Canada (National Revenue) v. Amex Bank of Canada, 2008 FC 972

 

Date: 20080827

Docket: T-2208-07

Citation: 2008 FC 972

Ottawa, Ontario, August 27, 2008

PRESENT:     The Honourable Orville Frenette

 

BETWEEN:

HER MAJESTY THE QUEEN

 

Applicant

and

 

AMEX BANK OF CANADA

Respondent

 

 

REASONS FOR ORDER AND ORDER

 

I. The Relief

 

[1]               This is an application by Her Majesty The Queen (the “Applicant”) for an Order requiring that the Respondents provide the Applicant the information and documents set out in the requirement dated May 8, 2007 (Requirement) as issued to Amex Bank of Canada (Amex or Respondent) pursuant to subsection 289.1 (1) of the Excise Tax Act, R.S.C., 1985, c. E-15 (ETA or Act). Specifically, the Applicant is requesting the production of the following information and documents relating to American Express credit card number 3733-202207-31 (Card):

a.       the name of the individual that holds the primary card for the supplementary card, number 3733-202207-31013, that is held by Mohamad Nizam;

b.      the name of the business associated with the primary cardholder;

c.       the mailing address of the primary cardholder;

d.      a copy of the original application for this membership and any documents relating to requests for supplementary cards;

e.       the names of all supplementary cardholders tied to the primary card.

 

[2]               Of these, only Mohamad Nizam is named. The primary cardholder, the business associated with the primary cardholder, and the possible supplementary cardholders are not named.

 

II. The Background

 

[3]               At the heart of this matter is the Applicant’s assertion that the production of the requested documentation and information is necessary to determine the obligations of 893134 Ontario Limited, operating as Mega Distributors (Mega) under the ETA, as well as any rebate or refund they may be entitled to.

 

[4]               In relating these facts, it must not be forgotten that the Respondent in this matter is Amex, a Schedule II Bank pursuant to the Bank Act, S.C. 1991, c.46 (Bank Act), which is not under investigation in this matter. Amex is, in this application, the third party for the purposes of the relevant subsection of the ETA.

A.         Events Leading to Mega’s GST Assessment

[5]               The Canada Revenue Agency (CRA) has alleged that Mega failed to collect GST with respect to cigarettes purportedly sold from its Windsor, Ontario warehouse and purportedly delivered to Zelda McNaughton, a status Indian operating as Zee’s Restaurant on the Six Nations Reserve of Grand River near Brantford.

 

[6]               The gist of the allegations are that Mega purchased cigarettes from a wholesaler, sold them at discounted prices to Windsor area retailers and did not collect the GST. Mega then allegedly declared tax free cigarette sales to Ms. McNaughton, filed GST credit returns calculating input tax credits on GST paid to its wholesaler, and claimed a refund of net tax.

 

[7]               Mega was investigated in 2000, and upon the termination of the investigation a GST audit was commenced. Ultimately, the CRA concluded that the alleged sales and deliveries to McNaughton could not have occurred. With the audit completed in or about February 2001, Mega was informed that it would be assessed with respect to uncollected GST on all tobacco sales during the audit and disallowed some input tax credits claimed by Mega.

 

[8]               For goods, such as cigarettes, not to be subject to GST, a vendor must provide evidence of the sale to a status Indian residing on a reserve (which have been delivered to a reserve by the vendor or the vendor’s agent) by producing a copy of the invoice or sales document indicating the band number and family number of the purchaser together with a copy of the purchaser’s certificate of Indian status.

[9]               In this case, Mohamad Nizam was allegedly one of the Mega employees who delivered the cigarettes.

 

B.         Mega’s Tax Court Appeal

[10]           Mega filed a Notice of Appeal from the reassessment of GST to the Tax Court on March 13, 2003.

 

[11]           Mega eventually undertook to provide copies of American Express statements for Costco purchases between 1999 and 2001. Subsequently, Mega produced a Supplementary Book of Documents which included some, but not all, American Express statements for Amex cards held by Mega owner Francois Francis and other Mega employees that had been used for Costco purchases during the audit period (apparently Mega purchased the cigarettes from Costco).

 

[12]           Mega asserted that it was only through the discovery process that it became aware of the basis for the GST reassessment and further learned that it was being defrauded by at least one, or perhaps two, of its employees whose actions were an important basis for the reassessment. Mega then filed an Amended Notice of Appeal dated June 30, 2006 that alleged that Mohamad Nizam and his brother engaged in cigarette purchases and sales that were not authorized by Mega.

 

[13]           In a letter dated November 23, 2006, counsel for the Department of Justice challenged the completeness of Mega’s Supplementary Book of Documents of American Express statements, questioning whether there was a Mega American Express card for Mr. Nizam. Mr. Nizam had apparently claimed to have had such a card, and further Costco had apparently produced an invoice to the CRA showing Mr. Nizam using an American Express Card to pay for a Mega cigarette order.

 

[14]           The completeness of the Supplementary Book of Documents remained an issue, and in late December 2006, counsel for Mega produced more American Express statements. Department of Justice counsel reviewed those and sent another request to Mega, dated January 5, 2007, asking for American Express statements relating to cigarette purchases made by Mohamad Nizam.

 

[15]           The Applicant then, once it became convinced no more statements would be forthcoming, sent 17 requirements to Amex on January 30, 2007 to provide information and documents relating to Mega’s American Express credit cards, including one related to Mr. Nizam, Membership No. 3722-202207-31013.

 

[16]           Discussions took place between Amex and the CRA, and the CRA provided a further letter on February 5, 2007, that outlined in a schedule the names of individuals on the primary and supplementary cards mentioned in those requirements. The exception was the primary cardholder of the Card at issue in the present matter. The Card is apparently the only card one where an individual being investigated was the supplementary cardholder on an account while the primary cardholder was not an individual being investigated.

 

[17]           On March 1, 2007, Amex replied to the document request by sending statements and records for the investigated parties to CRA Officer Pamela Howick. However, Amex did produce a number of statements of Lasalle Petroleum showing Costco purchases.

 

C.        The Requirement at Issue

[18]           The Requirement, dated May 8, 2007, was issued by Ms. Howick and requested that Amex produce information and documents relating to the Card. This was in addition to the requirements that had been sent earlier. The Requirement requested all of the information being requested in this application.

 

[19]           According to the affidavit of Pamela Howick, the CRA has been able to trace a number of the payments recorded on the Lasalle Petroleum American Express statements back to Costco’s records of cigarette sales to Mega and to GST input tax credits claimed by Mega for those purchases.

 

[20]           By letter dated May 9, 2007, Amex declined to process the requirement, and stated that it believes that the request was for documents and information relating to unnamed persons and that judicial authorization pursuant to subsections 289 (2) and 289 (3) of the ETA were required before it could make such a production. The unnamed person in this case is the holder of the primary card of which Mr. Nizam’s card is the supplementary card. It is that individual who is unnamed, and it is that individual’s identity – along with information and documents about the primary card and that individual’s business - that are being sought. Mr. Nizam is not unnamed, and much of the information being sought here does not seem to relate to him (other than possibly the initial application and requests for supplementary cards). No mention has been made of any further unnamed supplementary cardholders on the primary card. 

 

D.        Supplementary Cardholder Statements

[21]           By way of the affidavit of Pamela Howick, the Applicant asserts its understanding of how supplementary cardholders receive statements. Specifically, based on alleged discussions with employees of AMEX, supplementary cardholders do not receive separate statements from that of the primary cardholder; transactions made by the supplementary cardholder appear as separate line items on the statement of the primary cardholder.

 

[22]           They also rely on Ms. Howick’s assertion in her affidavit that this credit card information is required for the Tax Court appeal of Mega from the assessment of GST. I must admit that I could not find any precise explanation in the affidavit material or the Applicant’s submissions explaining exactly why the requested information was required. It has simply been asserted that it is necessary.

 

II. Issues

 

[23]           The sole issue is whether the Applicant is entitled to an order under section 289.1 of the ETA compelling Amex to provide the CRA with information and documents about the primary cardholder of the Card pursuant to paragraphs 289 (1) (a) and 289 (1) (b) of the ETA, or whether the CRA must first obtain judicial authorization for the production of such information and documents pursuant to subsections 289 (2) and 289 (3) of the ETA.

 

III. Legislation

 

[24]           The relevant statutory provisions of the ETA are as follows:

 

[25]           The relevant statutory provisions of the Income Tax Act, R.S.C. 1985 (5^th Supp.), c. 1 ( ITA) are as follows:

 

IV. Arguments

 

A.         Applicant’s Arguments

[26]           The Applicant took the position that a judge of this Court may order a person to provide any information and documents sought by the Minister under sections 288 or 289 of the ETA if the judge is satisfied that: (a) the person was required to provide the information under sections 288 or 289 and did not do so; and (b) the documents are not protected from disclosure by solicitor client privilege within the meaning of subsection 293 (1) of the ETA.

 

[27]           The Applicant insists that pursuant to subsection 289 (1) of the ETA, any person who receives a notice by registered mail to provide the Minister with information or documents requested must do so if it appears that the Minister was acting for any purpose related to the administration or enforcement of the Act and the person was given a reasonable amount of time for production of the information or documents (Canada (Minister of National Revenue) v. Marshall, [2006] 3 C.T.C. 25 at para. 16 which deals with section 231 of the ITA). The Applicant insists that in interpreting “almost identical” provisions under the ITA, it has been determined that the Minister requires such broad powers to ensure the integrity of the self-assessing Canadian income tax system (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, 68 D.L.R. (4^th) 568 at paras. 18 and 35 - 38; Redeemer Foundation v. Canada (Minister of National Revenue - M.N.R.), 2006 FCA 325, [2007] 3 F.C.R. 40 at paras. 38-39).

 

[28]           The Applicant notes that the authority under subsection 289 (1) extends to third parties, and insists that the only stipulation under the Act is that the purpose of the requirement be “related to the administration or enforcement of this Part, including the collection of any amount payable or remittable under this Part” (Canada (Minister of National Revenue) v. Cornfield, 2007 FC 436).

 

[29]           In this regard, the Applicant submits that Amex was personally served with the Requirement, had 30 days to provide the information, and that the Requirement was issued for a purpose related to the administration of the ETA.

 

[30]           The CRA claims that it requires credit card information and documents from Amex for the Tax Court Appeal launched by Mega.

 

[31]           The Applicant submits that no prior judicial authority pursuant to subsections 289 (2) or 289 (3) are required to compel Amex. The basis for this position is that in interpreting section 231.7 of the ITA, the Federal Court of Appeal concluded that where unnamed persons are not themselves under investigation – but where the names of unnamed persons are necessary for the investigation of a known party – then a third party served with a requirement must provide that information (including the name of the unnamed person (Artistic Ideas Inc. v. Canada (Customs and Revenue Agency), 2005 FCA 68, [2005] 2 C.T.C. 25 at para. 21 (Artistic Ideas); Canada (Minister of National Revenue) v. Morton, 2007 FC 503, [2007] 4 C.T.C. 108 at paras. 9 – 12 (F.C.) (Morton); AGT Ltd. v. Canada (Attorney General), [1997] 2 F.C. 878, [1997] 2 C.T.C. 275 at para. 27 (F.C.A.); and in contrast see Canada (Minister of National Revenue) v. Toronto Dominion Bank, 2004 FCA 359, [2005] 2 C.T.C. 37 at paras. 7 – 8 (F.C.A.) (Toronto Dominion)).

 

[32]           The Applicant also asserted that the information and documents are not protected by solicitor-client privilege. Amex insisted that it had not taken the position that this was an issue and had not asserted that the information and documents were so protected.

 

B.         Respondents’ Arguments

[33]           The Respondent, Amex, asserts that the CRA is seeking information concerning the primary cardholder of the Card, and that the CRA has given no indication to Amex as to that identity of that individual. Therefore, that person is an unnamed person and, Amex insists, the CRA cannot impose on a third party like Amex the requirement to provide information or documents relating to that unnamed person without prior judicial authorization.

 

[34]           Amex also insists that it has a statutory obligation not to disclose the records unless there is established legal authority to do so, and points to paragraph 244 (d) of the Bank Act and subsection 7 (3) of the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 (PIPEDA) to support this assertion. Additionally, Amex expresses concern about possible liability under PIPEDA if it is not diligent with respect to testing any “questionable authority” (Office of the Privacy Commissioner of Canada, PIPEDA Case Summary #62, p. 2).

 

[35]           Amex takes the position that the Federal Court of Appeal’s decision in Toronto Dominion is entirely relevant to the matter at hand. In that case, a taxpayer who was being investigated deposited a cheque into an account at the Toronto Dominion Bank (TD) held by an individual who was not being investigated. The CRA sought to rely on subsection 231.2(1) of the ITA in issuing its requirement, a provision that also has the requirement of prior judicial authorization in related subsections. The Federal Court – Trial Division dismissed the CRA’s application and the Federal Court of Appeal dismissed the CRA’s appeal. Amex notes that, in doing so, the Federal Court of Appeal explained the purpose of subsection 231.2(2) as offering protection to both the third party with the information and the unnamed person about whom the information was being sought. Specifically, the Court wrote at para. 8:

The very purpose of subsections 231.2(2) and (3) is to protect unidentified persons who are not being investigated while making it possible in the interests of justice, and subject to judicial review, for information to be obtained on persons who are in fact under investigation.

 

[36]           Amex insists that section 231.2 of the ITA is essentially identical to section 289 of the ETA. Amex further argues that it is in the same position as TD was, while the primary cardholder on the card is in the same position as the account holder was. Therefore, Amex’s position is that the CRA is obliged to obtain judicial authorization for requirements for information concerning unnamed third parties.

[37]           Amex also submits that the Applicant has misinterpreted Artistic Ideas and suggests that it is “clearly” distinguishable from Toronto Dominion. In Artistic Ideas, the CRA was auditing a company – Artistic Ideas – that arranged the sale of art work to taxpayers, who would then donate that art to charities. The donors obtained tax deductions for the donations based on the appraised value of the work. The appraised value, however, exceeded the amount paid and thus a net financial benefit was obtained by the donors. The CRA required production of information and documents pursuant to subsection 231.2 (1) of the ITA, but Artistic Ideas would not provide the names of the donors or charities involved and challenged the matter in the Federal Court – Trial Division. The Trial Division found that the CRA was entitled to the names of the charities but not the names of the donors. This decision was appealed and the appeal was dismissed.

 

[38]           Amex notes that the Court of Appeal determined that the evidence presented in the case indicated that the donors were intended to be subject of investigation by the CRA and therefore they were the type of person who were subject to subsections 231.2 (2) and (3) and thus judicial authorization was required. This was because the scheme of section 231.2 allows the Minister to require third parties to present information and documents pertaining to their compliance, but prevents the Minister from imposing a requirement on a third party to provide information or documents relating to unnamed persons whom he wishes to investigate, unless he first obtains the authorization of a judge.

 

[39]           At the same time, Amex notes that the court reached a different decision regarding the charities, as subsections 231.2 (2) and (3) did not apply where the unnamed parties are not themselves under investigation and there was no evidence that the Minister wished to have their names to verify their compliance.

 

[40]           Given the above, Amex distinguished Toronto Dominion and Artistic Ideas on the basis that Amex is not under investigation by the CRA the way that Artistic Ideas was, and suggests that the comment from the Court of Appeal that “where unnamed persons are not themselves under investigation, subsections 231.2 (2) and (3) do not apply” was made in the context of the CRA investigating the third party itself. Amex notes that the court qualified its comment by stating that “in such cases the names of unnamed persons are necessary solely for the Minister’s investigation of the third party”.

 

[41]           Amex suggests that the logic of the court appears to be that if unnamed persons are not subject to investigation themselves, the information concerning the unnamed persons was, by inference, necessary for the investigation of the third party itself (a finding made by the Trial Division regarding the charities in Artistic Ideas). Thus in an Artistic Ideas-like situation the unnamed party’s privacy is lawfully compromised as an incidental part of an authorized investigation, while in Toronto Dominion-like situation an unnamed party’s privacy would be violated without any express connection to any investigation.

 

[42]           Amex notes that Artistic Ideas makes no mention of Toronto Dominion.

 

[43]           Finally, Amex suggests that the summary of the CRA’s position in Capital Vision, Inc. v. Canada (Minister of National Revenue - M.N.R.), 2002 FCT 1317, 226 F.T.R. 159 at paras. 46- 47 , bolsters its position in that it suggests that the Minister has previously interpreted the section as being meant to avoid a “fishing expedition” where neither of the parties served with the requirement, nor any person at whom the requirement was targeted, were under investigation.

 

V. Analysis

 

[44]           I accept that section 289 of the ETA is similar to section 231.2 of the ITA. Therefore, the result in this case is dependent on determining the applicability of Toronto Dominion and Artistic Ideas.

 

[45]           Considering both Toronto Dominion and Artistic Ideas, I find that the present matter has a factual basis similar to what occurred in Toronto Dominion.

 

[46]           In the present case, as it was in the case of Toronto Dominion, there is an unrelated third party who is not the subject of an investigation being asked to provide information about an unnamed party who is the subject of an investigation. Further, Toronto Dominion was also decided in the context of a third party bank being asked to provide information; information for the improper production of which it could be held liable. In Artistic Ideas, and in Morton where Deputy Justice Strayer asserted his preference for the approach taken in Artistic Ideas, the “third party” was the party being investigated. In those cases, the unnamed parties whose information was found not to be covered by subsections 231.2 (2) and (3) were parties who were not being investigated and whose information was required for the investigation of the “third party”.

 

[47]           As noted above, in Morton Deputy Justice Strayer preferred the approach to subsection 231.2 (2) taken in Artistic Ideas. He preferred it because he took the view that it better expressed the intention of susection 231.2(2). Indeed, the approach taken in Artistic Ideas has some appeal.

 

[48]           The idea that the purpose of the subsection is to prevent “fishing trips” by the Minister - without prior judicial authorization – only for information about individuals who will the subject of an investigation is reflected in the requirements in subsection 231.2(3). There, as in the section at issue in this case, in order to receive judicial authorization, the Minister must satisfy a judge that the requirement is made to verify the compliance by the person or persons in the group with any duty or obligation under the Act.

 

[49]           Reading that in connection with 231.2 (2), it is easy to see how one could take the view that the unnamed person or group of persons being referred to must be the intended subject of an investigation. The alternative approach, whereby subsection 231.2 (2) is read such that it covers all unnamed persons or groups of persons, would mean that the Minister could never receive information about unnamed parties that is incidentally necessary for an investigation because the Minister could not meet the requirements of subsection 231.2 (3).  Indeed, given the situation in Artistic Ideas, I can see why the Court followed the path that it did. In that case, a third party under investigation could have benefited from the protection being afforded to others who were not the subject of investigation – and therefore unattainable under subsection 231.2 (3) - but whose information was necessary  for the investigation of the third party.

 

[50]           However, in Toronto Dominion this sort of problem was almost explicitly contemplated. At para. 6 the court wrote:

As he does not know the holder of the account, the Minister clearly could not say on oath that he was certain the requirement of information was made to verify compliance by that individual with any duty or obligation under the Act, and if he appeared before a judge it would be impossible for him to meet the requirements of paragraph 231.2 (3)(b). Accordingly, as I understand the argument, subsecction 231.2(2) could not be relied on by the Minister …

 

[51]           The Court then goes on to reject the argument that subsection 231.2 (1) could be used to act without judicial authorization on the basis that it would invalidate 231.2 (2) and (3) and the protection they provide to third parties (such as banks) that want to be sure that they have a legal duty to provide information and those individuals who provided the information who want to ensure their privacy is protected. Meeting those objectives through the requirement to obtain prior judicial authorization was the purpose of those provisions according to the Court. Indeed, at para. 8 the Court noted:

The very purpose of subsections 231.2(2) and (3) is to protect unidentified persons who are not being investigated while making it possible in the interests of justice, and subject to judicial review, for information to be obtained on persons who are in fact under investigation.

 

 

[52]           Therefore, the question arises as to what kind of “fishing trip” were sections 231.2 of the ITA and 289 of the ETA aimed at? As noted above, Toronto Dominion and Artistic Ideas provide completely different answers to that question, and it is difficult to reconcile these cases as to the applicability of subsection 231.2.

 

[53]           In summary, both answers found in Toronto Dominion and Artistic Ideas are persuasive and both recognize the broad powers the Minister possesses to obtain information required to apply the provisions of these Acts.

 

[54]           I believe, as my colleagues did, that Artistic Ideas governs the matter involved in this case (Morton, above; Canada (Minister of National Revenue - M.N.R.) v. Advantage Credit, 2008 FC 853, [2008] F.C.J. No. 1095 (QL) by Justice Mandamin). The principle of judicial comity should apply here, see: Pfizer Canada Inc. v. Canada (Minister of Health), 2007 FC 446, (2008) 1 F.C.R. 62 at paras. 684 to 691.

 

[55]           Furthermore, the recent decision of the Supreme Court of Canada in Redeemer Foundation v. Canada (National Revenue), 2008 SCC 46, 2008 D.T.C. 6474, confirms that the Minister’s broad powers to inspect, audit and examine tax payers’ records authorize the obtaining of information about unidentified donors of a registered charitable association without judicial authorization under section 231.2 of the ITA. I believe this reinforces the positions my colleagues and I have taken on this subject.

 

[56]           Therefore, the application must be granted.

 

 

ORDER

 

THIS COURT ORDERS that:

1.                  The application be granted;

2.                  The respondent shall comply with the requirement of information issued pursuant to section 289.1 of the Excise Act, 1985, c. E. 15, required by the applicant from the respondent on January 20, 2007, to provide in particular the “name of the individual that holds the primary card for the supplementary card number 3733-202207-31013 (Mohamad Nizam), within thirty (30) days after being served with this order.

 

 

"Orville Frenette"

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

 

DOCKET:                                          T-2208-07                              

 

STYLE OF CAUSE:                          MINISTER OF NATIONAL REVENUE

                                                            v.

                                                            AMEX BANK OF CANADA

 

 

 

PLACE OF HEARING:                    Toronto, Ontario

 

DATE OF HEARING:                      July 9^th 2008

 

REASONS FOR ORDER

AND ORDER BY:                            DEPUTY JUDGE FRENETTE

 

DATED:                                             August 27^th 2008

 

 

APPEARANCES:

 

Ronald MacPhee	FOR THE APPLICANT
Graham Reynolds	FOR THE RESPONDENT

 

SOLICITORS OF RECORD:

 

John H. Sims, Deputy Attorney General of Canada	FOR THE APPLICANT
OSLER, HOSKIN & HARCOURT LLP Box 50, 1 First Canadian Place Toronto, ON  M5X 1B8	FOR THE RESPONDENT