Dwyer v. Canada, 2003 FCA 322

Date: 20030826

Docket: A-424-01

Citation: 2003 FCA 322

CORAM:        STRAYER J.A.

NADON J.A.

EVANS J.A.

BETWEEN:

                                                           ARTHUR C. DWYER

                                                                                                                                            Appellant

                                                                          and

                                                    HER MAJESTY THE QUEEN

                                                                                                                                        Respondent

                                          Heard at Toronto, Ontario, on March 18, 2003

                                Judgment delivered at Ottawa, Ontario, on August 26, 2003

REASONS FOR JUDGMENT BY:                                                                                NADON J.A.

CONCURRED IN BY:                                                                                                STRAYER J.A.

                                                                                                                                        EVANS J.A.

Date: 20030826

Docket: A-424-01

Citation: 2003 FCA 322

CORAM:        STRAYER J.A.

NADON J.A.

EVANS J.A.

BETWEEN:

                                                            ARTHUR C. DWYER

                                                                                                                                              Appellant

                                                                            and

                                                     HER MAJESTY THE QUEEN

                                                                                                                                          Respondent

                                                     REASONS FOR JUDGMENT

NADON J.A.

[1]                This is an appeal from a judgment of McArthur J. of the Tax Court of Canada, dated July 10, 2001, which dismissed the appellant's appeal from reassessments for tax pursuant to the Income Tax Act, R.S. 1985, c. 1 (5^th Suppl.) (the "Act"), for the 1987, 1988, 1989, 1990 and 1991 taxation years. The reassessments for the years 1987 to 1990 included interest income from residential mortgages in the appellant's income, and assessed interest and penalties for the taxpayer's failure to report the same. With respect to the 1991 taxation year, the reassessment includes only interest income from residential mortgages.

THE FACTS

[2]                A brief summary of the facts is necessary to place this appeal in its proper context. The appellant, Arthur Dwyer, has been married to Ruth Dwyer for 41 years. During the last 33 years, Mrs. Dwyer has worked at Sears and the couple has lived on her salary. In 1984, Mr. Dwyer severely injured his back while lifting slabs of asbestos and, as a result, he has been unable since then to do any physical work. For many years, Mr. Dwyer received workers compensation benefits.

[3]                Commencing in 1976, Mr. Dwyer used his savings to provide loans for residential mortgages. From 1976 to 1991, he invested in approximately 78 residential mortgages, in respect of which he employed simple but effective business practices. In carrying out his business, he used the services of mortgage brokers and lawyers and charged a rate of interest varying from 15% to 20% to reflect the risk of the loans. Bonus provisions and payout penalties were standard features of his mortgages.

[4]                Mr. Dwyer deposited the principal from his mortgages into two accounts at the Peterborough Community Credit Union (the "PCCU"), and in two accounts at the National Trust. His accounts were split evenly between him and his wife, and the interest went into four other accounts in a similar way. Mr. Dwyer personally managed all of the accounts. According to the investigation carried out on behalf of the Minister of National Revenue (the "Minister"), Mr. Dwyer was able to increase his total assets from $460,483 in December 1986 to $1,717,147 by December of 1990.

[5]                Revenue Canada began taking an interest in Mr. Dwyer's affairs when one of his clients made an anonymous call informing the Minister that he was not reporting the interest income from his mortgages. As a result of this tipoff, Eric Fransky, a Special Investigations employee of Revenue Canada, was assigned to investigate Mr. Dwyer. He initially reviewed Mr. Dwyer's tax returns for the years 1989 and 1990 to ascertain whether any mortgage interest had been declared. Mr. Fransky also examined documents at the Land Registry Office to find out if indeed Mr. Dwyer had mortgages. As there was evidence to that effect and as Mr. Dwyer had not declared any interest income in regard thereto, Mr. Fransky took his investigation further by serving a Requirement to provide documents or information pursuant to subsection 231.2(1) of the Act on the PCCU manager, Mr. Leon Butterworth, so as to gain access to Mr. Dwyer's banking information. The Requirement was personally served by Eric Fransky on January 10, 1992.

[6]                After reviewing the documents and information obtained from the PCCU, and after a meeting with a former client of Mr. Dwyer, a Mr. Hunter, Mr. Fransky became more suspicious of Mr. Dwyer's activities. Consequently, he proceeded to obtain warrants to search Mr. Dwyer's home, his lawyers' offices and the Court where records were kept from a lawsuit between Mr. Dwyer and Mr. Hunter concerning a mortgage held by Mr. Dwyer. The warrants were executed on March 31, 1992.

[7]                The searches proceeded without any incident. Mr. and Mrs. Dwyer fully cooperated with the search team, led by Mr. Ray Finkle, which executed the warrant at their house. As it was Mr. Dwyer's practice to keep only information relevant to his current mortgages, he proceeded to show the search party the documents pertaining to those mortgages.

[8]                While the search party was at his house, Mr. Dwyer received a telephone call from two lawyers, Messrs. Dunn and Clark, who had represented him with respect to a number of mortgage transactions, advising him that Revenue Canada officials were in attendance at their offices, searching for documents in relation to his mortgage investments. Both Messrs. Dun and Clark asked Mr. Dwyer if he wanted to assert his solicitor-client privilege and, after a brief discussion with them, he informed them that he had no such intention.

[9]                On April 14, 1992, Mr. and Mrs. Dwyer were interviewed by Eric Fransky and his immediate superior, Peter Heryet. The Dwyers were cautioned and advised that they were the subject of a criminal investigation. They were also asked if they wished to retain legal counsel, but declined to seek legal advice.

[10]            On June 18, 1992, a Requirement to provide documents and information was served on the National Trust in Peterborough. This allowed Revenue Canada to obtain additional information and documents concerning Mr. Dwyer's banking activities. On June 24, 1992, Requirements were also served on a number of solicitors who had acted for Mr. Dwyer's mortgage customers. A further Requirement was served on the National Trust on October 2, 1992.

[11]            On March 26, 1993, Mr. Fransky swore a criminal information against Mr. Dwyer, who was charged with offenses of willfully evading taxes and making false statements on his returns during the 1989 and 1990 taxation years. On February 15, 1996, Mr. Dwyer was acquitted of all the charges.

[12]            By the time of his acquittal, Mr. Dwyer had paid $300,000 to the Minister on account of his unpaid taxes. Civil reassessments were issued on March 25, 1993, in respect of Mr. Dwyer's 1987 to 1990 taxation years. The Notices of Reassessment were confirmed on May 29, 1998. Mr. Dwyer appealed the reassessments to the Tax Court of Canada and, on July 10, 2001, McArthur J. dismissed his appeal.

[13]            To complete the factual background, I should add the following. Mr. Finkle, the Revenue Canada officer who led the search party which executed the search warrant at the Dwyer residence on March 31, 1992, asked Mr. Dwyer for a loan during a visit which he made to the Dwyer residence, subsequent to the execution of the search warrant, for the purpose of explaining the reassessments to Mr. Dwyer. This information came to light during Mr. Dwyer's criminal trial. In due course, Mr. Finkle was reprimanded in writing by his superiors at Revenue Canada.

THE ISSUES

[14]            The appeal raises the following issues:

1.         Whether the Tax Court Judge erred by failing to provide sufficient reasons for his decision.

2.         Whether the Tax Court Judge erred by failing to find that the issue of whether the appellant had the required mental state to justify the imposition of penalties was res judicata by reason of his criminal acquittal.

3.         Whether the Tax Court Judge erred when he failed to place the burden of proving the taxpayer's assessment on the Minister.

4.         Whether the Tax Court Judge erred in failing to find that the conduct of the investigation/audit constituted an abuse of process.

5.         Whether the Tax Court Judge erred in finding that there were no breaches of sections 7 and 8 of the Charter of Rights and Freedom (the "Charter") with respect to the manner in which the evidence in support of the reassessments was obtained, or alternatively, whether that evidence should have been admitted under subsection 24(2) of the Charter.

STATUTORY PROVISIONS

[15]            Subsections 163(2) and 231.2(1) of the Act are relevant and they read as follows:

[16]            Subsections 487(1) and 488.1(2) of the Criminal Code are also relevant, and they read as follows:

[17]            And lastly, sections 7 and 8, as well as subsections 24(1) and 24(2) of the Charter are pertinent. They read as follows:

ANALYSIS

First Issue- Whether the Tax Court Judge erred by failing to provide sufficient reasons for his decision:

[18]            The appellant submits that the Tax Court Judge's Reasons do not meet the standard enunciated by the Supreme Court of Canada in R. v. Sheppard, [2002] 1 S.C.R. 869. Specifically, the appellant argues that the Reasons are deficient in that they "are not sufficiently intelligible to permit appellate review of the correctness of the decision" (Sheppard, supra, at paragraph 1).

[19]            In support of his argument, the appellant points to the fact that the Tax Court Judge failed to address a number of issues, namely, solicitor-client privilege and its waiver, the attempted extortion by Ray Finkle, one of the Revenue Canada investigators, abuse of process, non-compliance with the search warrant, section 488.1 of the Criminal Code, the basis of the assessments and the onus of proof in regard thereto.

[20]            The respondent, it goes without saying, strongly disagrees with the appellant's position and submits that the Reasons given by the Tax Court Judge meet the standard prescribed in Sheppard, supra.

[21]            The respondent argues that the Judge reviewed the evidence fairly, clearly outlining the appellant's position which he chose not to accept. The respondent also argues that the Judge canvassed the evidence relating to the issuance of the Requirements and their execution, and in regard thereto, preferred the evidence of the respondent's witnesses. The Judge found the evidence of Eric Fransky "meticulous", while concluding that "if any facts are stunning, it is the outrageous behaviour of the appellant in not reporting huge sums of income while maintaining ignorance". In the respondent's view, this could only be a comment regarding the credibility of these two witnesses.

[22]            Consequently, the respondent submits that the Reasons given by the Tax Court Judge clearly afford the appellant and this Court a complete picture of his reasons and, thus, the Reasons are not "unintelligible". The respondent concludes on this point by submitting that there is no absence of reasons which prevents this Court from reviewing the correctness of the decision below.

[23]            In my view, the Reasons given by the Tax Court Judge meet the standard prescribed by the Supreme Court in Sheppard, supra. Before turning to that decision and the standard which it prescribes, I will briefly review the Reasons given by the Tax Court Judge.

[24]            The Tax Court Judge reviewed the evidence and clearly indicated that he could not accept that Mrs. Dwyer had not been cautioned during the search conducted at her residence. He found that prior to the search conducted at the law offices, the lawyers were read cautions, and he also found that Mr. Dwyer had waived his solicitor-client privilege.

[25]            The Judge considered the evidence concerning Mr. Finkle's request for a loan and the payment of $300,000 made by Mr. Dwyer on account of his taxes. He concluded that there was "no evidence of extortion by Mr. Finkle", nor was there any evidence that Mr. Dwyer had paid the $300,000 under threat of criminal prosecution.

[26]            The Tax Court Judge rejected the appellant's submission that the evidence obtained from the searches conducted at the law offices was inadmissible, due to the unconstitutionality of section 488.1, or that evidence obtained from the search conducted at the Dwyer residence was inadmissible by reason of Charter violations. He found, applying The Queen v. Jurchison, 2001 FCA 126, that evidence obtained in violation of a section 8 Charter right might be inadmissible for a criminal prosecution, but admissible in a civil matter. The determination of whether the evidence should be excluded turned on the application of subsection 24(2) of the Charter, and this required an examination of the impugned evidence, the manner in which it was obtained, an inquiry into the seriousness of the Charter breach, and whether the information was already in the possession of the Crown or was discoverable. The Judge also referred to the decision of Linden J.A. in Donovan v. The Queen, 2000 DTC 6339 (FCA), which sets forth the same test for the admission of evidence obtained in violation of a Charter right. The Tax Court Judge also noted Linden J.A.'s comments that the remedy of vacating an assessment was available only where it was clear that the exclusion of evidence under subsection 24(2) would deprive the Minister of evidence so fundamental that the assessments could not be sustained without it.

[27]            After a review of the evidence, the Tax Court Judge concluded that in the circumstances of the case, the searches were not unreasonable. He also concluded that, in any event, the admission of the evidence would not bring the administration of justice into disrepute. Rather, he was of the view that excluding the evidence would have this effect. In reaching this conclusion, the Tax Court Judge considered that the searches were conducted in good faith, without knowledge of the unconstitutionality of section 488.1 of the Criminal Code, the fact that the Minister had strong reasons to believe that searches were necessary in the audit process, that the evidence was not conscriptive, and that the evidence was "probably available through other means".

[28]            The Judge then set out a detailed exposition of the reasons for his finding that there was insufficient evidence to conclude that Mr. Finkle had extorted Mr. Dwyer. This finding was supported by the fact that Mr. Finkle had sufficient equity to secure the mortgage he was seeking from the appellant, that the transaction proceeded through Mr. Dwyer's regular methods, using a mortgage broker and requiring an application, credit checks and the regular interest rates charged by Mr. Dwyer, and that when Mr. Finkle's application was refused by Mr. Dwyer, he was able to secure financing from a commercial institution, which he had been pursuing at the same time as he had been attempting to obtain a loan from Mr. Dwyer.

[29]            The Judge then turned his attention to the $300,000 paid by Mr. Dwyer on account of his taxes. On the evidence before him, he found that Mr. Dwyer had been made aware that he would owe more than $300,000 in taxes and that the payment would prevent interest from accumulating. Recognizing that the process of the audit was a difficult one for Mr. Dwyer and his family, the Judge was nonetheless of the view that this did not constitute abuse of process by Revenue Canada.

[30]            With respect to the quantum of the assessments, the Judge was of the view that Mr. Dwyer had not seriously contested the amount, other than to criticize the fact that it was based only on a sample of his banking records. The Judge indicated that Mr. Dwyer had presented no evidence challenging the quantum of the assessments, whereas he found "impressive" Mr. Fransky's detailed explanation of the calculation of the amount, owed by Mr. Dwyer to Revenue Canada.

[31]            Lastly, the Judge dealt with the penalties imposed by Revenue Canada. He rejected the appellant's argument that the issue was res judicata as a result of the criminal acquittal. Citing Hirex Holdings Ltd. v. R., [1997] 1 CTC 103, the Judge concluded that issue estoppel in civil proceedings did not result from an acquittal in a criminal trial. The Judge also considered the requirements for a finding of gross negligence under section 163.2 of the Act, as set out by Strayer J.(as he then was) in Venne v. The Queen, 84 DTC 6247. Since Mr. Dwyer had been in the business of mortgage lending for a number of years, he could not, on any account, be considered as a neophyte and, as a result, the Judge formed the opinion that Mr. Dwyer had been "willfully blind and grossly negligent" (at paragraph 29) in omitting the mortgage interest from his income.

[32]            The Judge then rejected the appellant's argument that the facts of the case could not be distinguished from those in Colangelo Estate v. M.N.R., [1998] 2 CTC 2923. In the Judge's opinion, Colangelo was distinguishable because, in that case, only one transaction involving a capital gain was in issue, and the Judge accepted that the taxpayer did not know how to report his gain. In the present circumstances, however, Mr. Dwyer failed to include in his income amounts which "clearly had an income character about them". Consequently, in the Judge's view, the penalties imposed on Mr. Dwyer were justified.

[33]            In my opinion, there is no merit in Mr. Dwyer's submission that the Reasons given by the Tax Court Judge are not "sufficiently intelligible to permit appellate review of the correctness of the decision" (Sheppard, supra).

[34]            In Shepard, supra, the Newfoundland Court of Appeal had overturned the conviction of the accused by reason of the Trial Judge's failure to provide a reasonable explanation of his decision "that was sufficiently intelligible to permit appellate review". Consequently, the Court of Appeal held that the Trial Judge had erred in law. Mr. Justice Binnie, at paragraph 2, set out as follows the full text of the Trial Judge's Reasons (R. v. Sheppard (1999), 138 C.C.C. 254 at paragraph 14, per O'Neill J.A.) is as follows:

Having considered all the testimony in this case, and reminding myself of the burden on the Crown and the credibility of witnesses, and how this is to be assessed, I find the defendant guilty as charged.

[35]         Mr. Justice Binnie, writing for a unanimous Supreme Court of Canada, expressed his agreement with the conclusion reached by the Newfoundland Court of Appeal. He stated at paragraph 25 that the basic rule was that a court of appeal could intervene where, in its opinion, deficiencies in the Reasons were such as to prevent meaningful appellate review of the correctness of the decision. Where that occurred, the court below had made an error of law. However, Mr. Justice Binnie also made it clear that an appellate court was not given the power to intervene "simply because it thinks the trial court did a poor job of expressing itself" (paragraph 26). At paragraph 28 of his Reasons, Mr. Justice Binnie then outlined the manner in which an appellate court should approach the Reasons under review:

28.           It is neither necessary nor appropriate to limit circumstances in which an appellate court may consider itself unable to exercise appellate review in a meaningful way. The mandate of the appellate court is to determine the correctness of the trial decision, and a functional test requires that the trial judge's reasons be sufficient for that purpose. The appeal court itself is in the best position to make that determination. The threshold is clearly reached, as here, where the appeal court considers itself unable to determine whether the decision is vitiated by error. Relevant factors in this case are that (I) there are significant inconsistencies or conflicts in the evidence which are not addressed in the reasons for judgment, (ii) the confused and contradictory evidence relates to a key issue on the appeal, and (iii) the record does not otherwise explain the trial judge's decision in a satisfactory manner. Other cases, of course, will present different factors. The simple underlying rule is that if, in the opinion of the appeal court, the deficiencies in the reasons prevent meaningful appellate review of the correctness of the decision, then an error of law has been committed.

[36]            I have no hesitation in concluding that the Reasons given by McArthur J. do not prevent this Court from properly reviewing the correctness of his decision. The Judge reviewed the evidence, made key findings of fact to support his conclusions and set out the legal test relevant to his analysis. There is thus no difficulty, from an appellate point of view, in reviewing the decision and, as a result, I have not been persuaded that the Tax Court Judge erred in law by failing to provide sufficient Reasons.

Second Issue - Whether the Tax Court Judge erred by failing to find that the issue of whether the appellant had the required mental state to justify the imposition of penalties was res judicata by reason of his criminal acquittal:

[37]            As I indicated earlier, the Tax Court Judge, on the basis of Hirex Holdings, supra, concluded that issue estoppel in a civil proceeding does not flow from an acquittal in a criminal case.

[38]            The appellant argues that the imposition of penalties requires that the element of knowledge and a minimal mens rea be established, and that having been acquitted of allegations of tax fraud, the issue of the mens rea element is thus res judicata between the parties. The respondent counters by saying that evidence which is insufficient to meet the criminal burden can be sufficient to meet the civil burden. Consequently, according to the respondent, even though a conviction can form the basis of an argument of issue estoppel, an acquittal cannot have that effect. For this proposition, the respondent relies on this Court's decision in Van Rooy v. Minister of National Revenue, [1989] 1 F.C. 489, which cited with approval the words of Lord Diplock in Hunter v. Chief Constable of West Midlands Police, [1982] A.C. 529 (H.L.), where he says at pages 542 and 543:

My Lords, this is the first case to be reported in which the final decision against which it is sought to initiate a collateral attack by means of a civil action has been a final decision reached by a court of criminal jurisdiction. This raises a possible complication that the onus of proof of facts that lies upon the prosecution in criminal proceedings is higher than that required of parties to civil proceedings who seek in those proceedings to prove facts on which they rely. Thus a decision in a criminal case upon a particular question in favour of a defendant, whether by way of acquittal or a ruling on a voir dire, is not inconsistent with the fact that the decision would have been against him if all that were required were the civil standard of proof on the balance of probabilities. This is why acquittals were not made admissible in evidence in civil actions by the Civil Evidence Act 1968. In contrast to this a decision on a particular question against a defendant in a criminal case, such as Bridge J.'s ruling on the voir dire in the murder trial, is reached upon the higher criminal standard of proof beyond all reasonable doubt and is wholly inconsistent with any possibility that the decision would not have been against him if the same question had fallen to be decided in civil proceedings instead of criminal.

[39]            In my view, the respondent is correct in her submission that the issue of mens rea is not res judicata between the parties. There can be no doubt that an acquittal can occur in a criminal trial where, on a balance of probabilities, the offence would have been made out. Thus, such an acquittal does not render the issue of mens rea with respect to penalties res judicata, even if the required mental elements are identical.

[40]            Consequently, McArthur J. made no error in concluding that the issue of penalties was not res judicata.

Third Issue - Whether the Tax Court Judge erred when he failed to place the burden of proving the taxpayer's assessment on the Minister of National Revenue:

[41]            The appellant submits that the Minister, where seeking to bring a taxpayer within the meaning of a taxing provision, bears the burden of proof. For this proposition, the appellant relies on the Supreme Court of Canada's decision in Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secour, [1994] 3 S.C.R. 3. The Minister, on the other hand, relying on Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, and on Re Island Telecom Inc. (1999), 176 D.L.R. (4^th) 356 (P.E.I. S.C., Appeal Division), argues that it is clear that the taxpayer bears the onus of disproving the facts on which the Minister relies in making his assessments.

[42]            In my view, the Tax Court Judge did not make any error with respect to the burden of proof. In Hickman, supra, L'Heureux-Dubé J., at paragraphs 92 to 95, stated the correct approach as follows:

92.           It is trite law that in taxation the standard of proof is the civil balance of probabilities: [1966] S.C.R. 95">Dobieco Ltd. v. Minister of National Revenue, [1966] S.C.R. 95, and that within balance of probabilities, there can be varying degrees of proof required in order to discharge the onus, depending on the subject matter: [1982] 1 S.C.R. 164">Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; Pallan v. M.N.R., 90 D.T.C. 1102 (T.C.C.), at p. 1106. The Minister, in making assessments, proceeds on assumptions (Bayridge Estates Ltd. v. M.N.R., 59 D.T.C. 1098 (Ex. Ct.), at p. 1101) and the initial onus is on the taxpayer to "demolish" the Minister's assumptions in the assessment ([1948] S.C.R. 486">Johnston v. Minister of National Revenue, [1948] S.C.R. 486; Kennedy v. M.N.R., 73 D.T.C. 5359 (F.C.A.), at p. 5361). The initial burden is only to "demolish" the exact assumptions made by the Minister but no more: First Fund Genesis Corp. v. The Queen, 90 D.T.C. 6337 (F.C.T.D.), at p. 6340.

93      This initial onus of "demolishing" the Minister's exact assumptions is met where the appellant makes out at least a prima facie case: Kamin v. M.N.R., 93 D.T.C. 62 (T.C.C.); ...

94      Where the Minister's assumptions have been "demolished" by the appellant, "the onus . . . shifts to the Minister to rebut the prima facie case" made out by the appellant and to prove the assumptions: Magilb Development Corp. v. The Queen, 87 D.T.C. 5012 (F.C.T.D.), at p. 5018. Hence, in the case at bar, the onus has shifted to the Minister to prove its assumptions that there are "two businesses" and "no income".

95      Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed: ...

[43]            In Island Telecom, supra, the Appeal Division of the Prince Edward Island Supreme Court dealt with an argument, similar to that presently made by the appellant, based on the Supreme Court of Canada's decision in Corporation Notre-Dame de Bon-Secours, supra. At paragraphs 18 to 22, the Court disposed of the argument as follows:

[18]         The appellant, Island Telecom, argues the burden of proving the correctness of the assessment should be on the Provincial Tax Commissioner as it is he who asserts the correctness of the assessment based on a particular charging provision of the Act. This, the appellant argues, is consistent with the general principle applicable in civil litigation and that is, "he who asserts must prove". Island Telecom relies upon the decision of the Supreme Court of Canada in Corp. Notre-Dame de Bon-Secours v. Quebec, [1994] 3 S.C.R. 3 (S.C.C.), as authority for this position. In particular, the appellant refers to this statement of Gonthier J. at para. 28:

It should at once be noted that there is a risk of confusion between the rule that a taxing provision is to be strictly construed and the burden of proof resting upon the parties in an action between the government and a taxpayer. According to the general rule which provides that the burden of proof lies with the plaintiff, in any proceeding it is for the party claiming the benefit of a legislative provision to show that he is entitled to rely on it. The burden of proof thus rests with the tax department in the case of a provision imposing a tax obligation and with the taxpayer in the case of a provision creating a tax exemption. It will be noted that the presumptions mentioned earlier tend in more or less the same direction. This explains why these concepts have been at times superimposed to the point of being confused with each other. With respect, they are nevertheless two very different concepts. In any event, the rule of strict construction relates only to the clarity of the wording of the tax legislation: regardless of who bears the burden of proof, that person will have to persuade the court that the taxpayer is clearly covered by the wording of the legislative provision which it is sought to apply.

[19]         The appellant argues the case stands for the proposition that the burden of proving a tax assessment rests on the tax collector if the provision being relied upon is a charging provision, and on the taxpayer if the provision in question is one which grants an exemption. With respect I am unable to agree.

[20]         The essence of the argument of Island Telecom is that the Provincial Tax Commissioner must prove the facts upon which the assessment is based. However, in the cases I have cited above and which relate specifically to the proof of facts in matters relating to taxation, courts have held that the burden of proving the facts upon which the assessment is based is not upon the Minister as the assessor of the tax; but rather, there is a burden on the taxpayer to disprove those facts. This principle was clearly stated in [1948] S.C.R. 486">Johnston, and it has been consistently applied. I am unable to accept that the Supreme Court of Canada would make a change in this principle and adopt a new standard by its subsequent decision in Notre-Dame with absolutely no mention or discussion of the previous decision in [1948] S.C.R. 486">Johnston.

[21]         It is more plausible to interpret the Notre-Dame decision as clarifying and modernizing the principles applicable in the interpretation of a taxing statute. In its decision, the Court reviewed a number of rules for interpreting tax legislation first dispensing with the traditional rule of the strict construction of tax legislation which has been that in cases of doubt, a presumption existed in favour of the taxpayer in taxing situations but against the taxpayer in exemption situations. The Court went on to review and comment upon various interpretive devices relied upon in previous cases and at para. 38 set out the rules for interpreting tax legislation in the future. These principles were applied by the Court in a subsequent decision, namely, Schwartz v. Canada, [1996] 1 S.C.R. 254 at p. 295, para. 56.

[22]         Each assessment is based on the assumption of a set a [sic] facts by the Minister or, in the case of sales tax, the Provincial Tax Commissioner. In a self-reporting and self-assessing tax regime such as the one established for sales tax and te one established by the Income Tax Act, these assumptions are really the Minister's interpretation or view of the facts as disclosed by the taxpayer. The facts are, therefore, uniquely within the knowledge and control of the taxpayer. Consequently, it is not unfair to place a burden upon the taxpayer to disprove those facts when on appeal the taxpayer seeks to have the assessment declared incorrect. Once this is done and the assumptions have been "demolished" or, to express it somewhat less emphatically, once the taxpayer discharges the evidential burden of showing that the facts or assumptions relied upon by the assessor are incorrect, the assessor then assumes the burden of proof. This is an issue completely distinct from the principles governing the interpretation of a taxing statute and a determination of whether the taxpayer's situation, arising from those facts, is clearly covered by the taxing statute which is sought to be applied. The onus or burden of proof relates to the proof or disproof of the facts upon which the assessment is based. Whether a statute is to be interpreted to apply to those facts raises a legal issue of statutory interpretation to which there is no onus or burden of proof but only certain interpretative rules which are set forth in para. 38 of the Notre-Dame decision. Neither party ever bears an onus or burden of proof with respect to the law.

[Emphasis Added]

I agree entirely with the reasoning of the Appeal Division of the Prince Edward Island Supreme Court.

[44]            In the case at bar, the Minister did not simply rely upon the assumptions of fact made in the Notice of Reply, but adduced extensive documentary evidence relating to the investigation which supported the reassessments. Part of this documentation is Mr. Fransky's Auditor's Report, which details Mr. Dwyer's unreported business income and makes clear the source of the interest income. Individual worksheets for each account explain the basis of the interest income figures.

[45]            The Minister also presented evidence relating to the reassessments by way of Mr. Fransky's viva voce testimony. As I have already indicated, the Trial Judge found Mr. Fransky's explanations regarding the assessments to be impressive and he accepted them.

[46]            Bearing the burden of proof, the Minister adduced cogent evidence to support the assessments, which Mr. Dwyer then had the burden of rebutting. Mr. Dwyer did not present any such rebuttal evidence. Far from it, he did not contest that he had failed to report substantial sums of interest income. The following exchange highlights Mr. Dwyer's testimony regarding the quantum of the assessments (Transcript of Mr. Dwyer's testimony, February 19, 2001, pages 122-123 - See Appeal Book, Vol. 8, at page 1584):

Q.            And, similarly, unreported business income, the Minister says, no, you earned more that 9,000. You earned -

A.            Two hundred and fifty.

Q.            Over 250,000 of interest income. Do you agree with that?

A.            No, I don't agree with it, but anyway -

Q.            Okay?

A.            It's in, like you say -

Q.            But you didn't -

A.            - it could be in the proximity.

Q.            Okay.

A.            I don't know.

Q.            So you may not agree right down to the $82 -

A.            No, I don't.

Q.            - but you had significant interest income -

A.            Yes, oh, absolutely.

Q.            And it was not reported?

A.            No, it wasn't shown in the interest, no.

[47]            Consequently, I see no merit in the appellant's contention on this point. The Judge carefully examined the evidence adduced and concluded that the Minister had, on a balance of probabilities, met his burden.

Fourth Issue - Whether the Tax Court Judge erred in failing to find that the conduct of the investigation/audit constituted an abuse of process:

[48]            Mr. Dwyer submits that the "entire conduct, actions, and events constitute an illegal search and seizure and abuse of process". Specifically, he submits that it was abusive for Mr. Finkle to attempt to extort him, that Mr. Finkle's conduct was "white-washed by his superiors" and that it was abusive to attempt to obtain third-party records from the banks and from lawyers after the search warrants had been executed.

[49]            For his submission, Mr. Dwyer relies on the fact that Mr. Fransky conceded that warrantless searches were conducted pursuant to the Requirement provisions of the Act, even after search warrants were executed and criminal charges laid against him and his wife. Mr. Dwyer further relies on the fact that Revenue Canada attempted to extract $300,000 in payment from him under threat of criminal charges, at a time when charges and reassessments had not been laid or issued. Finally, Mr. Dwyer submits that all of the Requirements issued pursuant to subsection 231.2(1) of the Act constitute an abuse of process under section 7 of the Charter and a contravention of section 8 thereof, as they were an improper criminal investigation under the civil enforcement provisions of the Act. Consequently, Mr. Dwyer seeks to have the assessments stayed or quashed.

[50]            The respondent submits that the investigation did not constitute an abuse of process. In support of this proposition, the respondent argues that subsection 487(1) of the Criminal Code, the statutory provision pursuant to which the warrants were executed, is constitutional and that there was nothing flagrant nor egregious in the conduct of the investigating officers. Specifically, the respondent says that these officers worked under valid provisions of the Act and the Criminal Code in investigating potential wrongdoing on the part of Mr. Dwyer. Consequently, the respondent says that there was no abuse of process.

[51]            In my view, Mr. Dwyer cannot succeed on this ground. I will deal first with Mr. Finkle's conduct. Mr. Dwyer submits that Mr. Finkle attempted to extort money from him. Indeed, Mr. Finkle did ask for a mortgage from Mr. Dwyer during the course of discussions concerning Mr. Dwyer's reassessments. According to Mr. Dwyer, Mr. Finkle asked him for a cash loan or, alternatively, whether he would grant him a mortgage. Mr. Dwyer informed Mr. Finkle that he would consider the matter. A few weeks later, Mr. Finkle telephoned Mr. Dwyer to find out if Mr. Dwyer had made a decision. Mr. Dwyer advised Mr. Finkle that he had made arrangements for Mr. Finkle to meet with his mortgage broker. Mr. Dwyer requested that Mr. Finkle, like all of his other clients, complete an application form. In due course, Mr. Dwyer, Mr. Finkle and the mortgage broker visited Mr. Finkle's home and cottage, which were the intended collateral for the loan. During the journey to the home and cottage, Mr. Finkle informed Mr. Dwyer that it was Mr. Fransky's intention "to get him". Ultimately, Mr. Dwyer decided that he would not make the loan sought by Mr. Finkle.

[52]            There is no evidence that Mr. Finkle's conduct was sanctioned by his superiors or was part of the investigative process. During the course of the criminal proceedings, Mr. Finkle was subject to an internal investigation by reason of allegations that he had approached Mr. Dwyer for a personal loan. He was reprimanded in writing. Mr. Finkle's conduct was, to put it mildly, an improper initiative taken without any discussion or consultation with his superiors.

[53]            It is important to note that Mr. Finkle was not involved in the investigation, other than acting as team leader during the execution of the search warrant at the Dwyer residence. Following the search, Mr. Dwyer contacted Mr. Finkle, inviting him to his home to discuss the reassessments and the accounts.

[54]            In Blencoe v. B.C. (Human Rights Commission), [2000] 2 S.C.R. 307, the Supreme Court of Canada explained what proof was necessary to justify a conclusion of abuse of process. Bastarache J., for the majority, citing with approval Donald M. Brown and John M. Evans in Judicial Review of Administrative Action in Canada (Toronto: Canvasback, 1998 (looseleaf) at p. 9-68), stated at paragraph 120:

120.         In order to find an abuse of process, the court must be satisfied that, "the damage to the public interest in the fairness of the administrative process should the proceeding go ahead would exceed the harm to the public interest in the enforcement of the legislation if the proceedings were halted" ...

Bastarache J. went on to state that, in order to conclude that there had been abuse of process, the proceedings must be "tainted to such a degree that it amounts to one of the clearest of cases". The administrative proceedings must be "unfair to the point that they are contrary to the interests of justice" (at paragraph 120, citing L'Heureux-Dubé J. in R. v. Power, [1984] 1 F.C.R. 601).

[55]            In my view, Mr. Dwyer has not adduced sufficient evidence to meet the threshold set by the Supreme Court. Considering that Mr. Finkle was not in a position to influence the outcome of the administrative proceedings, his inappropriate personal conduct is not such so as to justify a conclusion of abuse of process. Revenue Canada considered Mr. Finkle's conduct as a serious matter and dealt with it. His conduct occurred after the execution of the search warrant at the Dwyer residence and, in my view, does not taint any of the evidence obtained from this search. Although Mr. Finkle's conduct was reprehensible, I am satisfied that it did not result in any unfairness to Mr. Dwyer.

[56]            Mr. Dwyer's other contention with respect to abuse of process is that Revenue Canada's use of Requirements after the execution of the search warrants was abusive. In my view, there is no merit to this contention. These proceedings are civil enforcement proceedings under the Act, and not a prosecution for criminal offenses. It was therefore open to the Minister to conduct both an investigation for the purpose of potential prosecution and an audit for the purposes of enforcement (R. v. Jarvis, supra, at paragraph 97).

[57]            Evidence obtained through the use of the audit powers is inadmissible in criminal proceedings, where it is obtained after the investigation is commenced. However, it remains open to the Minister to use the powers in subsections 231.1(1) and 231.2(1) to obtain information for the purpose of the audit. In the present matter, it is not an easy task to distinguish the "investigation" from the "audit", since Mr. Fransky appears to have been acting as both investigator and auditor. However, since the matter before us relates to civil enforcement proceedings, the use of the Requirements to obtain information does not, in my view, amount to an abuse of process, even where they are used after the execution of the search warrants. In any event, it is my view that, where appropriate, the exclusion of evidence improperly obtained is a preferable remedy to that of a finding of abuse of process.

Fifth Issue - Whether the Tax Court Judge erred in finding that there were no breaches of sections 7 and 8 of the Charter of Rights and Freedom (the "Charter") with respect to the manner in which the evidence in support of the reassessments was obtained, or alternatively, whether that evidence should have been admitted under subsection 24(2) of the Charter:

[58]            I now turn to the last issue, which pertains to Charter breaches and the evidence. First, Mr. Dwyer submits that it was a violation of sections 7 and 8 of the Charter for Mr. Fransky to serve the January 10, 1992 Requirement on the PCCU manager, Mr. Leon Butterworth, so as to obtain information and documents pertaining to his banking operations. This submission is premised on the fact that, at the time the Requirement was served, Revenue Canada was already suspicious of criminal activity on the part of Mr. Dwyer, i.e. his failure to report income. Mr. Dwyer submits that he had a privacy interest in his banking records. He submits that without this Requirement, no evidence could have been obtained.

[59]            The respondent, not surprisingly, argues that the Requirement served on the PCCU was a valid use of the Requirement provisions. While a warrant is required where there are reasonable and probable grounds to believe that an offence has been committed, the existence of such grounds cannot be inferred from the mere fact that the Special Investigations Division issued the Requirement. The investigations officers were initially mandated to determine whether mortgage income had been reported by Mr. Dwyer, whether he had in fact received mortgage income, and whether he had knowingly or wilfully failed to report net income from such mortgages. It was only after Revenue Canada had determined the extent of the funds earned by Mr. Dwyer and analysed all of the evidence that an assessment could be made as to whether Mr. Dwyer would be reassessed, subjected to penalties and/or prosecuted.

[60]            The respondent submits that the use of subsection 231.2(1) of the Act to compel the production of the documents and information so as to ensure compliance with the Act is not an unreasonable search or seizure within the meaning of section 8 of the Charter (R. v. McKinley Transport Ltd., [1990] 1 S.C.R. 627 at 647 to 650). The fact that the Minister had reasonable and probable grounds to believe that an offence had been committed does not preclude the use of the evidence requested to ensure compliance with the Act in a civil setting (Bisaillon v. Canada, [1999] FCJ 1477 at paragraph 5 (FCA)).

[61]            I have not been persuaded that the initial Requirement served upon the PCCU to provide documents and information concerning Mr. Dwyer's banking records was in violation of the Charter. In 2002 SCC 73">R. v. Jarvis, 2002 SCC 73, and in 2002 SCC 74">R. v. Ling, 2002 SCC 74, the Supreme Court has recently addressed the use of the Requirement provisions in the context of audits/prosecution under the Act. In 2002 SCC 73">Jarvis, supra, the Supreme Court held that the use of the Requirement provisions to secure information was valid and that any evidence obtained was admissible in both civil and criminal enforcement proceedings, if the predominant purpose of the inquiry by the Minister was not the determination of penal liability. At paragraphs 93 and 94 of their Reasons for the Court, Iacobucci and Major JJ. set out a list of factors relevant to a determination of whether or not an inquiry engages the adversarial relationship between the state and the individual:

93.     To reiterate, the determination of when the relationship between the state and the individual has reached the point where it is effectively adversarial is a contextual one, which takes account of all relevant factors. In our opinion, the following list of factors will assist in ascertaining whether the predominant purpose of an inquiry is the determination of penal liability. Apart from a clear decision to pursue a criminal investigation, no one factor is necessarily determinative in and of itself, but courts must assess the totality of the circumstances, and make a determination as to whether the inquiry or question in issue engages the adversarial relationship between the state and the individual.

94      In this connection, the trial judge will look at all factors, including but not limited to such questions as:

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

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

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

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

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

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

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

[62]            Thus, the determination of the point at which the "adversarial relationship" commenced is key to the determination to be made. Consequently, the use of the Requirement provisions to obtain information after the audit has become an investigation results in a breach of the taxpayer's rights under sections 7 and 8 of the Charter.

[63]            In the present matter, the audit/prosecution was set in motion when an anonymous tip was received by Mr. Heryet. The matter was referred to Mr. Fransky of Special Investigations who, at that time, clearly could not have contemplated laying criminal charges against Mr. Dwyer simply on the basis of an unsubstantiated report. The initial inquiries made by Mr. Fransky were consistent with an investigation into Mr. Dwyer's tax liability in general. He reviewed Mr. Dwyer's tax returns and consulted documents from the local land registry to determine whether Mr. Dwyer had any mortgage investments. As that was the case, the Requirement was issued to the PCCU and information was obtained from Mr. Hunter, a former client of Mr. Dwyer.

[64]            Although Mr. Fransky was of the view that his investigation was the preliminary stage of a criminal investigation, I am satisfied that the conduct of the investigation was consistent with an audit, in that the nature of the evidence sought was relevant to establishing whether or not there was unreported income and went more to Mr. Dwyer's tax liability in general than to the specific mens rea of an offence. Even though the "auditor" was also the "investigator", prior to the issuing of the Requirement upon the PCCU. there was no evidence which could have justified a transfer of the file to Special Investigations had it originated in the Audit Branch of Revenue Canada. In other words, when the Requirement was served upon the PCCU, the adversarial relationship between the state and the individual had not been engaged, and the predominant purpose of the inquiry could not have been the determination of penal liability. At paragraph 90 of their Reasons in 2002 SCC 73">Jarvis, supra, Iacobucci and Major JJ. clearly state that mere suspicion is not sufficient to set in motion an investigation:

90.    All the more, the test cannot be set at the level of mere suspicion that an offence has occurred. Auditors may, during the course of their inspections, suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case that, from the moment such suspicion is formed, an investigation has begun. On what evidence could investigators ever obtain a search warrant if the whiff of suspicion were enough to freeze auditorial fact-finding? The state interest in prosecuting those who wilfully evade their taxes is of great importance, and we should be careful to avoid rendering nugatory the state's ability to investigate and obtain evidence of these offences.

[65]            Thus, I am of the view that the Requirement served upon the PCCU does not constitute an unreasonable search and seizure and, therefore, Mr. Dwyer's rights under sections 7 and 8 of the Charter were not infringed.

[66]            I now turn to the validity of the warrants executed at the Dwyer residence and at the offices of Messrs. Dunn and Clark, which were executed after warrants had been obtained pursuant to section 487 of the Criminal Code. At the time these warrants were executed, evidence was clearly being sought in the context of prosecuting offences under the Act, rather than conducting an audit. To obtain the warrants, the officers swearing the information indicated that there were reasonable and probable grounds to believe that specific evidence establishing the commission of offences under the Act would be found in the locations to be searched. Evidence obtained from the Requirement served on the PCCU established, in part, the existence of these grounds. As I have concluded that the PCCU evidence was not obtained in violation of the Charter, the fact that the warrants were obtained based on that information does not render the warrants invalid.

[67]            With respect to the warrant executed at the Dwyer residence, I have no hesitation in concluding that the search conducted there was not unreasonable. Mr. Dwyer has not persuaded me that there is any basis for excluding any of the evidence obtained through the execution of the warrant at his residence. Mr. Dwyer's principal argument is that his wife "was not read her rights, nor were her rights taken into account, as Finkle was unaware that she was named on the warrant, even though he was in charge of the team executing the warrant at the Dwyer residence" (paragraph 64 of Mr. Dwyer's Memorandum of Fact and Law). I cannot subscribe to that submission. Should Mrs. Dwyer be threatened with the use of evidence obtained in violation of her Charter rights to impose a civil or criminal liability under the Act, it would be open to her to assert these rights through a request for exclusion of the evidence (See Bisaillon v. Canada, [1999] F.C.J. No. 1477 (FCA) at paragraph 9; see also Del Zotto v. Canada (C.A.), [1997] 3 F.C. 40, for dissenting Reasons of Strayer J.A., at paragraphs 33-34, affirmed [1999] 1 S.C.R. 3). Mr. Dwyer cannot defend himself by relying on a possible violation of Mrs. Dwyer's Charter rights. Hence, any consequences arising from the alleged failure to caution Mrs. Dwyer are, in my view, hypothetical.

[68]            The other breaches alleged by Mr. Dwyer are highly technical in nature and they are set out at paragraphs 64 and 66 of Mr. Dwyer's Memorandum. Specifically, Mr. Dwyer says that neither the warrant nor his Charter caution were read to him before Mr. Finkle's team entered and began the search. He also says that the terms of the warrant and the terms of section 488.1 of the Criminal Code were not adhered to. After considering all of the evidence, McArthur J. concluded that the evidence obtained from the Dwyer residence did not result from an unreasonable search. He also concluded that, in any event, there was no cause to exclude the evidence under subsection 24(2) of the Charter. I will shortly address McArthur J.'s conclusion regarding subsection 24(2), but suffice it to say for now that I have not been persuaded that his conclusions regarding the evidence obtained through the search conducted at the Dwyer residence were wrong.

[69]            I now turn to the warrants executed at the offices of Messrs. Dunn and Clark. Like the search at the Dwyer residence, the searches at the law offices were conducted pursuant to warrants issued under section 487 of the Criminal Code. However, searches concerning documents in the possession of a lawyer who invokes the solicitor-client privilege with respect to these documents, must be conducted in accordance with the provisions of section 488.1 of the Criminal Code, which the Supreme Court of Canada found to be unconstitutional in its recent decision in Lavallée, Rackel & Heintz v. Canada (Attorney General); White, Ottenheimer & 2002 SCC 61">Baker v. Canada (Attorney General); R. v. Fink, 2002 SCC 61). A majority of the Court found section 488.1 to be inadequate in protecting solicitor-client privilege and thus, concluded that a search conducted pursuant to this provision was an unreasonable search and seizure within the meaning of section 8 of the Charter. In our case, the searches at the offices of Messrs. Clark and Dunn were conducted under the provisions of section 488.1.

[70]            In the present matter, McArthur J. found that Mr. Dwyer had waived his solicitor-client privilege. At paragraph 20 of his Reasons, he states that Mr. Dwyer "readily waived any solicitor-client privilege, and instructed his lawyers to cooperate and give the investigators all they required". At paragraph 14, he notes that "prior to the search and seizure of documents from each lawyer's premises, the officers leading the search read a caution to the lawyers and during a telephone conversation with his lawyers, Mr. Dwyer consented to a complete disclosure of all his documents". Consequently, if McArthur J. is right in concluding that Mr. Dwyer waived his solicitor-client privilege, section 488.1 would not apply and its unconstitutionality is irrelevant.

[71]            The relevant facts concerning Mr. Dwyer's waiver of his privilege can be briefly summarized as follows. Mr. Heryet, the investigator who executed the search warrant at the law offices of Mr. Clark, testified that Mr. Clark telephoned Mr. Dwyer regarding his solicitor-client privilege and spoke to his client over a speaker phone, with the investigators present in the room and listening to the conversation. At the time the call was made, the search party led by Mr. Finkle was in Mr. Dwyer's house. According to Mr. Heryet, Mr. Clark simply stated to Mr. Dwyer "I have the Income Tax people here with a search warrant, and I will claim privilege unless you waive it". Mr. Heryet then went on to testify that Mr. Dwyer answered "Go ahead. Give them everything." (Transcript of the evidence of Peter Robert Heryet, February 22, 2001, Appeal Book, Vol. VIII, pages 1744-1745). With respect to Mr. Dwyer's waiver of privilege concerning the documents held by his other lawyer, Mr. Dunn, Mr. Dwyer testified that Mr. Dunn informed him that Revenue Canada investigators were at his office and that they wanted to obtain "documents of the mortgages you invested in", to which Mr. Dwyer answered "So, give it to them. I'm not hiding anything." (Transcript of the evidence of Arthur Dwyer, February 19, 2001, Appeal Book, Vol. VIII, pages 1613-1615). As in the case of Mr. Clark's telephone call, when Mr. Dunn telephoned Mr. Dwyer, the search team led by Mr. Finkle was in the Dwyer residence executing the warrant.

[72]            During the course of his testimony, Mr. Dwyer indicated that, in authorizing Messrs. Dunn and Clark to release to Revenue Canada the documents sought by the investigators, he did not understand what solicitor-client privilege was, since neither Mr. Clark nor Mr. Dunn provided him with any explanation of the privilege. In these circumstances, relying on Lavallée, supra, Mr. Dwyer argues that the searches conducted at his lawyers' offices were illegal and that the evidence obtained from them should not have been admitted in evidence. Specifically, he says that his so-called waiver was not valid, since it was not an informed waiver, nor was it voluntary, but was given under duress since at the time the telephone calls were made by his lawyers, Mr. Finkle and his search party were in the Dwyer residence executing a warrant.

[73]            The respondent takes the position that the waiver given by Mr. Dwyer is valid. In the respondent's submission, Mr. Dwyer was informed of his right to assert his solicitor-client privilege and he waived that right. Consequently, the respondent submits that the issue concerning the constitutionality of section 488.1 of the Criminal Code is irrelevant.

[74]            As I am of the view that the issue can be resolved under subsection 24(2) of the Charter, I shall assume for present purposes that Mr. Dwyer did not waive his solicitor-client privilege and that, consequently, the searches conducted at the law offices of Messrs. Clark and Dunn were unreasonable.

[75]            Although McArthur J. found that Mr. Dwyer had waived his solicitor-client privilege, he nonetheless went on to conclude that the admission of the evidence obtained at the law offices of Messrs. Clark and Dunn would not bring the administration of justice into disrepute. In so concluding, he considered the factors identified by the Supreme Court of Canada in R. v. Collins, [1987] 1 S.C.R. 265, and in R. v. Stillman, [1997] 1 S.C.R. 607, as relevant to a determination of whether evidence illegally obtained should be excluded pursuant to subsection 24(2) of the Charter, which, for ease of reference, I again reproduce:

[76]            At paragraph 22 of his Reasons, McArthur J. noted that the impugned evidence was not conscriptive, in the sense that the taxpayer "... was not compelled to give evidence such as a blood sample to be analysed in a criminal investigation." He also considered the fact that the evidence was obtained through searches conducted in good faith, pursuant to what the investigating officers believed were valid warrants. He also took into account the fact that "[t]he Minister had strong reasons to believe that the searches were necessary in its audit process." As a result, McArthur J. concluded that the admission of this evidence would not bring the administration of justice into disrepute; on the contrary, the exclusion of the evidence would have this effect. I should add that on the facts of the case, it is clear, in my view, that the Revenue Canada officers who conducted the searches at the law offices had good cause to believe that Mr. Dwyer had waived his privilege.

[77]            In R. v. Collins, supra, the Supreme Court of Canada dealt with subsection 24(2) of the Charter. At page 277, Lamer J. (as he then was), for the majority, stated his view that in dealing with the issue of exclusion of evidence, a court must answer two questions: was the search unreasonable and, if so, having regard to all the circumstances, would the admission of that evidence bring the administration of justice into disrepute? At page 280, Lamer J. stated in unequivocal terms that the applicable test was "... whether the admission of evidence would bring the administration of justice into disrepute" and that the burden of proof was on the person seeking exclusion of the evidence at issue. He then went on to say at page 281 that "s. 24(2) [was] not a remedy for police misconduct". Rather, he was of the view that the true purpose of subsection 24(2) was to prevent the administration of justice from falling into further disrepute by the admission of evidence in proceedings. Lamer J. put his proposition in the following terms:

... but s. 24(2) is not a remedy for police misconduct, requiring the exclusion of the evidence if, because of this misconduct, the administration of justice was brought into disrepute. Section 24(2) could well have been drafted in that way, but it was not. Rather, the drafters of the Charter decided to focus on the admission of the evidence in the proceedings, and the purpose of s. 24(2) is to prevent having the administration of justice brought into further disrepute by the admission of the evidence in the proceedings. This further disrepute will result from the admission of evidence that would deprive the accused of a fair hearing, or from judicial condonation of unacceptable conduct by the investigatory and prosecutorial agencies. It will also be necessary to consider any disrepute that may result from the exclusion of the evidence. It would be inconsistent with the purpose of s. 24(2) to exclude the evidence if its exclusion would bring the administration of justice into greater disrepute than would its admission. Finally, it must be emphasized that even though the inquiry under s. 24(2) will necessarily focus on the specific prosecution, it is the long-term consequences of regular admission or exclusion of this type of evidence on the repute of the administration of justice which must be considered ...

[78]            Lamer J.. at pages 283 and 284, then listed those factors which, in his view, would generally have to be considered in deciding whether the admission of evidence would bring the administration of justice into disrepute:

In determining whether the admission of evidence would bring the administration of justice into disrepute, the judge is directed by s. 24(2) to consider "all the circumstances". The factors which are to be considered and balanced have been listed by many courts in the country ... The factors that the courts have most frequently considered include:

-              what kind of evidence was obtained?

-              what Charter right was infringed?

-              was the Charter violation serious or was it of a merely technical nature?

-              was it deliberate, wilful or flagrant, or was it inadvertent or committed in good faith?

-              did it occur in circumstances of urgency or necessity?

-              were there other investigatory techniques available?

-              would the evidence have been obtained in any event?

-              is the offence serious?

-              is the evidence essential to substantiate the charge?

-              are other remedies available? ...

[79]            Lamer J. then indicated that the above factors did not constitute an exhaustive list and that they could be grouped into three categories, depending on the manner in which the administration of justice was harmed. First, Lamer J. identified those factors relevant to determining the effect, on the fairness of the trial, of admitting the evidence. Secondly, he identified those factors relevant to the seriousness of the Charter violation and lastly, he identified those factors relevant to the consequences of excluding evidence.

[80]            With respect to the first category, McArthur J. noted correctly that the evidence at issue was not conscriptive, which is one of the key considerations in determining whether the admission of evidence would affect the fairness of the trial. In Collins, supra, at page 284, Lamer J. pointed out that non-conscriptive evidence, i.e. evidence that existed irrespective of a Charter breach, does not render the trial unfair. At page 285, he noted the distinction made by several courts of appeal between pre-existing real evidence and self-incriminating evidence created as a result of a Charter breach. Lamer J.s full explanation with respect to the nature of conscriptive evidence appears at pages 284 and 285 of his Reasons:

It is clear to me that the factors relevant to this determination [i.e., determining the effect on the admission of the evidence on the fairness of the trial] will include the nature of the evidence obtained as a result of the violation and the nature of the right violated and not so much the manner in which the right was violated. Real evidence that was obtained in a manner that violated the Charter will rarely operate unfairly for that reason alone. The real evidence existed irrespective of the violation of the Charter and its use does not render the trial unfair. However, the situation is very different with respect to cases where, after a violation of the Charter, the accused is conscripted against himself through a confession or other evidence emanating from him. The use of such evidence would render the trial unfair, for it did not exist prior to the violation and it strikes at one of the fundamental tenets of a fair trial, the right against self-incrimination. Such evidence will generally arise in the context of an infringement of the right to counsel. Our decisions in Therens, supra, and Clarkson v. The Queen, [1986] 1 S.C.R. 383, are illustrative of this. The use of self-incriminating evidence obtained following a denial of the right to counsel will generally go to the very fairness of the trial and should be excluded. Several Courts of Appeal have emphasized this distinction between pre-existing real evidence and self-incriminatory evidence created following a breach of the Charter (see R. v. Dumas (1985), 23 C.C.C. (3d) 366 (Alta. C.A.), R. v. Strachan (1986), 24 C.C.C. (3d) 205 (B.C.C.A.), and R. v. Dairy Supplies Ltd. (Man. C.A., January 13, 1897, unreported)). It may also be relevant, in certain circumstances, that the evidence would have been obtained in any event without the violation of the Charter.

[81]            In the present matter, most of the documents found at the offices of Messrs. Clark and Dunn pertained to Mr. Dwyer's mortgages and their discharge: that is, the evidence was both real and pre-existed the Charter breach. The only exception appears to be a file a found at the offices of Roger Clark pertaining to Mr. Dwyer's litigation with Mr. Hunter.

[82]            With respect to the second category of factors, i.e. those pertaining to the seriousness of the Charter violation, McArthur J. considered that the evidence had been obtained through searches conducted in good faith, pursuant to what Revenue Canada officials believed were valid warrants, and he noted that there were strong reasons for the Minister to believe that the searches were necessary in the audit process. Also, as I indicated earlier, there can be no doubt, in all of the circumstances, that the Revenue Canada officers genuinely believed that Mr. Dwyer had waived his privilege. In Collins, supra, Lamer J., at page 285, referred to R. v. Therens, [1985] 1 S.C.R. 613, where LeDain J., at page 652, indicated what courts should consider in determining the seriousness of a constitutional violation:

The relative seriousness of the constitutional violation has been assessed in the light of whether it was committed in good faith, or was inadvertent or of a merely technical nature, or whether it was deliberate, wilful or flagrant. Another relevant consideration is whether the action which constituted constitutional violation was motivated by urgency or necessity to prevent the loss or destruction of the evidence.

[83]            Finally, with respect to the last category, McArthur J. concluded that the exclusion of the evidence would bring the administration of justice into disrepute. Although McArthur J. does not give a specific explanation for his conclusion, it appears that it results, at least in part, from his view that Mr. Dwyer's failure to report "huge sums of income, while maintaining ignorance" constituted outrageous behaviour. As I understand this statement, excluding the evidence would, in McArthur J.'s opinion, in effect be condoning Mr. Dwyer's behaviour.

[84]            In R. v. Law, [2002] 1 S.C.R. 227, the Supreme Court of Canada considered the application of subsection 24(2) of the Charter to evidence obtained in breach of section 8, in the context of tax evasion proceedings under the Excise Tax Act. At paragraph 32, Bastarache J., for the Court, arrived at the following conclusion with regard to the applicable standard of review:

32.           Evidence obtained in violation of s. 8 of the Charter will not be excluded unless, having regard to all the circumstances, its admission would bring the administration of justice into disrepute. While the decision to exclude must be a reasonable one, a reviewing court will not interfere with a trial judge's conclusions on s. 24(2) absent an "apparent error as to the applicable principles or rules of law" or an "unreasonable finding"; Stillman, supra, at para. 68; see also R. v. Belnavis, [1997] 3 S.C.R. 341, at para. 35. In this case, I uphold the trial judge's finding under s. 24(2) but, for reasons developed below, feel it necessary to conduct a separate s. 24(2) inquiry.

[Emphasis added]

[85]            Thus, unless McArthur J. made an apparent error with regard to the applicable principles or rules of law, or made an unreasonable finding, this Court should not interfere with his conclusion regarding subsection 24(2).

[86]            In Donovan v. The Queen, [2000] 4 F.C. 373, this Court had occasion to consider whether evidence illegally obtained under section 231.3 of the Income Tax Act, R.S.1985, ch. 1 (5^th Suppl.) as amended, should nonetheless be admitted. The issues before the Court were whether the unconstitutional conduct of government officials in carrying out searches and seizures of the appellant's premises and records should lead the Court to vacate the Minister's tax reassessments and whether, if there were insufficient reasons to vacate the reassessments, any evidence illegally obtained should be excluded pursuant to subsection 24(2) of the Charter.

[87]            The complaints made against the Revenue Canada officials included the "mingling" of the auditing staff and the Special Investigations Unit of Revenue Canada. At paragraphs 8 to 11 of his Reasons, Linden J.A., for the Court, made the following comments regarding that complaint:

[8]           This "intermingling" or "overlapping", as it was called by the Crown, is of concern. Government officials must be careful not to abuse their power to investigate for civil purposes in order to acquire information for use in criminal prosecutions. When that is done the courts have been ready to exclude such tainted evidence in any criminal proceedings based on that evidence. (See R. v. Norway Insulation Inc. (1995), 28 O.R. (3d) 432 (Gen. Div.); R. v. Warawa (A.J.) (1997), 208 A.R. 81 (Q.B.); R. v. Saplys (1999), 132 C.C.C. (3d) 515 (Ont. Gen. Div.).)

[9]           The meaning of subsection 24(2) of the Canadian Charter of Rights and Freedoms has been examined extensively by the Supreme Court of Canada in the context of criminal proceedings. The Supreme Court of Canada articulated the now familiar test for the exclusion of evidence in R. v. Collins, [1987] 1 S.C.R. 265. There are two questions which must be asked when considering the exclusion of evidence pursuant to subsection 24(2) of the Charter: (1) was the search unreasonable; and (2) if so, having regard to all the circumstances, would the evidence bring the administration of justice into disrepute? (Collins, supra, at pages 276-277). The Supreme Court has determined that "[a] search will be reasonable if it is authorized by law, if the law itself is reasonable and if the manner in which the search was carried out is reasonable" (Collins, at page 278). With respect to the second stage of the test the Supreme Court explained that (at pages 283-284): ...

[10]         In Collins, the Supreme Court dealt with the question of the exclusion of evidence in the criminal context. The case at bar raises the issue of whether the discretion of the Court to exclude evidence under subsection 24(2) ought to be exercised as liberally in civil cases as it is in criminal cases. The reasoning of Madam Justice Wilson in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, offers some guidance on this issue. In considering the reasonableness of a seizure pursuant to a section of the Income Tax Act, Wilson J. concluded that it is consistent with a flexible and purposive approach to section 8 of the Charter to "draw a distinction between seizures in the criminal or quasi-criminal context to which the full rigours of the Hunter criteria will apply, and seizures in the administrative or regulatory context to which a lesser standard may apply depending upon the legislative scheme under review" (McKinlay, supra, at page 647). Such a distinction also seems appropriate in determining whether the admission of evidence would bring the administration of justice into disrepute.

[11]         In this case, what is being urged is that the "co-operation" between the audit branch and SIU in the early stages of the investigation should lead to the vacating of the tax reassessments or to the exclusion of evidence in a civil proceeding, just as it would in a criminal one. I include in the category of a civil proceeding a matter involving a civil penalty to be exacted for a tax law infraction. In my view, the use of tainted evidence in a criminal proceeding is a much more serious matter than in a civil proceeding, so that the discretion of a court might well be exercised more liberally in a criminal case, where the liberty of the subject is in issue. However, such discretion might well be used with more restraint in civil matters, where such liberty is not threatened and what is at stake is simply the duty to pay taxes.

[Emphasis added]

[88]            The third complaint made against the Revenue Canada officials was that the search warrants had been issued under section 231.3 of the Income Tax Act, which the Supreme Court of Canada, in Baron v. Canada, [1993] 1 S.C.R. 416, found unconstitutional. After concluding that this "wrong" was substantial, Linden J.A., at paragraph 13, concluded that the admission of the evidence obtained through the illegal search would not bring the administration of justice into disrepute, "at least in a civil case such as this".

[89]            In Jurchison v. Canada, 2001 FCA 126, this Court, in an appeal arising out of preliminary motions brought in a taxpayer's appeal of his reassessments, had to consider whether evidence obtained in breach of the Charter was admissible in civil proceedings. At paragraph 1 of his Reasons for the Court, Sexton J.A. stated that in determining that issue, it was necessary to consider whether the evidence was to be used in a criminal or civil proceeding.

[90]            Thus, in determining whether tainted evidence should be excluded, this Court, in Donovan, supra and Jurchison, supra, has made a clear distinction between civil and criminal proceedings. More particularly, for Linden J.A. in Donovan, supra, where a person's liberty was "not threatened" and where the issue was the "duty to pay taxes", courts should exercise their discretion to exclude evidence with even greater restraint.

[91]            With these principles in mind, I have concluded that McArthur J. made no error which would allow us to intervene. First, the evidence at issue is not conscriptive and thus, its admission does not render the trial unfair. Secondly, the Charter breach is not "serious" in the sense explained by LeDain J. in Therens, supra, because the breach was committed in good faith and was not deliberate or wilful. Thirdly, the exclusion of the evidence could deprive the Minister of evidence necessary to enforce a significant tax liability. Consequently, in those circumstances, I have not been persuaded that there is any basis for disturbing McArthur J.'s conclusion that the admission of the evidence would not bring the administration of justice into disrepute.

[92]            I have come to the same conclusion with regard to the subsection 24(2) issue which arises from the evidence obtained through the execution of the warrant at the Dwyer residence. As I indicated earlier, the alleged breaches are technical in nature and, consequently, I see no reason to interfere with McArthur J.'s conclusion that the admission of this evidence would not bring the administration of justice into disrepute.

[93]            I now come to the last point. In June and October 1992, further Requirements were issued under subsection 231.2(1) of the Act in respect of information in the possession of the National Trust and solicitors who had acted for a number of Mr. Dwyer's mortgage customers. These Requirements were issued after the execution of the warrants at the Dwyer residence and at the offices of Messrs. Clark and Dunn. Mr. Dwyer submits that the issue of these Requirements violated sections 7 and 8 of the Charter.

[94]            In 2002 SCC 73">Jarvis, supra, as I have already indicated, the Supreme Court held that where the predominant purpose of an inquiry is the determination of penal liability, all Charter protections relevant in a criminal context apply. Since there can be no doubt that as of March 31, 1992, the predominant purpose of the inquiry was the determination of penal liability, I must conclude that Mr. Dwyer's Charter rights were breached.

[95]            The fact that the evidence is now being used in civil proceedings, as opposed to criminal proceedings, does not detract from this conclusion. However, in the circumstances, and for the reasons given in regard to the evidence obtained through the searches conducted at the offices of Messrs. Clark and Dunn, I am of the view that McArthur J. made no error in concluding that the admission of this evidence would not bring the administration of justice into disrepute. The evidence at issue consists of banking records confirming deposits and withdrawals, as well as mortgage documentation obtained from lawyers who acted on behalf of Mr. Dwyer's clients. The evidence is not conscriptive and I cannot see how it can be argued that its admission renders the trial unfair. On the basis of the evidence, it does not appear that the Charter breach was intentional, since it was not clear in 1992 that the Requirement provisions could not be used by the investigators. Also, as I indicated in regard to the evidence found at the offices of Messrs. Clark and Dunn, the exclusion of the evidence could deprive the Minister of evidence necessary to enforce a significant tax liability under the Act.

CONCLUSION

[96]            For these reasons, I would dismiss Mr. Dwyer's appeal with costs.

                                                                                         "M. Nadon"

                                                                                                      J.A.

"I agree.

B.S. Strayer J.A."

"I agree.

John M. Evans J.A."

                          FEDERAL COURT OF APPEAL

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                  A-424-01

STYLE OF CAUSE: Arthur C. Dwyer v. Her Majesty the Queen

PLACE OF HEARING:                                 Toronto, Ontario

DATE OF HEARING:                                   March 18, 2003

REASONS FOR JUDGMENT:                    Nadon J.A.

CONCURRED IN BY:                                  Strayer J.A.

Evans J.A.

DATED:                     August 26, 2003

APPEARANCES:

SOLICITORS OF RECORD: