Date: 20010426
Docket: A-798-99
Neutral citation: 2001 FCA 126
CORAM: ISAAC J.A.
SEXTON J.A.
MALONE J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NORMAN JURCHISON
Respondent
Docket: A-805-99
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NORWAY INSULATION INC.
Respondent
BETWEEN:
Docket: A-810-99
HER MAJESTY THE QUEEN
Appellant
- and -
NORMAN JURCHISON
Respondent
Docket: A-809-99
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NORWAY INSULATION INC.
Respondent
Heard at Toronto, Ontario, Monday, April 23, 2001
Judgment delivered at Toronto, Ontario,
on Thursday, April 26, 2001
REASONS FOR JUDGMENT BY: SEXTON J.A.
CONCURRED IN BY: ISAAC J.A.
CONCURRED IN BY: MALONE J.A.
Date: 20010426
Docket: A-798-99
Neutral citation: 2001 FCA 126
CORAM: ISAAC J.A.
SEXTON J.A.
MALONE J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NORMAN JURCHISON
Respondent
Docket: A-805-99
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NORWAY INSULATION INC.
Respondent
The individual respondent, Norman Jurchison is the principal shareholder and operator of the corporate respondent, Norway Insulation Inc. In 1991, during a routine audit, a Revenue Canada auditor discovered what he believed to be evidence that both taxpayers had unreported income for the 1990 taxation year and that offences under the Income Tax Act might have been committed. The auditor referred the file to the Special Investigations Unit. Following a preliminary review, the SIU referred the matter back to the Audit Section with requests for further information. This information formed the basis upon which a number of search warrants were obtained and searches conducted. Eventually, the taxpayers were reassessed for unreported income in the 1990 taxation year and charged with tax evasion under the Income Tax Act.
The criminal charges came before the courts first. Prior to the commencement of the trial, the taxpayers brought applications for the exclusion of evidence, alleging breaches of s. 8 of the Canadian Charter of Rights and Freedoms. Whetung J. of the Ontario Court (Provincial Division) held that Mr. Jurchison's right to be secure against unreasonable search and seizure had been infringed by the additional investigation by the Audit Section. He excluded the evidence obtained by the additional investigation for the purposes of the criminal trial and quashed the search warrants. In the result, the taxpayers were acquitted, although it is not clear whether any of the evidence developed in the initial audit was placed before the Court or not. The Crown's appeal was dismissed by the Ontario Court of Justice (General Division). The reasons for judgment in those Courts do not clearly set out the nature of the evidence obtained in breach of the Charter.
The current appeals arise out of preliminary motions brought in the taxpayers' appeals of their reassessments. The taxpayers brought motions under Rule 58 of the Tax Court of Canada Rules (General Procedure), which allows the Court to determine a question of law raised by a pleading in a proceeding where the determination of the question may lead to more efficient use of the Court's resources. They relied upon the Charter rulings of Whetung J. upheld on appeal by La Forme J. and moved for orders vacating the reassessments or, in the alternative, excluding the evidence collected following the initial audit. The Crown brought motions for orders compelling Mr. Jurchison to attend for discovery with respect to both appeals.
The Tax Court Judge considered the motions together. He held that he could entertain the taxpayers' motions under Rule 58. On the basis of the reasons for judgment of the Ontario Courts, he concluded that the evidence tainted by the breaches to Mr._Jurchison's Charter rights should be excluded. He refused, however, to vacate the reassessments entirely, noting that there remained untainted evidence developed from the initial audit that might support Revenue Canada's assessment. Under the circumstances, he held that the usual presumption at trial that the reassessments were correct was no longer appropriate and ordered that the onus be placed on the Crown to establish their validity.
With respect to the Crown's motions to compel Mr. Jurchison to attend for discovery, the Tax Court Judge held that:
... an examination of Mr. Jurchison would almost certainly have the result of compelling him to respond to a line of inquiry whose genesis lies in inadmissible evidence ... that evidence would be a road map to guide the examination of Mr. Jurchison.
He ordered that Mr. Jurchison was not to be examined for discovery.
The various appeals and cross-appeals to this Court can be divided into two areas: First, the Crown appeals the orders excluding the evidence of all but the initial audit. The taxpayers cross-appeal, arguing that the judge below erred in not going further and vacating the assessments. Second, the Crown appeals from the Tax Court Judge's order that Mr Jurchison not be examined for discovery. I will deal with the two areas in sequence.
The issue of the admissibility of evidence and the impact of this evidence upon the validity of the reassessments came before the Court on the motions of the taxpayers. As I have noted above, these motions were brought under Rule 58 of the General Procedure. The relevant portion of the Rule reads as follows:
58(1): A party may apply to the Court,
(a) for the determination, before hearing, of a question of law raised by a pleading in a proceeding where the determination of the question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs ...
There are certainly sound policy reasons for the existence of this rule. However, as the Tax Court noted in Carma Developers Ltd. v. The Queen, 96 D.T.C. 1803, the Rule "is not intended as an easily accessible alternative to a trial for the disposition of complex and contentious disputes about the rights and liabilities of litigants." Thus, the rule is only applicable if a number of conditions are met. Of specific relevance to this case is the requirement that the question of law to be determined be one that is raised by the pleadings.
In the case at bar, the Tax Court judge below found that "The Charter violation and its consequences are not referred to in the notices of appeal in either of [the] appeals" before him. Nor were those issues raised in the Crown's replies. Even so, he decided to deal with the motions. In doing so, he erred. The questions were not raised by the pleadings of either party. As a result, he was without authority to determine them pursuant to Rule 58.
Normally, the admissibility of evidence is a matter best left to the Trial Judge who, having all the circumstances and evidence before him can make the most informed decision. Of course, there are situations such as that before Bowman J. in O'Neill Motors Ltd. v. The Queen, 96 D.T.C. 1486, which particularly lend themselves to such determination before trial. It must be kept in mind, however, that in that case, the question to be determined came before the Court by agreement of the parties under s. 173 of the Income Tax Act which provides for determination of questions of law, fact or mixed law and fact upon agreement between the Minister and the taxpayer. Unlike the present case, there was an agreed statement of fact by the parties.
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.
Thus, I would allow the appeal and dismiss the cross-appeal with respect to the motions brought under Rule 58. The questions regarding the admissibility of evidence and upon whom the onus rests with respect to the validity of the assessments are to be left to the judge hearing the appeals of the reassessments.
I would, however, express the view that, in any event, the Tax Court Judge did not err in refusing to vacate the assessments entirely, correctly noting that the Crown was to be given the opportunity to make its case with the untainted evidence collected by the initial audit.
I turn now to the Crown's appeal of the Order disallowing the examination for discovery of Mr. Jurchison. The material in the record before us, including the judgments with respect to the tax evasion charges, demonstrates the strong possibility that the judge in the reassessment appeal may exclude at least some of the evidence collected by Revenue Canada auditors and investigators. It is impossible to know at this point exactly what that evidence might be. The details of the evidence obtained in breach of the taxpayers' rights is not before us, nor is the evidence which the Crown already had in its possession. It may well be that certain questions on discovery could be seen to have a genesis in the evidence taken in breach of the taxpayers' rights. However, until such questions are asked no such determination can be made. The Crown has the right to discovery and this right should not lightly be extinguished. In my view, it is preferable to allow the discovery to proceed with the taxpayer being given the right to object to any questions which are felt to have their genesis in the impugned evidence. Then a Motions Judge will be in a better position to assess the propriety of the question.
It is worth noting that counsel for the taxpayer had indicated in a letter to the Crown, prior to the hearing of the motions in question, that he was prepared to have his client examined for discovery in the event he failed in his Rule 58 motion. Thus, the Crown did not call the evidence it might have in order to meet a claim that the Crown had lost its right to discovery because of a Charter breach. In these circumstances, it would be unfair to deprive the Crown of its right to discovery.
Therefore, I would allow the Crown's appeal with respect to the order that Mr. Jurchison not be examined for discovery subject to the right of the taxpayer to object to any questions which are felt to have their genesis in evidence if taken in breach of their Charter rights.
It is clear that the Tax Court Judge had the highest of motives in disposing of the case as he did. As case management judge, he was concerned about unnecessary delays and obviously wished to have settled before trial some very contentious issues. These are laudable motives and it may well be that in the end that the Trial Judge will consider that the remedies imposed by the Tax Court Judge were appropriate. We do not want to be taken as expressing any view to the effect that the taxpayer does not have a legitimate complaint with respect to breach of his Charter rights.
In the result, the appeal with respect to the motions brought under Rule 58 is allowed and the cross-appeal dismissed. The appeal with respect to the order that Mr. Jurchison not be examined for discovery is allowed.
The Crown will have one set of costs for these appeals.
"J. E. Sexton"
J.A.
"I agree" "Julius A. Isaac"
J.A.
"I agree" "B. Malone"
J.A.
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