Date: 20080605
Docket: T-1484-07
Citation: 2008 FC 703
Ottawa, Ontario, June 5, 2008
PRESENT: The Honourable Mr. Justice Hughes
BETWEEN:
FRITZ
MARKETING INC.
Applicant
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
The
Applicant Fritz Marketing Inc. is in the business of importing into Canada goods
manufactured abroad, including woven plastic bags made in China and India. Under the
provisions of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.),
the Applicant is obliged to provide to the Canada Border Services Agency copies
of the relevant invoices and payment of appropriate duties in respect of the
imported goods. That Act provides that an Officer of the Agency may enter
businesses premises and search for relevant documents and records that relate
to any amount payable. The Act also provides for determination,
re-determination and further re-determination of duties said to be owing.
Under subsection 59(1) of that Act, an Officer of the Agency may make a
re-determination of duties said to be owing and, under subsection 59(2) a
notice of the determination or re-determination must be sent without delay to
the relevant persons. Such notices are called Detailed Adjustment Statements
or DAS for short. In the present case the Applicant seeks to quash twenty-one
such DASs. The parties are agreed that this Court, in the circumstances of
this case, has the jurisdiction to do so.
[2]
For
the Reasons that follow, I find that the application is allowed with costs and
the 21 DASs are to be quashed.
[3]
The
facts of this case are unusual:
1. The Applicant
is in the business of importing goods made abroad. Between October 2002 and
June 2003, the Applicant imported woven plastic bags from China and India.
2. In that time
period, a person employed by the Applicant was enrolled in a college course
called Customs Investigations and Enforcement. For unexplained motivations
this person provided to the course instructor, who was also a Canada Border
Services Agency employee, certain information respecting the Applicant’s
activities including a number of documents described later by Justice Cowan of
the Ontario Court of Justice as “probably illegally obtained”.
3. An employee
of the Canada Border Services Agency, Mr. Vieyra, prepared an Information based
on this information and these documents which was provided to a Justice of the
Peace who issued a warrant (dated June 16, 2003) to search the Applicant’s
premises for a large number of listed documents and data stored
electronically. Based on similar information, a second Justice of the Peace later
issued a Production Order (dated February 10, 2006), requiring the Applicant to
provide documents, which is the subject of Justice Corbett’s Order discussed
later. The details of this Production Order are not relevant to the present
proceedings.
4. A search was
conducted pursuant to the warrant on June 17, 2003 and a number of documents
and electronically stored data were seized.
5. On September
7, 2004 an Information was sworn charging the Applicant and another with
eighty-six counts contrary to the Customs Act.
6. The Applicant
brought an application to Justice Cowan of the Ontario Court of Justice
alleging a violation of section 8 of the Charter of Rights and Freedoms
requesting remedies including setting aside the warrant and return of the
materials seized and destruction of any copies made. The matter was heard for
five days commencing August 1, 2006.
7. Justice Cowan
released a Ruling and Reasons on August 31, 2006 (reported at 2006 ONCJ 430) in
which he determined that there had been a violation of section 8 of the Charter,
that he was doubtful that he had jurisdiction to quash the warrant and that the
items seized should be returned forthwith to the Applicants. He made a number
of findings in his Reasons including:
Analysis
51 In this case, I find
that Mr. Vieyra failed to substantially disclose a fair and balanced set of
facts to the Justice of the Peace in order for that Justice to determine
whether there were reasonable and probable grounds that an offence had been
committed under the Customs Act.
52 The starting point for
Mr. Vieyra's information to obtain was his meeting with the informant who was a
student Customs officer, who had probably illegally obtained documents from
Fritz Marketing while working for them.
53 Mr. Vieyra failed to
disclose this probable illegality to the Justice of the Peace. He also failed
to disclose that he did not have copies of the documents but only sparse notes
of them and was working from his recollection of the documents in the meeting
from about a year previously.
54 In his Information to
Obtain Mr. Vieyra refers in paragraph 8(k) to the sale of the mansion owned by
Mr. Chawla for "a record price", a fact which is totally irrelevant
to the investigation but which implies hidden wealth.
55 He also refers in
paragraph 8(p) to an allegation that Mr. Chawla's wife and brother are paid by
Fritz Marketing but don't work for the company, again an issue totally
irrelevant to the investigation but implying other tax criminality.
56 A key part of the
Information to Obtain is the opinion contained in a letter from Fred Sipchenko
and a subsequent conversation with Mr. Sipchenko, of which Mr. Vieyra has no
notes, about the motive of Fritz Marketing and Chawla for committing these
offences. While the Crown is correct that motive is not an essential element of
the charges, the letter certainly was another starting point for Mr. Vieyra's
investigation and undoubtedly would have an influence on the issuing Justice of
the Peace in making sense of the allegations of criminality.
57 The reference to January
21, 2002 not being the date of the Sipchenko letter, but being significant in
that it was the date of the response from Fritz Marketing and likely would have
been in the same file from the company, satisfies me on the balance of
probabilities that Mr. Vieyra saw the response letter when he met with the
informant. That should have left him in the position of knowing that
Sipchenko's opinion was not clear-cut, and being disputed by the company and
that he should have made further inquiries about its status, especially a year
later when he drafted the Information.
58 Again, failure to do so
presented an unbalanced picture to the Justice of the Peace for her
consideration.
59 While Mr. Vieyra did not
need to explore all of the possible reasons why the values for duty changed
after March 21, he did not have the expertise in tariffs to come to only one
conclusion, that is, that the products were the same both before and after that
date. He acknowledged that this was a very specialized area and that there were
persons within his agency that he could have contacted or that he could have
contacted the customs broker for further details on the product.
60 By not disclosing his lack
of expertise in the area he left the Justice of the Peace with the perception
that his conclusion was the only reasonable one, again presenting an unbalanced
picture for the Justice's consideration.
61 While I am able to
excise from the preamble of the warrant the illegal portion dealing with
evidence of future offences, I am not able to excise from the Information to
Obtain those paragraphs which present the inadequate, unbalanced background
that Mr. Vieyra presented and leave sufficient information which satisfies me
that the Justice of the Peace would have had grounds to issue the warrant.
62 As a result, I find that there is a section 8 violation of the Charter
Rights of the Applicants. I am in doubt as to
whether I have the jurisdiction to quash the warrant but can fashion a remedy
under section 24(2) that the evidence seized pursuant to the warrant is
excluded and the items seized be returned forthwith to the Applicants.
No
appeal was taken from this decision.
8. It appears
that the Crown was reluctant to return the documents seized or to destroy
copies made which caused the Applicant to go back to Justice Cowan requesting
that he Order that this be done. Justice Cowan made such an Order and in his
Reasons released October 11, 2006 (reported at [2006] O.J. No. 4094 (Ct. Just.))
he said, in part:
5 The
parties agree that sections 490(13) and 490(14) of the Criminal Code do not
apply to this case.
6 The
Crown relies on section 115(1) to argue that even if the Court has found an
unconstitutional search and ordered the return of documents seized, thus ending
the criminal proceedings, the civil proceedings have not finished. As Customs
is a regulatory agency, they can obtain the same documents by serving a notice
to produce on the company and individual. So since they can get them by such
simple legal means, it makes no sense for them not to retain copies of them
now.
7 The
Crown submits that the case of R. v. Spindloe (2001), 154 C.C.C. (3d) 8 stands for the proposition that
return of items seized does not automatically flow from the finding of a Charter
violation in their seizure.
8 The
Defence argues that for Customs to retain the copies of documents ordered
returned, defeats the intent of the Order that Customs not benefit from the
fruit of a unconstitutional search. Mr. Gold submits that if it so easy for
them to obtain copies of the documents by serving a notice to produce then they
should follow this procedure and allow the applicants to argue whatever legal
remedies they have.
Analysis
9 It seems almost
contemptuous for Customs to argue, in effect that "we are going to get
them anyways, so why put us to all the trouble by making us return the copies
now." [my phrase]
10 The intent of the Order
I made was to deprive Customs of the benefits of an illegal search. The end
result in these proceedings is that the charges have been dismissed.
11 If they intend to
initiate and investigate civil proceedings then they should comply with the
procedures under the appropriate statutes. In my view section 115(1) of the Customs Act should be interpreted to assume that documents
have been obtained and detained legally. In this case they have not and the
section does not apply.
12 The case of R. v. Spindloe (supra) deals with seized items that were
tainted with criminality by their nature. That is not the case here.
13 So as to give full
effect to my Order of August 31, 2006, I am further ordering that the Attorney
General of Canada and all government agencies instructing them in
this case return to the applicants all copies of documents seized from the
applicants in whatever form, or in the alternative destroy all copies of
records in whatever form. In the case of computer files where destruction is
not possible, they are to be overwritten until they cannot be read or
recovered.
14
Then these
agencies shall provide the Attorney General and the Attorney General shall file
with the Applicants' counsel an undertaking that this has been done.
No appeal was taken from this decision.
9. At the same
time as the proceedings in the Ontario Court of Justice were going on, the parties
were involved in discussions in respect of duties owing.
10. According to the
Supplementary Affidavit of the Applicant’s civil counsel in the customs matter,
Mr. Kanargelidis, filed in this Court, the Applicant received from the
Respondent four Notices of Penalty Assessment and a Notice of Ascertained
Forfeiture dated June 15 and 16, 2005. Mr. Kanargelidis states that these
notices prompted the Applicant to file what is called a “self correction”
pursuant to section 32.2 of the Customs Act.
11. The self correction was
sought by way of letter dated August 8, 2005, sent to the Agency by Mr.
Kanargelidis. Attached to the letter were 19 documents entitled “B2 Adjustment
Requests”. The “Explanation” for the correction provided in the B2 Adjustment
requests is as follows:
VOLUNTARY AMEND. ERROR IN
DETERMINING VALUE FOR DUTY. SHOULD BE BASED ON SELLING PRICE PLUS ADDED COST
LESS OCEAN FREIGHT. REFER TO REVISED CCI, ADDITIONAL INV. LETTER OF EXPLANATION
FROM SUPPLIER ENCLOSED. ORIGINAL INVOICE ENCLOSED FOR GUIDANCE.
12. In response to the
Applicant’s filing of the self-correction, the Agency reassessed the duty owing
by the Applicant and on August 24, 2005, issued the 21 DASs at issue in these
proceedings. In so doing, it apparently relied on the information obtained by
Mr. Vieyra. The gist of the Agency’s position is that the Applicant received
two invoices from its foreign suppliers for goods shipped and paid them both
while submitting only one invoice to the Agency for purposes of assessing
duties payable. The Agency appears to have rejected the Applicant’s
explanation concerning the portion of the goods’ value attributable to “ocean freight”
charges.
13. The Applicant sought a
further redetermination. After this redetermination was denied on May 31,
2006, the Applicant instituted an appeal before the Canadian International
Trade Tribunal pursuant to section 60 of the Customs Act. Those proceedings
have been stayed.
14. At the same time, the
Applicant brought an application to the Ontario Superior Court of Justice to
set aside both the Production Order issued by the Justice of the Peace and the
21 DASs issued by the Agency. In Reasons issued July 11, 2007 (reported at 160
C.R.R. (2d) 162), Justice Corbett of the Superior Court of Justice set aside
the Production Order but held that the Superior Court did not have jurisdiction
to set aside the 21 DASs. He said, in part:
12 On February 10, 2006,
Justice of the Peace Chong Alloy issued a production order pursuant to s.
487.012(3) of the Criminal Code. This order was made on substantially the same
basis that the search warrant had been issued previously.
13 On August 31, 2006,
Justice Ian Cowan of the Ontario Court of Justice rendered his ruling on the search conducted by customs
officials on June 17, 2003. Justice Cowan ruled that the search violated
Fritz's rights under s. 8 of the Canadian Charter of Rights and Freedoms.
Justice Cowan ordered that the evidence seized during the search be excluded at
trial, and that the items seized be returned to Fritz.2
14 Customs
officials then took a rather extraordinary position. The Customs Act contains a
regulatory component. Under the regulatory processes, customs officials are
entitled to obtain documents by serving a notice to produce on the person who
has the documents. Thus, Customs officials said, they should be able to keep
copies of the seized documents, since they could obtain them anyway by issuing
an order to produce.
…
26 I
agree that, where there is a Charter breach and no "trial court",
this court will have inherent jurisdiction to consider any claim for a remedy.
However, "trial court" must be broadly construed. First, there was a
trial court: Justice Cowan was the trial judge, and he provided a remedy for
the Charter breach. If there has been a breach of Justice Cowan's order, that
may be a basis for contempt proceedings. Second, there is administrative
action. Customs officials acting under ss. 59 and 60 of the Customs Act are not
"courts of competent jurisdiction" and cannot grant Charter remedies.
I am told by counsel that the CITT is likewise not a "court of competent
jurisdiction".10 However, just because the current
proceedings are before administrative bodies does not mean that there is no
"court of competent jurisdiction" to decide Charter issues. The
Federal Court is such a court.
27 If
there was truly no place for the applicant to go to make this application, the
logic in Ciarniello would apply. But there are administrative proceedings, and
there is a court to which the applicant can turn. There is no lacuna in
jurisdiction. And so the doctrine of inherent jurisdiction cannot be invoked to
overcome the clear allocation of jurisdiction prescribed in the Crown Liability
and Proceedings Act and the Federal Courts Act.
15. Hence the present
application to this Court.
JURISDICTION
OF THE FEDERAL COURT
[4]
The
parties are agreed and I so find that the Federal Court has jurisdiction to
hear and determine this application. A refusal of the Agency to cancel DASs
based on their derivation from seized materials is not a decision that falls under
section 60 of the Customs Act; it is a decision of a federal board or tribunal
reviewable under sections 18 and 18.1 of the Federal Courts Act, R.S.C.
1985, c. F-7.
ISSUES
[5]
There
is one issue, should this Court quash the 21 Detailed Adjustment Statements
(DAS) issued by the Canada Border Services Agency with the provisions of the Customs
Act, supra, as against the Applicant.
ANALYSIS
[6]
There
is no doubt that, in the circumstances of this case, the 21 DASs at issue came
about as a direct result of documents seized by the Canada Border Services
Agency pursuant to an Information sworn by one of its officials, Mr. Vieyra, and
the warrant thereby obtained. That warrant was set aside by Justice Cowan of
the Ontario Court of Justice on the basis that there was a violation of the
Applicant’s rights under section 8 of the Charter of Rights and Freedoms.
When the Crown did not return the documents wrongfully seized, Justice Cowan
was again asked to intervene and did so stating that it was “almost
contemptuous” for the Agency to argue that it could obtain the documents
anyway holding that it was the intent of his earlier Order to deprive the
Agency of “all benefits” of an illegal search.
[7]
Justice
Corbett of the Ontario Superior Court ordered that the Production Order be quashed
and that the matter of the 21 DASs laid within the jurisdiction of the Federal
Court not the Ontario Superior Court. In his Reasons, the Judge remarked that
the position taken by the Agency, that since they could obtain documents under
the regulatory process, they should be able to keep the illegally seized
documents, was “extraordinary”.
[8]
I
am satisfied, on the evidence, that but for the illegal search and seizure of
documents, the Agency would not have made any inquiry into or re-assessment of
the Applicant’s situation in respect of duties owing. The Respondent has
submitted no evidence that would suggest that the Agency had any other reason
or information that would prompt it to make inquiries as to the Applicant’s
activities.
[9]
I
agree that the affidavit of Burell submitted by the Respondent states that once
the Agency has determined to make an investigation it has broad powers, without
Court Order, to enter business premises and search for and seize relevant
documents. That is not the issue. The issue here is directed to what would
inspire the initial determination to make an investigation. Here the only
evidence is that such inspiration was founded on a violation of the Applicant’s
section 8 Charter rights.
[10]
In
the criminal context the law is well defined, a leading case being R. v.
Stillman, [1997] 1 S.C.R. 607 where the Supreme Court of Canada considered conscriptive
evidence (that which a person was compelled to produce by a breach of his or
her Charter rights) and non-conscriptive evidence (that existed
independently of the Charter breach) and how such evidence
could be used in criminal proceedings. Justice Cory for the majority summarized
the Court’s position at paragraph 107 of his Reasons:
107 In
summary, where it is established that either a non-conscriptive means existed
through which the evidence would have been discovered or that its discovery was
inevitable, then the evidence was discoverable; it would have been discovered
in the absence of the unlawful conscription of the accused. The Crown must bear
the onus of establishing discoverability on a balance of probabilities. Where
the evidence was "discoverable", even though it may be conscriptive,
its admission will not, as a general rule, render the trial unfair. The Court
should therefore proceed to consider the seriousness of the violation.
[11]
Thus,
in a criminal law context, the Crown bears the onus, on a balance of probabilities,
to demonstrate that the evidence would have been discovered through
non-conscriptive means or that its discovery was inevitable. If that onus is
met, the evidence may be admitted at trial.
[12]
In
the context of taxation law, the Federal Court of Appeal has provided guidance
summarized by Sexton J.A. for the majority in Jurchison v. Canada, 2001
FCA 126 at paragraph 11:
11 It is necessary in
deciding whether the evidence obtained in breach of the taxpayers' Charter
rights in the present case is admissible, to consider the different standards
for search and seizure for the purposes of criminal prosecution and for the
purpose of civil enforcement of the Income Tax Act as set forth by the Supreme
Court of Canada in R. v. McKinlay Transport, [1990] 1 S.C.R. 627. It is conceivable that the evidence
might be inadmissible for purposes of a criminal prosecution, but admissible
for purposes of a civil trial. See Donovan v. The Queen, [2000] 4 F.C. 373 (C.A.). Such a determination would require an examination of the impugned
evidence and the method by which it was obtained, an inquiry into the
seriousness of any Charter breach and a consideration of whether the evidence
was already in possession of the Crown or would have been discovered in any
event. See R. v. Stillman, [1997] 1 S.C.R. 607 at 664. It would appear impossible to
make such a determination in the absence of a factual base. In the present
case, there is no agreement between the parties as to the relevant facts.
[13]
Preceding
this decision are two decisions of Linden J.A. for the Court first in O’Neill
Motors Ltd. v. Canada, [1998] 4 F.C. 180 (C.A.) and two years later
in Donovan v. Canada, [2000] 4 F.C. 373 (C.A.).
[14]
In
O’Neill, the Court held at paragraph 6 that evidence obtained in
violation of a taxpayer’s Charter rights, which evidence was fundamental
to the successful enforcement of a reassessment, could not be used. At
paragraph 10 the Court held that not only can it exclude the evidence but also
that it may grant such remedy as is appropriate and just.
[15]
In
Donovan, the Court drew a distinction between the circumstances in that
case and those in O’Neill. O’Neill was an example of an “extreme
remedy” reserved for “serious violations where other remedies are
insufficient”. Linden J.A. said at paragraphs 18 and 19:
18 The
second important distinguishing feature of O'Neill Motors is that in that case
the exclusion of the tainted evidence would have been tantamount to vacating
the assessments, because there was nothing left upon which to base the case. That
was so because the reassessments in O'Neill Motors were issued beyond the
normal reassessment period and, as a result, the onus shifted to the Crown to
show fraud or negligence on the part of the taxpayer to permit the
reassessments. In this case, the reassessments were done in a timely fashion
and the tainted evidence is not required to overcome any procedural bar.
Further, much of the material and information obtained through the various
activities complained about in this case had already been secured legally. From
the start, it was acknowledged by the appellant that certain income had not
been reported. Hence, unlike the O'Neill Motors case, where it would have been
"most unlikely" that the Minister would have been able to discharge
the onus resting on him and where it would have been wrong to "put the
taxpayer through the trouble of proceeding to the Tax Court to see whether the
Minister would be able to discharge the onus" (O'Neill Motors, F.C.A.
supra at para. 8), in this case much of the evidence necessary to make out the
case had already been legally obtained. Contrary to the situation in O'Neill
Motors, it is not clear in this case that, without the tainted evidence, the
reassessments would not be upheld at trial.
19 It
was made clear in O'Neill Motors that vacating a reassessment, though a
possible remedy in certain circumstances, was not an automatic one. The conduct
must be "a flagrant and egregious violation of the appellant's
rights" (see Collins, supra). Moreover, at least in the civil context,
O'Neill Motors suggests that a further remedy will be appropriate only when
limiting the remedy to the mere exclusion of evidence would "render
nugatory the very rights the Charter guarantees." (O'Neill Motors, supra,
at 1493 T.C.C.). In other words, before a reassessment can be vacated, it must
be shown that the lesser remedy of the exclusion of evidence was inadequate to
vindicate the Charter violation. In addition, for it to be "appropriate
and just" to vacate a reassessment, it should be clear that the evidence
illegally obtained was so "fundamental" to the reassessments that
they could not be sustained without it (O'Neill Motors, supra, at 1493 T.C.C.).
In short, this type of "extreme remedy", as I wrote in O'Neill
Motors, is reserved only for "serious violations where other remedies are
insufficient" (O'Neill Motors, F.C.A., supra, at para. 12).
[16]
In
the present case, I view the matter as being close to that discussed by the
Court in O’Neill. The evidence which prompted the whole inquiry into the
affairs of the Applicant Fritz was obtained in violation of that party’s
section 8 Charter rights and was so found by an unappealed judgment of
the Ontario Court of Justice. When the parties returned a second time to that
Court, the Judge made it abundantly clear that the Agency was “almost
contemptuous” and that the intent of the previous Order was to “deprive
Customs of the benefits of an illegal search”. No appeal was taken. One of
those benefits was the launch of an investigation into the Applicant’s affairs
which resulted in, among other things, the 21 DASs at issue here. I am
satisfied that the Agency would never have made such an investigation in the
absence of its illegal activity.
[17]
Therefore
I will allow this application with costs and quash the 21 DASs at issue.
Having discussed the level of costs with Counsel for the parties at the end of
the hearing, I will award the Applicant costs at the usual level, the middle of
Column III.
JUDGMENT
FOR THE REASONS GIVEN:
THIS COURT ADJUDGES that:
1.
This
application is allowed;
2.
The
twenty-one Detailed Adjustment Statements issued on August 24, 2005 are set
aside;
3.
Costs
are awarded to the Applicant to be taxed at the middle of Column III.
"Roger
T. Hughes"
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