Constantine Kourtessis and Hellenic Import-Export Company Limited v. Minister of National Revenue and Her Majesty the Queen in Right of Canada, [1987] 2 CTC 36, 87 DTC 5299

Southin, J:—There is pending in this Court a petition, inter alia, to quash:

(a) a warrant to search issued February 27, 1987, by the Chief Justice of this Court:

(b) the search and seizure executed pursuant thereto on March 2,1987 by the respondents' representatives, agents, officers and employees at:

the premises of the Department of National Revenue, Taxation, and all storage facilities occupied or controlled by them at 1166 West Pender Street, in the City of Vancouver, in the Province of British Columbia;

The reader may wonder if the description of the place to be searched is an error. It is not. The documents had been seized under a previous warrant and were physically in the possession of the Department of National Revenue when that earlier warrant was quashed by the order of Madam Justice Proudfoot pronounced on February 20, 1987. [See [1987] 1 C.T.C. 281.]

This warrant is too long to quote in full but its essence can be appreciated from an abridged version:

UPON the Application made this date by the Director General, Compliance Research and Investigations Directorate of the Department of National Revenue, Taxation, for the issuance of a Warrant To Enter and Search pursuant to Section 231.3 of the Income Tax Act;

AND UPON reading the said Application and the Information To Obtain A Warrant To Enter And Search, on oath of James Arthur Talbot, an officer of the Department of National Revenue, Taxation, made pursuant to Section 231.3(2) of the said Act;

AND UPON being satisfied that the requirements of Section 231.3(3) of the said Act have been met;

IT IS ORDERED that this Warrant To Enter And Search issue authorizing the persons named herein to enter and search a certain buiding, . . .

THE offences for which this Warrant is issued, and the persons alleged to have committed these offences are:

THAT Hellenic Import-Export Co. Ltd. and its president, Constantine Kourtessis, have committed an offence as defined by Section 239 of the Income Tax Act by wilfully evading or attempting to evade the payment of taxes by making false or deceptive statements in the T2 returns of income filed by Hellenic Import-Export Co. Ltd. for the taxation years 1980, 1981, 1982, 1983 and 1984;

THAT Constantine Kourtessis has committed an offence as defined by Section 239 of the Income Tax Act by wilfully evading or attempting to evade the payment of taxes by making false or deceptive statements in his T1 returns of income filed for the taxation years 1979, 1980, 1981, 1982 and 1983;

THE documents or things to be searched for and seized are:

1. books of original entry, journals and ledgers, or copies thereof, including synoptic journals, cash journals, journal entries, and general ledger belonging to or pertaining to Hellenic Import-Export Co. Ltd. and pertaining to the period January 1, 1979 to March 31, 1984;

4. banking records, or copies thereof, including cancelled cheques, duplicate deposit books, deposit slips, memoranda, and monthly statements belonging to or pertaining to Hellenic Import-Export Co. Ltd. and pertaining to the period January 1, 1979 to March 31, 1984;

8. accounting records and vouchers, or copies thereof, including rent receipts, personal spending vouchers, financial correspondence, and memoranda belonging to or pertaining to Constantine Kourtessis and pertaining to the period January 1,1979 to March 31, 1983;

9. banking records, or copies thereof, including savings account passbooks, cancelled cheques, deposit slips, monthly statements, term deposit certificates, and memoranda belonging to or pertaining to Constantine Kourtessis and pertaining to the period January 1,1979 to December 31, 1983;

13. documents linking Hellenic Import-Export Co. Ltd. and its president, Constantine Kourtessis, with each other, as well as with the premises to be searched and pertaining to the period January 1, 1979 to March 31, 1984;

relating to or necessary for the determination of taxable income and tax payable required to be reported pursuant to the provisions of the Income Tax Act, R.S.C. 1952, Chapter 148, as amended, by Hellenic Import-Export Co. Ltd. for the taxation years 1980 to 1984 inclusive, and by Constantine Kourtessis for the taxation years 1979 to 1983 inclusive, or relating to the above described offences,

THE building, receptacle, or place to be searched is:

the premises of the Department of National Revenue, Taxation, and all storage facilities occupied or controlled by them at 1166 West Pender Street, in the City of Vancouver, in the Province of British Columbia.

The warrant was executed.

What is now before me is an application to cross-examine the informant, James Arthur Talbot, upon the material leading to the warrant.

The procedure adopted in this matter

Before turning to the issues as perceived by counsel, I propose to address certain procedural concerns arising from the nature of the proceedings.

This proceeding has been brought pursuant to C.R. 1 and S.C.R. 63:

Criminal Rules, 1977

1. (a) The practice and procedure in relation to certiorari, habeas corpus, mandamus, and prohibition shall be governed by Rule 63 of the Rules of the Supreme Court of British Columbia.

(b) The petition and all material in support thereof shall be served upon all persons who appear to be interested in or likely to be affected by the proceedings and in particular, unless the Court otherwise directs, the petition shall also be served at least six days before the return-date thereof upon the Attorney-General of British Columbia in the manner proved by Rule 11(5) of the Rules of the Supreme Court of British Columbia, and where it is sought to quash a conviction, order, warrant, or inquisition, the petition and all material in support thereof shall be served upon the judge, justice, or justices making the conviction or order or issuing the warrant or the coroner making the inquisition.

(d) Every petition shall set forth fully the grounds upon which it is brought. RULE 63

Originating application

(1) Applications for relief in the nature of mandamus, prohibition, certiorari or habeas corpus shall be governed by these rules and shall be commenced by petition pursuant to Rule 10.

Section 438 of the Criminal Code authorizes the making of rules for ”. . . any proceeding . . . instituted in relation to any matter of a criminal nature

The alleged tax evasion is, I do not doubt, "a matter of a criminal nature”.

My procedural concerns are these:

(a) The requirement for service on the Attorney General of British Columbia:

I see nothing in the material to indicate that these proceedings were served on the Attorney General for British Columbia or upon the judge who made the order as required by C.R. 1 "unless the Court otherwise directs”. I appreciate that, in practice, the Attorney General has no interest in prosecutions under the Income Tax Act but the Rule does not seem to make any exceptions. So far as I am able to ascertain, the Court has not otherwise directed.

(b) The relief claimed:

The petition does not specifically ask for an order in the nature of certiorari quashing the warrant and an order in the nature of mandamus requiring the return of the documents. The petitioner seems to be seeking the form of order now made under the Judicial Review Procedure Act but that Act has no application to these proceedings.

(c) The parties to the proceedings:

The respondents are the Minister of National Revenue and Her Majesty the Queen In Right of Canada. As I said in Allen v. Superintendent of Motor Vehicles (1986), 2 B.C.L.R. (2d) 255 at 261:

. . . until the Judicial Review Procedure Act was introduced in 1976, proceedings for mandamus were brought in the name of the Sovereign upon the relation of the citizen. The Sovereign could not then be both applicant and respondent and cannot be a respondent now. Judicial review is simply a modern form of the prerogative writs which were commands by the Sovereign ensuring obedience to the law, it being the Sovereign's right and duty to ensure that obedience: see the Crown Office Rules (Civil) of the Supreme Court Rules, 1943, and the Supreme Court Rules, 1961, O. LIX.

Thus, in my view, Her Majesty the Queen whether in Right of Canada or British Columbia is not a proper party to this proceeding and should be struck from the style of cause.

In addition to that reason which is founded on the essential nature of prerogative writs, there is an even more fundamental constitutional reason why the Sovereign should not be respondent. The Queen cannot, in the absence of statutory authority, be impleaded in her own Courts.

If, in making these comments — and I trust assisting counsel for the petitioners to put his tackle in order before the petition comes on for hearing — I have overlooked some recent staturoy provisions applicable to proceedings such as these or some authority binding on me which turns the law, as I have always understood it to be, on its head, I should appreciate counsel so informing me.

The theory of the Minister as disclosed by the information

The arguments of counsel cannot be understood unless I set out what I deduce from the Information leading to the warrant is the theory of the Minister's investigation into the affairs of the taxpayer Kourtessis. First, the Minister has the taxpayer's tax returns. Secondly, he has net worth statements for various years. Whether these were acquired by delving by the Minister, by compulsion or by the voluntary act of the taxpayer makes no matter. Thirdly, a comparison of the returns on the one hand and the net worth statements on the other, leads to the conclusion that the income cannot account for the net worth. Therefore, so the theory goes, the taxpayer must have acquired more money, either from income in the ordinary sense or income in its expanded sense of capital gains than he has declared. The taxpayer accounts for the discrepancy, if such there be, by saying that when he came to Canada in 1964 he had left behind in West Germany, his previous country of residence, some 480,000 DM. That money he brought out to Canada in 1978 but he did not put it in a bank because he did not believe in banks. But the Minister says that when the taxpayer came to Canada in 1964 he did not say on the declaration required of him that he had money which was going to be brought out to Canada. The taxpayer says he did not understand what he was signing.

The Minister wants to establish, if he can, that the taxpayer did not acquire that sort of money in West Germany in the years before he came to Canada. He wants, if possible, to find the taxpayer's employment records relating to the years 1960-1964. No reference was made to such records or any records relating to those years in the warrant.

The argument of the petitioners

The petitioners want to cross-examine Mr. Talbot to show, among other things, that the information leading to the warrant was false or misleading. If they can establish that point then, although counsel did not put it in these words, they will assert that ex debito justitiae the warrant should be quashed.

Counsel puts the grounds of his application in his written submission thus:

20. The grounds of this application are:

(a) that this application is made for the sole purpose of permitting this Court to have before it all the material facts in an accurate and candid state in order to deal judicially with the issue of the validity of the 27 February 1987 search warrant;

(b) that, in the circumstances of this case, it is in the interests of justice that Mr. Talbot be ordered to attend for cross-examination on the said informations and affidavit;

(c) that, in addition, the informations and affidavit in question do not represent the facts in a truthful and candid manner and thus raise questions with respect to the good faith of the informant;

(d) that the said informations and affidavit contain numerous errors, omissions and misrepresentations which amount to a prima facie case of a reckless disregard for the truth and which necessitate further exploration by way of cross-examination to better ascertain their extent and bearing on the validity of the search warrants issued thereupon; and

(e) that the errors, omissions and misrepresentations already known to the Applicants, and the further errors, omissions and misrepresentations that the Applicants have, on the basis of the state of the said informations and affidavit, reasonable grounds to believe will surface upn cross-examination of the depo- nent, are of such significance that this Court, upon being apprised of same, would not have been satisfied that the information and affidavit disclosed sufficient grounds for the issuance of the warrant.

There is nothing in the Income Tax Act authorizing either an appeal from the issuance of a warrant or an application to set a warrant aside. A fortiori, the Act itself does not empower the court to authorize cross-examination of the informant.

Mr. Du Pont acknowledged, as I understood him, that there was no express right by statute to cross-examination in a proceeding such as this.

He relies both on Rule 52(8) and the inherent jurisdiction of the Court.

By S.C.R. 52(8):

Evidence on an application

On an application, evidence shall be given by affidavit, but the court may

(a) order the attendance for cross-examination of a deponent, either before the court or before such other person as the court may direct,

(b) order the examination of a party or witness either before the court or before such other person as the court may direct,

As to the inherent jurisdiction, he relies on the judgment of Dickson, J., as he then was, in Wilson v. The Queen, [1983] 2 S.C.R. 594 at 624; 9 C.C.C. (3d) 97 at 111;

Cross-examination of the Deponent

Cross-examination was conducted in the present case in order to determine whether any of the preconditions of s. 178.13(1)(b) had been met. The Crown made no objection, but in other cases objections have been made, and in some instances successfully. Such cross-examination of the deponent to the affidavit was ruled improper in R. v. Blacquiere (1980), 57 C.C.C. (2d) 330 (P.E.I.S.C.); Re Regina and Collos (1977), 37 C.C.C. (2d) 405 (B.C.C.A.), Reversing on other grounds (1977), 34 C.C.C. (2d) 313 (B.C.S.C.); R. v. Haslam, supra; R. v. Robinson (1977), 39 C.R.N.S. 158 (Vancouver Co. Ct. (B.C.)). The rationale was that permitting such cross-examination would, by implication at least, reveal the contents of the sealed packet declared to be confidential by s. 178.14. On the other hand, cross-examination has been permitted in R. v. Johnny and Billy, supra, and in R. v. Hollyoake (1975), 27 C.C.C. (2d) 63 (Ont. Prov. Ct.) I prefer the latter view. These authorizations are made ex parte and in camera. If it is admitted that there is a right of the trial judge to go behind an apparently valid authorization, it must be possible to ask questions on cross-examination to find out if there is any basis upon which to argue invalidity. It is of little avail to defence counsel to have a statement of law that an authorization can be held to be invalid if obtained, for example, by material non-disclosure and then preclude counsel from asking questions tending to show there has in fact been non-disclosure. The questioning can be such as to enable defence counsel to get some indication of whether the authorization was properly obtained, without the disclosure of information which, in the opinion of the judge, ought to be kept confidential. Examples of such confidential information would be the identity of undercover agents and informers or specific information which would jeopardize a continuing police investigation. The interest in confidentiality expressed in s. 178.14 and defence counsel’s interest in testing the validity of the authorization need not lead to conflict.

Mr. Du Pont pointed out that the informant had deposed in an affidavit of 25th November, 1986:

7. It was anticipated that a search of the business premises of Hellenic Import- Export Co. Ltd., the personal residence of Constantine Kourtessis, and the premises of the former and present accountants would further substantiate these violations of the Income Tax Act. I had reasonable grounds to believe that in Mr. Kourtessis' residence there would be documentary evidence to refute his conten tion that his employment in West Germany in the years 1960 to 1964 produced the capital to account for a substantial part of the net worth discrepancy. The basis for this belief is the unsubstantiated and contradictory statements made by Mr. Kourtessis as set out in the Information to Obtain A Search Warrant, sub-paragraphs 3(m), 3(r) and 3(s), and paragraphs 15 and 16.

8. As a result of the search conducted at the personal residence of Constantine Kourtessis at 3496 West 5th Avenue, in the City of Vancouver, in the Province of British Columbia, I became aware of the following information prior to having received notice of the sealing Order of Mr. Justice Gibbs and, in fact, prior to the granting of the said Order:

(a) Payroll stubs relating to Kourtessis' employment in West Germany in the period 1960 to 1963;

(b) Substantial accumulations of cash including sixty-five (65) $1,000.00 bills.

But he says the evidence adduced by the petitioners gives the lie, so to speak, to part of this paragraph.

Mr. Kourtessis says in his affidavit of May 4, 1987:

12. The said affidavit is erroneous and does not represent the truth insofar as there was not in existence, as I had indicated to the officials of Revenue Canada on previous occasions, any documentary evidence or 'payroll' stubs relating to my employment in West Germany in the period 1960 to 1963.

13. Attached hereto as Exhibit ‘A’ to this my Affidavit are copies of the so-called ‘payroll stubs' referred to in Mr. Talbot’s aforesaid affidavit which are not payroll stubs at all but are, in effect, post office receipts for international money orders with regard to money (German marks). I periodically sent to my father and relatives living in Greece from Germany, which I lived and worked at the time.

The other affidavit in support of the motion is that of a translator who deposes that the so-called "payroll stubs" are exactly what Mr. Kourtessis says they are.

Thus, says Mr. Du Pont, Mr. Talbot's affidavit in part, at least, is either false or was made recklessly not caring whether it was true or false and that is enough to warrant an order for cross-examination.

Counsel also points to other differences between the evidence of Mr. Kourtessis and that of Mr. Talbot as to answers Mr. Kourtessis gave to various enquiries from the departmental officials.

The basis of orders for cross-examination

In my view, cross-examination should only be ordered, under Rule 52(8) or under the inherent jurisdiction of the Court, if there is any such thing in these circumstances, if the applicant shows that the cross-examination Is relevant to an issue that may affect the outcome of the substantive application. If that cannot be shown, the Court should not authorize what is, in effect, a waste of time and money.

When I say “if the applicant shows" and so forth, I am not attempting a precise expression of the necessary strength of the applicant's case.

In an application for prerogative relief, the issues before the Court are those raised by the grounds set out in the petition. The petition is a form of pleading. Criminal Rule 1(d) requires the grounds to be fully set forth. It is my view that, without leave being granted to amend the grounds, a petitioner is limited to the grounds he has chosen to set forth.

But the real issue here is what fact (or facts) is it open to petitioners to show for the purpose of quashing this particular warrant.

The answer depends, in part, on the authorizing section of the Income Tax Act and, in part, on the grounds. In my view, if a ground set forth must, because of the words of the statute, fail in limine, the ground to which the cross-examination is said to be relevant cannot affect the outcome of the petition itself.

The authorizing section is this:

SEC. 231.3

(1) Search warrant. A judge may, on ex parte application by the Minister, issue a warrant in writing authorizing any person named therein to enter and search any building, receptacle or place for any document or thing that may afford evidence as to the commission of an offence under this Act.. . .

(2) Evidence in support of application. An application under subsection (1) shall be supported by information on oath establishing the facts on which the application is based.

(3) Evidence. A judge shall issue the warrant referred to in subsection (1) where he is satisfied that there are reasonable grounds to believe that

(a) an offence under this Act has been committed;

(b) a document or thing that may afford evidence of the commission of the offence is likely to be found; and

(c) the building, receptacle or place specified in the application is likely to contain such a document or thing.

As to the grounds, I need not set them all out for some of them have no element of disputed fact in them, others raise possible issues of fact upon which the informant cannot contribute anything and still others raise either issues of law or issues of inferences to be drawn from events which are common ground.

Grounds (a) to (c) say that for various legal reasons arising from the judgment of Proudfoot, J. quashing the first warrant, the Minister had no right to apply for this warrant. Grounds (e) and (f) say that the warrant does not comply with the statute, e.g., by Ground (e), that the warrant was not reasonably specific as to the things to be searched for. Such grounds are grounds of law. Grounds (g) to (j) are Charter arguments in which the petitioners say essentially that the warrant section of the Income Tax Act is contrary to principles of fundamental justice and is discriminatory. While upon a Charter argument evidence may be given to show that the impugned enactment contravenes the Charter, there is nothing at all in the material before me to show that the informant could contribute anything useful to the question of the constitutionality of the enactment.

That leaves Grounds (d) and (k).

Ground (d) is this:

(d) The information under oath of J.A. Talbot dated 25 February 1987 on the basis of which the Application for the warrant to enter and search was presumably made and the warrant issued, failed to state expressly that the real purpose for the Respondents searches and seizures was, inter alia, as appears from the informant's affidavit of 25 November 1986.

[The petition then quotes paras. 7 and 8 quoted above on pp. 10-11 of these reasons].

Consequently, it is submitted that in so framing the said information dated 25 February 1987, the informant did not properly expose to the Chief Justice the true objective of the 27 February 1987 warrant to search but instead attempted to legalize the fishing expedition which took place on 23 October 1986.

(k) The search and seizure on 2 March 1987 by the Respondents officers, agents, representatives and employees, was not executed in accordance with the warrant to search dated 27th February 1987.

My analysis of the grounds set forth in the petition leads me to conclude that the petitioners are not asserting as a ground for setting aside the warrant that there was any fraud, unless Ground (d) can be so construed nor are they asserting that there was or is now an absence of sufficient evidence in the Information for the Chief Justice to have been satisfied of the matters set out in subsection 231.3(3).

The grounds for the application set out on page 8 of these reasons are not all reflected in the petition.

When one analyzes them, they come down to these propositions:

(a) That if all the truth were known the Chief Justice could not have been satisfied that there were reasonable grounds to believe the matters set out in subsection (3).

(b) That the informant did not in the Information tell the truth, the whole truth and nothing but the truth to the Chief Justice, i.e., the warrant was fraudulently obtained.

(c) That cross-examination will disclose either or both of these.

The first proposition is simply not in the petition. If it were, I would have held that it is without legal merit and, therefore, cross-examination intended to establish it should not be permitted.

It is without merit because there is nothing in the Act from which I could infer that Parliament ever intended there to be a review by one judge of the act of another in issuing a warrant. That is not to say that if the Information was without any evidence upon which anybody could be satisfied, it could not be set aside. But that is a matter determined on the face of the information.

But, by the same token, the Act does not bear the construction that the warrant cannot be attacked if it was fraudulently obtained. It would, I think, take express words in a statute to exclude the Court's inherent jurisdiction to protect itself from fraud upon its processes. To put it another way, Parliament will not be presumed to have intended to take away that ancient power the application of which, on the civil side, is expounded in Royal Trust Company v. Jones, [1962] S.C.R. 132; 31 D.L.R. (2d) 292.

While I have some doubt whether Ground (d) is an assertion of fraud, I am prepared to give the taxpayers the benefit of the doubt and require the deponent to attend for cross-examination on the paragraphs complained of. I am not saying that a mere assertion of fraud can entitle an applicant to an order. Here, there is some evidence that Mr. Talbot's evidence relating to the payroll stubs was untrue. That is sufficient for a limited cross-examination.

As to Ground (k), I do not know what it means. There could be various attacks on the execution of a search warrant, for instance, that the warrant authorized the search by certain persons but the search was done by others, that the warrant authorized a search within certain hours but the search was conducted at some other time and so forth. What legal effect such acts done outside the precise terms of the warrant would have, I do not know.

Ordinarily, somebody is present at the execution of the warrant from whom the taxpayer can obtain information as to the method of execution and the taxpayer can, in consequence, adduce evidence as to what happened. But this taxpayer is not, I think, in a position to do so because the search took place upon the premises of the Department of National Revenue.

I am therefore, prepared to give leave to cross-examine on the method of execution of the search if the taxpayers are serious about Ground (k). That ground does not attack the validity of the warrant but its execution. The statutory considerations militating against any form of review of a warrant, save for fraud, do not apply to attacks on the execution of a warrant.

This cross-examination should take place before the judge hearing the petition who can then determine any disputed issues of whether the questions put to Mr. Talbot are authorized by my order.

Because the truthfulness of Mr. Talbot’s assertion concerning the payroll stubs is in issue, he may have access, in the presence of a solicitor appointed by the petitioners, to the seized documents to try to find the payroll stubs to which he has referred.

Out of deference to Mr. Du Pont's most interesting argument, I propose to add some further comment on why I think that no general order for cross- examination should go even if the grounds of the petition could be construed as asserting that the Information did not warrant the Chief Justice being satisfied of the matters set out in section 231.3.

As I have indicated, I think that only fraud or perhaps an absence of any evidence can vitiate a warrant issued under this section. With the greatest of deference, I do not agree with much of what Madam Justice Proudfoot said in her reasons quashing the earlier warrant.

The section may usefully be contrasted with the wiretap section of the Criminal Code:

178.13 (1) An authorization may be given if the judge to whom the application is made is satisfied

(a) that it would be in the best interests of the administration of justice to do so; and

(b) that other investigative procedures have been tried and have failed, other investigative procedures are unlikely to succeed or the urgency of the matter is such that it would be impractical to carry out the investigation of the offence using only other investigative procedures.

The matters of which the judge must be satisfied under the Income Tax Act have no aspect about them of philosophy or policy. The judge is not required by Parliament to assess the chosen methods of investigation or the interests of the administration of justice. Obviously, in enacting the wiretap section, Parliament wanted to make sure that what was at stake was sufficiently grave to justify the perceived nastiness of eavesdropping which, by the nature of a wiretap, may be upon innocent third parties as well as upon suspected criminals. The wiretap is the investigative tool of last resort and the judge has a part to play in deciding whether it should be used. He cannot play his part unless he is told everything that bears upon the issues set out in the section.

But there is no similar notion in the Income Tax Act.

As to the cases from other provinces in which leave has been given to cross-examine the informant, I can only say that if they are founded upon the specific terms of Rules of Court, there are no such terms in the British Columbia Rules of Court and if they are founded upon some concept that judges should play Monday morning quarterback to the investigatory quarterbacks appointed by the Minister of National Revenue, I do not agree. I am not prepared to assume that of all those charged with the administration of justice, only the judges have the integrity and wisdom to determine the manner in which investigations shall be pursued and evidence marshalled.

The order will go in the limited terms which I have said.

Order accordingly.