Capital Vision Inc. v. Canada (Minister of National Revenue), docket T-493-00

Date: 20000608

Docket: T-493-00

BETWEEN:

      CAPITAL VISION INC. and GREG COLEMAN

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-494-00

AND BETWEEN:

       CVI ART MANAGEMENT INC. and GREG COLEMAN

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-495-00

AND BETWEEN:

                 CVI MANAGEMENT INC. and GREG COLEMAN

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-499-00

AND BETWEEN:

                THE CAPITAL VISION GROUP INC. and GREG COLEMAN

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-496-00

AND BETWEEN:

             BDO DUNWOODY LLP and RALPH T. NEVILLE

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-498-00

AND BETWEEN:

PAUL BAIN and 1271724 ONTARIO INC.

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

Docket: T-497-00

AND BETWEEN:

           671514 ONTARIO LTD. and GERRY JOHN HOGENHOUT

    Applicants

                 and

   MINISTER OF NATIONAL REVENUE

Respondent

    REASONS FOR ORDER

DAWSON J.

[1]                 On March 14, 2000, I heard motions brought by the applicants in these proceedings in which they sought, among other things:

1. an interim order pursuant to section 18.2 of the Federal Court Act, R.S.C. 1985, F. 17 extending the time for compliance with Requirements to Produce Documents and Information (the "Requirements") served on the applicants by the respondent, until 30 days following the final disposition of the application for judicial review of the decision of the respondent to impose the Requirements on the applicants;

2. if necessary, an interim order pursuant to section 18.2 of the Federal Court Act, staying the Requirements and prohibiting and restraining the respondent from taking any steps to enforce the Requirements pending a final determination of the application.

[2]                 The Requirements at issue in these proceedings required that the documentation and information requested by the Minister of National Revenue (the "Minister") be produced by March 16, 2000 for some applicants and by March 31, 2000 for others.

[3]                 On March 15, 2000, I issued orders extending the time for compliance with the Requirements until 30 days following the final disposition of the applications for judicial review. These are my reasons for the issuance of those orders.

FACTUAL BACKGROUND

[4]                 On February 15, 2000, the applicants were served with the Requirements, issued under the Income Tax Act, R.S.C. 1985, c.1 (5^th Supp.) as amended (the "Act") which required that they provide documents and information to the Minister.

[5]                 Capital Vision Inc. is registered as a limited market dealer with the Ontario Securities Commission. CVI Art Management Inc. and CVI Management Inc. are wholly owned subsidiaries of Capital Vision Inc. The Capital Vision Group Inc. is a private holding company which does not actively engage in any business. Greg Coleman is the President and Chief Executive Officer of Capital Vision Inc.

[6]                 The applicant BDO Dunwoody LLP is a firm of chartered accountants and consultants which for the last two fiscal years has provided accounting services to CVI Art Management Inc., CVI Management Inc., Capital Vision Inc. and Greg Coleman. BDO Dunwoody conducted an audit of The Capital Vision Group Inc. during the 1998 and 1999 years and of Capital Vision Inc. during the 1998 fiscal year. It produced financial statements for Capital Vision Inc. for the 1998 and 1999 fiscal years. The applicant Ralph T. Neville is a senior tax accountant with BDO Dunwoody.

[7]                 The applicant 1271724 Ontario Inc., on at least one occasion, bought art works from a charity. The charity had received the art works pursuant to the charitable giving strategy explained below. Paul Bain is a director of that company and a lawyer.

[8]                 The applicant 671514 Ontario Ltd. is a commissioned sales company which is said to promote the charitable giving strategy on behalf of Capital Vision Inc. Gerry Hogenhout is a director and president of that company.

[9]                 Mr. Coleman's evidence, upon which he was not cross-examined, is that in 1996, Capital Vision Inc. and CVI Art Management Inc. created and promoted a charitable giving strategy. The strategy involves the purchase of art in bulk at a significant discount (the price is approximately 10 percent of fair market value) by CVI Art Management Inc. After acquiring pieces of art, CVI Art Management Inc. then creates blocks of art which it sells to purchasers at approximately 28 to 33 percent of the fair market value. CVI Art Management Inc. also arranges for the donation of a purchaser's art to a registered charity or other qualified institution with the result that a purchaser secures both a net savings on the purchase price of the art and a significant tax credit.

[10]            In October and November of 1998, what was then Revenue Canada Taxation contacted Mr. Coleman for the stated purpose of conducting an audit of the 1995-1998 taxation years of Capital Vision Inc.

[11]            Mr. Coleman swears that in November of 1998, he provided representatives of Revenue Canada Taxation with full access to all of the books and records requested. Apparently, he provided all such information by late November 1998.

[12]            Mr. Coleman also swears that at the conclusion of Revenue Canada's investigation, Mr. Teg Mammo, of Revenue Canada, confirmed that Capital Vision Inc. had provided all of the requested information, except for a list of the purchasers of art purchased pursuant to the charitable giving strategy described above.

[13]            With respect to the names of those purchasers, Capital Vision Inc., through its counsel, advised Revenue Canada that it believed it had an obligation to protect the confidentiality of its clients so that it would not disclose its clients' names unless compelled to do so by law. Thus, Capital Vision Inc. blacked out the names of its clients in certain of the documents which it provided to Revenue Canada during the audit.

[14]            Mr. Coleman swears, and was not contradicted, that after November 1998, nothing further happened in respect of the audit until November of 1999 when the respondent moved before this Court, on an ex parte basis, for an order authorizing the Minister to impose on the applicants requirements under the Act to provide information and documents relating to unnamed persons, pursuant to subsections 231.2(1) and 231.2(3) of the Act.

[15]            Subsections 231.2(1), 231.2(2) and 231.2(3) of the Act provide:

[16]            The Minister's ex parte application was supported by the affidavit of a tax auditor, Mark Ferguson, who swore that the respondent sought to impose requirements on the applicants to produce information and documents relating to a group of unnamed persons and that the Minister was seeking to conduct audits of those unnamed taxpayers. Those unnamed taxpayers were identified as being, or having been, clients of Greg Coleman, Capital Vision Inc., or CVI Art Management Inc.

[17]            On November 22, 1999, Reed J. granted an order authorizing the Minister to impose requirements on the applicants to provide information and documents relating to unnamed persons.

[18]            When served with those requirements (which I will refer to as the "Old Requirements") the applicants moved to review the authorization granted ex parte and sought an order quashing or setting aside or varying the Old Requirements.

[19]            Subsequently, counsel for the Minister and counsel for the applicants reached an agreement with respect to the conduct of the proceedings challenging the Old Requirements. The agreement was reflected in correspondence dated December 16, 1999, from then counsel for the Minister, which stated:

As part of this process, all periods specified in the Requirements that have been served pursuant to the Order, including any deadlines for the delivery of the documents covered therein, will be extended until the return of the motion or until the issues are otherwise resolved. As such, it will not be necessary for the Respondents [to the Old Requirements] to obtain an order staying the enforcement of the Requirements or extending the time period set out therein. No position will be taken in the future by the Minister of National Revenue or Canada Customs and Revenue Agency that there has been a failure to comply with the Requirements by proceeding in such a manner.

[20]            Later, on February 9, 2000, counsel for the Minister advised that no steps would be taken to enforce the Old Requirements and that new Requirements would issue. Within the week, the Requirements to produce documents and information at issue in these proceedings were issued and served upon the applicants. The new Requirements were served without judicial authorization, under subsection 231.2(1) of the Act.

[21]            It was the position of counsel for the Minister that the new Requirements made any challenge to the Old Requirements moot. This appears to have been accepted by the parties.

[22]            The new Requirement served on Capital Vision Inc. provided, in part, as follows:

REQUIREMENT TO PROVIDE DOCUMENTS AND INFORMATION

BACKGROUND

1.                  Under paragraph 231.1(1) of the Income Tax Act, R.S.C. 1985 (5^th Supp.), c. 1 (the "Act"), for any purpose related to the administration and enforcement of the Act, a person authorized by the Minister of National Revenue, may inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer that relates or may relate to the information that is or should be in the books and records of the taxpayer or to any amount payable by the taxpayer under the Act.

2.                  Pursuant to paragraph 231.1(1) of the Act, in or around October, 1998, auditors of the Department of National Revenue (now the Canada Customs and Revenue Agency) (hereinafter referred to as the "Agency") commenced an audit of Capital Vision Inc.

3.                  The audit is on-going.

...

5.                  In the course of the audit, the Agency's auditors requested information and documents from Capital Vision Inc. and Gregory Scott Coleman.

6.                  Capital Vision Inc. and Gregory Scott Coleman did not provide all this information and these documents to the Agency's auditors.

7.                  Cliff Rand, counsel for Capital Vision Inc., advised the Applicant, by letter addressed to auditor Teg Mammo, dated November 17, 1998, that Capital Vision Inc. had an obligation to protect the confidentiality of its clients and that therefore it would not disclose its clients' names unless compelled to do so by law. Accordingly, Capital Vision Inc. blacked out the names of its clients in the attachments to this letter, which included invoices. A copy of this letter is attached as Schedule "A" to this Requirement.

...

9.                  To date, neither Capital Vision Inc. nor Gregory Scott Coleman have provided the Agency with all the information and documents requested and, notably, they have not provided the names of Capital Vision Inc.'s or CVI Art Management Inc.'s clients.

...

INFORMATION REQUIRED

12.                  I require the following information: the names and addresses of all of Capital Vision Inc.'s clients in respect of transactions in works of art for the period January 1, 1996 through January 31, 2000.

...

DOCUMENTS REQUIRED

14.                  I require all documents, including, but not limited to, accounts, agreements, books, charts or tables, correspondence, diagrams, forms, images, invoices, letters, maps, memoranda, plans, returns, statements, telegrams, vouchers, and any other thing containing information, whether in writing or in any other form, relating to transactions in works of art, for the period January 1, 1996 through January 31, 2000.

15.                  Without limited the generality of the documentation set out above in paragraph 14, in respect of the period January 1, 1996 through January 31, 2000, I require specifically:

a) the documents described above in paragraph 14 in relation to the individuals listed in the attached Schedule "B" to this Requirement:

b) the documents listed in paragraph 14 that are related to the individuals who are not listed in Schedule "B" to this Requirement. These individuals include the individuals whose names have been blacked out in Schedule "A" of this Requirement.

...

FAILURE TO COMPLY

18.                  If you fail to comply with this Requirement, Capital Vision Inc. and Gregory Scott Coleman may be subject to the provisions of sections 238 and 242 of the Act.

[23]            The Requirements served on the other applicants are, in material part, in the following form:

REQUIREMENT TO PROVIDE DOCUMENTS

BACKGROUND

1.                  Under paragraph 231.1(1) of the Income Tax Act, R.S.C. 1985 (5^th Supp.), c. 1 (the "Act"), for any purpose related to the administration and enforcement of the Act, a person authorized by the Minister of National Revenue, may inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer that relates or may relate to the information that is or should be in the books and records of the taxpayer or to any amount payable by the taxpayer under the Act.

2.                  Pursuant to paragraph 231.1(1) of the Act, in or around October, 1998, auditors of the Department of National Revenue (now the Canada Customs and Revenue Agency) (hereinafter referred to as the "Agency") commenced an audit.

3.                  The audit is on-going.

4.                  Accordingly, this Requirement for documents is served upon you in accordance with paragraph 231.2(1)(b) of the Act, for purposes related to the administration and enforcement of the Act.

...

DOCUMENTS REQUIRED

6.                  I require all documents, including, but not limited to, accounts, agreements, books, charts or tables, correspondence, diagrams, forms, images, invoices, letters, maps, memoranda, plans, returns, statements, telegrams, vouchers, and any other thing containing information, whether in writing or in any other form, relating to transactions in works of art in which the individuals listed in the attached Schedule "A" were involved, for the period January 1, 1996 through January 31, 2000.

7.                  The expression, "transactions in works of art", is defined below.

...

FAILURE TO COMPLY

10.                  If you fail to comply with this Requirement, ... [you] may be subject to the provisions of sections 238 and 242 of the Act.

THE ISSUES

[24]            The Minister characterizes the motions before me as motions whereby the applicants are asking this Court to prevent the laying of charges against them for a failure to comply with requirements to provide documents and information served upon them under subsection 231.2(1) of the Act. The Minister states that this is relief which the Court cannot grant.

[25]            The Minister also submits that there is no need for this Court to grant the relief sought at this time, as the applicants will not be prejudiced unless they fail to comply with the Requirements, are charged, and have process issued against them.

[26]            In any event, the Minister contends that an extension of time for compliance with the Requirements should not be granted and that the applicants do not meet the requirements at law so as to entitle them to an extension.

ANALYSIS

(i) Is there jurisdiction to grant the relief requested?

[27]            As noted, the Minister characterizes the motions for interim relief as motions by which the applicants are trying to prevent prosecution for their failure to comply with the Requirements. The Minister argues that this relief cannot be granted because it interferes with the right to lay an information in respect of the commission of a crime and interferes with prosecutorial discretion.

[28]            This submission is based on the premise that if the applicants fail to comply with the Requirements they may be guilty of an offence and liable, on summary conviction, to a fine or imprisonment as provided by subsection 238(1) of the Act. The Minister submits that the Court cannot interfere with the prosecution of the applicants because the Act provides no relevant limitation on the right to lay an information and the prosecution of the applicants is at the discretion of the Attorney General.

[29]            The Minister relies on the decision of the Supreme Court of Canada in [1983] 2 S.C.R. 144">Dowson v. The Queen, [1983] 2 S.C.R. 144 at page 155 in support of his argument that in the absence of legislation stating otherwise, any person has the right to lay an information without interference.

[30]            The Minister argues that once a summons or a warrant is issued, absent a clear abuse of process, only the Attorney General has the discretion to determine whether to prosecute an accused and that even the Minister cannot interfere with the exercise of this discretion. As authority, the respondent relies on R. v. Power, [1994] 1 S.C.R. 601 at page 613.

[31]            As the Minister cannot prevent the laying of an information against the applicants, or prevent the Attorney General from prosecuting the applicants, the Minister submits that the Court cannot order him to do something that he otherwise could not do.

[32]            The applicants assert that the Court has jurisdiction to grant the requested relief. They observe that the jurisdiction was exercised by this Court on a previous occasion in Licht v. The Queen, 90 DTC 6574 (F.C.T.D.).

[33]            As well, in Bisaillon v. Canada, [1999] F.C.J. No. 898, A-315-99 (September 21, 1999) (C.A.), the Federal Court of Appeal stayed the execution of the requirement of production of documents. The stay was granted until the Court of Appeal rendered its judgment on an appeal from an order of a Judge of the Trial Division dismissing an application to stay the production of documents.

[34]            Further, the applicants say that the jurisdictional argument focusses on their alternate claim to relief, a request for an order restraining the Minister from taking any steps to enforce the Requirements. They submit that the jurisdictional argument is not applicable to a simple request for an extension of time to comply with the Requirements.

[35]            The applicants point out that under the Act, the Minister has both the power to draft the Requirements and the power to specify the time frame in which the Requirements must be complied with. The applicants maintain that they could not hope to obtain a determination of their application for judicial review in the time frame allowed for compliance with the Requirements.

[36]            It follows, therefore, that the effect of the Minister's submission that the Court lacks jurisdiction is to put the Minister beyond the review of the Court, a result that the applicants submit is neither just nor appropriate.

[37]            In Licht, supra, this Court exercised the jurisdiction at issue in circumstances where the jurisdictional argument was not raised.

[38]            Notwithstanding the novel argument of counsel for the respondent, I have concluded that the Court does have jurisdiction, pursuant to section 18.2 of the Federal Court Act, R.S.C. 1985, c. F-7, as amended, to grant an order extending the time for compliance with the Requirements pending the final disposition of the applicants' proceedings for judicial review.

[39]            Section 18.2 of the Federal Court Act provides:

[40]            This section provides a broad jurisdiction to grant interim relief to preserve the status quo pending the final disposition of applications for judicial review.

[41]            I do not accept the Minister's characterization of the motions for interim relief as motions to prevent the laying of criminal charges.

[42]            No charge can be laid unless and until the applicants fail to comply with the requirements within the time allowed. By extending such time in order to preserve the status quo, the Court does not prevent the laying of charges. However, the laying of any charges may be delayed until a final determination as to the validity of the Requirements is made in the Minister's favour.

[43]            I believe that the flaw in the Minister's argument is demonstrated by counsel's acknowledgement, in answer to a question put by the Court, that the Minister can, after issuing a requirement under the Act, extend the time for compliance.

[44]            If the Minister can extend the time for compliance (and did so in the case of the Old Requirements) without improperly interfering with the prosecutorial process, it follows in my view that this Court may also preserve the status quo, without improperly interfering with the prosecutorial process.

[45]            While the argument that the Court lacked jurisdiction to grant the interim relief was not apparently advanced before Cullen J. in Licht, supra, I find support for my conclusion in his decision. There, the Court held that the possibility of prosecution under the Act unless an extension was granted constituted irreparable harm. His reasons demonstrate no concern that the effect of his order might be improper interference with the laying of a charge.

[46]            The Minister sought to distinguish the decision of the Federal Court of Appeal in Bisaillon, supra, on the ground that in that case, the applicants for the extension of time were not parties served with Requirements under the Act and therefore they had no other forum in which to test the validity of the Requirements.

[47]            I do not accept that distinction.

[48]            In my view, if the Court has jurisdiction to extend the time for compliance with a requirement pending an application for judicial review at the behest of the taxpayer whose affairs are the subject of the Minister's attention, the Court must similarly have jurisdiction to grant an extension at the behest of the party served with the Requirements and faced with the prospect of prosecution in the event of non-compliance.

[49]            In either case, the effect of the extension is the same; to potentially delay the laying of any charge.

(ii) Should an extension of time be granted?

[50]            I shall consider under this heading the Minister's submissions that there is no need for the Court to grant the relief requested and that the applicants do not meet the requirements at law for an extension.

[51]            On this last point, the parties are on common ground that the legal test to be met is that set by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (A.G .), [1994] 1 S.C.R. 311. This test requires the applicants to establish that:

a)    there is a serious question to be tried;

b)    the applicants will suffer irreparable harm if the interim order is not granted;            and

c)    the balance of convenience favours granting the interim order.

(a) Is there a serious question to be tried?

Capital Vision Inc.

[52]            The jurisprudence establishes that for a proceeding to raise a serious question, the question to be tried must not be frivolous or vexatious. The threshold is a low one.

[53]            The applicants assert that with respect to the Requirement served on Capital Vision Inc., the Minister was required to obtain judicial authorization because the Requirement seeks information relating to unnamed persons. They say that the Minister's failure to obtain such authorization raises a serious question as to the validity of the Requirement served on Capital Vision Inc.

[54]            In making this submission, the applicants note the wording of subsection 231.2(2) and rely on the following:

(i)             The Requirement [found at paragraph 22 herein] seeks, among other things, the names and addresses of all of the clients of Capital Vision Inc. in respect of transactions in works of art for the period January 1, 1996 through January 31, 2000 as well as the original copies of documents related to individuals whose names were blacked out on documents previously provided by Capital Vision Inc. to the Minister.

(ii)             The Minister did not obtain prior judicial authorization to impose the Requirement on Capital Vision. Inc. (as he did in respect of the Old Requirements).

(iii)             In Andison v. M.N.R., 95 DTC 5058, (F.C.T.D.) Dubé J. stated at page 5060 of his reasons that:

Subsection 231.2(2) of the Income Tax Act prohibits the Minister from issuing a demand to provide information or any document relating to one or more unnamed persons, unless the Minister first obtains the authorization of a judge under subsection 231.2(3). Subsection 231.2(4) provides that where a judicial authorization is granted, the Minister must serve it together with the notice referred to in subsection (1). Thus, the requirement in respect of information or documents pertaining to any unnamed corporation of which Lieberman is a shareholder is invalid. [emphasis added]

[55]            In response, the Minister states that in the course of an audit, the Act allows officials to examine any book, record or document. Documents provided to the Minister's officials by Capital Vision Inc. did not disclose the names of clients. The Minister is not limited to reviewing partial records and the documents. Furthermore, the information requested relates as much to Capital Vision Inc. as to the individuals to which they refer. The Minister submits that without the names of clients of Capital Vision Inc., he has no means of verifying the accuracy of the income and expenses reported by Capital Vision Inc. Having blacked out the names of clients, Capital Vision Inc. cannot now require the Minister to seek judicial authorization to obtain information and documentation relating to Capital Vison Inc., which the Minister was already entitled to examine under section 231.1 of the Act.

[56]            However, in proceedings before Reed J., the Minister's representative swore that the information was required because he sought to conduct audits of the clients of the applicants. The information was not sought for the audit of Capital Vision Inc. I therefore am satisfied that with respect to the Requirement served on Capital Vision Inc., this raises a serious question as to the propriety of the Minister's efforts to determine the identity of specific taxpayers, their addresses and to obtain documents relating to them in the absence of any authorization under subsection 231.2(3) of the Act.

[57]            In reaching that conclusion, I also note the significant length of time between the Minister's last contact with representatives of Capital Vision Inc. (during the Capital Vision audit) and the Minister's steps before this Court to obtain an order authorizing the issuance of the Old Requirements.

Other applicants

[58]            With respect to the Requirements served on the other applicants, the applicants state that the Minister acted without jurisdiction or beyond his jurisdiction in imposing those Requirements because they contain a false or misleading statement of purpose.

[59]            The applicants refer to the affidavit of Mark Ferguson where he swore that the information and documents requested by the Old Requirements were required to verify compliance by unnamed persons with their duties and obligations under the Act. Not long after the applicants instituted proceedings to set aside the Old Requirements, the new Requirements were served on the applicants. Those new Requirements ostensibly sought information and documents in furtherance of the audit of Capital Vision Inc.

[60]            The applicants submit that the Requirements were served to determine whether the taxpayers who purchased art pursuant to their charitable giving strategy had complied with the Act.

[61]            They point to the wording of the Requirements [an example found at paragraph 23 herein] and particularly note paragraphs 2, 3 and 4. In paragraph 2, reference is simply made to the commencement of "an audit". In paragraph 3, the unspecified audit is said to be ongoing. Paragraph 4 begins with the word "Accordingly". The applicants submit that this suggests that the requests are made in connection with the Capital Vision Inc. audit and note that there is no other audit in evidence.

[62]            In Montreal Aluminium Processing Limited et al. v. A. G. of Can. et al., 92 DTC 6567 (F.C.A.), the Federal Court of Appeal, sitting on appeal from an order striking a statement of claim, found that it was at least arguable that the recipient of a requirement was entitled to fair notice of the purpose for which the Minister purported to exercise his powers. Justice Hugessen, for the Court, stated at pages 6569-6570:

It is settled law that the test as to whether or not the Minister, when he exercises his powers under subsection 231.2(1), is acting for a purpose specified in the Act is an objective one⁴. In my view, it is arguable that the recipient of a Requirement is entitled to a fair notice as to the purpose for which the Minister purports to exercise his powers under subsection 231.2(1). Accordingly, it is my opinion that a claim that a false or misleading statement of purpose invalidates a Requirement is not one that it is obvious and beyond doubt will fail.

⁴ [1962] S.C.R. 729"> The Canadian Bank of Commerce v. The Attorney General of Canada, [1962] S.C.R. 729; [1984] 1 S.C.R. 614">James Richardson Sons v. M.N.R., [1984] 1 S.C.R. 614.

[63]            On this basis, the applicants maintain they have established a serious question whether the Minister acted properly in imposing the Requirements.

[64]            Counsel for 671514 Ontario Ltd. and Mr. Hogenhout also argues that the Requirements served on the applicants were in respect of unnamed persons. He notes that in paragraph 1 of the Requirements, reference is made to an audit or examination of the books and records and any document of the taxpayer and that paragraph 2 advises that an audit has been commenced.

[65]            Counsel relies upon the decision of Jerome, A.C.J. (as he then was) in Canadian Forest Products Ltd. et al. v. M.N.R., 96 DTC 6506 (F.C.T.D.). There, the Department of National Revenue had served requirements on companies active in the forest industry in order to obtain information which would allow the department to determine certain prices. Those prices could then be checked by the department against prices reported by companies under audit so that the department could determine whether the companies under audit had accurately reported their income.

[66]            Counsel for the applicants before Jerome A.C.J. submitted that the jurisprudence establishedthat courts favour a formalistic adherence to the rule that the Minister must name those taxpayers under investigation or else proceed by way of subsection 231.2(2) of the Act. Counsel submitted that subsection 231.2(3) was designed to guard against abusive investigations by the Department of National Revenue.

[67]            Associate Chief Justice Jerome concluded that:

The Minister in this case is not seeking information about compliance by the applicants with the Income Tax Act. Rather, she is seeking information relating to the tax returns of unidentified taxpayers. As these taxpayers under investigation are not named, the Minister must proceed by way of subsection 231.2(3) in order to issue a requirement pursuant to subsection 231.2(1). These applications for judicial review of the requirements issued by the respondent pursuant to subsection 231.2(1) of the Income Tax Act are granted with costs.

[68]            Here, counsel for the Minister stated that the Minister still wishes to know whether clients of Capital Vision Inc. complied with the Act and that the applicants had adduced no evidence that the Minister was not genuinely inquiring into the tax affairs of the individuals named in Schedule B to the Capital Vision Inc. Requirement and Schedule A to the other Requirements.

[69]            The Minister submitted that the Requirements were not misleading because the Minister was required under section 241 of the Act to protect the confidentiality of taxpayer information and that in any event, all of the applicants were aware of the Minister's interest in those taxpayers.

[70]            The Minister took the position that as long as he was making a genuine inquiry into the tax affairs of a named person, he was entitled to serve the Requirements for documents under subsection 231.2(1) of the Act in respect of those persons and the named taxpayers need not be under any audit.

[71]            In my view, it is not sufficient for the Minister to argue, for the purpose of submitting that no serious issue is raised, that the applicants have adduced no evidence that the Minister was not genuinely inquiring into the affairs of the individuals named in Schedule A to the Requirements served on the applicants other than Capital Vision Inc. Nor is it sufficient for the Minister to argue, for that same purpose, that the applicants knew that the Minister was interested in information and documents relating to clients of Capital Vision Inc.

[72]            I find that on the wording of the Requirements served upon the applicants other than Capital Vision Inc., a serious issue has been raised as to whether the Requirements were misleading and if so, whether any misleading statement invalidates the Requirements.

[73]            For the reasons submitted by counsel for 671514 Ontario Ltd. and Mr. Hogenhout set out previously, I also find that in the circumstances of this case, a serious issue is raised as to whether or not the failure to specifically name the taxpayers under investigation vitiates the Requirements served on these applicants.

(b) Have the applicants established they face irreparable harm if the extension is not granted?

[74]            The Minister submits that the applicants do not require the relief they seek because the applicants are not obliged to comply with the Requirements. The Minister states that if the applicants fail to comply with the Requirements, they may be charged under either section 238 or section 242 of the Act. The applicants will then have the opportunity to challenge the validity of the Requirements in the criminal courts.

[75]            With respect to the existence of irreparable harm, the Minister states that the prejudice alleged by the applicants is purely speculative and that even if these proceedings become moot, the applicants would not be prejudiced as they can still challenge the validity of the Requirements before a criminal court.

[76]            The Minister relies on the decision of this Court in 047424 NB Inc. v. [1984] 1 S.C.R. 614">M.N.R., 98 DTC 6552 (F.C.T.D.) at paragraph 23. There, criminal charges had been laid against taxpayers for tax evasion and the Minister became concerned about the transfer of assets. The Minister issued demands for information under section 231.2 of the Act. The taxpayers brought, among other things, an application for interim orders staying the Minister's demands pending resolution of an application for judicial review. The application for interim relief was dismissed by MacKay J., who stated:

[23]                  In my opinion, even though the issues raised concern the respondent's authority to demand information in light of the Charter, the mere difficulty of determining monetary damages, if the respondent has access to the information demanded, does not in itself, in this case, constitute irreparable harm. If the information is provided as demanded but no unauthorized action is taken by the respondent with any adverse effects upon the applicants, there will be no harm to the applicants. If the harm feared is possible use of the information demanded in criminal proceedings, the validity of that use may be tested in those proceedings. If it is not allowed, there will be no irreparable harm to the applicants, and if its use is allowed in other proceedings, by judicial approval, that use could not be irreparable harm.

[77]            I find the present situation to be distinguishable from that in 047424 NB Inc., supra, on the ground that here, the applicants do not currently face any criminal charges.

[78]            I accept the applicants' submissions that the Minister's position treats the issuance of a criminal charge under the Act as uneventful in the life of a taxpayer. I also agree that it offends common sense for the Minister to say that if the applicants wish their day in court they should simply await the laying of charges.

[79]            The mere laying of a criminal charge carries real potential for great prejudice to the applicants and their reputation, even if they are ultimately acquitted.

[80]            Irreparable harm refers to the nature of the harm to be suffered. The harm must be of a material nature which cannot adequately be remedied by damages.

[81]            In addition to the prejudice inherent in facing a charge under the Act, at least two applicants, BDO Dunwoody and Ralph T. Neville, have indicated that they will, if not successful in obtaining interim relief, comply with the Requirements.

[82]            Compliance with the Requirements would render the application for judicial review nugatory and would, contrary to the Minister's submission, not result in the opportunity to take any challenge in the criminal courts.

[83]            In these circumstances, I find the applicants have established irreparable harm.

(c) The balance of convenience

[84]            The balance of convenience requires determination of which of the parties will suffer the greater harm from the granting or refusal of interim relief, pending a decision on the merits of the underlying applications.

[85]            Besides repeating his arguments with respect to the ability of the applicants to challenge the validity of the Requirements in the criminal forum, the Minister states that without the information and documents sought, the limitation period in which the Minister may reassess the clients of Capital Vision Inc. for their 1996 taxation year "may" expire before the Minister has the information he needs to issue such reassessments.

[86]            The Minister provided no evidence to support that assertion. As well, it is not supported by the evidence of Mr. Coleman that on December 16, 1999 an auditor in the Kitchener Tax Services Office of the Canada Customs and Revenue Agency told him the agency was readily able to retrieve from the agency's database the names of individuals who participated in the charitable giving strategy. This was not challenged by the Minister.

[87]            In my view, once that information is available, the Minister would be able to obtain the required information (so as to avoid irreparable harm) by commencing audits of those taxpayers, issuing Requirements directed to those taxpayers, or taking other steps. Further, notices of reassessment may be issued and then amended. The Minister could protect any limitation period by issuing notices of reassessment on a timely basis.

[88]            Moreover, as of December 16, 1999, (in the context of the challenge to the Old Requirements) the Minister, through his then counsel agreed that there was no need for the applicants to apply for a stay or for any extension of the time period for complying with the Old Requirements.

[89]            In response to a question from the Court about how the granting of a similar extension would now be prejudicial, counsel advised that the fact that an extension was not seen as prejudicial then did not mean it was not prejudicial now.

[90]            While I accept that such response is logically correct, in view of the Minister's willingness to grant an indefinite extension in mid-December of 1999 and the absence of evidence from the Minister, I am not satisfied that the Minister would suffer the prejudice he now asserts.

[91]            To fail to grant the extension would place the applicants in a position where they must choose between making the disclosure required (which would render the proceeding for judicial review nugatory and moot, and would carry with it the potential for damage to the commercial relationship between Capital Vision Inc. and its customers) and failing to make disclosure (which would invite criminal prosecution).

[92]            In that circumstance, I am satisfied that the balance of convenience favours granting the extension.

[93]            For these reasons, the Order signed March 15 was granted.

"Eleanor R. Dawson"

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Judge                                      

Ottawa, Ontario

June 8, 2000