Del Zotto v. Canada, [1996] 2 CTC 22, 96 DTC 6222

Stone J.A. (Linden, McDonald, JJ.A., concurring): — This appeal is from an order of the Trial Division of October 12, 1995, which partially lifted a stay order of that Court dated November 26, 1993. As it was heard together with an identical appeal in Court File No. A-666-95, these reasons for judgment shall apply to both appeals, and upon filing of a copy hereof in Court File No. A-666-95 they shall constitute reasons for judgment in that appeal.

In both actions in the Trial Division brought by the respective appellants, attacks were made upon the constitutional validity of section 231.4 of the Income Tax Act, R.S.C. 1985 (5th Supplement), c. 1, as amended, which provides as follows:

231.4(1) The Minister may, for any purpose related to the administration or enforcement of this Act, authorize any person, whether or not the person is an officer of the Department of National Revenue, to make such inquiry as the person may deem necessary with reference to anything relating to the administration or enforcement of this Act.

(2) Where the Minister, pursuant to subsection (1), authorizes a person to make an inquiry, the Minister shall forthwith apply to the Tax Court of Canada for an order appointing a hearing officer before whom the inquiry will be held.

(3) For the purposes of an inquiry authorized under subsection (1), a hearing officer appointed under subsection (2) in relation thereto has all the powers conferred on a commissioner by sections 4 and 5 of the Inquiries Act and that may be conferred on a commissioner under section 11 thereof.

(4) A hearing officer appointed under subsection (2) in relation to an inquiry shall exercise the powers conferred on a commissioner by section 4 of the Inquires Act in relation to such persons as the person authorized to make the inquiry considers appropriate for the conduct thereof but the hearing officer shall not exercise the power to punish any person unless, on application by the hearing officer, a judge of a superior or county court certifies that the power may be exercised in the matter disclosed in the application and the applicant has given to the person in respect of whom the applicant proposes to exercise the power 24 hours notice of the hearing of the application or such shorter notice as the judge considers reasonable.

(5) Any person who gives evidence in an inquiry authorized under subsection (1) is entitled to be represented by counsel and, on request made by the person to the Minister, to receive a transcript of the evidence given by the person.

(6) Any person whose affairs are investigated in the course of an inquiry authorized under subsection(l) is entitled to be present and to be represented by counsel throughout the inquiry unless the hearing officer appointed under subsection (2) in relation to the inquiry, on application by the Minster or a person giving evidence, orders otherwise in relation to the whole or any part of the inquiry on the ground that the presence of the person and the person’s counsel, or either of them, would be prejudicial to the effective conduct of the inquiry.

These attacks are Charter-based.

By an order of December 2, 1992, the Tax Court of Canada appointed a hearing officer before whom the section 231.4 inquiry, as authorized by the Deputy Minister of National Revenue, Taxation, is to be held. Specifically, the hearing officer is authorized to conduct an inquiry “into the affairs” of the appellant. An attack upon the Tax Court’s order based on principles of administrative law was dismissed by this Court on September 9, 1993 as being beyond review. Nevertheless, this Court observed that a Charter-based attack on section 231.4, as it was put Hugessen J.A., speaking for the Court, “cries out to be made” (Del Zotto v. The Minister of National Revenue, [1993] 2 C.T.C. 342, 93 D.T.C. 5455, at page (C.T.C. 343) 5456). The actions now pending trial in September 1996 mount just such attacks. At first, the attacks were made in different forms. One, that of the appellant in this appeal, was advanced in an action. The other, that of the appellant in the other appeal, was advanced in an application for judicial review. The latter appellant has been served with a subpoena to attend and testify at the inquiry.

A judge of the Trial Division was assigned to case manage both proceedings.

On November 26, 1993, the Case Management Judge upon motions brought by the respective appellants stayed the orders of the Tax Court of Canada until the constitutional challenges have been finally determined by the Trial Division. In the meantime, a number of motions have been brought and disposed of either by the Case Management Judge or by the Associate Senior Prothonotary.

On October 12, 1995, the Case Management Judge had before him motions brought by both the appellant in this appeal and in the second appeal. The appellant sought to amend his Statement of Claim to allege, inter alia, that the pending inquiry contravenes the Charter, is of no force and effect and that the inquiry could not continue. The appellant in the other appeal sought to have his judicial review application converted into an action and to have it consolidated with the action brought by the appellant in this appeal. Jurisdiction to make the amendments, to convert to an action and to consolidate is provided for in Rule 420, section 18.4 of the Federal Court Act and in Rule 1715 or in the Court’s inherent jurisdiction over its own processes, respectively. The Case Management Judge granted the sought- after amendments in some measure, converted the judicial review application into an action and ordered the consolidation of both.

At the same time, the Case Management Judge ordered a partial lifting of the stay order of November 26, 1993. No motion requesting such relief was formally before him although such a request was raised in oral argument. Paragraph 1 of the Trial Division’s formal order of October 12,

1995, in the Del Zotto case reads as follows:

1. It is a term of granting this Statement of Claim that the stay against the commencement of the inquiry shall be lifted except that Herbert B. Noble and Angelo Del Zotto may not be subpoenaed, or otherwise required to provide evidence to the inquiry until 30 days after this action is determined or settled on consent.

An order to the same effect was made on the same day in the Noble case where consolidation was allowed.

It is clear from the reasons he gave for his orders that the Case Management Judge saw injustice not compensable in costs being suffered by Her Majesty unless the stays were partially lifted. As he put it, at page 8 of his reasons:

Although costs could not remedy unfairness to Her Majesty the Queen in this case, in my view, a limited removal of the stay with respect to the inquiry would be an adequate solution to the injustice faced by Her Majesty the Queen with an amendment at this stage. This limited lifting of the stay will fully protect Mr. Noble and offers protection to Mr. Del Zotto from any form of self-incrimination. I recognize there is a danger that proceeding with the inquiry could end up being a form of discovery against an accused. The plaintiff has had this action stayed for nearly two years and the public interest as represented by the defendant requires that the matter be proceeded with expeditiously. Although all the parties have proceeded in good faith the proceedings have been made more procedurally complex by the failure of the plaintiff and the applicant to proceed on identical basis. As a result of this failure, the defendants and respondents are faced with an injustice not compensable by costs if this amendment is allowed. The stay will be removed against the Order of the Tax Court and the restraint is lifted against D. Reilly Watson from acting as hearing officer and John Edward Thompson from conducting the inquiry except that neither Messrs. Noble or Del Zotto may be subpoenaed or otherwise required to provide evidence until thirty (30) days after this action is determined or settled on consent.

Among the grounds taken against the partial lifting of the stay is that the Case Management Judge exceeded his jurisdiction under Rule 420. Rule 420 (1) and (2) read as follows:

420(1) The Court may, on such terms, if any, as seem just, at any stage of an action, allow a party to amend his pleadings, and all such amendments shall be made as may be necessary for the purpose of determining the real question or questions in controversy between the parties.

(2) No amendment shall be allowed under this Rule

(a) except upon terms designated to protect all parties so far as discovery and preparation for trial are concerned; and

(b) during or after trial, except to make the pleadings accord with the issues on which all parties went to trial or on terms that there be a new trial, or that the other parties otherwise be given an opportunity for such discovery and preparation for trial as may be necessary to meet the new or amended allegations.

The appellant submits that the Court’s discretion to impose “such terms, if any, as seem just” did not confer jurisdiction on the Case Management Judge under Rule 420 to partially lift his stay order of November 26, 1993. The respondents contend that Rule 420 and the Court’s inherent jurisdiction over its own processes conferred the necessary jurisdiction, the partial lifting of the stays being merely incidental to allowing the amendments to the pleading and consolidating the actions for trial.

Admittedly, the Case Management Judge did possess a broad discretion to impose terms on granting the amendments to the Statement of Claim and, as well, in allowing the two actions to be consolidated. To an extent, however, that discretion is circumscribed by Rule 420(2), which obviously is intended to allow for the imposition of a term upon the making of an order within a trial proceeding itself. In our view, the stay order was not subject to review in this manner. It was not as such a part of the trial proceeding but, rather, was granted to prevent the inquiry from going forward until after the constitutional challenges were determined at trial.

Jurisdiction to lift a stay is conferred by subsection 50(3) of the Federal Court Act, which provides:

50(3) Any stay ordered under this section may subsequently be lifted in the discretion of the Court.

That subsection was not, however, invoked. Had it been invoked, the provisions of Rule 469(5) would probably have been made applicable by analogy, as provided for in Rule 5. It is perhaps unnecessary to point out that the considerations which determine whether an interlocutory injunction should issued apply equally to the granting of a stay. There must be a serious issue to be tried, irreparable harm to the applicant if a stay is not granted and the balance of convenience lying in favour of the applicant.

(See Metropolitan Stores (MTS) Ltd. v. Man. Food and Commercial Workers, Local 832, [1987] 1 S.C.R. 110, (sub noms. Manitoba (A.-G.) v. Metropolitan Stores (MTS) Ltd.; Manitoba Food & Commercial Workers, Local 832 v. Metropolitan Stores (MTS) Ltd.), [1987] 3 W.W.R. 1, 38 D.L.R. (4th) 321; RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385, 54 C.P.R. (3d) 114). Indeed, the Case Management Judge applied this three part test in granting the stay. The same considerations, in our view, apply whenever the Court is asked to lift or partially lift a stay previously granted.

In our view, once an order for a stay is made the jurisdiction to lift it, as we have observed, is conferred by subsection 50(3) of the Act and, unless the circumstances be exceptional or non-controversial, that jurisdiction is to be exercised upon motion supported by appropriate evidence showing that the facts upon which the stay was originally granted have so changed as to justify a lifting or partial lifting of the stay. This was underlined by Jerome A.C.J. in Cdn. Tire Corp. v. Pit Row Services Ltd. (1987), (sub nom. Canadian Tire Corp. Ltd. v. Pit Row Services Ltd.), 13 F.T.R. 145, 19 C.P.R. (3d) 230 (F.C.T.D.). While that case was concerned with the lifting of an interlocutory injunction, in our view the same principles apply to the lifting of a stay order. At page (F.T.R. 145-146) 231, he stated :

The relief sought is, in essence, to have me reopen or reconsider the plaintiff’s application for interlocutory injunctive relief [18 C.P.R. (3d) 97]. It is obvious, of course, that that is the most extraordinary kind of disposition of any kind of matter adjudicated upon by the court It, of course, requires material in support which would have to be also of an extraordinary nature. It is quite likely that such an application might succeed in the face of factual evidence that indicates that the factual basis for the original disposition was substantially incorrect, not simply a matter of shade of meaning or degree. It would have to be substantially different. The true facts would have to be shown to be so substantially different from the facts upon which the original disposition was made that it would be, in my opinion, extraordinary.

See also 746278 Ontario Ltd. v. Courtot (1989), 25 C.P.R. (3d) 367 (sub nom. 746278 Ontario Ltd. v. Courtot (No. 5)), 25 F.T.R. 281 (F.C.T.D.); White Consolidated Industries Inc. v. Beam of Canada Inc. (1990), 32 CPR (3d) 196 (F.C.T.D.); R.W. Blacktop Ltd. v. Artec Equipment Co. (1991), 35 CPR (3d) 254 (sub nom. Blacktop (R.W.) Ltd. v. Artec Equipment Co.), 44 F.T.R. 11 (F.C.T.D.).

The record before the Case Management Judge contained neither any such evidence nor, indeed, any evidence of a change of facts subsequent to November 26, 1993, no doubt because the Court’s jurisdiction to lift the stay under subsection 50(3) had not been expressly invoked or any notice given in advance of the hearing in either of the proceedings. The Judge’s decision, it appears, was based upon what he viewed as the procedural problems created by the different forms of the proceedings as originally brought - which incidentally were the same forms as existed on November 26, 1993 - and the injustice he saw as occurring to Her Majesty from the amendments and consolidation. There was in particular no evidence that the facts had changed since the making of the stay order of November 26, 1993. Despite this want of evidence, the Case Management Judge by partially lifting the stay of November 26, 1993, allowed the rights of the appellant as secured by that order to be substantially watered down as if by a side wind on a motion brought for entirely unrelated purposes. In our view he thereby exceeded his jurisdiction. We are not persuaded that this jurisdictional obstacle was waived or otherwise consented to or, even if consent could be inferred, it would not by itself confer the jurisdiction he purported to exercise.

The appeal will be allowed with one set of costs in any event of the cause in this appeal and the appeal in Court File No. A-666-95, together with all reasonable and necessary disbursements, and the order of the Trial Division, to the extent that it partially lifted the stay order of November 26, 1993, will be struck.

Appeal allowed.