R. v. Kerntopf, [1999] 2 CTC 292

Per curiam:

The appellant was convicted by a jury of four counts of fraud. The frauds involved misuse of research and development tax credits during the early 1980s. To further the scheme $1,672,992.00 in investment capital was subscribed. Upon conviction the appellant was sentenced to a global sentence of five years imprisonment.

Much of the trial was devoted to consideration of the legality of a succession of search and seizure initiatives by Revenue Canada investigators to build the case against the appellant. The case rested largely on seized documents. The trial featured an extended voir dire in which the efficacy of Revenue Canada searches and seizures (both under s. 231 of the Income Tax Act and s. 487 of the Criminal Code) was pursued. Issues such as randomness, privacy, bad faith and generic fairness, as well as exclusion were examined, all against the backdrop of s. 8 of the Canadian Charter of Rights and Freedoms. The trial judge, McMahon J., dismissed the appellant’s objections under extensive written reasons. Similar objections were renewed by Mr. Gottlieb in argument before us.

It is sufficient to say that we agree with McMahon J.’s reasoning and result and respectfully adopt his reasons as our own. Certainly no case for exclusion of the incriminating documents under s. 24(2) of the Charter can be made out. We attach McMahon J.’s reasons for his voir dire ruling as an addendum to this memorandum.

Mr. Gottlieb urges that the jury charge fell short of the demands outlined in À. v. W. (D.) (1991), 63 C.C.C. (3d) 397 (S.C.C.) and R. v. Chan (1993), 87 C.C.C. (3d) 25 (Alta. C.A.). We have reviewed the jury instructions as they touch the resolution of the credibility issue. There was no invitation to the jury to embark upon any erroneous weighing exercise between the evidence of the accused and that of the Crown. There was no objection taken on this point by senior counsel at trial. Concerns about it first emerged on this appeal. This is only a peripheral concern but it tells the Court something about what Mr. Gottlieb says was an “egregious” error, eroding, by itself, the trial convictions.

On Mr. Gottlieb’s submission that the Kienapple principle [R. v. Kienapple (1974), [1975] 1 S.C.R. 729 (S.C.C.)] undermines one or more of the four fraud convictions we agree with the Crown observation that the various counts involved relate to differing factual incidents. This being so the rule against multiple convictions for the same delict has no application.

The appeal from the convictions is dismissed. The appellant is remanded in custody to the sittings of the Sentence Appeal Panel commencing January 25, 1999.

Application dismissed; Appeals dismissed.

Addendum — Memorandum of Ruling on Voir Dire of McMahon J., C.Q.B.A. — dated 18 Sep 96

Action No. 9501-1365—CO

IN THE COURT OF QUEEN’S BENCH OF ALBERTA

JUDICIAL DISTRICT OF CALGARY

BETWEEN:

HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA v.

WALDEMAR BRUNO KERNTOPF

MEMORANDUM OF RULING ON A VOIR DIRE of The Honourable Mr. Justice T.F. McMAHON

This is an application by an accused within a voir dire challenging the constitutional validity of certain search warrants and seeking exclusion of the resulting evidence. The accused called no evidence. The Crown called one witness, Mr. Terry Harder, an investigator with Revenue Canada’s special investigation unit.

The accused faces 4 counts alleging offences contrary to s. 338(1 )(a) (now, s. 380) of the Criminal Code. He challenges four search warrants issued September 20, 1989 pursuant to s. 231.3 of the Income Tax Act and a fifth search warrant issued December 5, 1989 also pursuant to s. 231.3 of the Income Tax Act. The warrants were executed at the business premises of certain lawyers and accountants, as well as the personal residence of the accused. The warrant issued December 5, 1989 authorized the seizure of documents which had been voluntarily surrendered by the accused to Revenue Canada two months earlier. Counsel for the accused had notice of and attended upon that application. That warrant was executed at the offices of Revenue Canada.

On November 28, 1990 the Federal Court of Appeal rendered a decision in Baron v. R. (1990), 122 N.R. 47 (Fed. C.A.). That decision held that s. 231.3 of the Income Tax Act was of no force and effect as it was inconsistent with s. 8 of the Canadian Charter of Rights and Freedoms.

As a result of Baron (supra), a departmental decision was made to apply for a search warrant pursuant to s. 487 of the Criminal Code of Canada, to reseize the documents which remained in the department’s possession. That decision was, however, not taken until late in 1991 and the application was made February 26, 1992 in the Provincial Court of Alberta. Mr. Harder gave evidence that the delay was because the accused, after charges had been laid in April, 1991, had failed to appear in Provincial Court on May 27, June 5, July 3 and August 7, 1991. A warrant had issued for his arrest. Pending his appearance, the file became inactive. Though the accused had still not been apprehended, steps were taken in December, 1991 to prepare to apply for Criminal Code warrants. Notice of the application was sent by double registered mail to the accused and his wife at their last known residence. Mr. Harder gave evidence that he had information which led him to believe that the accused and his wife still resided there. The letters went undelivered and were eventually returned. The same letters went to the accused’s former counsel; his accountants, Deloitte Touche and a solicitor with whom he was associated.

There is no evidence that these letters were not received in the usual course. Nor is there any explanation from the accused or his wife as to why he was unable to take delivery of his letters; nor whether he received notice via any of the other recipients. Nor, is there any evidence that the accused made any demand for the return of the relevant seized documents before the issuance of the Criminal Code warrants.

The application was made and the warrants received on February 26, 1992 in Provincial Court and later executed. The file then returned to its inactive state until April, 1995.

The Baron decision was appealed to the Supreme Court of Canada and that court rendered its decision on January 21, 1993, Baron v. R. (1993), 78 C.C.C. (3d) 510 (S.C.C.). The Supreme Court of Canada confirmed that s. 231.3(3) of the Income Tax Act violated s. 8 of the Charter because it did not provide for a residual discretion in the judicial officer who issues the warrant.

As a result, Parliament amended s. 231.3(3) of the Income Tax Act. The amendment became effective June 15, 1994. While the section previously read “A Judge shall issue the warrant”, it now reads

A Judge may issue the warrant referred to in subsection I where the Judge is satisfied that there are reasonable grounds to believe that ...

In April, 1995, the accused surrendered himself. He was ordered to stand trial following a Preliminary Inquiry in October and November, 1995. The Crown determined, following the Preliminary Inquiry, that certain additional records which had been held by Revenue Canada might be relevant to the charges as framed. Accordingly, a second Criminal Code search warrant was obtained on February 22, 1996, this time upon clear notice to the accused and his counsel. The warrant was obtained in the Provincial Court of Alberta and was executed on February 27, 1996 at the offices of Revenue Canada.

Issues:

Both counsel say that the issue for consideration is whether the evidence obtained pursuant to the seizures should be ruled inadmissible in accordance with s. 24(2) of the Canadian Charter of Rights and Freedoms.

After hearing argument, however, I am satisfied that there ought to be consideration of a prior issue, that is whether the re-seizures pursuant to s. 487 of the Criminal Code were valid. The Crown concedes that as a result of the Baron decision, the initial seizures pursuant to s. 231.3(3) of the Income Tax Act were in violation of the accused’s rights guaranteed by s. 8 of the Canadian Charter of Rights and Freedoms.

Were the Re-Seizures under s. 487 of the Criminal Code Valid?

Defence counsel argues that there are no authorities which suggest that a reseizure under s. 487 renders valid an initial seizure which was constitutionally defective.

It is now settled law that warrants may issue pursuant to s. 487 of the Criminal Code in relation to any Federal statute, whether or not the statute in question also contains search and seizure provisions. In R. c. Multiform Manufacturing Co. (1990), 58 C.C.C. (3d) 257 (S.C.C.), Lamer, C.J.C. wrote at p. 262:

In 1985, the words ‘or any other act of Parliament’ were added to Paras. (a) and (b) of s. 443(1) [now s. 487] of the Code. On a plain reading, s. 443 would thus apply to proceedings under any Federal statute, regardless of whether or not the Statute in question also contains search and seizure provisions. The use of the word ‘any’ unambiguously shows that every single act of Parliament could fall within the ambit of these paragraphs.

Also, in À. v. Grant (1993), 84 C.C.C. (3d) 173 (S.C.C.) at 194 Sopinka, J. said:

Insofar as the offences alleged in the case at bar constitute offences under any act of Parliament and reasonable grounds are provided on oath, search warrants may issue pursuant to s. 487.

Finally, I would note that to interpret s. 487 of the Code and s. 12 of the NCA as overlapping is not to conclude that s. 12 is impliedly repealed by the amendment to s. 487. In fact, the two operate simultaneously and provide separate avenues through which police officers may seek prior authorization with regard to narcotic search and seizure operations. The choice of invocation is left to the police. They are, however, bound by the powers specified under whichever statutory framework they have chosen to apply for a search warrant.

There are authorities which expressly or impliedly approve of a re-seizure or second seizure even where the initial warrant was constitutionally defective. The Crown cites Grossman v. Canada (Attorney General) (October 10, 1991), Hannan J. (Que. S.C.), (unreported) where Hannan, J. considered the validity of the seizure pursuant to s. 487 of the Code after a seizure pursuant to s. 231.3 of the Income Tax Act had been made before the release of the Baron decision. At p. 11, he said:

As the Baron judgment casts doubt on the validity of the existing search and seizure in the present case, it does not appear that recourse to a second seizure, to replace an invalid seizure could be seen to be an exercise that constitutes abuse of process. That is the conclusion the justice of the peace came to, when, in full possession of the judgment in the Baron case, he concluded that he should authorize the issuance of new warrants. This was, respectfully, a proper exercise of his jurisdiction in the circumstances. The execution of a second seizure, (there was no real question of search) does not constitute a vexatious or oppressive proceeding which affronts the notion of fair play and decency in the effective prosecution of these cases.

The Crown also cites R. v. Zalischuk (June 25, 1992) Man. Q.B. (unreported). That case also dealt with a seizure pursuant to a warrant under s. 231.3 of the Income Tax Ac before the Baron decision and a later re-seizure pursuant to s. 487 of the Criminal Code. The Court agreed with the reasoning in Grossman (supra), and held that the procedure used by the Crown in retaining the documents and re-seizing pursuant to the Criminal Code was proper and reasonable. In both Grossman and Zalischuk, (supra) there was a delay of several months following the Baron decision and before an application for a Criminal Code warrant was made and during which time the seized material was not returned to its owners. In Zalischuk the Court merely observed that no application had been made in that period of time to quash the warrants and have the documents returned.

The Crown also cites Pollock v. Minister of National Revenue (March 12, 1991), Coo J. (Ont. Gen. Div.) (unreported) where an application to quash s. 231.3 warrants and directing the return of the documents to the owner was made before an application had been brought for re-seizure under s. 487. Coo, J. directed that the return of the documents be postponed for a period of time to permit application to be made for a warrant pursuant to s. 487.

The authorities cited are persuasive. I am satisfied that the warrants issued under s. 487 were properly obtained and the seizures thereunder were properly made.

Should the Evidence Obtained Pursuant to the Seizures in this Case be Ruled Inadmissible in Accordance with S. 24(2) of the Canadian Charter of Rights and Freedoms?

It is clear that the defence bears the onus of showing that the admission of this evidence could bring the administration of justice into disrepute. R. v. Harper, (1994) 92 C.C.C. (3d) 423 (S.C.C.)

Defence counsel argues that because the initial seizures were made in violation of s. 8 of the Charter, the re-seizure under s. 487 of the Code cannot cure that defect and the evidence remains tainted. Since the evidence obtained pursuant to the re-seizure is essentially the same as the evidence obtained pursuant to the defective seizure; and since the re-seizure was possi- ble only because the department had the documents in its possession from the original defective seizure, then, it is argued, the evidence should be excluded pursuant to s. 24(2) of the Charter. The defence relies upon R. v. Agopsowicz (1993), 112 Sask. R. 163 (Sask. Prov. Ct.). That case excluded evidence obtained pursuant to s. 231.3 of the Income Tax Act.

In considering whether exclusions should result pursuant to s. 24(2) of the Charter, the test is whether the admission of the evidence would bring the administration of justice into disrepute. Regard must be had to the factors set out in À. v. Collins (1987), 33 C.C.C. (3d) 1 (S.C.C.).

As framed in that decision, the relevant question is (at p. 18):

Would the admission of the evidence bring the administration of justice into disrepute in the eyes of the reasonable man, dispassionate and fully apprised of the circumstances of the case? The reasonable person is usually the average person in the community but only when that community’s current mood is reasonable.

Lamer, C.J.C. then described three groups of factors to be considered: 1. The effect that the admission of the evidence would have on the fairness of the trial, having reference to the nature of the evidence obtained and the nature of the right violated. Real evidence obtained which existed irrespective of the violation of the Charter would not render a trial unfair by its admission.

2. The seriousness of the Charter violation as that impacts on the disrepute which will or will not result from acceptance of the evidence. Good faith on the part of the officials is relevant; as is a decision that the action was wilful or flagrant or that the evidence could have been obtained lawfully.

3. Evidence should not be excluded if the effect of such exclusion would be to bring the administration of justice into further disrepute than would its admission.

1. As to the first factor, the evidence sought to be excluded here is documentary evidence and thus real evidence that existed irrespective of the Charter violation relating to the Income Tax Act seizure. In the ordinary case its admissibility would not render the trial unfair, particularly given that the documents belonged to and were created by or for the accused or his professional advisors.

2. The Charter violation resulted from the authorities proper reliance upon s. 231.3(3) of the Income Tax Act before receipt of the Baron decision. As said in À. v. Wiley (1993), 84 C.C.C. (3d) 161 (S.C.C.) at 173, the authorities:

Must act on the basis that the powers given to them by Parliament are constitutionally valid unless otherwise declared by the courts. They do not have to predict the outcome of an appeal.

There is no evidence suggesting anything other than good faith reliance. The authorities took the proper and reasonable step of re-seizing the documents pursuant to a s. 487 Criminal Code warrant after a reasonable attempt to give notice to the accused; and after receipt of the Baron decision.

The Crown properly cites À. v. Hazelwood (March 16, 1992), Hall J. (B.C. S.C.) (unreported) where Hall, J. said:

In this case, at the point in time, namely September 1987, when these warrants were sought and obtained, there was no suggestion extant that there might be a problem with the provisions of Section 231.3 of the Income Tax Act. It appears to me that this case is one where the investigators proceeded in good faith to obtain warrants. I have earlier dealt with the question of the disclosure made to the judge in the information to obtain, and I find that it was full and complete. The investigators conceived that they were acting entirely appropriately in getting warrants, and the law as it then stood did not suggest otherwise. I do not think that it could be said that to admit the evidence in the circumstances of this case would or could bring the administration of justice into disrepute, but the exclusion of the evidence would be likely to do so.

The accused here complains of the delay from the time of the Baron decision in the Federal Court of Appeal in late November, 1990 to the application for Criminal Code warrants on February 26, 1992. It is said that the Crown ought to have returned the documents or at the least, have obtained an order “impounding” them (to use defence counsel’s term) in the hands of a third party. To return the documents would surely have been unwise, particularly after charges had been laid in April of 1991. Nor could there be any obligation to seek an order unknown to the Criminal Code or the Income Tax Act. It is also relevant that for part of this time, the accused was a fugitive and that no demand had ever been made for the return of the documents. The Baron decision, meanwhile, was under appeal to the Supreme Court of Canada, which pronounced upon the case in January, 1993. There is no evidence of unacceptable activity or prosecutorial misconduct. On the contrary, the evidence indicates every reasonable step was taken to ensure fairness and to protect the administration of justice from disrepute.

The defence relies upon R. v. Peel Air Services Ltd. (1992), 92 D.T.C. 6553 (Ont. Gen. Div.). In Peel Air Services Ltd., (supra) the Crown had twice applied for Criminal Code warrants to re-seize documents originally seized under the Income Tax Act. The applications were refused both times. Nevertheless, the Crown retained the documents and sought to admit them into evidence.

The Court described the seized documents as “the continuing fruit of an unreasonable search and seizure”. Admitting the evidence was said to amount to “judicial condonation of unacceptable action or inaction by prosecutorial agencies”. None of that, in my view, exists here.

Here, the Crown on the facts as I find them in this case, proceeded reasonably and without undue delay to re-seize under s. 487.

In these circumstances, the violation cannot be described as so serious as to bring the administration of justice into disrepute should the evidence be admitted.

3. On the other hand, if the evidence is excluded, the effect of such exclusion in the circumstances of this case would likely bring the administration of justice into further disrepute. The charges are serious and the evidence obtained pursuant to the warrant is relevant. The authorities had the responsibility and the duty to enforce the provisions of the Income Tax Act and to seize and preserve evidence relevant to offences thereunder.

The defence relies upon Agopsowicz, (supra) where the trial judge appeared to minimize the seriousness of the charges of tax evasion as arising under “a revenue-raising statute”. With respect, I cannot agree. Tax evasion, or in this case now, fraud upon the Crown is an allegation of great seriousness, impacting upon the integrity of the lawful system government has devised to fairly share the cost of public services.

In my view, the exclusion of this evidence, which appears to be essential for the Crown to attempt to prove its case, would bring the administration of justice into disrepute.

In the result, the application to exclude the evidence obtained pursuant to all of the warrants in accordance with s. 24(2) of the Charter is dismissed.