Stanfield v. Canada (Minister of National Revenue), 2004 FC 584

Date: 20040420

Docket: T-1554-02

Citation: 2004 FC 584

BETWEEN:

HUGH STANFIELD, GRETA ANDERSON, ROBERT ANDERSON, DONALD APOLCZER,

CAROL L. APOLCZER, JAMES C. AYEARST, ELIZABETH JOAN AYEARST,

CHRISTINE BANVILLE, BRENT BEYAK, DAVID G. BLISSETT, JAMES L. BRADY,

KEITH BROOKE, GEORGE BURDEN, DONALD CAREY, PATRICIA CARPENTER,

ALAN CARPENTER, MARIA CLARKE, KENNETH CLARKE, JULIA S. CUNDLIFFE,

KATE A DAVIS, LARRY DAVIS, ALLAN DE HAAN, HERB DEMARS,

TERRANCE DUNFORD, IRVINE J. DYCK, NORMA FARENICK, STEPHAN FRALICK,

RENEE GALLANT, ROY GALLANT, MARY GELPKE, PAUL GELPKE,

DIANNE GERMAIN, BEN GOERTZEN, MARTHA GOERTZEN, PETER GRABOSKI,

FRANK GRAF, GARY H. GRUETER, DAVID R. HACKETT, ERIC R. HARRISON,

KENNETH ALLAN HAY, JOHN A. HIGGINS, GEOFFREY HILLIARD,

WILLIAM JOHNSON, PETER LEGER, EDNA L. LINDAL, ROBERT LINDAL, WAYNE

GARRY MARTIN, ED MACINTOSH, ROBERT MCGINN, TERENCE MEADOWS,

ROBERT NABER, EDITH NELSON, GARTH L. NELSON, GLENN PARKER, JOHN L.

PARSONS, HELEN PARSONS, DANNY PAWLACHUK, JOSEPH PENNIMPEDE, IRENE

PENNIMPEDE, BRENDA QUATTRIN, GARRY REIMER, NEIL REINHART, GLEN

ROBBINS, LUC ROBERGE, JOAN ELLEN SABOURIN, PAUL WYATT SABOURIN,

MARK SAMPSON, SUSAN SCOTT, PHILIP SCOTT, MICHAEL SLADE, KAZIK

SMILOWSKI, FRANCES SMILOWSKI, CANDICE STANFIELD, SEONA STEPHEN, JOHN

G. STEPHEN, GREGORY STEVENS, JENNIFER STEVENS, ROGER G. STOGRE, BRIAN

E. STOUTENBURG, LESLEY SUGGITT, JAMES H. SUGGITT, SCOTT THOMSON,

ALLAN TOLSMA, TOM TOLSMA, AGNES DOROTHY TOLSMA, ANDREW TROJNER,

MARY TROJNER, JIM R. TROJNER, GEORGE H. WADSWORTH, SHARON

WADSWORTH, GLENYS WHELAN, EARL WILKES, DAVID J. WILLIAMS, MILDRED

WILLIAMSON, KERRY WILSON, HARVEY YARN, DAVID ZEVICK, PREBEN ANDERSEN,

DANIEL M. ARRIGO, ROBERT P. BLAIR, STEPHEN P. BURKE, BRENT CARLSON,

FIONA DOUGLAS-CRAMPTON, HELEN FADDEN, REID FREDERICK, EDGAR GIESBRECHT,

JOHN GORDON, GARY HAMMER, JOHN F. HEATHE, JUDITH A. KOSTUK, RON A. KROWCHUK, LARRY LEDOUX, PENNY LEDOUX, ERNEST REIMER, LAURIE REIMER, MAXWELL THOMPSON

                                                                                                                                            Applicants

                                                                           and

                                               THE MINISTER OF NATIONAL REVENUE

                                                                                                                                         Respondent

                                                        REASONS FOR ORDER

HARGRAVE P.

[1]                On 17 August 2002 the Minister of National Revenue (the "MNR"), had become concerned about what are characterized as "tax loss arrangements", being in the nature of currency and commodity transactions, spanning a year end, upon which various taxpayers had claimed losses. The MNR therefore sent to the Applicant, Hugh Stanfield, demand in the form of a questionnaire under cover of a letter dated 27 August 2002, the letter containing the statement:

Please be advised that a criminal investigation regarding the promotion of transactions of the type claimed on your income tax return has been undertaken. You are not under investigation at the present time but we wish to advise you that any information submitted may be provided to our Investigations Division for review.

The letter did not say that the recipient would never be under investigation. This uncertainty concerned Mr. Stanfield, who wondered why he should hand over information to the Minister if he was in fact under investigation. He was concerned enough that he sought review of the Minister's demand.

[2]                Mr. Stanfield, in due course, was joined by other concerned taxpayers who now make up the Applicants in this judicial review proceeding. The proceeding is for a declaration that the letter requesting information is invalid or unlawful and that the Minister be prohibited or restrained from taking any action or proceedings against the Applicants for failure to respond to the 27 August 2002 letter.

[3]                The Applicants' position is based upon Jarvis v. The Queen [2002] 3 S.C.R. 757, the effect of which is summed up by Justices Iacobucci and Major, at pages 765-766:

Ultimately, we conclude that compliance audits and tax evasion investigations must be treated differently. While taxpayers are statutorily bound to co-operate with CCRA auditors for tax assessment purposes (which may result in the application of regulatory penalties), there is an adversarial relationship that crystallizes between the taxpayer and the tax officials when the predominant purpose of an official's inquiry is the determination of penal liability. When the officials exercise this authority, constitutional protections against self-incrimination prohibit CCRA officials who are investigating ITA offences from having recourse to the powerful inspection and requirement tools in ss. 231.1(1) and 231.2(1). Rather, CCRA officials who exercise the authority to conduct such investigations must seek search warrants in furtherance of their investigation.

In essence, taxpayers must cooperate with Canada Customs and Revenue Agency (the "CCRA") audits for tax assessment purposes, even though the result may be a regulatory penalty, but an adversarial relationship crystallizes when the predominant purpose of the inquiry is the determination of a penal liability: when this line is crossed the CCRA no longer has recourse to inspection and requirement procedures under the Income Tax Act, but must obtain search warrants in order to further their investigation.

[4]                On the present motion the Applicants seek additional documents on which to cross-examine further on an affidavit sworn on behalf of the Crown and that the Crown's deponent re-attend for further cross-examination to answer questions already asked and to answer proper questions arising out of any additional documents which are ordered produced.

[5]                The result of this motion, based upon the Jarvis case and the law is mixed success.

In order to demonstrate the route to rulings for and against the Applicants I begin with background commencing in the spring of 1999, for there are many events, well before a formal delivery of a file by the Audit branch of the CCRA to the Investigations Division, which might bear on a crystallization of an adversarial situation and preclude information gathering under sections 231.1(1) and 231.2(1) of the Income Tax Act, forcing the CCRA Investigations to proceed by way of search warrant in order to gather information for prosecution purposes.

BACKGROUND

[6]                The submissions of the Applicants are based on events going back to tax loss arrangements in 1998. The involvement of the Respondent's witness, Ms. Deanna Pumple, the deponent of a 31 October 2002 affidavit which is relied upon by the Minister in opposing the judicial review application, is as an auditor. Ms. Pumple worked with the Tax Avoidance Division of the Verification and Enforcement Division of CCRA, which is apparently an audit section. The initial audit related to a 1998 tax loss arrangement referred to the Union Cal Trading Joint Ventures which were, as I have already indicated, currency and commodity transactions straddling a year end, are described by Ms. Pumple as vehicles to realize losses and defer recognition of income. She audited about three quarters of the Applicants.

[7]                Apparently because of the connection between 1998 tax loss arrangements and 1999 tax returns, Ms. Pumple decided, sometime in the first part of 2000, to review the tax returns of those Applicants whom she was auditing, for the 1999 taxation year. This subsequently became a national project, rather than merely one done by Ms. Pumple in the Vancouver Island taxation services office. Thus other CCRA auditors also became involved in reviewing the 1999 tax returns of the Applicants.

[8]                In April 2001 members of the CCRA Investigations Division met with the auditors from the Tax Avoidance Division, who included Ms. Pumple, to share information. As a result of a request by the Investigations Division Ms. Pumple referred various of her files to them and created a chronology for their assistance. At about this point the Investigations Division instructed the Tax Avoidance Division to cease auditing the 1998 and 1999 returns.

[9]                The Investigations Division was involved for the purpose of evaluating whether the Applicants were involved in criminal activities. From time to time Ms. Pumple received requests for and forwarded additional information to the Investigations Division. This seems to have been an ongoing process, with Ms. Pumple from time to time taking or seeking directions from the Investigations Division.

[10]            Some time after April of 2001 a Mr. Kuhn, of Tax Avoidance in Vancouver, was seconded to work for the Investigations Division in Vancouver. He was a member of what was called the Global Prosperity Group Team in the Investigations Division, working directly with its members, although he held himself out as belonging to Tax Avoidance. From the transcript of the examination of Ms. Pumple it is clear that he at least acted as the liaison person between the Tax Avoidance and the Investigations groups.

[11]            About a year after the Investigations group became involved, March 2002, the Investigations Division told the Tax Avoidance Division to recommence the audit for 1998, the result being a Notice of Reassessment for 1998.

[12]            In July 2002 Investigations told Tax Avoidance to recommence auditing the Applicants for their 1999 and 2000 taxation years. This resulted in Ms. Pumple and various other Tax Avoidance officers sending out letters and attached questionnaires, the subject of the present judicial review application.

[13]            Between June 2002 and September 2002 there was a regular exchange of information between Investigations and Tax Avoidance. Examples of the exchange of information show up in a series of emails from Mr. Kuhn, the liaison person between Investigations and Tax Avoidance, instructing CCRA officers as to the audit approach to be taken upon resumption of audit activities. As an example of the interrelationship of the two groups, at the time of the cross-examination of Ms. Pumple, in January of 2003, the tax returns of many of the Applicants were still in the possession of Investigations.

[14]            The Applicants set out in the material that Ms. Pumple did not always have personal knowledge and this is reasonable enough given the magnitude of the project. To inform herself Ms. Pumple communicated with other Tax Avoidance officers. She determined where various of the tax returns were located. However she did not make any inquiries of the head office of the CCRA or speak with anyone at Investigations. Counsel for the Applicants goes on to make a case that Ms. Pumple had really only limited knowledge, for she knew nothing about internal communication within the CCRA, the communications path between head office and Investigations, the concept of a tax shelter, and the role of Investigations. She was unable to speak for Investigations. Further, Ms. Pumple did not prepare the letter or questionnaire at issue, although she did sign the letter. The discovery does indicate that Investigations had some input in drafting the letter, specifically I think the advice of the criminal investigation and that the recipient was not at that point under investigation. From the point of view of the Applicants, the evidence of Ms. Pumple and the documents that she brought with her to the cross-examination do not, in their view, make clear the predominant purpose of the investigation itself, the concept of predominant purpose demonstrating, in some instances, in the crystallization of an adversarial relationship. Thus the Applicants submit they are unable to determine both whether an adversarial situation has crystalized and the clear line between provision of information in an audit setting and the right to refuse information, except as against a search warrant, in an investigation setting.

[15]            Ms. Pumple also refused to answer a number of questions put to her on cross-examination as irrelevant.

[16]            The result of the refusals as to documents and questions is the present motion. I will turn first to the general request for documents contained in the Direction, to Ms. Pumple, to Attend.

CONSIDERATION

Production of Documents by way of Direction to Attend

[17]            The Applicants refer to a Direction to Attend pursuant to Rule 91, served on Ms. Pumple, which requests that she bring with her an exceedingly broad range of documents, including:

all documents and records, including but not limited to electronic documents, in the possession of the Respondent with respect to or mentioning any Applicant for the taxation years affected by this Application, including, but not limited to: ...

[18]            The particular documents which are then outlined, but in very general terms, extend to virtually all documents related to this matter held by Canada Customs and Revenue Agency, including those held by the Investigations Division. Certainly, on its face, the Rule 91 Direction to Attend (as elaborated upon in Rule 94) is broad in that on cross-examination the witness must bring "... all documents and other material in that person's possession, power or control that are relevant ...". However, Rule 91 may not be used to expand production of documents on judicial review so that the process becomes similar to discovery of documents in an action. Certainly a court must have before it sufficient documents to provide an adequate factual record. It is in the interest of justice that production not be limited so as to handicap an applicant. However production of documents in a judicial review setting ought not to be such as to expand the intent of judicial review as a relatively speedy remedy. Rather, production is limited to what is required by relevancy, in the context of judicial review and as set out in the case law.

[19]            By way of example, even in the case of an action, where there is full discovery of all relevant and produceable documents, such a broad request for documents, say that contain in a subpoena duces tecum, may come close to abusing the process of the Court.

[20]            Examining further this concept of too broad a production of documents being abuse of process, I would refer to the views of Mr. Justice MacKay in Merck & Co. Inc. v. Apotex Inc. (1998) 80 C.P.R. (3d) 103 at 107-108. There it concerned Mr. Justice MacKay that by describing and seeking documents too generally and too broadly in the subpoena duces tecum, a party was in effect on a fishing expedition. This use of a subpoena duces tecum was inappropriate. In Merck Mr. Justice MacKay quashed two subpoenas which sought a range of documents similar to the range sought this instance. He required the documents be both discreetly described and significant to the issues before the Court in order "... to avoid further 'sweeps' of the records" (page 108).

[21]            Mr. Justice Pelletier, as he then was, in Bristol-Myers Squibb Co. v. Canada (Attorney General) (2002) 18 C.P.R. (4^th) 353, a judicial review matter, was not about to allow the use of a Rule 91 Direction to Attend to expand production of documents beyond what was allowed pursuant to Rule 317, that is the documents from the tribunal.

[22]            Just as in Merck v. Apotex a broadly worded subpoena duces tecum cannot be used to expand production of documents beyond all reason so may a Rule 91 Direction to Attend not be used in order to obtain documents beyond what is required on judicial review and all the more so given the reasoning and conclusion in Bristol-Myers Squibb (supra). In short, a Rule 91 Direction to Attend cannot be used to obtain full discovery of documents as is the clear intent in this instance. Of course, as Mr. Justice MacKay went on to point out in Merck v. Apotex (supra) that his denial of a general production of documents did not prevent the Plaintiff from making a further subpoena seeking documents described with greater particularity. Keeping in mind, as I have said, that production is limited to what is required by relevancy, determined in the context of judicial review and by the case law, the present denial of wholesale production of documents, by way of a Direction to Attend, does not bar the Applicants from making more limited and specific requests for documents.

Relevance and the Scope of Cross-Examination

[23]            The concept of relevancy is more limited in judicial review than it is in an action. For this proposition and as a basic survey of the principles of cross-examination, I would refer to Merck Frosst Canada Inc. v. Canada (Minister of Health) (1997) 80 C.P.R. (3d) 550. In that case, at page 555, Mr. Justice Hugessen began with the proposition that cross-examination is not examination for discovery: it differs from examination for discovery in various particular aspects which he sets out as:

a) the person examined is a witness not a party;

b) answers given are evidence not admissions;

c) absence of knowledge is an acceptable answer; the witness cannot be            required to inform him or herself;

                d) production of documents can only be required on the same basis as for       any other witness, i.e. if the witness has the custody or control of the       document;

                e) the rules of relevance are more limited.

At issue in Merck Frosst was relevance, an important aspect in the present instance. Therefore it is useful to consider what Mr. Justice Hugessen went on to say:

                Since the objections which have given rise to the motions before me are virtually all based upon relevance, I turn, at once, to that subject.

                For present purposes, I think it is useful to look at relevance as being of two sorts: formal relevance and legal relevance.

                Formal relevance is determined by reference to the issues of fact which separate the parties. In an action those issues are defined by the pleadings, but in an application for judicial review, where there are no pleadings (the notice of motion itself being required to set out only the legal as opposed to the factual grounds for seeking review), the issues are defined by the affidavits which are filed by the parties. Thus, cross-examination of the deponents of an affidavit is limited to those facts sworn to by the deponent and the deponent of any other affidavits filed in the proceeding.

                Over and above formal relevance, however, questions on cross-examination must also meet the requirement of legal relevance. Even when a fact has been sworn to in the proceeding, it does not have legal relevance unless its existence or non-existence can assist in determining whether or not the remedy sought can be granted.

Important principles arise out of these passages. First, formal relevance is based on issues of fact, defined by pleadings in an action and by affidavits in judicial review; second, Mr. Justice Hugessen pointed out that in his view, cross-examination on an affidavit "... is limited to those facts sworn to be the deponent and the deponent of any other affidavits filed in the proceeding.", in essence requiring a factual basis for cross-examination, obtainable from any filed affidavit; and third, legal relevance governs in determining whether the remedy sought is available.

[24]            Whether cross-examination is strictly limited to the facts sworn to in the total of the affidavits filed in a matter is of interest. Certainly, Mr. Justice Muldoon, in Swing Paints Ltd. v. Minwax Co. Inc. [1984] 2 F.C. 521 at 530-531, took a more expansive view, citing sound authority. He felt that the deponent of an affidavit ought not to be able to hide behind skilfully sculpted evidence, but the cross-examination should extend beyond the four corners of an affidavit to encompass "Matters pertinent to the documentation of the issue in respect of which the affidavit was filed." (ibid page 531), that it should extend to collateral questions arising from answers and also matters upon which the witness could fairly be expected to have knowledge, relating to the principal issue in the proceeding, touched upon by the affidavit:

The person making the affidavit must submit himself to cross-examination not only on matters specifically set forth in his affidavit, but also to those collateral questions which arise from his answers. Indeed he should answer all questions, upon which he can be fairly expected to have knowledge, without being evasive, which relate to the principal issue in the proceeding upon which his affidavit touches if it does.

Also on point is Monsanto Canada Inc. v. Novopharm Ltd. (1996) 118 F.T.R. 92 where, at pages 93 and 94, Mr. Justice MacKay adopted a passage from a decision of Madam Justice Reed, in Castlemore Marketing Inc. v. Intercontinental Trade and Finance Corporation et al., an unreported 16 February 1996 decision in file T-2498-95:

"The applicable tests to determine what questions should be answered on cross-examinations on affidavits are set out in Upjohn Inter-American Corporation v. Canada (Minister of National Health and Welfare and Attorney General) et al. (1987), 10 F.T.R. 37. See also Weight Watchers International Inc. v. Weight Watchers of Ontario Ltd. (No. 2) (1972), 6 C.P.R. (2d) 169 (F.C.T.D.). An affiant is required to answer questions on matters which have been set out in the affidavit as well as any collateral questions arising from his or her initial answers. In Bally-Midway Mfg. v. M.J.Z. Electronics Ltd. (1984), 75 C.P.R. (2d) 160, Mr. Justice Dubé stated that cross-examinations on affidavits are confined to 'the issues relevant to the interlocutory injunction and/or all allegations contained in the affidavit'. In Weight Watchers (supra), Mr. Justice Heald relied upon jurisprudence which held that a person cross-examining on an affidavit was not confined to the area within the four corners of the affidavit but could cover any matter relevant to the determination of the issue in respect of which the affidavit was filed. In addition to being relevant, the question of course must not be of such a general nature that it cannot be intelligently answered, and the Court will exercise its discretion and disallow any question which it considers in the nature of a 'fishing expedition'".

This clearly extends cross-examination not only beyond the four corners of the affidavit, but also to questions collateral to answers and to matters "relevant to the issue in respect of which the affidavit was filed": it is also in line with Swing Paint (supra).

Obligations of the Witness to Inform Herself or Himself

[25]            A further point which I should touch upon is whether the deponent of an affidavit may be required to inform herself or himself for the purpose of cross-examination. Certainly Mr. Justice Hugessen, in Merck Frosst (supra) was of the view that the person examined, being a witness and a party, could not be required to inform himself or herself. Yet in Bland v. National Capital Commission (1989) 29 F.T.R. 232 Mr. Justice Martin, after canvassing a large section of the case law, including contrary case law in Laflamme Fourrures (Trois-Rivières) Inc. v. Laflamme Fourrures Inc. (1986) 3 F.T.R. 48, a decision of Mr. Justice Walsh, did send the witness in Bland out to inform himself. This approach is consistent with that of Mr. Justice Nadon, as he then was, in Merck & Co. v. Apotex Inc. (1996) 110 F.T.R. 155 that "... a deponent has a duty to inform himself on matters in issue which are within his knowledge or means of knowledge." (page 149).

[26]            Moreover, and this still deals with a witness obtaining further information, the deponent of an affidavit may be required to produce documents, for cross-examination, in addition to those referred to in an affidavit, but with a limitation that cross-examination upon an affidavit will not be as free ranging as examination for discovery, nor will production of documents be as broad as on examination for discovery:

In my view, the cross-examination upon an affidavit in support of a motion for an interlocutory injunction ought not to be as wide-ranging as an examination for discovery. In the latter proceeding the witness must inform himself, provide answers and produce documents relevant to all the issues raised in the pleadings. The cross-examination upon an affidavit, however, must be confined to the issues relevant to the interlocutory injunction and/or all the allegations contained in the affidavit. In other words, the affiant must answer questions and produce documents relating to all the issues relevant to the interlocutory motion, plus questions on all the other statements he may have volunteered within the four corners of his affidavit. The cross-examiner cannot use the affidavit as a vehicle to obtain all the information and all the documents that might be useful at trial. (Bally-Midway Mfg. Co. V. M.J.A. Electronics Ltd. et al. (1983) 75 C.P.R. (2d) 160 (F.C.T.D.)) [Emphasis added]

Here I recognize that Bally-Midway involved cross-examination on an affidavit in a proceeding in an action, however it demonstrates that cross-examination on an affidavit can go to documents beyond the affidavit, although it is narrower than an examination for discovery.

[27]            There are differences in the approach taken to cross-examination and the breadth of production of documents on cross-examination in many of the reported cases. It may well be that from time to time the nature of the proceeding will mandate slightly fuller production of documents and of answers: here I have in mind particularly where the witness is really an agent of a party. To elaborate, to allow a lower echelon witness, who has very little knowledge of concepts, of what happened and of what is at stake, to hide behind a narrow affidavit, is improper. To allow such would encourage litigants, who in effect are relying upon the witness as agent, to produce a marginal witness. For example corporate and government litigants might be encouraged to produce as a deponent a witness with limited knowledge and involvement. To countenance such would not only foster injustice, but also waste the time and money of all concerned, including litigants, the public and the Court. However I shall now turn to a current decision which has expanded the scope of cross-examination on an affidavit.

[28]            The final case to which I shall refer, as to the scope of cross-examination and production of documents, is Stella Jones Inc. v. Mariana Maritime S.A., an unreported 6 December 2000 decision of the Federal Court of Appeal, docket A-52-00. At trial the judge took a very limited approach to cross-examination on an affidavit and production of documents, essentially limiting such to cross-examination within the affidavit and to a consideration of only the documents which were attached to the affidavit. The Court of Appeal held that previous dealings were relevant and that the deponent might be cross-examined on information which he could have obtained from a co-defendant. The Court of Appeal also required the production of booking notes and bills of lading with respect to previous shipments which, on a reading of the trial decision, unreported 21 January 2000 in docket T-1942-98, were not mentioned in the affidavit material and production of which was denied by the Motions Judge. In essence what the Court of Appeal has done in Stella Jones is not only to broaden cross-examination on an affidavit so that it may extend to relevant matters well beyond the four corners of the affidavit, but also to broaden production of documents by requiring production of material related to previous dealings, being relevant documents clearly outside of the affidavit material itself. The Court of Appeal was of the view that it was not open to the motions judge to exclude the possibility that previous dealings might shed relevant light. Of course cross-examination and document production arising out of cross-examination are bounded by what is relevant, including relevance as discussed by Mr. Justice Hugessen in Merck Frosst (supra) and by the Court of Appeal in Stella Jones Inc. (supra).

[29]            I put emphasis on the Court of Appeal decision in Stella Jones Inc. because I do not accept the argument of Crown that in requiring answers or documents I should not go back in time beyond the 27 August 2002 letter, or perhaps not earlier than 6 June 2002, when there was both some sort of decision apparently made, by the Investigations Division, that the audit process ought to be recommenced, for to take a more limited approach would deny the consideration of all relevant factors as mandated by the Supreme Court in Jarvis (supra). I also note that in June of 2002 the CCRA contemplated a form of the 27 August 2002 letter. Further, the evidence on this motion indicates that at the time of the cross-examination of Ms. Pumple, in January of 2003, material related to some of the Applicants had not been returned to the Audit Division, but was still with the Investigations Division.

Minister's Predominant Purpose

[30]            Before turning to the requests for individual documents, answers to specific questions and the matter of re-attendance for further cross-examination, I should consider the nature of the predominant purpose test referred to in Jarvis (supra). The propriety of a requested document or answer may depend on their relevancy in the context of the predominant purpose test. More specifically, the Supreme Court of Canada has suggested an open-ended list of factors which may go to indicate whether the line, between a cooperative audit for tax assessment purposes and the crystallization of an adversarial relationship when the predominant purpose of an investigation is a determination of penal liability, has been crossed.

[31]            In Jarvis the Supreme Court of Canada speaks of the necessary balance required between the principle against self-crimination and the need to make all evidence available in order to do fundamental justice, in essence a tension between privacy and state interest (see pages 795 and 797). In Jarvis, just as in the present instance, a liberty issue is at stake, there being no presumption of confidentiality, for once an auditor has information or documents, that material may go to the Investigations Division.

[32]            The predominant purpose test is not satisfied by a mere suspicion raised by minor contact between auditor and investigator: that does not signify a cross of the Rubicon between the section 231 requirement that documents be produced to an auditor and a clear adversarial relationship between the taxpayer and the Minister.

[33]            Jarvis teaches that there is no crystallization until there has been a formal referral of a file to the Investigations Division, however in the present instance, there was such a referral followed by a return of the file to the Audit Division, where upon the Audit Division sent out the 27 July 2002 letter to which was attached the very pointed investigation type questionnaire, raising more than a mere suspicion relating to the predominant purpose.

[34]            Certainly, applying Jarvis, where a file has been sent to the Investigations Division, that is a factor going to define the relationship between the taxpayer and the CCRA, just as is the reason for the return of the file from the Investigations Division to the Audit Division. As the Supreme Court of Canada observed at page 806 in Jarvis, one must consider whether the return of the file is because the Investigations Division has declined to take part on the basis there should merely be an audit, or because there is another agenda, that of allowing the Audit Division to use their easy entry into the taxpayer's records to obtain evidence to support a later prosecution and penal liability. Included in the factors to examine which may bear on determination of the one dominant purpose of the CCRA are:

(a)            Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

(b)           Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

(c)           Had the auditor transferred his or her files and materials to the investigators?

(d)           Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

(e)            Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

(f)            Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea, is the evidence relevant only to the taxpayer's penal liability?

(g)            Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

                                                                                                                 [Jarvis at 806-807]

This list contains a broad range of factors and moreover is, as I have said, open-ended.

[35]            If a question or a document might be relevant and proper on cross-examination, using my earlier analysis, and might reasonably go to establishing the predominant purpose of the Minister's inquiry, such questions are answerable and such documents are produceable. Relevant and produceable questions and documents may, on the basis of the Federal Court of Appeal decision in Stella Jones Inc. (supra), include those which bear on the earlier dealings or relationships between the Applicants and the Minister and also the relationship, from time to time, between the Investigations Division and the Audit Division.

[36]            Just as there may be no clear and absolute line between a CCRA investigation and a CCRA audit there is, in the present instance, no clear and absolute evidence indicating whether the predominant purpose has gone from an initial audit intent, to an investigative and penal intent and whether it reverted to an audit purpose when the file subsequently went from the Investigations Division to the Audit Division, for there is no clear indication that the audit process will be the final disposition. As I read the transcript of the cross-examination of Ms. Pumple, who signed the 27 August 2002 letter, it is, as set out in that letter, that the Applicants are not presently under investigation, although "... a criminal investigation regarding the promotion of transactions of the type claimed on your income tax return has been undertaken.". The 27 August 2002 letter is thus far from an assurance that the Applicants are not at risk of a very real criminal investigation. Moreover, the cross-examination of Ms. Pumple establishes that she had no direct personal knowledge that the Applicants were not under criminal investigation and that she had made no inquiries of the Investigations Division personnel who might have personal or direct knowledge as to what the Investigations Division intended of the criminal investigation.

[37]            Here I accept various indicia, as submitted by counsel for the Applicants, that those individuals reasonably believed that they had been and perhaps continue to be under investigation by the Investigations Division for a number of reasons including:

1.         The files of the Applicants went to the Investigations Division in April of 2001.

2.         From that time until at least January of 2003 there was regular contact between the Audit Division and the Investigations Division as to the 1998 through 2001 taxation years.

3.         An Audit Division's employee, Mr. Kuhn, worked with the Investigations Division for some time, although still maintaining, or holding himself out as a member of the Audit Division.

4.         In March 2002 the Investigations Division instructed the Audit Division to recommence gathering information for the 1998 taxation year.

5.         In July of 2002 the Investigations Division instructed the Audit Division to recommence gathering information in respect of the 1999 and 2000 taxation years and at that point the Audit Division sent out letters and questionnaires, the questionnaire being a point to which I will shortly return.

6.         Between June of 2002 and September of 2002 there was a regular exchange of information and emails between the Investigations Division and the Audit Division as to the approach to be taken on resumption of audit activities.

All of this reasonably raises alarm, on the part of the Applicants, that they may still be under investigation, or at least that there may be a clearly contemplated investigation and that for practical purposes there has been a crystallization of an adversarial relationship between the applicant taxpayers and the tax officials, with the predominant purpose of the inquiry being the determination of penal liability, once documents have been gathered from the Applicants by the Audit Division through the so-called cooperative approach with the taxpayers.

[38]            Counsel for the Applicants urged a thoughtful reading of the questionnaire sent out by the CCRA with the 27 August 2002 letter. The letter itself calls upon the taxpayers to produce a very thorough and comprehensive package of documents and information. In effect it is a letter requesting books and records: the questionnaire clearly goes far beyond being a request for books and records, but seeks a good deal of information which either was clearly not covered in the extensive production request in the letter and indeed, looks for information which one might be hard pressed to justify merely on the basis of an audit. A thoughtful reading of the questionnaire can easily lead one to the conclusion that the questionnaire was not something dictated by the needs of and drafted by the Audit Division, but rather is a far more pointed and searching request for information which could well have bearing on the criminal investigation. Finally, and this has direct bearing on the provision of answers and production of documents well before June of 2002, Ms. Pumple did agree, in cross-examination, that the review by the CCRA of the 1998 taxation year was connected to an ongoing review of the taxation years 1999 through 2001, and that investigations undertaken by the CCRA dealt not only with the 1998 taxation year, but also with the 1999 through 2001 taxation years. Indeed, it is fair to say that investigations as to the 1998 taxation year were relevant to the subsequent three taxation years, all being a part of one investigation over a number of years.

Applicants' Requests for Documents

[39]            Question 50 in the 13 January 2003 transcript of the cross-examination of Ms. Pumple refers to a so-called principal file sought by way of the Direction to Attend. As I have indicated, the request in the Direction to Attend is too broad. The result could, in itself, be both a fishing expedition and a part of a full discovery of documents. However the cross-examination then proceeded, with the marking of a document at question 53 called "Unioncal Trading Joint Venture Binder Index", a document prepared by Ms. Pumple which describes what is contained in the principal file. The Defendant has refused to produce the principal file, even though acknowledging that the principal file is relevant to the extent of the 1999 and 2000 taxation years, but denying its relevance with regard to the 27 July 2002 letter.

[40]            Either the document is relevant or it is not: one does not measure relevance in degrees along a scale. The file described by the index which has been produced may well provide background and a basis for the development of and the actual letter of 27 July 2002, information by which to test the predominant purpose of the actions of the Minister as carried out by the CCRA. Moreover, the file requested is apparently in Ms. Pumple's filing cabinet. Its production, as a relevant bundle of documents is justified, for while it may be outside of the four corners of Ms. Pumple's affidavit, it certainly would be indicative of a course of conduct on the part of the Minister and may well have bearing on the issue the Applicants bring to the Court, including the predominant purpose of the CCRA inquiries. The so-called principal file, referred to in question 50 and following, is to be produced.

[41]            Question 58 of the 20 January 2003 transcript is the culmination of answer 52, a babbled and somewhat incomprehensible answer by a discombobulated witness unsure of both what she knew and whether she should tell what she knows. The answer at question 52 certainly establishes a meeting by Ms. Pumple with the Investigations Division in April of 2001. Counsel for the Respondent says the result was a cease and desist direction to the Audit Division by the Investigations Division, which continued until June 2002.

[42]            However, answer 52 also raises the likelihood that a taxpayer, involved in one of the tax loss arrangements had, with her lawyer, come to the Investigations Branch:

Q             So Investigations asked you to refer to them. Do you know how Investigations became aware of this project?

A             I have some - I have some knowledge.

Q             Can you please tell us about that?

A             I hope I'm allowed to say - I mean I don't know, it - as far as I understand it, two things probably precipitated their involvement. But the one thing that I actually have direct knowledge of is that an individual who was involved in one of the Unioncal Trading Joint Ventures came forward with her lawyer to - to Investigations. And so this woman was involved in - in one of the Unioncal Trading Joint Ventures, and that was the tie-in that - enough of a tie-in - I'm speculating on what - what Investigations did there, so I probably shouldn't say that. But that's - that precipitated them finding that, oh, right, Victoria has some Unioncal Trading Joint Ventures files, and - and so does Penticton. I think those were the two. And then - then Investigations said after they looked at what they got, I assume - I mean I'm assuming all sorts of things here. But it's logical to assume that they looked at the information that was provided to them, saw a connection and said, right, we had - we had a meeting and they said, write up what you know.

The reference to "Unioncal Trading Joint Ventures" is apparently what the CCRA called the present grouped tax loss arrangements.

[43]            There are minutes of the April 2001 meeting, Ms. Pumple having a copy but not producing it. While at this point there is nothing to indicate that there were grounds to lay charges, the action of transferring the files to the Investigations Division does fall within one of the factors to consider suggested by the Supreme Court of Canada in Jarvis.

[44]            Production of this material was initially denied on the grounds that Ms. Pumple was not required to produce anything or to inform herself of anything. However, on the case law, that is not the situation (supra, paragraphs 25 through 29) and all the more so in that Ms. Pumple has the minutes in her possession. On the basis of the case law which I have canvassed, including as to production of material relating to previous dealings, the minutes should be produced.

[45]            Question 67 of the 20 January 2003 transcript involves a write up of what Ms. Pumple thought she knew when she transferred the audit files to the Investigations Division. I do not see that some sort of a covering memorandum, clearly given by a witness who, from her testimony, seems to have little or no idea what was going on, is anything more than a fishing expedition, for the Applicants have established that the files were, at that point, transferred from the Audit Division to the Investigations Division. Moreover, Ms. Pumple's view of what might or might not be happening has no relevance as to the intent of the Minister evidenced by whatever Investigations Division decided to do. The referral document, question 67, need not be produced.

[46]            Questions 114, 128 and 136, from the 20 January 2003 transcript, deal with so-called green light memoranda, being memoranda from the Investigations Division to the Audit Division, if I understand it correctly, to go ahead with an audit and the issuance of various letters. Some of that material apparently relates to the carrying forward of losses, however this line of questioning leads toward and culminates in question and answer 136, establishing that various audits and notices of reassessment being sent to Mr. Stanfield.

[47]            Here we have a situation specifically touched upon by the Supreme Court of Canada in Jarvis, the apparent return of the files from the Investigations Division to the Audit Division. The directives from the Investigations Division could conceivably show an intent by the investigators to use the auditors as their agents in the collection of material. This is a reasonable possibility given the pointed and searching request for information which, I have already noted, could well have bearing on the criminal investigation. It is material which should be examined in order to go toward the determination of the predominant purpose of the Minister. What I will refer to generally as the directives of the Investigations Division to the Audit Division to proceed, referred to in questions 114, 128 and 136, are to be produced.

[48]            Question 595 of the 20 January 2003 transcript refers to chronologies prepared by various auditors of the Applicants, early in 2001, being information, judging from the lead up to question 595, which might relate to the investigation by the Investigations Division. This material is similar to that sought and which I have denied, in question 67. It need not be produced.

[49]            At question 793 of the 20 January 2003 transcript at issue is discussion of a meeting of 16 January 2003 and the production of minutes or other documents relating to that meeting. The essence of the objection to production is that a 16 January 2003 meeting cannot possibly shed any light on the 27 August 2002 letter and that the meeting was to discuss an upcoming statutory bar. The second branch of the objection may have some validity. However the Supreme Court, in Jarvis, intends that one look at all of the surrounding factors and it may be that the meeting did deal with information being collected by the Audit Division and again I refer to the probing questionnaire sent out by the Audit Division, indeed a questionnaire which would seem to taint what has taken and is taking place. The question 793 material is to be produced.

Applicants' Request for Answers

[50]            All of the questions to which the Applicants seek answers arise out of the 20 January, 2003 transcript.

[51]            Questions 53 to 55 deal with a meeting with the Investigations Division at their request, in April 2001. At issue is the date of the meeting. I have considered the submissions of counsel and have re-read the passages at issue and the questions leading there. I do not see either formal relevance or legal relevance, as discussed by Mr. Justice Hugessen in Merck Frosst Canada (supra). The actual date of the April 2001 meeting is immaterial and need not be provided.

[52]            Question 69 deals with a different aspect of the April 2001 meeting. From the questions and answers leading up to that question, which is whether anyone from head office was involved in the meeting, it is clear that counsel for the Applicants had become frustrated by the apparent lack of knowledge of Ms. Pumple and of her professed ignorance as to what her job was, and therefore finally asked whether there was anyone from head office present, someone who perhaps could give a more lucid account of what the meeting was about. Thus the request for the name of someone who was at the meeting who might actually know what happened.

[53]            There has certainly never been any property in witnesses and that is the tenor of Mr. Justice Berger's discussion as to naming witnesses in Ansley v. Ansley [1973] 5 W.W.R. 181, the historic aspects of decision being interesting in that the decision predates the codification of the point in the British Columbia Rules of Practice. There is a similar codification in Federal Court Rule 240 requiring the provision of names and addresses of witnesses on examination for discovery. But of course Rule 240 applies only to examination for discovery in actions, not cross-examination on affidavits.

[54]            Somewhat more relevant is the decision of Mr. Justice Rothstein, as he then was, in Merck Frosst Canada Inc. v. Canada (1994) 75 F.T.R. 97 at 99, where he adopts the view that cross-examination on an affidavit must be relevant, must be fair and that "There must be a bona fide intention of directing the question to the issue in the proceeding or the credibility of the witness." (page 99). It may well be that counsel for the Applicants is, in this instance, trying to test the credibility of the witness who, while in attendance, seems to have no idea what happened at the meeting in April of 2001. To the contrary, counsel for the Respondent says that this is a fishing expedition. However the question goes beyond that. Counsel for the Applicants is merely trying to find out what happened at a meeting about which the witness can recall little. It is clear from the discussion of counsel, at question 69, that there is a testing of the witness going on, the witness having said that she made appropriate inquiries, but a reading of the transcript demonstrates it is increasingly less likely that she had done so. The witness does, in subsequent questions, set out who in fact was at the meeting. However, the simple, proper and relevant question is whether anyone from head office was involved and that should be answered.

[55]            Questions 147 and 148 raises the issue of when the witness believed the 1999 audits had commenced. Counsel for the Applicants has the best answer he is going to obtain, from the witness, as to when she believes the audit commenced, at questions 163 and 164. There the witness confirms that the audit was ongoing in the year 2000. The questions need not be further answered.

[56]            At question 181 the issue is whether the department had made a decision to issue reassessments for the 1999 and 2000 taxation years. Counsel has an answer to that at question 182, being a negative answer.

[57]            At questions 187 and 188 the issue is whether, there being an upcoming time bar, from the context I think for the 1999 taxation year, seeking waivers from the taxpayers has been considered. Here I question the relevance of the inquiry. However the witness does volunteer that no waiver has been requested. Thus the answer has already been provided.

[58]            At question 199 at issue is whether the Tax Department has considered levying penalties for the 1999 year. Again, that has been answered, in the negative, at question 201.

[59]            Question 207 is quite speculative, the issue being whether there was any reason why penalties would not be levied for the 1999 year. The answer by the witness is that no decision has been made. I do not see the relevance of exploring something that has not come about and seems not to be directly connected to the predominant intent, or any other aspect of this proceeding. The question need not be answered.

[60]            Question 239 asks the date at which Mr. Kuhn, of the Audit Division, went over to Special Investigations. This deals with the secondment of Mr. Kuhn to the Investigations Division. Counsel for the Crown agrees, in the transcript, to provide a date for the secondment, or at least a date as close as possible. Thus an answer to the question is pending.

[61]            At question 540 at issue are the names of 60 or 70 Applicants the cases of whom Mr. Kuhn might have been involved with. Here there is no relevance unless the taxpayers involved in those cases are also Applicants in the present proceeding. Counsel for the Crown goes on to agree to provide that information, to the extent that the Crown's witness is required to inform herself. All of this bears on the general conduct of the CCRA and whether it was consistent with a criminal investigation, whether an auditor was acting as an agent for the Investigations Division and bears on a conclusion as to whether the compliance audit has in reality become a criminal investigation. The question is to be answered.

[62]            At question 792 counsel asks, whether at the meeting on 16 January 2003, there was any discussion as to the passage of information from the Audit Division to the Investigations Division, with the response being to the effect that whatever happened in January of 2003 is irrelevant. Yet if, for example, that topic had come up, it would certainly be relevant within the framework set out by the Supreme Court in Jarvis. Counsel for the Respondent suggests that this is a fishing expedition. However, it is clearly an element that would fall within Jarvis and is needed in order to determine the predominant purpose of the inquiry. The question is to be answered.

[63]            At question 793 the issue is whether the subject of Ms. Pumple's cross-examination was discussed in the course of the 16 January 2003 meeting. Counsel for the Crown makes the point that he has not coached or discussed the cross-examination with Ms. Pumple and that I accept. I do not see the relevance of discussion by the witness, with others in her department, as to what is going on in the legal proceedings. There is a lack of relevance. The question need not be answered.

[64]            At question 862 at issue is whether Ms. Pumple had any communication, as a member of a group of CCRA people dealing with the files of the Applicants, about any different path that might have been followed, as opposed to that set out in Exhibit 4, being material prepared by a Mr. Makeno. Here I see neither formal nor legal relevance. All the more so in that the question deals with a decision as to penalties which has not been made. The question need not be answered.

[65]            The thrust of question 1142 is whether the names of the Applicants, all of whom are being audited for the 1999 and 2000 taxation years, came to the Audit Division by way of the Investigations Division: counsel objects to the question as irrelevant. However, counsel does get an answer at questions 1142 through 1145 to the effect that the Investigations Division, or as it is called in this instance, "Special Investigations", did not furnish any of the names of the Applicants to the Audit Division for auditing. There need be no further answer to question 1142.

CONCLUSION

[66]            Success has been mixed. However it is appropriate in this instance that Ms. Pumple re-attend for further cross-examination, informing herself where that is required, for as I have pointed out a witness can neither hide behind an overly carefully drafted affidavit, nor be a proper witness, in the sense of being an agent for a large entity, without making reasonable inquiries so as to become informed. Ms. Pumple will therefore answer questions as required in these reasons and all proper questions arising both from those answers and from the documents produced.

[67]            In a complex cross-examination on an affidavit, just as in the case of a complex discovery, there is often need for a re-attendance, almost as a matter of course. That should not necessarily be equated with the situation involving a contrary witness, who often must re-attend at his or her own expense, although being an uninformed witness can approach that situation. All of the circumstances considered, the costs of re-attendance will be costs in the cause.

[68]            Success having been mixed, the costs of this motion will also be in the cause.

[69]            Time for the filing of the Applicants' Record is extended until 20 days after the further cross-examination has been completed.

(Sgd.) "John A. Hargrave"

      Prothonotary

                                                FEDERAL COURT

               NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                  T-1554-04

STYLE OF CAUSE: Hugh Stanfield et al v. The Minister of National Revenue

PLACE OF HEARING:                                 Vancouver, B.C.

DATE OF HEARING:                                   February 3, 2003

REASONS FOR ORDER:                           Hargrave, P.

DATED:                     April 20, 2004

APPEARANCES:

Mr. Edwin G. Croft & Mr. Elizabeth Junkin       FOR APPLICANTS

Mr. Robert H. Carvalho                                                FOR RESPONDENT

SOLICITORS OF RECORD:

McCarthy Tétrault LLP                                                 FOR APPLICANTS

Vancouver, B.C.

Mr. Morris Rosenberg                                                   FOR RESPONDENT

Deputy Attorney General of Canada