Reed, J.:—The respondent, Her Majesty the Queen, brings a motion seeking directions pursuant to subsection 232(10) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). This is not the first time this matter has been before the Court. Mr. Justice Muldoon issued an order on March 4, 1992, dismissing a similar motion dated February 26, 1992. The applicants argue that the present motion should be dismissed because it is res judicata as a result of the decision of Mr. Justice Muldoon.
The matter which underlies both the present motion and the earlier motion originated in July 1989 when the respondent requested that Messrs. Fleischer and Kochberg relinquish certain documents relating to their clients, the applicants. This request was made pursuant to section 231 of the Income Tax Act. The applicants objected to relinquishing the documents on the ground that they are covered by solicitor-client privilege. An application dated July 14, 1989, was filed by the applicants, pursuant to subsection 232(4) of the Income Tax Act. That application seeks a determination by the Court as to whether the documents are covered by solicitor-client privilege.
A motion seeking the setting of a date and place for disposition of that application was adjourned on August 8, 1989, to August 29, 1989, by the Associate Chief Justice. On August 29, 1989, he dealt with the motion as follows:
Order of this court dated August 8/89 is amended nunc pro tunc to read, ” Order to go in terms of Notice of Motion herein, adjourned for hearing to August 29/89.”
Further, applicant having been served August 28/89 with the affidavit of David J. Kimball, this motion is adjourned indefinitely, to be brought on upon seven days' notice by either party.
The affidavit of David J. Kimball alleged that the documents in the possession of Messrs. Fleischer and Kochberg were required in order to trace funds which were part of a fraudulent scheme relating to scientific research designations under section 194 of the Income Tax Act. Counsel for the respondent intended to argue on the return of the subsection 232(4) application that any solicitor-client privilege which might exist was nullified because fraud was involved.
Counsel for the applicants has been cross-examining Mr. Kimball on his affidavit and is still in the process of doing so. The respondent clearly has found this frustrating and counsel states that the lengthy cross-examination is protracting the proceedings excessively. Consequently, the respondent, under what appears to be a rubber stamped signature of G.E. Taylor, Director- Taxation, Toronto District Office of the Department of National Revenue, sent Mr. Kochberg a letter dated January 23, 1992, stating that the request for the disclosure of the documents which underlie the claim for privilege was withdrawn. At the same time, the letter advised Mr. Kochberg:
This withdrawal expressly does not constitute an admission of any kind in respect either of the privilege claim or of the potential evidentiary value of the said documents in any proceeding.
Accordingly, to the extent that the said documents belong to you, you are advised to retain them, inter alia, since they may be required as evidence in legal proceedings. In respect of such documents belonging to other parties, any such parties to whom you turn over control of such documents should be advised to retain them, inter alia, because they may be required asevidence in legal proceedings. In the event that such documents were to become required in evidence in any proceeding, their intervening loss, disposal or destruction may, of course, have significant civil or criminal consequences.
Counsel for the respondent then sought directions, as has been noted from this Court, as to the status of the applicants’ subsection 232(4) application. The respondent claims that that issue is now moot. Counsel for the respondent indicated that the respondent wishes to put an end to the cross-examination process. In the respondent's view it has turned into a discovery process by the applicants with a view to use in other proceedings and which the respondent considers to be delaying substantive procedures bein taken. Counsel for the applicants argues that his clients are entitled to have the privilege issue determined or to have the respondent relinquish her request for the documents.
I will deal first with the argument that Mr. Justice Muldoon’s decision of March 4, 1992, renders the respondent's motion res judicata. Counsel cited a number of cases which deal with the issue of res judicata . After reading those decisions, I am not convinced that a decision on a motion for directions is the kind of issue which is final so as to make any further decision with respect thereto res judicata. In addition, in this case it seems clear from Mr. Justice Muldoon's reasons that he considered the respondent's motion a request for a substantive determination (as to whether or not the applicants’ motion pursuant to subsection 232(4) was moot) and not merely an order for directions. As I indicated to counsel, I also had this difficulty. As framed the motion seems to seek a substantive determination in the context of a motion asking for directions.
In any event, in my view the proper course of action is for the respondent to bring on, on seven days’ notice, the motion which was instituted by the applicants in July 1989 and adjourned by the Associate Chief Justice on August 29, 1989. The order of the Associate Chief Justice specifically accords both parties the right to bring the subsection 232(4) application on for a hearing on seven days' notice. It is open to the respondent then to bring that motion on for a hearing and to argue that it should be disposed of even though the cross- examination of Mr. Kimball has not been completed. It is open to the respondent to argue that the application should be dismissed because it is now moot since the attempted seizure of documents to which it relates has been abandoned. If the respondent is successful, I do not think the applicants can legitimately fear an immediate re-seizure of the documents by the respondent pursuant to the investigative provisions of the Income Tax Act. A court would surely prevent such abusive conduct. In addition, counsel for the respondent has given an undertaking on behalf of his client that no such subsequent attempt to obtain the documents for investigative purposes under the Income Tax Act will be made. Whether or not the respondent will in any other proceeding (for example in the context of any future trial) attempt to subpoena such documents and what would be the result of such action is not a matter which this Court need be concerned about for present purposes.
Production of Mr. Sebold for cross-examination
Counsel raised an additional point. If I am wrong in suggesting that the correct procedure is for the respondent to bring forward for disposition the original subsection 232(4) application or if on the hearing of that application the respondent is not successful, then, it will be necessary to know which of the two parties has an obligation to produce Mr. Otto Sebold for cross- examination.
The evidence on which Mr. Kimball based his affidavit dated August 28, 1989, alleging fraud on the part of the applicant taxpayers, was in part based on an affidavit by Mr. Sebold. That affidavit was attached as an exhibit to the affidavit of Mr. Kimball. Mr. Sebold is a resident of the United States. In response to Mr. Kimball's affidavit the applicants filed two additional affidavits by Mr. Sebold dated October 5 and October 25, 1989.
As has been noted, the applicants have been examining Mr. Kimball on his affidavit of August 28, 1989. Counsel for the applicants indicates that when he has finished, he may also wish to cross-examine Mr. Sebold on the affidavit which is appended as an attachment to Mr. Kimball's affidavit. If he determines that such course of action is advisable, he argues that the respondent has an obligation to produce Mr. Sebold for cross-examination. Counsel for the respondent on the other hand argues that the Sebold affidavit upon which he relies has only the status of an attachment to Mr. Kimball's affidavit and as such it is not an affidavit which has been served in the sense in which that term is used in Rule 332.1 of the Federal Court Rules. Counsel for the respondent argues that if the subsection 232(4) application is still extant, however, he will wish to cross-examine Mr. Sebold on the two October 1989 affidavits filed by him in support of the applicants’ position and it is the applicants' responsibility to produce Mr. Sebold for cross-examination on those affidavits.
Counsel for the applicants suggests that the underlying cause of this dispute between the parties is that if the applicants have the obligation to produce Mr. Sebold, this will require him to come to Canada or force the applicants to relinquish their reliance on his affidavits. Counsel for the applicants suggests that the respondent would very much like to see Mr. Sebold come into the jurisdiction perhaps to enable independent proceedings to be taken against him.
In any event, I find counsel for the respondent's argument persuasive. The Sebold affidavit which is produced as an attachment to Mr. Kimball's affidavit has the same status as any other attachment to an affidavit. It does not have an independent status as an affidavit served in these proceedings on which cross- examination pursuant to Rule 332.1 applies. Counsel for the applicants argues that if there is no obligation on the respondent to produce Mr. Sebold then a party could always shield an affiant from cross-examination by placing the affidavit in evidence as an attachment to a purely formal affidavit which says nothing and is signed by someone having minimal real knowledge of the issues. In my view, this argument is not persuasive. If such a practice were adopted it would clearly result in an affidavit which had little or no weight. In the present case Mr. Kimball was the investigating official; his affidavit contains his findings from reviewing various tax returns, bank documents, business records etc..... He interviewed Mr. Sebold in company with an Internal Revenue Officer of the United States Department of Internal Revenue. Mr. Kimball's affidavit is more than just a cover for Mr. Sebold’s affidavit. The fact that Mr. Sebold is not produced by the respondent for cross-examination is a matter which a judge hearing the 232(4) application on the merits, if such a hearing is held, would take into account in weighing the affidavit evidence of Mr. Kimball but there is no obligation on the respondent to produce Mr. Sebold for cross-examination.
There is however an obligation on the applicants, if they wish to rely on the two October 1989 affidavits of Mr. Sebold which they have served in these proceedings to produce Mr. Sebold for cross-examination.
Order
1. With respect to the respondents motion for directions it is open to the respondent to bring forward for disposition, on seven days' notice, the 232(4) application adjourned by the Associate Chief Justice on August 29, 1989;
2.There is no obligation on the respondent to produce Otto Sebold for cross- examination on his affidavit which was filed as an attachment to the affidavit of David J. Kimball dated August 28, 1989.
Order accordingly.
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