see Wilson v. The Queen, [1983] 2 S.C.R. 594 at 608). Obviously, he must have concluded from the considerable information placed at his disposal that all reasonable steps had been taken by the Department and that the final alternative was to apply for warrants so as to obtain the information it needed to pursue its investigation.

In Re Church of Scientology and The Queen (No 4) (1985), 17 C.C.C. (3d) 499, the Ontario High Court of Justice held that on an application to quash a search warrant the Court is limited to defects in jurisdiction which, however, could include a case where the search warrant was obtained by means involving fraud: the application for leave to adduce such evidence must be based upon allegations of deliberate falsehood or omission or reckless disregard for the truth.

In Director of Investigation and Research v. The Calgary Real Estate Board Co-Operative Limited, T-524-87 yet unpublished, I reviewed the jurisprudence in the matter of the right to cross-examine the affiant on his affidavit leading to a warrant under the Competition Act. I found, along with the Supreme Court of Ontario in the Church of Scientology, supra, that there is a presumption of validity with respect to an affidavit supporting the application for a search warrant. I endorsed as well the decision of that same Court in Macintosh Paving Company Limited v. Lawson A.W. Hunter (Supreme Court of Ontario, March 18, 1987, unreported) to the effect that before cross-examination should be permitted an allegation of deliberate falsehood or omission or reckless disregard for the truth with respect to essential material should be made and should be established before a warrant is quashed.

If the judge is satisfied that there are reasonable grounds to believe that an offence has been committed and that documents establishing the offence are likely to be found in the designated premises, he issues the warrant essential to the search and seizure.

I now turn to the third ground, namely that the warrants are too general and too vague and do not comply with the materials before McNair, J. The applicants first rely on Re United Distillers Limited, a British Columbia Supreme Court decision (1946), 88 C.C.C. 338 (S.C.B.C.) wherein Farris, C.J. S.C. quashed a warrant on the following grounds at page 344:

I find that the warrant to search was issued without there being obtained in the information sufficient material to entitle the Justice of the Peace acting in a judicial capacity to issue the warrant. I also find that the description of the documents as contained in the warrant itself was insufficient, and in addition thereto, it was left to the discretion of the police as to what documents should be seized. I also find that on the warrant itself the description of the offence committed was so vague and general as not to enable the person whose premises were being searched to know the exact object of the search. I accordingly direct that the said warrant to search is hereby quashed.

Those same principles were taken up by the Ontario Court of Appeal in Re Times Square Book Store and The Queen (1985), 21 C.C.C. (3d) 503. This more recent decision confirmed the principle that the judge acting as an independent judicial officer must be satisfied on a balance of probabilities that there are to be found on the specified premises items which will afford evidence that an offence as defined by the Criminal Code has been committed. The Court added further that the warrant should be reasonably specific when dealing with books and magazines. The Court found that the informa- tion to obtain the warrant in that case was sufficient but that the warrant itself was defective in that the particulars pertaining to the location of the unnamed magazines and the scenes shown on their covers were not included in the warrant. As a result of those omissions, more was left to the discretion of the police officers to determine what is obscene than is acceptable.

In another Ontario Court of Appeal decision of the same year, The Queen v. Print Three Inc. et al., [1985] 2 C.T.C. 48; 20 C.C.C. (3d) 392 the Court was dealing with search and seizure under the former subsection 231(4) of the Income Tax Act and the Court went along with two decisions of the Federal Court of Appeal, M.N.R. v. Kruger Inc. et al., [1984] C.T.C. 506; 84 D.T.C. 6478 and Vespoli et al. v. The Queen, [1984] C.T.C. 519; 84 D.T.C. 6489 to the effect that subsection 231(4) is in violation of section 8 of the Canadian Charter of Rights and Freedoms and therefore ultra vires. (1 will return to those two Federal Court decisions later).

In Print Three, the Court however dealt with the respondents' secondary position that the search warrants issued under the Criminal Code lacked the necessary specificity required by section 443 and by the authorities. They had argued that the warrants were drawn in such broad terms that they breached the respondent's rights to be safe from unreasonable search and seizure guaranteed by section 8 of the Charter. Their position was that the income tax inspector had already conducted an exhaustive investigation of the respondent's records and referred to three instances of possible breaches of the Income Tax Act in their information: the warrants should have been limited to the few documents relating to those breaches. The warrants in that instance described distinct categories of items to be searched and were restricted to specific years. The descriptions concluded with the words “relating to or necessary for the determination of taxable income and tax payable”. The Court found that because of the extent and complexity of business affairs made possible by modern technology and merchandising methods, it was impossible to define with more precision the documents sought in those cases. On that ground, the Court held that having regard to the nature of the offence, there was sufficient specificity and particularity in the warrants and in that regard did not breach section 8 of the Charter.

The warrants attacked in these motions before me are quite elaborate. They first describe the particulars of all the offences that the affiant has reasonable grounds to believe were committed by the various parties who are now the applicants. Then, in each case, they describe the premises to be searched. To each warrant there is attached an appendix which outlines the research projects involved, the relevant period to which the documents pertain and a general description of each type of document. The descriptions conclude with the words “relating to or necessary for the determination of". Thereafter follow the items under investigation, such as scientific research expenditures, taxable income and tax payable under the Income Tax Act. In my view, these warrants show sufficient specificity in the circumstances.

The standard of "reasonable ground to believe” is not to be equated with proof beyond reasonable doubt as in a criminal offence, but merely the civil standard of reasonable probability (see Regina v. Debot (1986), 54 C.R. (3d) 120 at 132).

Finally, the fourth ground advanced by the applicants is that the warrants offend the Canadian Charter of Rights and Freedom and in particular sections 7 and 8.

In Kruger et al. v. M.N.R., [1983] C.T.C. 319; 150 D.L.R. (3d) 176 (F.C.T.D.), I found that the former subsection 231(4) of the Income Tax Act dealing with search and seizure was in contravention of the Charter and therefore ultra vires. That decision was confirmed by the Federal Court of Appeal, [1984] C.T.C. 506; 13 D.L.R. (4th) 706. Pratte, J., speaking for the majority put the question and gave his answer as follows at pages 512 (D.C.R. 716-17):

What is challenged is the constitutionality of that subsection in so far as it confers on the Minister, when he has grounds to believe that one particular offence has been committed, the power to authorize a general search and seizure relating to the violation of any of the provisions of the Income Tax Act. . . However, I cannot accept the general proposition that the mere fact that a taxpayer has, at a particular time, committed an offence under the Income Tax Act or the regulations, however trifling that offence, affords sufficient justification for the general power of search and seizure conferred by subsection 231(4). In my view, that subsection violates section 8 of the Constitution Act, 1982, in that it contravenes the right of the taxpayer "to be secure against unreasonable search or seizure".

In the Print Three case aforementioned, MacKinnon, A.C.J.O. canvassed the jurisprudence and the grounds for holding the subsection in breach of section 8 of the Charter. For convenience, these grounds may be outlined as follows:

(i) The section authorized entry to search for all documents that may afford evidence to any violation of the Act;

(ii) This section authorized entry to search for all documents that may afford evidence to the violation of a regulation respecting the Act;

(iii) It did not provide for an independent arbiter;

(iv) There was no requirement that the authorising authority be satisfied on reasonable grounds that an offence had been committed;

(v) It did not require a belief that evidence was likely to be found at the place of the search;

(vi) There was no requirement that the grounds of the Minister as to his belief be presented to the Judge;

(vii) This section provided no direction as to what was to be issued by the Judge in granting approval, (i.e. was it to be a Warrant?);

(viii) The Minister was not required in the authorization to specify the things to be searched for.

The new section 231.3 was clearly designed by Parliament to meet those objections. The amended provision now provides these safeguards:

(i) For an independent arbiter (a judge) to issue the warrant;

(ii) That the warrant should be in writing with contents as specified in subsection 4;

(iii) That the warrant may only issue for an offence under the Act; offences under the Regulations having been dropped;

(iv) That the judge must be satisfied on reasonable grounds that an offence under the Act has been committed and that evidence is likely to be found at the place of the search and that such grounds be presented on oath to the judge;

(v) The warrant is required to be reasonably specific as to any document or thing to be searched for and seized;

(vi) The judge is permitted on his own motion or on summary application by an interested person to order the return of any document or thing seized, if

(a) it will not be required for an investigation for a criminal proceeding, or

(b) if it was not seized in accordance with the warrant.

It is true that subsection 231.3(5) still provides that a person may seize "in addition to the document or thing referred to in subsection (1), any other document or thing that he believes on reasonable grounds affords evidence of the commission of an offence under this Act". But, in my view, the additional safeguards afforded by the new section 231.3 clearly make the search and seizure procedure acceptable and within the “reasonable limit prescribed by law" under section 1 of the Charter.

Consequently, the motions to quash are denied and any orders of the Court with regard to the sealing of documents obtained pursuant to the search warrants are vacated subject to the claims for solicitor/client privileges with respect to documents seized from the premises of Walsh, MacKay Company in Winnipeg and Clark, Diamond and Crump in Calgary. The Crown is not seeking costs and none will be granted. Both sides have requested a 20-day stay of proceedings to allow for possible appeals, which request is hereby granted.

Motions denied.