O’neill Motors Ltd. v. R., [1998] 3 CTC 385, [1998] DTC 6424

Linden J.A.:

The issue on this appeal is whether the Tax Court Judge was correct in vacating the reassessments issued in 1989 against the respondent for the years 1982, 1983, 1984, and 1985 on the basis that certain evidence was obtained in violation of section 8 of the Canadian Charter of Rights and that section 24 of the Charter permitted such a remedy. This is a case of first impression in that the remedy of vacating a reassessment has not yet been awarded on the basis of section 24.

The facts, which were agreed to by the parties, are fairly complicated but they have been well-summarized by Bowman, J.T.C.C. in his reasons for judgment dated November 9, 1995. That summary is as follows:

Officials of the Department of National Revenue, acting under the authority of a warrant obtained under section 231.3 of the Act, searched for and seized documents in the possession of the appellant. On the basis of information contained in the documents so obtained he assessed the appellant tax, interest and penalties. Subsequent to the seizure of the documents and the making of the assessments the Federal Court of Appeal in Baron et al. v. The Queen (1990), 91 D.T.C. 5055, held section 231.3 to be unconstitutional and declared it to be of no force and effect. Therefore the seizure was warrantless and a violation of the appellant’s rights under the Charter and, accordingly, illegal. The Crown sought leave to appeal the Baron decision to the Supreme Court of Canada. The appellant applied to the Supreme Court of Newfoundland for a return of its documents. Officials of the Department of National Revenue, without returning the documents, applied to a Justice of the Peace for a further warrant authorizing the seizure under section 487 of the Criminal Code (in effect, a re-seizure, since the Minister still had them, and so the seizure was notional). In the application the official refrained from informing the Justice of the Peace that the appellant had applied to the Supreme Court of Newfoundland for a return of the documents or that the Crown was seeking leave to appeal the Baron decision to the Supreme Court of Canada. The Justice of the Peace issued the warrant. The appellant was prosecuted under section 239 of the Act. At the trial before Judge Baker, the appellant was prosecuted under section 239 of the Act. At the trial before Judge Baker, the appellant argued that the seizure under section 231.3 of the Act was illegal and that the circumstances surrounding the subsequent reseizure under section 487 of the Criminal Code was an abuse of process and a violation of its rights under section 7 and 8 of the Charter and that the documents should be excluded from evidence. Judge Baker agreed, excluded the documents from evidence and acquitted the appellant. [1]

On the basis of these facts, the following question was put to the Tax Court of Canada pursuant to section 173 of the Income Tax Act?: [2]

Is it appropriate and just in the circumstances for the assessments of tax relevant to this reference to be vacated by virtue of subsection 24(1) of the Canadian Charter of Rights and Freedoms?

Section 24 of the Charter reads:

24. (1) Anyone whose rights or freedoms, as guaranteed by this Charter have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.

(2) Where, in proceedings under subsection ( 1 ), a court concludes that evidence was obtained in a manner that infringed or denied any rights or freedoms guaranteed by this Charter, the evidence shall be excluded if it is established that, having regard to all the circumstances, the admission of it in the proceedings would bring the administration of justice into disrepute.

Section 8 of the Charter states:

Everyone has the right to be secure against unreasonable search and seizure.

The Tax Court Judge decided that the vacating of the assessments of tax made by the Minister of National Revenue was an “appropriate and just” remedy under subsection 24(1) of the Canadian Charter of Rights and Freedoms. The question to be resolved on this appeal is whether it was proper to do so. I am of the view that, in the circumstances of this case, the Tax Court Judge was correct to vacate the assessments for the following reasons.

The appellant submits that Bowman, J.T.C.C. has erred in that the vacating of the assessments was not open to him as a remedy. He argues that the material, when originally seized, was secured in what appeared to be a constitutional manner. It was only after the initial seizure, performed in good faith, that the authorizing provision, section 231.3 of the Income Tax Act, was found to be unconstitutional by this Court in Baron v. R.\ [3] It was suggested that the later reseizure pursuant to section 487 of the Criminal Code, which was an illegal search because it was done on the basis of a warrant obtained without revealing important facts, was not relevant to the quality of the initial seizure. It was only the initial seizure, according to the Crown, that formed the basis of the reassessment, and, hence, any illegality in connection with the reseizure, which was aimed only at the criminal proceedings, could not be relied on in attacking the reassessment. It is also submitted by the appellant, citing R. v. Therens*, [4] that where evidence has been obtained in violation of Charter rights, the only remedy available is the exclusion of that evidence from a proceeding pursuant to subsection 24(2). Therefore, it is said, the Tax Court Judge exceeded his jurisdiction in awarding the remedy he did.

I am not persuaded by these arguments. The evidence that had been obtained in violation of the taxpayer’s Charter rights was not irrelevant to the reassessments; rather, that evidence was fundamental to the successful enforcement of the reassessments. The Minister may reassess a taxpayer’s liability for tax any time within three years of the original assessment of the taxpayer. After that three year period, the Minister may only reassess in certain limited circumstances. Paragraph 152(4)(a) of the Act allows for reassessment at any time if the taxpayer has been guilty, inter alia, of a “misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud” in filing a return. The onus is upon the Minister, in cases of reassessment after the three year period, to prove facts which show that this provision applies. Without the evidence initially obtained illegally and which was reseized improperly, it is highly unlikely that the Minister would have been able to discharge the burden under this provision. That evidence was also important as a basis for the imposition of any penalties. In addition, the Tax Court Judge was also critical of the “unlawful detention” of the material seized in the initial search. Lastly, the very foundation of the 1989 reassessment was the unconstitutionally seized documents, as was admitted by counsel. It was, therefore, permissible for the Tax Court Judge to consider both illegal seizures in his deliberations on the proper remedy.

Counsel for the Crown has argued that the Tax Court Judge was wrong to use some harsh words to describe the conduct of the agents of the Crown such as: “reprehensible” conduct; “a massive and disruptive assault”; “highly improper withholding of information”; “tarnished” good faith; “vitiates” and “undermines” good faith; and “flagrant and egregious violation of the appellant’s rights”. In my view, the Tax Court Judge, in making these remarks, was mainly referring to the conduct involved in the reseizure, but not entirely. He was also, to a lesser extent, being critical of the manner in which the first search was done as well as the prolonged “unlawful detention” of the documents seized. In any event, we can find no reversible error in his characterization of the acts of the Crown’s agents in illegally seizing and re-seizing the respondent’s material when they are all considered together.

Given the seriousness of the Charter violations in this case, and the fact that merely excluding the evidence would be “tantamount to vacating the assessments”, according to the argument of the Crown before the Tax Court Judge, Bowman J.T.C.C. decided that it was “appropriate and just in the circumstances” to stop the matter at this stage, rather than to put the taxpayer through the trouble of proceeding to the Tax Court to see whether the Minister would be able to discharge the onus resting upon him under paragraph 152(4)(a) of the Act, something that would be most unlikely. This, he found, would be contrary to the purpose of the Charter. He expressed his dissatisfaction with the exclusion of evidence remedy in this way:

Simply to exclude the evidence would be to force the taxpayer to go to court and attack the assessments or to defend against allegations justifying the making of statute-barred assessments and the imposition of penalties that are based upon evidence that the Minister had only because he violated the appellant’s rights under the Charter. To limit the remedy to the exclusion of the evidence would, in my opinion, render nugatory the very rights that the Charter guarantees. The mere exclusion of evidence is insufficient for this purpose. The court must go further. I can see no reason for not fashioning a remedy under subsection 24(1) that has, as an integral component, an exclusion of evidence under subsection 24(2) but more adequately recognizes the fundamental right that the taxpayer has under section 8 of the Charter. To exclude the evidence only would be in effect to say to the officials of the Department of National Revenue “You have violated the taxpayer’s rights under section 8 of the Charter by your unconstitutional search arid seizure of its records and your unlawful retention of them. On the basis of this unlawfully obtained information you have assessed tax, interest and penalties. You have tried, unsuccessfully, to prosecute the taxpayer under section 239 of the Income Tax Act. You have kept 90 cartons of the taxpayer’s records for upwards of nine years. Now you wish to force the taxpayer to go through a civil trial in the Tax Court to see whether you can sustain assessments based fundamentally on evidence that you obtained illegally, and which under subsection 24(2) of the Charier you may not use at trial. We will let you try, however tenuous your case or remote your chances.”^ [5]

I am in agreement with Bowman, J.T.C.C. that the fact that, at the time of the original seizure it appeared to be constitutional, does not relieve the appellant of any responsibility, nor does it preclude the award of a remedy to the respondent. In the circumstances of this case, even though in other situations a good faith violation might well be overlooked [6] , the exclusion of the evidence might also be warranted, according to the test set out by Lamer, J. (as he then was) in R. v. Collins [7] . As Bowman, J.T.C.C. finds:

The conduct of officials of the Department of National Revenue was, from the initial seizure until the purported re-seizure under section 487 of the Criminal Code a flagrant and egregious violation of the appellant’s rights. The principles enunciated in such cases as Hunter, Collins, and Kokesch are equally applicable to these proceedings. [8]

One should keep in mind that, on the basis of certain “flagrant and egregious” unconstitutional conduct, charges against accused murderers and rapists may be stayed or even quashed, so that the remedy awarded here seems not so extreme in comparison.

In cases of evidence obtained by infringing the Charter, section 24 of the Charter allows the award of a remedy other than the exclusion of evidence. In my view, it is wrong to say, as counsel for the Crown does, that À. v. Therens supra, forbids any remedy other than the exclusion of evidence where evidence is obtained unconstitutionally. Subsection 2 expressly permits the exclusion of evidence as one remedy; it does not remove the general authority given to the Court in subsection I to grant such remedy as is “appropriate and just”. À. v. Therens forbids the exclusion of evidence remedy from being awarded other than pursuant to subsection 2, but it does not foreclose the granting of other or additional remedies in cases of evidence obtained in violation of the Charter if “appropriate and just”. As indicated, the question posed does not ask that the evidence seized be excluded; so that a subsection 24(2) remedy is not requested by the respondent. The Trial Judge found that the remedy that was “appropriate and just, in the circumstances” of this case, was the vacating of the assessments. He explained why he did so in these words:

Here, ...; I believe that I must take further action. Unquestionably it is within the broad discretionary powers given to the court under subsection 24(1) to ... not only exclude the unconstitutionally obtained evidence, but also cast upon the respondent the burden of establishing the correctness of the assessment with constitutionally untainted evidence. That remedy would not be inappropriate here, but can I take the next step, ... and vacate the assessments? I think that it is appropriate and just that I do so. In the first place subsection 24(1) gives to a court of competent jurisdiction a broad discretionary power to grant a remedy that is, “just and appropriate” for a Charter violation.... Moreover, the vacating of assessments is one of the powers explicitly given to this court under section 171 of the Income Tax Act. Second, we have counsel’s very fair admission that the evidence that was seized in violation of the appellant’s rights under the Charter was “fundamental” to the assessment. It appears to be conceded that the assessments cannot be sustained without the use of the unconstitutionally obtained evidence and that if the assessments were referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that all evidence that was illegally obtained be excluded from the Minister’s consideration the Minister would have no evidence on which to base an assessment.

Accordingly, no purpose would be served by following the approach adopted in [an American case] because the assessments would ultimately be vacated in any event. Put differently, even if I adopted the [U.S.] approach, which, in the circumstances of that case appears to be an eminently reasonable one, and placed upon the respondent the onus of sustaining the assessments without the use of the constitutionally tainted evidence, the result would be the same and the assessments would ultimately be vacated.

Therefore, that is what I think should be done. An end should be put to the matter by vacating the assessments.

I can see no reason to interfere with this decision. The Tax Court Judge possessed the jurisdiction to award this remedy. It is obvious that the later re-seizure was part of the factual matrix of this case and not irrelevant, as urged by the appellant. As I have indicated above, the material was needed to support the penalties and to extend the limitation period. It must be noted that among the significant “circumstances” in question is the fact that the assessments have very little, if any, chance of standing up if taken on to trial in the Tax Court without the evidence seized and reseized by unconstitutional conduct. It cannot be “appropriate and just” to force the taxpayer, whose constitutional rights have been violated, to defend itself against the assessments, when those assessments were based on evidence that was obtained by virtue of those violations.

I would like specifically to underscore the words of the Tax Court Judge, with which I fully agree, to the effect that this type of extreme remedy must not be considered to be an automatic one, being reserved only for cases of serious violations where other remedies are insufficient. He wrote:

I would not want my conclusion in this case to be taken as a wholesale sanctioning of the vacating of all assessments where some component of the Minister’s basis of assessment was unconstitutionally obtained information. Other cases may arise in which a simple exclusion of evidence is sufficient, others in which the evidence is of little or no significance in the making of the assessments or where its introduction would not bring the administration of justice into disrepute, ... In the exercise of the discretion vested in the court under section 24 of the Charter one must be vigilant in balancing, on the one hand, the rights of the subject that are protected under the Charter, and on the other, the importance of maintaining the integrity of the self-assessing system. As each case arises these and, no doubt, other factors will play a role and all factors must be assigned their relative weight. In the circumstances of this case I have concluded that the most appropriate exercise of my discretion is to vacate the assessments.

I would dismiss the appeal with costs.

Appeal dismissed.