Canada (Attorney General) v. Ontario (Attorney General), [1998] 3 CTC 41, 99 DTC 5739

Dunnet J.:

This is a motion by Geoffrey Belchetz (“Belchetz”) for an Order rescinding that portion of my Order of November 21, 1996, issued pursuant to s.490(15) of the Criminal Code (“the Code”), granting the Attorney General of Canada (“A.G. Can.”) access to Belchetz’ former solicitors’ tax litigation files for use by A.G. Can. in ongoing tax litigation involving Belchetz.

The motion is brought on the grounds that A.G. Can. failed to: provide notice to Belchetz of its summary application; make full and fair disclosure of the nature of the materials; properly disclose the use which it intended to make of the materials; and establish that it had a legitimate interest in the materials to which it sought access.

The Facts

Background

In 1986 Belchetz purchased one unit in a limited partnership. The partnership was one of a syndicate of limited partnerships which had been established to acquire and operate on a charter basis, luxury yachts in the Caribbean and Mediterranean. Overseas Credit and Guarantee Corporation (“OCGC”) was the general partner in each of the limited partnerships.

In 1986, 1987 and 1988 Belchetz claimed deductions and losses arising from his investment in the limited partnership in computing his income for tax purposes. In 1987 Revenue Canada commenced an audit of OCGC and the various limited partnership in which it was involved. Ultimately Belchetz and more than 500 other limited partners’ income taxes were reassessed by Revenue Canada and previously claimed deductions were denied. Belchetz was reassessed and filed Notices of Objection to the reassessments in 1990.

In 1991 it was agreed between Revenue Canada and Shibley Righton, the law firm representing Belchetz and many of the other investors in the limited partnership, that certain of the reassessments, including Belchetz’, would be confirmed and appealed as test cases. Between 1991 and 1996, Shibley Righton and subsequently an organization of limited partnership investors, endeavoured to settle the reassessments with Revenue Canada. Although some investors settled. Belchetz did not.

Criminal proceedings

In 1989 the Department of National Revenue commenced an investigation into the activities of OCGC, its President, Einar Bellfield (Bjellebo) (“Bellfield”); its Director of Investment Development, Osvaldo Minchella (“Minchella”); and two foreign corporations, Neptune Marine Resources S.A. and Starlight Charters S.A. Search warrants issued pursuant to s.231.1 of the Income Tax Act R.S.C. 1985 (5th supp.) c.1, (“the Act”) were executed on June 19.1989 in furtherance of the Income Tax Act investigation. The documents which had been seized were subsequently re-seized on June 1, 1992 pursuant to a search warrant issued under s.487 of the Code. These documents are not at issue on the motion.

Bellfield, Minchella and Pierre Rochat were ultimately charged with having defrauded investors by uttering forged documents and defrauding the investors and Revenue Canada in relation to $110 million in losses claimed on behalf of 36 limited partnerships.

On April 23, 1996, Mr. Rochat pleaded guilty to providing false documents pursuant to s.239( 1 )(c) of the Act and was sentenced to six months in prison in addition to time spent in custody.

Seizure from Shibley Righton

On April 11, 1995, a search warrant was executed under the Code authorizing the seizure of materials from the offices of Shibley Righton. This was in connection with the investigation into the activities of Bellfield, Minchella and OCGC which resulted in the charges against Bellfield, Minchella and Rochat for fraud and uttering forged documents. Ninety-two boxes of materials were seized, consisting of copies of business records relating to OCGC and notes of interviews of witnesses conducted by Shibley Righton.

Hearing before O’Driscoll J.

In January 1996, notices were sent to each of the limited partnership investors who had retained Shibley Righton, advising that a hearing was to be held pursuant to ss.488.1(3) and (4)(d)(ii) of the Code to determine whether the material seized should be disclosed. Belchetz did not attend or have representation at the hearing. His evidence is that he believed that the seized materials were being sought for use in Bellfield and Minchella criminal prosecutions.

During the first day of the three day hearing before O’Driscoll J., counsel representing the Attorney General of Ontario (“A.G. Ont.”) advised the court that in addition to the ninety-two boxes which had previously been seized from Shibley Righton, there were a further thirty boxes of material remaining at the firm’s offices. Counsel for Shibley Righton stated that he was content that those boxes be subject to the same order as the ninety-two boxes previously seized. He went on to indicate that he was not taking a position with respect to any of the boxes; however, box 84 (taken in the seizure of the ninety-two boxes) containing interviews with Minchella and Bellfield was the one where he felt “strongest where solicitor-client privilege may exist”.

On January 31, 1996, O’Driscoll J. ruled that solicitor-client privilege did not attach to any of the seized materials and ordered that the ninety-two boxes seized, as well as the thirty boxes still in the possession of Shibley Righton, be delivered to Corporal Glenn Trendell, who was the principal Royal Canadian Mounted Police investigator assisting the Department of National Revenue. Taxation, in the criminal investigation. A generic inventory of the additional thirty boxes disclosed that they contained documents such as Shibley Righton billing statements and investors’ personal files.

A.G. Can.’s ex parte application

On November 21, 1996, A.G. Can. brought a summary application, pursuant to s.490(15) of the Code, for an Order permitting A.G. Can. to examine and take copies, by way of duplicate copy on CD-ROM or other means, documents seized by the Department of National Revenue. Taxation, under the Act and the Code. In support of the application, A.G. Can. relied upon the affidavits of four individuals. Corporal Trendell seized documents from Shibley Righton pursuant to a search warrant issued under the Code. Danilo Palis, officer of the Department of National Revenue, seized documents from the Special Investigations Section of the Department of National Revenue pursuant to a search warrant issued under the Code. Susan Tataryn, counsel on all appeals by the investors in the Tax Court of Canada, deposed that the documents seized relate to matters in issue in the tax appeals and may be evidence and will have to be disclosed to the investor appellants as part of the pre-trial procedures in the Tax Court of Canada. Kathleen Carson, paralegal in the Tax Litigation Section of the Ontario Regional Office of the Department of Justice, deposed that under the Order of O’Driscoll J. solicitor-client privilege did not attach to any of the seized documents from Shibley Righton. Moreover, all of the materials referred to in his Order were delivered to Corporal Trendell and handed over to the Department of National Revenue, Taxation. A.G. Can. also relied upon the consent of the respondent, A.G. Ont.

On November 21, 1996, this Court ordered that A.G. Can. could examine and take copies of the documents and other items seized and in the possession and control of the Department of National Revenue, Taxation, pursuant to the various search warrants and to the Order of O’Driscoll J.

A.G. Can.’s use of the Shibley Righton materials

In August 1997. Belchetz brought a motion for judgment in the Tax Court of Canada for abuse of process as a result of delay in the appeal proceeding. He also claimed a violation of his right to be protected from unreasonable search and seizure under the Canadian Charter of Rights and Freedoms arising from A.G. Can.’s access to solicitor-client privileged documents in accordance with the Order of this Court. During the course of cross-examination on his affidavit filed in support of the motion, counsel for A.G. Can. questioned Belchetz with respect to an opinion letter from his solicitors, Shibley Righton, dated April 27, 1994. The letter was amongst the materials contained in the thirty boxes delivered to Corporal Trendell under the Order of O’Driscoll J. and obtained by A.G. Can. by Order of this Court on November 21, 1996. The letter states on its face that it is covered by solicitor-client privilege.

Tax Court of Canada motions

After this motion was filed and before it was heard, the motion for judgment in the Tax Court was argued and on November 13, 1997, Hamlyn T.C.C.J. released his reasons for dismissing the motion [Belchetz v. R., (1997), 98 D.T.C. 1230 (T.C.C.)J.

With respect to the Charter motion, he found that documents in the possession of A.G. Can. had not been shown to be part of Belchetz’ litigation file. Nor had it been shown that solicitor-client privilege attached to whatever materials had been seized. He found that in large measure, the motion was premature and the issue of solicitor-client privilege should be addressed before the trial judge. He held that it should be dealt with either as a matter of evidence, or as a Charter issue of alleged solicitor-client privilege breach, after the litigation process had continued, including document discovery, examination for discovery and other pre-trial procedures.

Counsel for Belchetz advised this Court that the decision of Hamlyn T.C.C.J. is presently under appeal.

Notice Requirements Under s.490(15)

Section 490(15) of the Code states:

Where anything is detained pursuant to subsections (1) to (3.1), a judge of a superior court of criminal jurisdiction, a judge as defined in section 552 or a provincial court judge may, on summary application on behalf of a person who has an interest in what is detained, after three clear days notice to the Attorney General, order that the person by or on whose behalf the application is made be permitted to examine anything so detained.

There are two threshold requirements for the exercise of the court’s discretionary power to grant access to seized materials. The applicant must establish that the application is founded on an interest in what is detained and that proper notice has been given to the Attorney General. Section 490(16) provides that an order made under subsection (15) shall be made on such terms as may be necessary or desirable to ensure that the detained material is safeguarded and preserved for any purpose for which it may subsequently be desired.

I find that the implied exclusionary rule of statutory construction (ex- pressio unius personae vel rei, est exclusio alterius) applies to the notice requirements of the subsection. The statute expressly requires that notice be given to the Attorney General and omits any requirement to notify other persons who may have an interest in the detained materials. This can be contrasted with the notice requirements relative to forfeiture of seized property found in s.490.4(l) and forfeiture of proceeds of crime found in s.462.41 (1 ) of the Code where the legislation specifically states that notice should be given to interested parties.

A section 490(15) hearing creates an opportunity for anyone with an interest in the detained materials to obtain access to them, notwithstanding their prior seizure under a Criminal Code search warrant. The scope of the phrase “an interest in what is detained” is not limited to applicants with a proprietary interest in the documents or persons connected with contemplated litigation, but includes persons with a legal concern with matters referred to in the documents.

In Vukelich, Re, (1993), [1994] 1 C.T.C. 152 (B.C. S.C.), the court held:

All that Parliament has decreed [in s.490( 15)] is that a party who has “an interest” may examine the documents. Whether that examination results in evidence sought to be adduced at trial will have to await the Court’s determination of its admissibility.

The affidavits filed in support of the summary application refer to materials seized pursuant to the search warrants, including the thirty boxes in issue. The affidavit of Ms Tataryn states that the documents in the possession and control of the Toronto Special Investigations Section of the Department of National Revenue relate to matters in issue in the OCGC tax appeals and as such, may be evidence and will have to be disclosed to the taxpayer appellants as part of the pre-trial procedures in the Tax Court of Canada.

A.G. Can., therefore, properly complied with the notice requirements of s.490(15) of the Criminal Code by providing notice to A.G. Ont. and was not required to provide notice to any other person. Further, A.G. Can. established an interest sufficient to comply with the requirements of s.490(15) of the Code.

Solicitor-Client Privilege

The application is grounded upon contentions of solicitor-client privilege. Section 488.1 of the Code provides a complete code of procedure for the court to rule upon the issue of whether documents are protected by solicitor-client privilege at an early stage of the investigative process. That determination was the subject of O’Driscoll J.’s ruling. Belchetz had notice of that hearing and did not appear. Counsel for Shibley Righton advised O’Driscoll J. that he was content that the thirty boxes remaining at the firm’s offices be subject to the same order that would be made with respect to the previous boxes seized from the firm. O’Driscoll J. expressly ruled that solicitor-client privilege did not attach to any of the seized materials. His ruling is considered to be final and binding until it is reversed and Belchetz has not instituted any proceedings against it. That Order was before this Court on the s.490(15) application. I find, therefore, that the issue of solicitor-client privilege is not one to be determined by this Court and constitutes an impermissible collateral attack upon the Order made by O’Driscoll J. in 1996.

To the extent that a residual right to claim solicitor-client privilege in the course of the civil tax proceedings may exist, it is a matter which may be raised before the trial judge. The Order of O’Driscoll J. was made at the investigatory stage. Such orders are not binding at the adjudicative stage. The Ontario Court of Appeal recently dealt with this issue in Canadian Pacific Ltd. v. Canada (Director of Investigation & Research) (1997), 103 O.A.C. 310 (Ont. C.A.) with reference to the Competition Act, R.S.C. 1985, c.C-34. The Court held that if the investigation leads to a trial in the federal or superior court, then the parties are free to reassert their claims regarding admissibility before the adjudicative body, including claims relating to solicitor-client privilege. Indeed this is the course of action directed by the learned motions judge in the Tax Court proceedings instituted by Belchetz.

The hearing before O’Driscoll J., of which Belchetz had notice, was held almost two years ago. The documents which appear to be of concern to Belchetz have been in the hands of A.G. Can. for almost one year. Hamlyn T.C.C.J. found that as of November 13, 1997, Belchetz did not know if his litigation file was part of the seizure. He simply asserted that it was. I would agree that once the pre-trial procedures are complete, Belchetz will be in a position to determine whether the issue of solicitor-client privilege should be brought to the attention of the trial judge in those proceedings.

In the result, the motion is dismissed.

Motion dismissed.