2013 FCA 50
OF NATIONAL REVENUE
RBC LIFE INSURANCE COMPANY,
BMO LIFE ASSURANCE COMPANY,
INDUSTRIAL ALLIANCE PACIFIC
FINANCIAL SERVICES INC., and
INDUSTRIELLE ALLIANCE ASSURANCE
Minister appeals from a judgment dated November 1, 2011 of the Federal Court (per
Justice Tremblay-Lamer): 2011 FC 1249.
Federal Court cancelled four authorizations previously obtained by the Minister
under subsection 231.2(3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.). The authorizations required RBC Life Insurance Company, Industrial
Alliance Pacific Insurance and Financial Services Inc., Industrielle Alliance
Assurance et Services Financiers Inc., and BMO Life Assurance Company (the
“respondents”) to produce information and documents relating to certain of
their customers. These customers had purchased a particular insurance product
known as the “10-8 plan.”
the reasons that follow, I would dismiss the appeal with costs to the
respondents brought a cross-appeal seeking a declaration that subsection
231.2(3) of the Act is of no force or effect because it unjustifiably infringes
section 8 of the Canadian Charter of Rights and Freedoms. They brought
this cross-appeal in case their defence to the main appeal was unsuccessful. As
their defence to the main appeal has been successful, I would dismiss the
cross-appeal on account of mootness, but with costs to the respondents.
pursuit of verifying compliance with the Act, occasionally the Minister
requires third parties, such as employers or here, insurers, to provide
information about unnamed taxpayers. The Act sets out the following procedures
for the Minister to compel these third parties to produce the information:
Minister can obtain, ex parte, an authorization from a judge requiring
the third party to provide information about unnamed taxpayers: subsection
231.2(3) of the Act. At this initial ex parte stage, the Minister must
satisfy the judge that two preconditions are met: the unnamed taxpayers are
ascertainable and the authorization’s purpose is to verify the unnamed
taxpayers’ compliance with the Act.
becoming aware of the authorization, the third party can apply to have it
reviewed. The reviewing judge may cancel, confirm, or vary the authorization:
subsection 231.2(6) of the Act.
If the authorization has not been
cancelled, the Minister may enforce the authorization through a compliance
order: section 231.7 of the Act.
text of these provisions is as follows:
231.2. (3) On
ex parte application by the Minister, a judge may, subject to such conditions
as the judge considers appropriate, authorize the Minister to impose on a
third party a requirement under subsection
231.2(1) relating to an unnamed
person or more than one unnamed person (in this section referred to as the
“group”) where the judge is satisfied by information on oath that
the person or group is ascertainable; and
the requirement is made to verify compliance by the person or persons in the
group with any duty or obligation under this Act.
(5) Where an
authorization is granted under subsection
231.2(3), a third party on whom a notice is served under subsection 231.2(1) may, within 15 days after the
service of the notice, apply to the judge who granted the authorization or,
where the judge is unable to act, to another judge of the same court for a
review of the authorization.
(6) On hearing an
application under subsection
231.2(5), a judge may cancel the authorization previously granted if the
judge is not then satisfied that the conditions in paragraphs 231.2(3)(a)
and 231.2(3)(b) have been met and the judge may confirm or vary the
authorization if the judge is satisfied that those conditions have been met.
231.7. (1) On summary application by
the Minister, a judge may, notwithstanding subsection 238(2), order a person
to provide any access, assistance, information or document sought by the
Minister under section 231.1 or 231.2 if the judge is satisfied that
person was required under section 231.1 or 231.2 to provide the access,
assistance, information or document and did not do so; and
case of information or a document, the information or document is not
protected from disclosure by solicitor-client privilege (within the meaning
of subsection 232(1)).
application under subsection (1) must not be heard before the end of five
clear days from the day the notice of application is served on the person
against whom the order is sought.
judge making an order under subsection (1) may impose any conditions in
respect of the order that the judge considers appropriate.
a person fails or refuses to comply with an order, a judge may find the
person in contempt of court and the person is subject to the processes and
punishments of the court to which the judge is appointed.
order by a judge under subsection (1) may be appealed to a court having
appellate jurisdiction over decisions of the court to which the judge is
appointed. An appeal does not suspend the execution of the order unless it is
so ordered by a judge of the court to which the appeal is made.
231.2. (3) Sur
requête ex parte du ministre, un juge peut, aux conditions qu’il estime
indiquées, autoriser le ministre à exiger d’un tiers la fourniture de
renseignements ou production de documents prévue au paragraphe (1) concernant
une personne non désignée nommément ou plus d’une personne non désignée
nommément — appelée « groupe » au présent article —, s’il est convaincu, sur
dénonciation sous serment, de ce qui suit :
a) cette personne
ou ce groupe est identifiable;
fourniture ou la production est exigée pour vérifier si cette personne ou les
personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la
(5) Le tiers à qui un avis est signifié
ou envoyé conformément au paragraphe (1) peut, dans les 15 jours suivant la
date de signification ou d’envoi, demander au juge qui a accordé
l’autorisation prévue au paragraphe (3) ou, en cas d’incapacité de ce juge, à
un autre juge du même tribunal de réviser l’autorisation.
(6) À l’audition de la requête prévue
au paragraphe (5), le juge peut annuler l’autorisation accordée
antérieurement s’il n’est pas convaincu de l’existence des conditions prévues
aux alinéas (3)a) et b).
Il peut la confirmer ou la modifier s’il est convaincu de leur existence.
231.7. (1) Sur demande
sommaire du minister, un judge peut, malgré le paragraphe 238(2), ordonner à
une personne de fournier l’accès, l’aide, les renseignements ou les documents
que le minister cherche à obtenir en vertu des articles 231.1 ou 231.2 s’il
est convaincu de ce que suit:
personne n’a pas fourni l’accès, l’aide, les renseignements ou les documents
bien qu’elle en soit tenue par les articles 231.1 ou 231.2;
de renseignements ou de documents, le privilèges des communications entre
client et avocat, au sens du paragraphe 232(1), ne peut être invoqué à leur
La demande n’est entendue qu’une fois écoulés cinq jours francs après
signification d’un avis de la demande à la personne à l’égard de laquelle
l’ordonnance est demandée.
Le juge peut imposer, à l’égard de l’ordonnance, les conditions qu’il estime
Quiconque refuse ou fait défaut de se conformer à une ordonnance peut être
reconnu coupable d’outrage au tribunal; il est alors sujet aux procédures et
sanctions du tribunal l’ayant ainsi reconnu coupable.
L’ordonnance visée au paragraphe (1) est susceptible d’appel devant le
tribunal ayant compétence pour entendre les appels des décisions du tribunal
ayant rendu l’ordonnance. Toutefois, l’appel n’a pas pour effet des suspendre
l’exécution de l’ordonnance, sauf ordonnance contraire d’un juge du tribunal
saisi de l’appel.
basic facts and the Federal Court’s decision
an ex parte basis, the Federal Court issued the authorizations. The
respondents applied to have them reviewed. The Federal Court cancelled the
authorizations. It invoked two bases for its decision.
the Federal Court found that the Minister had not disclosed a significant
amount of relevant evidence on the ex parte applications. Therefore,
“the Court was not in a position to appreciate the full context in which the
Minister brought the ex parte applications”: Reasons, paragraph 14. In
particular, the Federal Court identified four categories of material facts that
were not disclosed to the Court on the ex parte applications:
Department of Finance’s refusal to amend the Act to address outdated
contained in an advance income tax ruling request, information that was
relevant to determining whether there was compliance with the Act;
Canada Revenue Agency’s decision to “send a message to the industry” by
refusing to answer the advance income ruling request and to take measures to
chill the 10-8 plan business, in part by undertaking an “audit blitz”; and
Canada Revenue Agency’s GAAR Committee had determined that the 10-8 plans
likely complied with the letter of the Act, if not the spirit.
the Federal Court found the Minister failed to establish one of the two preconditions,
namely that the authorizations were made to verify compliance with the Act:
paragraph 231.1(3)(b) of the Act. While the Federal Court accepted that
the Minister had a valid audit purpose, on the evidence this was “extraneous to
her primary goal, which was to chill [the respondents’] 10-8 plan business,” a
business that on policy grounds the Minister disliked. The Minister’s “true
purpose was to achieve through audits what the Department of Finance refused to
do” by enacting that policy “through legislative amendment.” Further, on the
evidence the Federal Court was “not satisfied that the requirements [were]
actually necessary for the Minister to verify compliance with the Act.” See
Reasons, at paragraphs 58-60.
Minister appeals to this Court.
standard of review on appeal
parties are agreed that the normal, two-fold appellate standard of review
Federal Court’s findings on questions of law must be correct.
an extricable question of law is present, its findings on questions of mixed
law and fact, including exercises of fact-based discretion, can only be set
aside on the basis of palpable and overriding error.
(Housen v. Nikolaisen, 2002 SCC
33,  2 S.C.R. 235 at paragraphs 8 and 36.)
and overriding error is a “highly deferential standard of review.” A palpable
error is one that is “obvious.” An overriding error is one that “goes to
the very core of the outcome of the case.” See Canada v. South
Yukon Forest Corporation, 2012 FCA 165 at paragraph 46. For
example, a complete lack of evidence to support a factual finding key to the
outcome of the case qualifies as a palpable and overriding error: Hershkovitz
v. Tyco Safety Products Canada Ltd., 2010 FCA 190 at paragraph 39.
Minister’s submissions, described below, raise three questions for our
is the jurisdiction of the Federal Court on an ex parte application
under subsection 231.2(3) and on a review under 231.2(6)?
the Minister make full and frank disclosure of relevant information on the ex
parte application in this case?
(3) Did the
Minister’s valid audit purpose save the authorizations?
(1) What is the
jurisdiction of the Federal Court on an ex parte application under
subsection 231.2(3) and on a review under 231.2(6)?
oral submissions before us, the Minister submitted that a judge can refuse to
grant an authorization under subsection 231.2(3), even where the two
preconditions in paragraphs 231.2(3)(a) and (b) are met. In
short, the authorizing judge has discretion.
the Minister submitted that a reviewing judge under subsection 231.2(6) does
not have discretion. Instead, the reviewing judge is only to verify whether the
two preconditions in paragraphs 231.2(3)(a) and (b) are met.
Therefore, if the preconditions are met – i.e., the unnamed taxpayers
are ascertainable and the authorization’s purpose is to verify the unnamed
taxpayers’ compliance with the Act – the reviewing judge can do nothing more.
The authorization must be upheld.
the Minister’s view of subsection 231.2(6), the reviewing judge cannot set
aside an authorization on the ground that the Minister did not make full and
frank disclosure of relevant information on the ex parte application
under subsection 231.2(3). The Federal Court judge did exactly that. Therefore,
according to the Minister, the Federal Court judge erred.
disagree with the Minister’s interpretation of subsection 231.2(6). Under that
subsection, the reviewing judge’s task is not as limited as the Minister
subsections 231.2(3) and 231.2(6) provide that the judge “may” do something.
Yet, in the face of the use of the word “may” in both subsections, curiously
the Minister admits the existence of discretion in one subsection, but not in
The plain wording of subsection 231.2(6) shows that the reviewing
judge is free to go beyond the two statutory preconditions and exercise a
discretion regarding whether the authorization should be left in place. In the
words of the subsection, a judge “may…vary” the authorization even where “the
judge is satisfied that [the two preconditions] have been met.” Importantly,
the subsection uses the word, “may,” rather than “shall.”
This makes sense. If, as the Minister concedes, the judge can
exercise discretion on an ex parte application under subsection
231.2(3), why wouldn’t the judge have an equally broad discretion on a review
under subsection 231.2(6)? Express wording – not present here – would be
required to cut down the nature of the review under subsection 231.2(6).
purposes underlying subsections 231.2(3) and 231.2(6) also suggest the
Minister’s interpretation is incorrect. Before us, the Minister observed that
these subsections rest within the enforcement and investigation part of the
Act, a part aimed at empowering the Minister to verify taxpayer compliance with
the Act, and detect breaches. However, in response to a question posed by this
Court, the Minister conceded that the enforcement and investigation part of the
Act also aims to ensure the fair and proper treatment of persons subjected to
the Minister’s investigative powers.
subsections 231.2(3) and 231.2(6) express this dual purpose. Subsection
231.2(3) empowers the Minister to obtain authorizations in certain
circumstances. But judicial oversight pervades the process, both at the initial
ex parte stage, and later if there is a review under subsection
231.2(6). Judicial oversight is necessary because authorizations can intrude on
third parties’ privacy interests:
Intrusion into the privacy of individuals is always
a sensitive matter, especially when third parties, who themselves may have
valid reasons for not wanting to disclose, are required to provide the
information. Undoubtedly this is the reason Parliament saw fit to require the
Minister to obtain Court authorization for such intrusion upon satisfying the
Court of the matters specified in subsection 231.2(3).
Sand Exploration Limited (1995), 95 D.T.C. 5358 (F.C.T.D.) at page 5362, per
J. (as he then was).)
Court has found that authorizations under subsection 231.2(3) can only be
granted where the two statutory preconditions are met and where, in the Court’s
discretion, the granting of the authorizations is warranted in the
circumstances. The element of discretion is vital. As Noël J.A. has explained:
[T]he existence of judicial discretion is essential
to the constitutional validity of this type of provision, which is comparable
to a seizure even when used in a regulatory (or even non-criminal) context. It
is this discretion, conferred upon an independent judge, which protects
individuals from the damaging use of this kind of power and brings it into line
with the requirements of section 8 of the Canadian Charter of Rights and
(M.N.R. v. Derakhshani, 2009
FCA 190 at paragraph 19.)
Minister says that Derakhshani is irrelevant to the issue of whether the
reviewing judge has discretion under subsection 231.2(6). She says that it
concerns ex parte applications under subsection 231.2(3), not reviews
under subsection 231.2(6).
disagree. In Derakhshani, this Court examined subsection 231.2(3) in the
context of subsection 231.2(6) and, as can be seen in the above passage, spoke
in broad terms. The observations in Derakhshani were integral to its
decision, not mere obiter. Further, the review under subsection 231.2(6)
cannot be divorced from what it is reviewing, the authorization under
subsection 231.2(3). To the extent that Derakhshani focused only upon
subsection 231.2(3) – which I do not accept – it has a clear import for
seeking an authorization under subsection 231.2(3), the Minister cannot leave “a
judge…in the dark” on facts relevant to the exercise of discretion, even if
those facts are harmful to the Minister’s case: Derakhshani, supra
at paragraph 29; M.N.R. v. Weldon Parent Inc., 2006 FC 67 at paragraphs
153-155 and 172. The Minister has a “high standard of good faith” to make “full
disclosure” so as to “fully justify” an ex parte order under subsection
231.1(3): M.N.R. v. National Foundation for Christian Leadership, 2004
FC 1753, aff’d 2005 FCA 246 at paragraphs 15-16. See also Canada Revenue
Agency, Acquiring Information from Taxpayers, Registrants and Third Parties
(issued June 2010).
To the extent possible, the reviewing judge under subsection
231.2(6) is the same judge who issued the authorization under subsection
231.2(3): see subsection 231.2(5). If, on review, it were a simple matter of
ensuring that the two statutory preconditions are met, any judge would be
satisfactory. But under this statutory scheme, the original authorizing judge
conducts the review, a judge who knows the original information submitted in
support of the exercise of discretion in favour of granting the authorization.
This also suggests that the review under subsection 231.2(6) must include a
discretionary element and is not limited just to verifying that the two
statutory preconditions are met.
Were this not so, a startling implication arises. Under the
Minister’s interpretation, the Minister could withhold important information
from the authorizing judge under subsection 231.2(3) – information that would
have caused the authorizing judge to exercise the discretion to deny
authorization – but on a review under subsection 231.2(6), that same judge must
uphold the authorization if he or she finds the two statutory preconditions to
be met. The judge – despite knowing of the non-disclosure of important
information that would have caused her to deny authorization – is nothing
more than a cipher, powerless to act, forced to leave the ill-gotten
authorization in place.
Of course, more extreme facts – not present here – can be
supposed. On the Minister’s interpretation, the authorizing judge could be
induced to grant an authorization on the basis of bald lies but, on review, if
the statutory preconditions are met, that same judge, having discovered she was
deceived, can do nothing about it.
The Minister submits that any relevant non-disclosure or
misinformation on an ex parte application under subsection 231.2(3) can
always be addressed by the reviewing judge because instances of non-disclosure
or misinformation will always relate to one or both of the two preconditions
for an authorization under subsection 231.2(3). I disagree. Information can be
relevant to the discretion under subsection 231.2(3), not only to the two
statutory preconditions. For example, the evidence adduced by the Minister may
suggest that the two statutory preconditions are met, but, through
non-disclosure or misinformation, the Minister could cast relevant taxpayers in
a worse light than they deserve. Or the Minister could misinform the judge
about the inconvenience and cost to persons who will be subject to the
authorization. In both instances, the non-disclosure or misinformation could
unfairly affect the judge’s discretion.
Minister’s submission also raises issues of a more fundamental nature. A breach
of the obligation to make full and frank disclosure of information relevant to
the Court’s exercise of discretion on an ex parte application, such as
that contemplated under subsection 231.2(3), can hobble the Court’s ability to
act properly and judicially, and can result in the making of orders that should
not have been made. It is an abuse of process.
effect, the Minister says that subsections 231.2(3) and 231.2(6) constitute a
complete code, ousting the Court’s ability to redress such an abuse of process. I
Federal Courts have a power, independent of statute, to redress abuses of
process, such as the failure to make full and frank disclosure of relevant
information on an ex parte application: Indian Manufacturing Ltd. et
al. v. Lo et al. (1997), 75 C.P.R. (3d) 338 at page 342 (F.C.A.); May
& Baker (Canada) Ltd. v. Motor Tanker “Oak”,  1 F.C. 401 at page
authorities speak of the Federal Courts’ power as being “inherent.” At one
time, these authorities were perhaps open to question on the basis that the
Federal Courts, as statutory courts, do not have inherent powers. However, this
is no longer the case.
Supreme Court has confirmed the existence of “plenary powers” in the Federal
Courts, analogous to the inherent powers of provincial superior courts: Canada
(Human Rights Commission) v. Canadian Liberty Net,  1 S.C.R. 626 at
paragraphs 35 to 38 (a case arising in another context, but stating a principle
of universal application). These plenary powers are especially live in
situations where the Court is exercising its “superintending power over the
Minister’s actions in administering and enforcing the Act”: Derakhshani,
supra at paragraphs 10‑11.
my view, the Federal Courts’ power to investigate, detect and, if necessary,
redress abuses of its own processes is a plenary power that exists outside of
any statutory grant, an “immanent attribute” part of its “essential character”
as a court, just like the provincial superior courts with inherent
jurisdiction: see MacMillan Bloedel Ltd. v. Simpson,  4 S.C.R. 725
at paragraph 30. The Federal Courts’ power to control the integrity of its own
processes is part of its core function, essential for the due administration of
justice, the preservation of the rule of law and the maintenance of a proper
balance of power among the legislative, executive and judicial branches of
government. Without that power, any court – even a court under section 101 of
the Constitution Act, 1867 – is emasculated, and is not really a court
at all. See MacMillan Bloedel, supra at paragraphs 30-38, citing
with approval K. Mason, “The Inherent Jurisdiction of the Court” (1983), 57
A.L.J. 449 at page 449 and I.H. Jacobs, “The Inherent Jurisdiction of the
Court” (1970), 23 C.L.P. 23; and see also Crevier v. Quebec (A.G.),
 2 S.C.R. 220.
the foregoing, it follows that I cannot accept the Minister’s contention that
subsections 231.2(3) and 231.2(6) constitute a complete code ousting the power
of the Court to investigate, detect and, if necessary, redress abuses of its
conclude that when the Federal Court was engaged in its review under subsection
231.2(6) in this case, it had the power to cancel the authorizations it granted
on the ground that, in its view, the Minister had not made full and frank
disclosure to it on the ex parte application under subsection 231.2(3).
(2) Did the
Minister make full and frank disclosure of relevant information on the ex
parte application in this case?
Minister answers this in the affirmative. In particular, the Minister
challenges the Federal Court’s assessment that the undisclosed information,
summarized in paragraph 8, above, was relevant to its discretion to grant the
authorizations under subsection 231.2(3).
am satisfied that the Federal Court had a basis for finding that the factual
matters in paragraph 8, above, were relevant to the discretion whether the
authorizations should have been granted under subsection 231.2(3) in these
circumstances. The Federal Court’s finding of relevance in this case was a
finding of mixed fact and law suffused by factual appreciation, and no legal
principle is extricable. Accordingly, on the basis of Housen, supra,
it is incumbent on the Minister to demonstrate palpable and overriding error.
The Minister has not done so.
addition, the existence of each of the factual matters described in paragraph 8,
above, was supported by some evidence in the record, and sometimes plenty of
evidence in the record: see the references in the respondent’s memorandum,
footnotes 38 to 101, 165, 167 and 169, each of which the Court has verified for
a valid audit purpose save the authorizations?
Minister submits that the Federal Court erred in law by overlooking that that
there was evidence upon which the authorizations could have been granted. It
stresses there was a legitimate assessment purpose supporting the
authorizations. According to the Minister, as a matter of statutory
interpretation, as long as an audit purpose supported the issuance of the
authorizations, they should have been upheld.
Federal Court did find that a valid audit purpose existed, but it found it to
be a secondary or subservient purpose to the primary purpose of chilling the
respondent’s business concerning the 10-8 plans. Based on evidence before it,
the Federal Court found that the Minister’s “primary goal” was to chill this
business – a purpose that was not “sufficiently tied to her valid audit
purpose” – and the Federal Court was “not satisfied that the requirements [were]
actually necessary for the Minister to verify compliance with the Act”:
Reasons, at paragraphs 58-60.
were findings of mixed fact and law suffused by facts, findings that can be set
aside only by palpable and overriding error. Absent palpable and overriding
error, it is not for this Court to re-weigh the evidence and find that a valid
audit purpose was the real purpose.
do agree with the Minister that there was some evidence upon which the Federal
Court could have found the two statutory preconditions to be present. There was
some evidence upon which it could have exercised its discretion in favour of
confirming the authorizations on review. But the Federal Court saw the facts
differently and made findings supported by evidence. Absent palpable and
overriding error, its findings and its exercise of discretion must stand.
if the Minister had a valid audit purpose, it was still open to the Federal
Court, on review, to cancel the authorizations because of the Minister’s
non-disclosure of relevant information. Based on the statutory interpretation
above, in its discretion, this it could do. And it did so, finding material
non-disclosure of relevant information on the part of the Minister. In its
view, the culpability of the Minister was significant: the non-disclosure was
“undoubtedly material” and “could certainly have affected the outcome of the ex
parte applications”: Reasons, at paragraphs 39-40 and 44-45.
Federal Court recognized that cancellation of authorizations under subsection
231.2(6) is sometimes necessary to deprive the Minister of an “advantage
improperly obtained.” It recognized that sometimes the Court must exercise its
discretion in order to create a deterrent effect and bring home to the Minister
the “duty of disclosure…and the consequence[s] if [the Minister] fail[s] in
that duty”: Reasons, at paragraphs 29-30.
making these findings and observations, the Federal Court neither erred in
principle, nor committed any palpable and overriding error. On the evidence,
each factual finding was open to the Federal Court and it exercised its
discretion in a lawful manner within the scope of subsection 231.2(6).
appeal was heard on the same day as the appeal in Minister of National
Revenue v. Lordco Parts Ltd., file no. A-106-12. I would direct the
Registry to deliver a copy of our reasons in Lordco to the parties to
this appeal, concurrently with the release of these reasons.
of this appeal
I would dismiss both the appeal and the cross-appeal. The respondents advanced
the cross-appeal only in case their defence to the appeal failed. Their defence
has succeeded. Accordingly, in my view, the respondents have been wholly
successful and I would grant them their costs of both the appeal and the
Johanne Trudel J.A.”
Wyman W. Webb J.A.”