Roseland Farms Ltd. v. Her Majesty the Queen, [1996] 1 CTC 351

Stone J.A.: — By an order of September 29, 1992, the Trial Division dismissed the appellant’s application under section 179 of the Income Tax Act, R.S.C. 1952, c. 148, as amended by S.C. 1985, c. 45, to hold proceedings in camera. That order is the subject of the present appeal.

Section 179 reads:

179. Proceeding in the Federal Court under this Division may, on the application of the taxpayer, be held in camera if the taxpayer establishes to the satisfaction of the Court that the circumstances of the case justify in camera proceedings.

The learned Motions Judge had before her the affidavit of Murdoch Mackay, president of the appellant company, sworn August 19, 1992, filed in support of the section 179 application. That affidavit contains the following evidence which was neither cross-examined upon nor controverted by the respondent:

2. THAT the matters in issue in these proceedings were commenced on the 4th day of January, 1983, and were heard by The Tax Court of Canada on the 29th day of January, 1985, and involved an Income Tax assessment of the Plaintiff for the year 1980.

3. THAT as a result of a request made by the Plaintiff at the Tax Court hearing, the names of certain persons interested in the Plaintiff Corporation, being those persons for whom the shares of the taxpayer were held in trust, were not publicized although devulged [sic] by me to the Defendant and the Tax Department under the conditions of the Income Tax Act which were kept secret.

4. THAT on the examination for discovery of the Plaintiff it became apparent that on the appeal that the Defendant now wished the names of the persons who were unnamed in the initial proceedings to be named openly on the record. Under the new rules of court this would not be possible as the appeal is on the record and the record did not name the two unnamed shareholders.

5. THAT the Plaintiff Corporation was set up in 1976 for the two unnamed persons by virtue of instructions received from a company called Consultants for Canadian Investments Ltd. of Lugano, Switzerland. This consulting company had set up several such companies for European investors in Manitoba. I was informed by them and verily believe the reason for such investments were that a communist take-over of the Italian government was expected and the kidnapping of wealthy investors children was a frequent occurrence. As a result I assumed the unnamed persons were Italian citizens, although with a Swiss connection, and that they wished investments out of Italy.

In 1976 Italy had restrictions on the export of capital from that country and for that reason the investors wished to keep their names secret, and therefore my law firm held the shares in trust. I was instructed not to devulge [sic] the names publicly as these unnamed persons might face prosecution and therefore the names were only devulged [sic] to the Income Tax Department under the protection of the Income Tax Act.

15. THAT if the unnamed persons have to be named on the public record then we have instructions that this appeal can not be proceeded with which prejudices our appeal whereas the Defendant has no such restriction and has already obtained a favourable judgment without naming the unnamed persons.

The Motions Judge concluded, however, that the circumstances outlined in Mr. Mackay’s affidavit did not “justify the holding of in camera proceedings in this case”. In the same context she noted that “public policy favours strongly the concept that judicial proceedings be conducted openly...”.

The appellant submits that this Court would be justified in interfering with the order of the Trial Division because the Motions Judge placed inordinate weight on the need for openness in the administration of justice and insufficient weight on the unique situation facing the appellant. Counsel emphasizes that all of the hearing in the pending appeal in the Trial Division from the Tax Court of Canada would be open to the public save during Mr. Mackay’s testimony as to the names of the foreign investors. Those names, as the evidence shows, have already been disclosed to the respondent. Counsel contends, therefore, that hearing the names of the investors in camera rather than in open Court would not in any way prejudice the respondent in presenting its case. Indeed, during the course of the argument counsel for the respondent acknowledged that the respondent would not incur prejudice in the circumstances by the names being revealed in camera given that they are already known to the respondent.

The policy of the law favours openness and abhors secrecy of judicial proceedings: Nova Scotia (Attorney General) v. MacIntyre, [1982] 1 S.C.R. 175, 40 N.R. 181. As Dickson J. (as he then was) stated for the majority, at S.C.R. page 183:

The rationale of this last-mentioned consideration has been eloquently expressed by Bentham in these terms:

In the darkness of secrecy, sinister interest and evil in every shape have full swing. Only in proportion as publicity has place can any of the checks applicable to judicial injustice operate. Publicity is the very soul of justice. It is the keenest spur to exertion and the surest of all guards against improbity. It keeps the judge himself while trying under trial.

That policy is not without exception, however, although exceptions are rare. In MacIntyre itself, Dickson J., at page 188, underlined the importance of a particular exception when he stated:

Although the rule is that of “open court” the rule admits of the exception referred to in Halsbury, namely, that in exceptional cases, where the administration of justice would be rendered impracticable by the presence of the public, the court may sit in camera.

See also D.(C.) v. Minister of National Revenue, [1991] 1 C.T.C. 349, 91 D.T.C. 5210 (F.C.A.). That case decided against in camera proceedings under the Tax Court of Canada Act on materially different facts which involved fear of disciplinary proceedings.

With the advent of the Canadian Charter of Rights and Freedoms and especially freedom of the press as recognized in section 2(b), the principle of openness received even better recognition. As it was put by Cory J. in Edmonton Journal v. Alberta (Attorney-General), [1989] 2 S.C.R. 1326, 102 N.R. 321, at S.C.R. page 1336, the rights enshrined in paragraph 2(b) of the Charter “should...only be restricted in the clearest of circumstances.”

While the present case does not involve assertion of a section 2(b) right, the Court must nevertheless be slow to depart from the principle of openness. At the same time it is recognized in the statute itself that circumstances may well exist in income tax litigation where proceedings should be held in camera. Section 179 is couched in general language i.e. the taxpayer must satisfy the court “that the circumstances of the case justify in camera proceedings.”

We find convincing the appellant’s submission that the present case is indeed unique and that the Motions Judge’s failure to give sufficient weight to that uniqueness affords a ground for interference. There was not before her, as there is here, an acknowledgment that the respondent would not incur prejudice by the evidence as to the names of the foreign investors being received in camera. That much, it seems to us, is patent in any event given that the names had already been disclosed by the appellant to the respondent in course of the litigation. It should be noted as well that the reporting and assessing process under the Income Tax Act requires a measure of confidentiality on the part of employees of Her Majesty, as provided for in section 241. Section 179 of the Act should be viewed in that light, as perhaps mirroring recognition of need for some ongoing protection in limited circumstances. Confidentiality by itself does not, however, justify in camera proceedings.

We cannot see that violence would be done to the fundamental principle of openness where, as here, only the names of the investors will be adduced in camera and especially so where those names are already known to the respondent. On the contrary, justice will be better administered and rendered practicable and its ends better served.

The appeal will be allowed, the order of the Trial Division set aside and evidence of the names of the two foreign investors referred to in paragraph 5 of Mr. Mackay’s affidavit may be given in the pending appeal in camera. The appellant shall have its costs both here and below in any event of the cause.

Appeal dismissed.