Date: 20020130
Docket: 2001-2342-IT-G,
2001-2343-IT-G,
2001-2344-IT-G
BETWEEN:
YVONNE SVASTAL,
PAUL SVASTAL,
PAUL & DOUGLAS AUTOMATIC SPRINKLERS
LTD.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bowie J.
[1] The Appellants Yvonne Svastal and
Paul Svastal are directors and shareholders of the Appellant Paul
& Douglas Automatic Sprinklers Ltd. (P & D). Paul Svastal
is also its president. The appeals before the Court are from
reassessments under the Income Tax Act (the Act),
which the Appellants all allege were made outside the normal
reassessment period, and which they say were based on documents
and information obtained by the Canada Customs and Revenue Agency
(CCRA) in contravention of the Appellants' rights under
sections 7 and 8 of the Canadian Charter of Rights and
Freedoms. Those sections and section 24, provide:
7. Everyone
has the right to life, liberty and security of the person and the
right not to be deprived thereof except in accordance with the
principles of fundamental justice.
8. Everyone
has the right to be secure against unreasonable search or
seizure.
...
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.
24(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.
The amounts of tax involved in these appeals are substantial.
According to the Notices of Appeal, some $400,000 was added to
the original assessment of P & D for the years 1991 to 1994,
and some $115,000 in the case of Yvonne Svastal for the
years 1990 to 1993, and some $513,000 in the case of
Paul Svastal for the years 1990 to 1993. The Appellants were
also assessed penalties under section 163 of the Act. The
pleadings in these appeals are closed, and the issues joined
include:
a) whether CCRA gathered evidence
in breach of sections 7 and 8 of the Charter;
b) whether the reassessments under appeal
were made outside the normal reassessment period of three years
following the date of the original assessments, as fixed by
subsection 153(1.1); and
c) if so, whether the Minister of
National Revenue can satisfy the requirements of subsection
152(4).
There is no allegation in the Notices of Appeal that the
Appellants had correctly reported their incomes, or that the
original assessments of their incomes were correct. They raise
only the issues relating to the alleged violations of the
Charter in gathering evidence, and to the timeliness of
the reassessments.
[2] The motions now before me
are brought by the Appellants to secure a determination, before
either production of documents or examinations for discovery take
place, first, that the CCRA investigation was conducted in breach
of the Charter, and second that the appropriate remedy
under section 24 of the Charter is to vacate the
reassessments under appeal, or alternatively, to exclude all of
the evidence obtained in violation of the Charter,
including any derivative evidence, to exempt the Appellants from
the requirements of production and discovery, and to place on the
Respondent the burden of proving the correctness of the
reassessments at trial. The Appellants also seek directions which
would give them the benefit of production and discovery for
purposes of the motions, along with the right to call witnesses
at the hearing of the motions, and exempting them from production
and discovery pending disposition of the motions. In order that
the Appellants' position may be fully understood, I shall set
out here in full those parts of the Notice of Motion which
describe the relief sought and the grounds for seeking it:
The Motion Is For an order:
(a) vacating the
Notices of Reassessment dated July 30, 1997, in respect of the
Appellants' 1991, 1992, 1993 and 1994 taxation years (the
"Reassessments"), pursuant to section 24(1) of the
Canadian Charter of Rights and Freedoms (the
"Charter");
(b) in the
alternative, pursuant to section 24(2) of the Charter:
(i)
excluding from use as evidence at trial any and all evidence
obtained by the Minister of National Revenue (the
"Minister") in violation of sections 7 or 8 of the
Charter;
(ii) excluding
from use as evidence at trial any and all material obtained or
prepared by the Minister that was directly or indirectly derived
from evidence obtained by the Minister in violation of sections 7
or 8 of the Charter;
(iii) directing that
there shall be no requirement for production of documents by the
Appellants and no examination for discovery of the Appellants by
the Respondent; and
(iv) directing that, at
trial, the onus shall be on the Respondent to establish the
validity of the Reassessments and there shall be no presumption
of correctness of those Reassessments.
(c) for directions for the
hearing of the motion as follows:
(i)
granting leave to the Appellants to examine witnesses at the
hearing of the motion in the same manner as at the hearing of
an Appeal pursuant to sections 76, 144 and 146 of the
General Procedure Rules of the Tax Court of Canada (the
"Rules");
(ii) requiring
the Respondent to provide documentary production and to attend
for examination for discovery before hearing of the motion;
(iii) granting leave to
the Appellants to examine for discovery employees and former
employees of the Minister or Canada Customs and Revenue Agency
having information relevant to the issues on the motion and
appeal, before hearing of the motion, as may be required by the
Appellants, pursuant to section 99 of the Rules;
(iv) directing that the
Appellants are not required to provide documentary production or
attend for examination for discovery pending disposition of the
motion;
(v) any further
directions which may be required for the expeditious hearing of
the motion;
(d) for the Appellants' costs of
the Motion and Appeal on a solicitor and client basis; and
(e) such further and other relief as
this Honourable court deems just.
The Grounds for the Motion Are as follows:
(a) Sections 76, 93, 99, 137, 144 and
146 of the Rules.
(b) The Reassessments were based on
information obtained or utilized in violation of sections 7 and 8
of the Charter and the Doctrine of Abuse of Process as
follows:
(i)
information unlawfully obtained by one or more authorized persons
of the Respondent, through the Minister, purportedly acting under
section 231.1(1) of the Income Tax Act (the
"Act") by audit which was in effect a criminal
investigation conducted in the absence of a search warrant;
(ii) the
appropriation of the information referred to in subparagraph (i)
above by Revenue Canada, Special Investigations (as it was then
known), a criminal law enforcement arm of the state, for use in
criminal proceedings;
(iii) Search Warrants
unlawfully obtained by the Respondent, through the Minister based
on the information unlawfully obtained or utilized; or
(iv) other information
derived directly or indirectly as a result of the activities
described in subparagraphs (i), (ii) or (iii) above.
(c) The information
obtained in violation of the Charter was fundamental to
the Reassessments. In the absence of such information, there was
no basis for the Respondent, through the Minister, to issue the
Reassessments. As such, the Appellants say that the Reassessments
should be vacated pursuant to subsection 24(1) of the
Charter;
(d) The admission into
evidence before this Court of evidence obtained by the Minister
in contravention of sections 7 or 8 of the Charter would
bring the administration of justice into disrepute.
(e) Further, the Notices
of Reassessment were made after the Appellants' normal
reassessment period, as defined in section 152(3.1) of the
Act, for each of the said taxation years;
(f) As a result of
the expiry of the Appellants' normal reassessment period, the
onus is on the Respondent under section 152(4)(a) of the
Act to prove that the Appellants made a misrepresentation
attributable to neglect, carelessness or wilful default or
committed fraud in filing the return or in supplying any
information under the Act;
(g) The said illegally
obtained information should be excluded as evidence, pursuant to
section 24(2) of the Charter. In the absence of such
information, the Respondent has no admissible evidence to
discharge its onus of proof as set out in subparagraph (f)
above;
(h) In criminal
proceedings arising out of the same matters which are the subject
of the Reassessments, the Department of Justice failed to provide
full and fair disclosure to the Defence and then withdrew the
charges at a pre-trial judicial conference prior to the matter
proceeding to trial; and
(i) The
Appellants' rights under sections 7 or 8 of the
Charter will be infringed if the Appellants are required
to provide documentary production and submit to examination for
discovery without a prior determination of whether the
Appellants' Charter rights have been violated and if
so, what the appropriate remedy should be.
[3] When the matter came before
me, counsel advised that I was asked at this stage only to make
orders for directions as requested in paragraphs (c)(i) to (v) of
the Notice of Motion.
[4] The Appellants placed some
six kilograms of affidavit material before me. The Respondent
answered with about two kilograms. I do not propose to comment
upon the contents of the affidavits, except to say that they
establish two things to my satisfaction. The first is that
criminal charges were brought against each of these Appellants,
and then subsequently were withdrawn by the prosecution, with the
result that there has been no determination as to the
applicability of the Charter to the evidence gathered by
CCRA in the course of its investigation, nor will there be any in
the context of the prosecutions. The second is that there are
serious issues between the parties relating to the investigation,
which involve disputes as to the facts, and also as to what
remedy, if any, is appropriate to be applied under section 24 of
the Charter. The trial of those issues is likely to
require several days of Court time.
[5] Counsel for the Appellants
referred me to several cases in which this Court has dealt with
applications to exclude evidence on Charter related
grounds. In Donovan[1] and in Norwood,[2] motions were brought at the opening
of, or during, the trial to exclude certain evidence. In
Jurchison,[3] as here, an application was brought by way of an
interlocutory motion for essentially the same relief as is sought
here. The Appellants had been prosecuted for tax evasion. In the
course of that proceeding a judge of the Provincial Court, on a
preliminary motion, had held certain evidence to be inadmissible
because it had been obtained in a way that violated the
Appellants' rights under section 8 of the Charter, and
because to admit it in that proceeding would have brought the
administration of justice into disrepute. That decision was
affirmed by the Ontario Superior Court, General Division. On
hearing the motion in Jurchison, I accepted the decisions
of the Ontario Courts that the evidence had been obtained
illegally, and ordered that the evidence would be inadmissible at
trial, that the Appellants should not be examined for discovery,
and that the onus of proof would be on the Respondent at trial to
justify the assessments under appeal.
[6] This Order was set aside on
appeal. Sexton J.A., for a unanimous Court, held that because the
Charter issue had not been raised in the pleadings, the
issue was not a proper one to be dealt with by way of a motion
under Rule 58. He went further, however, and said:[4]
Normally, the admissibility of evidence is a matter best left
to the Trial Judge who, having all the circumstances and evidence
before him can make the most informed decision.
As to the part of the Order which provided that the Appellants
not be subject to examination for discovery, he said:[5]
... It may well be that certain questions on discovery could
be seen to have a genesis in the evidence taken in breach of the
taxpayers' rights. However, until such questions are asked no
such determination can be made. The Crown has the right to
discovery and this right should not lightly be extinguished. In
my view, it is preferable to allow the discovery to proceed with
the taxpayer being given the right to object to any questions
which are felt to have their genesis in the impugned evidence.
Then a Motions Judge will be in a better position to assess the
propriety of the question.
[7] A motion similar to the one
now before me was brought before Mogan J. of this Court in
Warawa v. The Queen.[6] That motion was expressly said to be brought
pursuant to Rule 58, which permits the Court to determine,
before the trial, a question of law raised by a pleading. Mogan
J. dismissed the motion on the ground that the question before
him was not simply a question of law, but involved issues of fact
as well. In doing so he canvassed those authorities, of which the
Federal Court of Appeal decision in Jurchison is but one,
which recognize the distinction to be made between a criminal
proceeding and a civil proceeding such as an income tax appeal
(including one in which the Minister has assessed penalties under
the Act[7]) when considering the remedies to be granted
under section 24 of the Charter, and whether it would
bring the administration of justice into disrepute to admit the
illegally obtained evidence.
[8] In O'Neil Motors Ltd.
v. The Queen,[8] Bowman J., as he then was, vacated certain
reassessments on the grounds that the fundamental basis on which
they were founded was evidence obtained through an illegal search
and seizure. In that case, it was conceded by counsel for the
Respondent that the search and seizure in question violated the
Appellant's rights under section 8 of the Charter.
That conclusion had previously been reached by a judge of the
Provincial Court of Newfoundland in a prosecution of the
Appellant under section 239 of the Act. It was also
conceded by counsel for the Respondent that without the illegally
obtained evidence the reassessments could not be sustained. In
those circumstances Bowman J. vacated the assessments, but in
doing so he said:
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, or still others in
which Suarez solution will commend itself. 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.
An appeal was dismissed by the Federal Court of Appeal. In
giving the unanimous Reasons, Linden J., referring to the passage
I have just quoted, said:[9]
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.
[9] From these authorities it is clear
that issues as to the admissibility of evidence, and other
remedies under section 24 of the Charter, should not be
dealt with as interlocutory matters except in unusual
circumstances. There are no unusual or compelling circumstances
in the present case. Indeed, this case is a much less suitable
one than Jurchison, in my view. In Jurchison there
had been a determination by a Court of competent jurisdiction
that certain evidence had been illegally obtained, and that
finding had been affirmed on appeal. Both judges used very strong
language to condemn the conduct of the Revenue Canada officers.
In the present case there has been no such determination. Counsel
asserts that the charges against these Appellants were withdrawn
because the evidence required to secure convictions was illegally
obtained. That may, or may not, be so. It is equally possible
that failure to make proper disclosure in accordance with R.
v Stinchcombe,[10] or some other reason of which I know
nothing, led to the Crown's decision. The subject matter of
these motions will, in all probability, occupy several days of
trial. The Appellants want to have that trial before they are
required to produce documents or submit to discovery. Disclosure
of documents by an Appellant under Rule 81 is limited to
those documents that assist the Appellant to prove facts alleged
in the Notice of Appeal, or to disprove facts alleged in the
Reply to the Notice of Appeal. No further production of documents
is required without an Order of the Court. So far as examinations
for discovery are concerned, the Appellants may object to answer
questions that they believe to be inspired by illegally obtained
evidence, in accordance with the judgment of the Federal Court of
Appeal in Jurchison. Should that happen, then a motions
judge may have to rule on the propriety of the question.
Objections as to the admissibility of specific evidence will be
dealt with by the trial judge, in due course.
[10] The motions are dismissed, with costs
of one motion only to the Respondent in the cause.
Signed at Ottawa, Canada, this 30th day of January, 2002.
J.T.C.C.
COURT FILE
NO.:
2001-2342(IT)G, 2001-2343(IT)G and
2001-2344(IT)G
STYLE OF
CAUSE:
Yvonne Svastal, Paul Svastal and Paul & Douglas Automatic
Sprinklers Ltd. and
Her Majesty the Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
January 15, 2002
REASONS FOR ORDER BY: The Honourable Judge E.A.
Bowie
DATE OF
ORDER:
January 30, 2002
APPEARANCES:
Counsel for the
Appellants: Brian Heller and
Irving Marks
Counsel for the Respondent: David W.
Chodikoff
COUNSEL OF RECORD:
For the Appellants:
Name:
Brian Heller and Irving Marks
Firm:
Heller, Rubel and Robins Appleby & Taub
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2342(IT)G
BETWEEN:
YVONNE SVASTAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on common evidence with the
motions of Paul Svastal (2001-2343(IT)G) and Paul
& Douglas Automatic Sprinklers Ltd. (2001-2344(IT)G) on
January 15, 2002, at Toronto, Ontario, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the
Appellant: Brian
Heller and Irving Marks
Counsel for the Respondent: David W.
Chodikoff
ORDER
UPON motion by the Appellant for an Order vacating the
reassessments under the Income Tax Act for the taxation
years 1990, 1991, 1992 and 1993; and for other relief in the
alternative;
AND UPON reading the pleadings and other material filed;
UPON hearing counsel for the parties;
It is
ordered that the Appellant's motion is dismissed, with costs
to the Respondent in the cause.
Signed at Ottawa, Ontario, on the 30th day of January,
2002.
J.T.C.C.
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