Lewis v. M.N.R., 84 DTC 6550, [1984] CTC 642 (FCTD)

Walsh, J' -A motion was made by applicant with a request to abridge the time for fiLiig and service of same seeking an order pursuant to section 18 of the Federal Court Act and section 24 of the Constitution Act, 1982 quashing the authorization pursuant to subsection 231(4) of the Income Tax Act dated May 10, 1984 signed by respondent Gerard LeBlond authorizing search and seizure of the premises described therein on the grounds that the said section of the Income Tax Act contravenes section 8 of the Constitution Act, so that the seizure on May 30, 1984 of applicant’s documents, books and records and continued possession thereof by respondents pursuant to said authorization is unlawful. An order was also requested ordering the return to applicant of all seized effects, as well as any copies and extracts thereof, and to place in sealed envelopes or containers any notes, precis or other descriptions of the effects taken or seized by respondents or their representatives, without copies being kept by respondents, and deliver these into the custody of the administrator of the Federal Court at Ottawa. The motion also seeks to restrain respondents from having access to or using the seized effects pending an appeal by respondents from a decision of the Court maintaining applicant’s motion. The placing of notes in sealed envelopes or containers and depositing same in Court and restraining respondents from having access to the effects pending an appeal by respondents from the decision rendered on the motion were not argued, the motion being dealt with solely on the basis of quashing the seizure and returning the documents seized and any copies or extracts thereof to applicant.

Because of the urgency of the matter as will appear from these reasons an order was issued from the bench quashing the seizure and ordering the return of seized effects and any copies thereof to applicants by noon Friday, November 16, three days after the decision and the order of November 13, 1984, with the understanding that reasons would be issued subsequently. These are the reasons.

Since permission was given to present the motion on short notice there was necessarily some lack of information in the record before the Court, which might nevertheless be pertinent to the decision, the only affidavit in the record being that of the applicant, respondents not having had time to produce answering affidavits. Counsel for both sides were however cooperative in answering questions from the Court providing further factual information as to the background of the matter, and neither counsel disputed the accuracy of any factual statements made by opposing counsel.

It is common ground that the requirements of subsection 231(4) of the Income Tax Act were scrupulously followed and there is no complaint that the search was carried out in an oppressive or improper manner. The said section reads as follows:

(4) Search — Where the Minister has reasonable and probable grounds to believe that a violation of this Act or a regulation has been committed or is likely to be committed, he may, with the approval of a judge of a superior or county court, which approval the judge is hereby empowered to give on ex parte application, authorize in writing any officer of the Department of National Revenue, together with such members of the Royal Canadian Mounted Police or other peace officers as he calls on to assist him and such other persons as may be named therein, to enter and search, if necessary by force, any building, receptacle or place for documents, books, records, papers or things that may afford evidence as to the violation of any provision of this Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings.

This section and other sections in Part XV of the Income Tax Act dealing with administration and enforcement have been judicially considered in a number of cases both before and more especially since the Canadian Charter of Rights and Freedoms contained in the Constitution Act, but as far as this Court is concerned I am bound by the majority decisions of the Federal Court of Appeal in the Kruger case No A-1153-83 and the Vespoli and Precision Mechanics Ltd case No A-979-83 both judgments being rendered on August 30, 1984 with Marceau, J writing a strong dissent in both cases.Counsel informed me that this case has not been appealed so that, while the matter may still be controversial in some parts of Canada I am bound in so far as proceedings in this Court are concerned by the majority judgment.

The facts as recounted by counsel are that within two days after the search was carried out criminal charges were laid in Ontario against Gerald Lewis of having wilfully evaded payment of taxes for taxation years 1977 to 1982 inclusively and attempting to evade payment of taxes for the taxation year 1983. A number of postponements of the trial took place and it is now set down to commence on November 19, 1984, and to last for about four days, time having been set aside for this. Some of the documents seized will be required for use as evidence which is the reason why there was urgency in rendering judgment on the motion to quash the seizure and return the documents to applicant. It was not contended that applicant’s counsel requires access to them to prepare his defence as he allegedly has full information as to the evidence the Crown proposes to bring and copies of relevant documents. The question of introduction into evidence at the criminal trial of documents of which knowledge has been obtained as the result of a search warrant which has been quashed, subsection 231(4) of the Income Tax Act being found to be in contravention of section 8 of the Constitution Act and therefore inoperative, is not one to be decided here. However the Crown will require that some of the documents or records of which it now has knowledge be produced at the trial of the criminal proceedings and may have to seek a new warrant pursuant to section 443 of the Criminal Code or adopt some other method to obtain the pertinent documents and have them available at the trial of the criminal proceedings, which it is certainly not desirable to delay at this late date. For that reason some delay was given in the order for return to permit respondents to take whatever further steps may be necessary to reobtain possession of such documents for production in Court in the criminal proceedings.

Respondents point out that an identical motion to quash the seizure was made in the Ontario courts and was dismissed there by a County Court judge. Applicant’s counsel stated that this was as a result of a finding that he lacked jurisdiction to make the order sought. Respondents’ counsel, while not having a transcript of the judgment available due to the hearing on short notice was unable to confirm this, but accepted the statement of applicant’s counsel that this was the reason for the dismissal. This was an important point as otherwise the issue of res judicata would arise and could result in the dismissal of the present motion. However, in the absence of any proof that the effect of section 8 of the Canadian Charter of Rights and Freedoms on the validity of subsection 231(4) of the Income Tax Act was considered and dealt with in that judgment, this Court is free to deal with it and applicant brought the present motion with reasonable promptness after such judgment. While respondents contend that the present section 18 proceedings seeking to quash the seizure should have been brought promptly after the seizure was made rather than waiting until only a week before applicant’s trial is to commence, the Ontario proceedings also seeking to quash the authorization for the seizure, although possibly taken in the wrong jurisdiction, provide some explanation for this delay and I was not prepared to dismiss the application on the procedural ground of delay in bringing it.

Both parties submitted interesting and pertinent jurisprudence. Looking at it briefly I note that in the Ontario High Court of Justice Callon, J in the case of The Queen v Ronald A Roth, Power Sport of Canada Limited and Microvue Products Inc, [1984] CTC 185; 84 DTC 6181 decided that the provisions of subsection 231(4) were not in contravention of section 8 of the Charter, stating at 189 [6184]:

The powers and procedures set forth in section 231 of the Act are necessary and appropriate for the due functioning of the Taxation system in effect in Canada. They have not become unnecessary or inappropriate by virtue of the enactment of the Charter and they are demonstrably justified in a free and democratic society.

This was similar to the view expressed by Justice Marceau, in his dissenting judgment in the Kruger case, (supra), in which he said at page 14:

The scheme of the Income Tax Act is founded upon a self-assessment system, each taxpayer being asked to disclose his income and estimate the amount of tax payable by him. Under the scheme, the Minister is given the duty to assure a certain control of the honesty of the taxpayers and to help him fulfill his duty, some powers to secure information are granted to him. Section 231 of the Act provides for some of these powers. They include: the right of entry into a place where a business is carried on or books or records relating to that business are or should be kept; the right to audit or examine those books and records; the right to require from the owner or manager of the business all reasonable assistance; the right to request from any person information or the production of documents; the right to seize if during the course of an audit there appears to have been a violation of the Act. And the last and most important of these investigative powers is the one provided by subsection 4, the right to enter, search and seize.

After pointing out the dangers of such extensive power he goes on to say at page 16:

It is clear to me that, all factors being considered, the interest that may be served by the existence of the power, ultimately the very integrity of the tax system, outweighs the value our community as a whole may attach to the safeguard of the privacy that an individual suspected of dishonesty may expect in respect of his books, records and documents. The very partial invasion of his privacy to which the taxpayer is then being subjected is, it seems to me, perfectly justifiable in the particular context in which it is imposed.

He points out that power of search and seizure of subsection 231(4) is a longstanding power held to be both necessary and appropriate in a number of decisions which he cites. He concludes:

Of course, the coming into force of the Charter may have rendered inoperative provisions of law with long standing in our law books, but the notion here in question is that of “reasonableness” and I do not consider that the Charter could have abruptly changed our notion of what is or is not reasonable.

While I would agree with these views I am bound by the majority judgment in which the point is made by Justice Pratte at pages 12-13:

It is common ground that subsection 231(4) does not contravene the charter insofar as it gives the Minister, when he has valid grounds for believing that an offence has been committed by a taxpayer, the power to authorize a search and seizure in respect of that offence. What is challenged is the constitutionality of that subsection insofar as it confers on the Minister, when he has grounds to believe that one particular offence has been committed, the power to authorize a general search and seizure relating to the violation of any of the provisions of the Income Tax Act or the Regulations.

and again at page 18:

However, I cannot accept the general proposition that the mere fact that a taxpayer has, at a particular time, committed an offence under the Income Tax Act or the Regulations, however trifling that offence, affords sufficient justification for the general power of search and seizure conferred by subsection 231(4). In my view, that subsection violates section 8 of the Constitution Act, 1982 in that it contravenes the right of the taxpayer “‘to be secure against unreasonable search or seizure.”

That judgment also considered the possibility of invoking section 1 of the Charter to find that subsection 231(4) is “demonstrably justified in a free and democratic society”.

This argument was rejected, the judgment stating:

However he failed to convince me. True, once a person 1s, for serious reasons, suspected of resorting to fraudulent means in order to evade the payment of income tax, that power may be necessary; but the mere fact that a person has committed an offence under the Income Tax Act or the Regulations does not always warrant such a suspicion.

In the present case the charge has now been laid, and that judgment does not of course preclude a search warrant issued pursuant to the provisions of section 443 of the Criminal Code.

Having concluded that the authorizations for search granted pursuant to subsection 231(4) fo the Income Tax Act must be quashed as it contravenes section 8 of the Constitution Act, 1982, and is therefore inoperative and is of no force or effect the only question remaining to be considered is whether this would necessarily result in return of the documents seized. This was considered in the Saskatchewan Court of Queen’s Bench by Noble, J in Re Weigel and The Queen, 7 CCC (3d) 82, under section 443 was inadequate so the warrant was quashed, the search and seizure being found unreasonable and in contravention of section 8 of the Canadian Charter of Rights and Freedoms. Previous jurisprudence was considered and the judgment concludes:

In my opinion, now that the Charter of Rights is in place the courts should not ignore its clear language and allow illegally seized documents to be retained by the Crown even in circumstances where the documents seized have already been tendered as evidence at a preliminary hearing of a charge against the accused. The rights of an accused must not be given away just to make it easier for the Crown to prosecute an accused person.

This was also emphatically stated by Boilard, J in the case of Gillis v The Queen, 1 CCC (3d) 545, in which he carefully reviews preceding jurisprudence and states at 556:

It is now necessary for me to decide whether the things seized, as well as the copies made thereof, must be returned to the applicant. I cannot request that the Crown or police now exercise some discretionary power which I denied them at the time of the execution of the warrant and ask them to decide, once the warrant is quashed, which documents they wish to retain: Bergeron et al v Deschamps et al (1977), 33 CCC (2d) 461, 73 DLR (3d) 765, [1978] 1 SCR 243 (SCC).

On the other hand, it appears at least incongruous, in light of ss 8 and 24 of the Charter, to permit the authorities to retain the things that they unlawfully seized. The only sanction that may be truly effective when faced with an illegal search is to order the return of the things unlawfully seized. Any other solution seems to me to be inadequate.

Reference was made to the judgment of Chief Justice Laskin in Bergeron et al v Deschamps et al (1977), 33 CCC (2d) 461.

The Ontario Court of Appeal case of Re Chapman and The Queen, 12 CCC (3d) 1, also reviewed the previous jurisprudence including the case of Model Power v The Queen, 21 CR (3d) 195, in which the judge refused to order the return of articles which it was stated by the Crown would be required in the prosecution of criminal charges, and the Court of Appeal found that the trial judge was entitled to exercise his discretion in the circumstances by refusing to order the return of the documents seized. In the Gillis case, (supra), Justice Boi- lard refused to adopt this solution. The Chapman case also refers to the case of Re Butler and Butler and Solicitor-General of Canada et al, 61 CCC (2d) 512, in which the Crown was permitted to retain the articles seized. It points out however that McLachlin, LJSC did say after reviewing the authorities at 517:

It seems settled, therefore, that the Court has an inherent jurisdiction to order articles wrongfully seized to be returned upon the quashing of an invalid warrant. It is not necessary to start a separate replevin action or invoke the express authority of the Criminal Code as suggested in Re Purdy, supra, and other earlier authorities.

The order under appeal in the Chapman case ordering the return of the article seized was made by virtue of subsection 24(1) of the Charter which reads as follows:

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.

It was held that the order made was proper exercise of the trial judge’s discretion.

On reviewing the jurisprudence I conclude that the better view now is that articles improperly seized should be returned even if they may be required to be used as evidence in subsequent proceedings. The return was therefore ordered, some delay being given to enable respondents to reacquire in a legal manner possession of the documents required for the proceedings to commence on November 19th.