Hellenic Import-Export Company Limited and Constantine Kourtessis v. Minister of National Revenue and Her Majesty the Queen in the Right of Canada, [1987] 1 CTC 281

Proudfoot, J.:—This matter comes before me by way of petition. The petitioners apply pursuant to section 231.3 of the Income Tax Act and pursuant to the court's inherent jurisdiction and section 24 of the Canadian Charter of Rights and Freedoms for orders quashing the warrants to enter and search and seize issued on October 22, 1986 and executed October 23, 1986. The petitioner further asks for the return of all books, documents, papers, records etc. seized on October 23, 1986 as well as any copies and extracts.

The petitioners’ arguments are primarily two-fold; firstly, that the information submitted in support of the application for warrants was based on misrepresentations and omissions of such significance that had the learned judge who granted the warrants been apprised of these misrepresentations and omissions, he would not have been satisfied that the information disclosed reasonable grounds for belief that offences under the Income Tax Act had been committed and would not have issued the warrants; secondly, that section 231.3 of the Income Tax Act is inconsistent with sections 7,8, and 15 of the Canadian Charter of Rights and Freedoms and therefore of no force and effect.

The facts are as follows. The petitioner, Hellenic Import-Export Co. Ltd., is a company duly incorporated under the laws of the Province of British Columbia with its place of business at 1625 Johnston Street, Granville Island, Vancouver, which business is known as “Dino’s of Granville Island". Docu- mentation filed would indicate that Constantine Kourtessis is the president of the company and he resides at 3496 W. 5th Avenue, Vancouver, British Columbia.

Material filed would indicate that C.D. MacKinnon, barrister and solicitor, had been representing Kourtessis with respect to dealings with the Minister of National Revenue since the spring of 1984. There is also evidence that the petitioner Kourtessis had attended on a voluntary basis at the office of the Minister of National Revenue when he was so requested to do. At these meetings (there were several over the course of three years) the petitioner volunteered infomation and supplied documentation as requested. such documents consisted of bank records, cash register slips, financial statements, etc. The MacKinnon affidavit filed October 27, 1986 contains the following paragraphs:

4. In September of 1986, I had a telephone conversation with Mr. J.A. Talbot, an officer of the Department of National Revenue, and asked him whether any further documentation was required and I was expressly informed that it was not.

5. The execution of these warrants on Mr. Kourtessis and his place of business came as a complete surprise to me.

The material filed by the representative of the Minister of National Revenue, the affidavit of James Arthur Talbot filed November 25,1986 after the seizure, confirms the content of the telephone conversation with MacKinnon. Reference is made to paragraph 5 of his affidavit:

5. I have in my possession a handwritten memorandum of the conversation referred to in paragraph 4 of this my Affidavit, a copy of which is attached as Exhibit “A”. The memorandum was made by me immediately after this conversation and is reasonably accurate as to the exact words used by myself and Mr. MacKinnon. The memorandum indicates that “Mr. MacKinnon asked if there was anything else that he could supply to me that would assist me in my review of the affairs of Kourtessis” and “1 advised MacKinnon that I couldn’t think of anything unless he had more submissions to make, further to our last meeting”. A typed transcript of this conversation is attached as Exhibit “B”.

What next occured is that the records which the Ministry had in their possession were returned to the petitioner at 8:25 a.m. on October 22, 1986. That same day an application was made to Callaghan, J. for six warrants to search the home, business premises, a van, the accountant's office, etc. The warrants were executed, the search taking place on the morning of October 23, 1986.

Again, from the information filed the evidence seems to be that the Ministry had had the majority of documents relevant to the issues in their possession. It is also clear that they never asked for any others after that telephone call in September of 1986. There was also no evidence presented that the petitioner had requested the return of any of these documents. Neither is there any evidence before the court to indicate that the petitioner would not have co-operated further had he been asked to produce further documents. He had co-operated up to that point.

The respondent argues that the purpose of obtaining the search warrants was to enable the respondent to obtain legal possession of the records which was required for the prosecution of offences under section 239 of the Income Tax Act.

The issue is, were all these facts before Callaghan, J. when he issued the warrants? Counsel agreed that inasmuch as Callaghan, J. is not available that I am entitled to hear this application.

In examining the documentation filed at the time the application was made to Callaghan, J. it seems to me to be quite clear that he was not apprised as to what had transpired between the Department and the petitioner and his solicitors. That in itself, I suggest, was a serious flaw in the application for the warrant. In my opinion this was a serious non-disclosure to the judge who was asked to sign the warrants. Secondly, the Department had had in their possession virtually all the material needed, including the financial statements, bank records, cash register tapes and similar documentation. The only additional records that may have been available were in the form of working papers. These might well have been readily produced upon further request, had such a request been made.

Further, the argument that there was a need to seize, that is have legal possession, in the circumstances of this case is not necessarily convincing. The Department could easily have made copies of what they already had. Section 231.5 of the Income Tax Act provides for copying and the use to which these copies can be put. Section 231.5 reads as follows:

(1) Where any document is seized, inspected, examined or provided under sections 231.1 to 231.4, the person by whom it is seized, inspected or examined or to whom it is provided or any officer of the Department of National Revenue may make, or cause to be made, one or more copies thereof and any document purporting to be certified by the Minister or an authorized person to be a copy made pursuant to this section is evidence of the nature and content of the original document and has the same probative force as the original document would have if it had been proven in the ordinary way.

It would seem from the material filed that this latter aspect was also not before Callaghan, J. This again was a material non-disclosure. Paragraph 6 of the Talbot affidavit filed November 25, 1986 in actuality is not totally accurate. The Department had already had possession of the majority of the documents and no one was requesting their return. There was no need to obtain a warrant to seize what the Department already had had in their possession. I have already alluded to section 231.5, which deals with the use of copies. The petitioners’ argument that this really was a fishing expedition may have some merit. There are additional matters of a more minor nature which were not disclosed. However, there is no need to deal further with that aspect.

The failure to disclose the material facts referred to matters which were not of a trivial or technical nature to the judge who signed the warrant, and is in itself, fatal. Reference is made to R. v. Caron (1983), 31 C.R. (3d) 255 at 257-59, also Re Den Hoy Gin (1965), 47 C.R. 89, and Re A Search Warrant Shumiatcher v. A.G. for Saskatchewan (1960), 129 C.C.C. 270. Callaghan, J. clearly should have been told all the circumstances. He could then have exercised his discretion knowing all the material facts. It was not for the informant, for whatever reason, to make the decision as to what Callaghan, J. would be told.

Furthermore, I am compelled to conclude in the circumstances of this case, the Minister of National Revenue should have exhausted all the means available to them prior to taking this drastic step. See Pacific Press Ltd. v. The Queen et al., 37 C.C.C. (2d) 487; 38 C.R.N.S. 295. The Department surely could have accepted MacKinnon's offer when he asked if any further information was wanted by the Department. They had had co-operation up to that point, why not pursue that avenue to the fullest extent first. The Department left MacKinnon, the solicitor for Kourtessis, with the impression that they were satisfied at that point. MacKinnon could quite easily Associated Investors of Canada Ltd. v. The Queen

at that point expect them to come back and request further information if they wanted something else. This was a matter that had been on-going for three years with full co-operation on the part of the petitioner. There was no reason to believe further co-operation would not be forthcoming.

These matters should all have been put to Callaghan, J. They were of a material nature. The warrants are quashed on the basis of material non-disclosure on the part of the informant.

Counsel for the petitioner made a very comprehensive argument that the legislation, that is section 231.3 of the Income Tax Act was inconsistent with paragraphs 7, 8 and 15 of the Canadian Charter of Rights and Freedoms. I do not propose to deal with the validity or the inconsistency of the legislation. There is no need to. The warrants cannot survive in the circumstances of this case on the basis of the facts as presented. I am of the firm opinion that where matters can be dealt with, as they can in this case, without the necessity of resorting to the Canadian Charter of Rights and Freedoms, the courts should be cautious and slow to use that vehicle. Accordingly, I made no finding on the constitutionality or otherwise of the particular sections of the Income Tax Act. My decision is based on the facts as presented.

The warrants are quashed. The petitioners' application succeeds. Costs follow the event.

Petition granted.