A-549-76
Royal American Shows, Inc. (Applicant)
v.
His Honour Judge R. McClelland and the Minis
ter of National Revenue (Respondents)
Court of Appeal, Pratte, Urie and Le Dain JJ.—
Vancouver, November 30, 1976 and February 1,
1977.
Judicial review — Application to set aside order under s.
231(2) of Income Tax Act that documents seized be retained
by Minister until produced in Court — Whether documents
lawfully seized pursuant to s. 231(1)(d) — Whether Judge
acted ultra vires or erred in law in making order — Income
Tax Act, S.C. 1970-71-72, c. 63, ss. 231(1)(d) and 231(2) —
Federal Court Act, s. 28.
Documents and other property relating to the applicant's
business were seized by the Edmonton City Police and the
Royal Canadian Mounted Police pursuant to section 443 of the
Criminal Code on July 23, 1975, and taken to the Edmonton
Police Station where a special investigator from the Depart
ment of National Revenue was permitted to examine them. On
July 28, 1975, the applicant applied to the Supreme Court of
Alberta for a writ of certiorari to quash the search warrants
issued under the Criminal Code. On July 29, 1975, the inves
tigator for the Department of National Revenue purported to
seize the documents and other property at the police station
pursuant to section 231(1)(d) of the Income Tax Act. On
August 13, 1975, the search warrants issued under the Crimi
nal Code were quashed by the Supreme Court of Alberta and
on August 18, 1975, the applicant applied by way of originating
notice of motion to the Federal Court for an order prohibiting
the second respondent herein from keeping, using or copying
the material taken from the Edmonton Police Station and
requiring him to return it to the applicant. On November 18,
1975, the application was dismissed on the grounds that the
relief sought could only be obtained by an action and, further,
that the seizure made by the investigator for the Minister of
National Revenue was authorized by section 231(1)(d) of the
Income Tax Act. The applicant appealed this decision on
November 19, 1975. On November 20, 1975, the Minister of
National Revenue applied for a retention order pursuant to
section 231(2) of the Act and such an order was granted by the
first respondent herein. On May 26, 1976, the applicant's
appeal from the decision of the Trial Division of the Federal
Court was dismissed. The applicant now contends that the
validity of the retention order depends on the legality of the
seizure and argues that if a judge makes a retention order
pursuant to section 231(2) when the seizure was not authorized
by section 231(1)(d) he is acting beyond his jurisdiction or
otherwise errs in law so as to be subject to review under the
provisions of section 28 of the Federal Court Act.
Held, (Pratte J. dissenting): the application is allowed and
the retention order is set aside.
Per Pratte J. (dissenting): the Judge who made the retention
order had no jurisdiction to rule on the validity of the seizure
and therefore no duty to inquire into it. Even if the seizure was
irregular, it was made by a person purporting to act pursuant to
section 231(1)(d) and was not set aside by a court having
jurisdiction to rule on its validity. It was, therefore, made
pursuant to section 231(1) and that is sufficient basis for
making a retention order. Moreover, the seizure could legally
be made at the Edmonton Police Station since section 231(1)
merely indicates places where a right of entry can be exercised
but does not confine the power of seizure to those places.
Per Le Dain and Urie JJ.: it cannot have been intended that
the power to make a retention order exists without reference to
the basis on which the Minister is in possession of documents.
When the legality of the seizure is in issue, the material filed in
support of the application for a retention order must show that
the seizure was made pursuant to section 231(1)(d). The power
to seize can only be validly exercised pursuant to an entry and
audit authorized by section 231(1) and the Edmonton Police
Station was not the applicant's place of business or the place
where his books ought to have been kept under sections 230 or
231. Section 231(1) specifies places that may be entered for the
purposes of making an audit only. The material in support of
the application for a retention order did not show that the
seizure was made pursuant to section 231(1) and the Judge
therefore acted beyond his jurisdiction in making the order.
JUDICIAL review.
COUNSEL:
I. Pitfield for applicant.
S. Hardinge for respondents.
SOLICITORS:
Thorsteinsson, Mitchell, Little, O'Keefe &
Davidson, Vancouver, for applicant.
Deputy Attorney General of Canada for
respondents.
The following are the reasons for judgment
rendered in English by
PRATTE J. (dissenting): This section 28 applica
tion is directed against a decision of a Judge under
section 231(2) of the Income Tax Act'.
' Subsections 231(1) and (2) of the Income Tax Act (S.C.
1970-71-72, c. 63) read as follows:
231. (1) Any person thereunto authorized by the Minis
ter, for any purpose related to the administration or enforce
ment of this Act, may, at all reasonable times, enter into any
premises or place where any business is carried on or any
(Continued on next page)
The applicant was suspected of having violated
the Income Tax Act. Purporting to act under
section 231(1), a person authorized by the Minis
ter seized documents and records belonging to the
applicant. It was thought that an examination of
those papers, which were then in the hands of the
Edmonton Municipal Police following a seizure
made under the Criminal Code, would show con-
(Continued from previous page)
property is kept or anything is done in connection with any
business or any books or records are or should be kept, and
(a) audit or examine the books and records and any
account, voucher, letter, telegram or other document
which relates or may relate to the information that is or
should be in the books or records or the amount of tax
payable under this Act,
(b) examine property described by an inventory or any
property, process or matter an examination of which may,
in his opinion, assist him in determining the accuracy of an
inventory or in ascertaining the information that is or
should be in the books or records or the amount of any tax
payable under this Act,
(c) require the owner or manager of the property or
business and any other person on the premises or place to
give him all reasonable assistance with his audit or exami
nation and to answer all proper questions relating to the
audit or examination either orally or, if he so requires, in
writing, on oath or by statutory declaration and, for that
purpose, require the owner or manager to attend at the
premises or place with him, and
(d) if, during the course of an audit or examination, it
appears to him that there has been a violation of this Act
or a regulation, seize and take away any of the documents,
books, records, papers or things that may be required as
evidence as to the violation of any provision of this Act or
a regulation.
(2) The Minister shall,
(a) within 120 days from the date of seizure of any
documents, books, records, papers or things pursuant to
paragraph (1) (d), or
(b) if within that time an application is made under this
subsection that is, after the expiration of that time, reject
ed, then forthwith upon the disposition of the application,
return the documents, books, records, papers or things to the
person from whom they were seized unless a judge of a
superior court or county court, on application made by or on
behalf of the Minister, supported by evidence on oath estab
lishing that the Minister has reasonable and probable
grounds to believe that there has been a violation of this Act
or a regulation and that the seized documents, books,
records, papers or things are or may be required as evidence
in relation thereto, orders that they be retained by the
Minister until they are produced in any court proceedings,
which order the judge is hereby empowered to give on ex
parte application.
clusively the guilt of the applicant. Under section
231(2) that new seizure was good only for 120
days; at the expiry of that period the Minister was
obliged to return the objects seized unless he had
obtained from a judge an order that they be
retained until their production in Court. Within
the prescribed time, the Minister applied for and
obtained such an order, the validity of which is
now in issue.
The applicant contends that the "retention"
order is invalid because the documents and things
in respect of which it was made had not been
validly seized under section 231(1). According to
the applicant, a seizure, under section 231(1),
cannot be made elsewhere than at the taxpayer's
place of business and it cannot be made, either,
when the objects to be seized have already been
seized under the Criminal Code; in that view, the
seizure was tainted with two irregularities and
should be considered to be invalid. The applicant
submits that had the Judge inquired into the valid
ity of the seizure, he would have found it to be
invalid. The Judge, according to the applicant,
erred in law in failing to inquire into the validity of
the seizure and, in any event, he exceeded his
jurisdiction when he pronounced the retention
order since section 231(2) did not empower him to
make such an order in respect of property that had
not been validly seized under section 231(1).
In my view, the Judge who made the retention
order clearly had no jurisdiction to rule on the
validity of the seizure that had been made under
section 231(1) and, for that reason, had no o duty to
inquire into that matter.
I am also of opinion that the Judge did not
exceed his jurisdiction when he made the order
under attack. In my view, at the time the applica
tion for that order was made, it could be said that
the property of the applicant had been seized
pursuant to section 231(1) even if it is assumed
that that seizure had been made irregularly. The
seizure had clearly been made by a person pur
porting to act under section 231(1) and, as a result
of that seizure, the Minister had acquired posses
sion of the seized property. In those circumstances,
the seizure, which had not been set aside by a
court having jurisdiction to rule on its validity,
was, in my view, a seizure made pursuant to
section 231(1) and, as such, a sufficient basis for
the jurisdiction of the Judge to make the retention
order.
Moreover, I consider that the seizure could
legally be made at the Edmonton City Police
Station. In my view, if section 231(1) indicates the
places where the right of entry can be exercised, it
does not circumscribe the power of seizure to those
places.
For these reasons, I would dismiss the
application.
* * *
The following are the reasons for judgment
rendered in English by
LE DAIN J.: This is an application under section
28 of the Federal Court Act to review and set
aside an order under section 231(2) of the Income
Tax Act, S.C. 1970-71-72, c. 63, that certain
documents, books, records, papers, or things that
had purportedly been seized pursuant to section
231(1)(d) thereof be retained by the Minister of
National Revenue until produced in court proceed
ings.
The applicant contends that the Judge who
made the retention order acted beyond his jurisdic
tion or otherwise erred in law because the seizure
by which the Minister was in possession of the
documents, books, records, papers, or things was
not one that was authorized by the terms of section
231(1)(d) of the Act.
Subsections (1) and (2) of section 231 of the
Act read as follows:
231. (1) Any person thereunto authorized by the Minister,
for any purpose related to the administration or enforcement of
this Act, may, at all reasonable times, enter into any premises
or place where any business is carried on or any property is
kept or anything is done in connection with any business or any
books or records are or should be kept, and
(a) audit or examine the books and records and any account,
voucher, letter, telegram or other document which relates or
may relate to the information that is or should be in the
books or records or the amount of tax payable under this
Act,
(b) examine property described by an inventory or any prop
erty, process or matter an examination of which may, in his
opinion, assist him in determining the accuracy of an inven
tory or in ascertaining the information that is or should be in
the books or records or the amount of any tax payable under
this Act,
(e) require the owner or manager of the property or business
and any other person on the premises or place to give him all
reasonable assistance with his audit or examination and to
answer all proper questions relating to the audit or examina
tion either orally or, if he so requires, in writing, on oath or
by statutory declaration and, for that purpose, require the
owner or manager to attend at the premises or place with
him, and
(d) if, during the course of an audit or examination, it
appears to him that there has been a violation of this Act or a
regulation, seize and take away any of the documents, books,
records, papers or things that may be required as evidence as
to the violation of any provision of this Act or a regulation.
(2) The Minister shall,
(a) within 120 days from the date of seizure of any docu
ments, books, records, papers or things pursuant to para
graph (1)(d), or
(b) if within that time an application is made under this
subsection that is, after the expiration of that time, rejected,
then forthwith upon the disposition of the application,
return the documents, books, records, papers or things to the
person from whom they were seized unless a judge of a superior
court or county court, on application made by or on behalf of
the Minister, supported by evidence on oath establishing that
the Minister has reasonable and probable grounds to believe
that there has been a violation of this Act or a regulation and
that the seized documents, books, records, papers or things are
or may be required as evidence in relation thereto, orders that
they be retained by the Minister until they are produced in any
court proceedings, which order the judge is hereby empowered
to give on ex parte application.
The applicant was incorporated in the state of
Florida and carries on business as a midway and
carnival operator in the United States and in the
Provinces of Manitoba, Saskatchewan and Alber-
ta. During the summer of 1975, while the appli
cant was operating in Canada, the Royal Canadi-
an Mounted Police and the Edmonton City Police
were conducting an investigation into the affairs of
the applicant and its concessionnaires with respect
to possible violations of the Criminal Code of
Canada, and the Department of National Revenue
was conducting an investigation into the affairs of
the applicant with respect to possible liability
under the Income Tax Act. The Department's
investigation was being conducted by Edmund M.
Swartzack, an auditor and special investigator,
who was authorized by the Deputy Minister of
National Revenue for Taxation to exercise the
powers conferred by section 231(1) of the Act. In
the course of his investigation Swartzack was in
contact with officers of the Royal Canadian
Mounted Police and the Edmonton City Police.
The degree of consultation and cooperation be
tween them is not clear, but it appears that there
was an understanding that if the police came upon
anything suggestive of tax evasion they would
inform Swartzack. At one point he was permitted
by the police to listen to a tape recording of a
private communication, and he was present during
a discussion in which it was decided to obtain
search warrants.
On July 23, 1975, on informations sworn by
Inspector E. Hahn of the Edmonton City Police
search warrants were obtained under section 443
of the Criminal Code authorizing search at the
Edmonton Exhibition Grounds and other specified
places for documents and other property affording
evidence of "conspiracy to defraud the Govern
ment of Canada by destroying, mutilating, alter
ing, falsifying, or making false entries in a book,
paper, writing, valuable security or document con
trary to the Criminal Code of Canada". At or
about midnight on July 24, 1975 officers of the
Edmonton City Police and the Royal Canadian
Mounted Police entered and searched the office
premises of the applicant at the Edmonton Exhibi
tion Grounds and seized documents and other
property found therein. Swartzack accompanied
the police when they carried out the search and
seizure.
From July 25, 1975 to July 28, 1975, the
Edmonton City Police made the documents and
other property which had been seized available for
inspection by Swartzack, and during this period
Swartzack and persons working under his direction
carried out at the Edmonton Police Station what
purported to be an audit and examination pursu
ant to section 231(1) (a) of the Income Tax Act.
On July 28, 1975, the applicant applied to the
Supreme Court of Alberta for certiorari to quash
the search warrants that had been obtained under
the provisions of the Criminal Code. The warrants
were quashed by judgment of Cavanagh J. on
August 13, 1975. He held that the informations
did not disclose sufficient grounds to justify the
issue of the warrants and, further, that the warrant
directing a search of the Edmonton Exhibition
Grounds was too broad in its terms. The judgment
of Cavanagh J. was appealed, but this Court was
not informed of the present status or outcome of
the appeal.
On July 29, 1975, Swartzack made what pur
ported to be a seizure of the documents and other
property at the Edmonton City Police Station
pursuant to section 231(1) (d) of the Income Tax
Act. The documents were set aside in a room to
which Swartzack alone had the key, were later
removed to the Divisional Headquarters of the
Royal Canadian Mounted Police in Edmonton,
and were finally conveyed to the District Office of
the Department of National Revenue in Regina.
As a result of the examination of the books,
records, accounts, vouchers and other documents
seized, assessments were made against the appli
cant in respect of the taxation years 1974, 1975
and 1976 in a total amount of $730,219.52, and a
writ of fieri facias was executed against the prop
erty of the applicant in Regina and Winnipeg.
Charges were also laid under the Criminal Code
and the Income Tax Act against officers of the
applicant and other persons connected with the
applicant as employees or concessionnaires.
On August 18, 1975 the applicant applied by
way of originating notice of motion to the Trial
Division against the Minister of National Revenue
as respondent for the following relief with respect
to the seizure of its property:
... for an order prohibiting the Respondent, and any officer of
the Department of National Revenue acting on his behalf, from
perusing, reviewing or copying any and all of the property
seized from the premises of the Applicant at Edmonton, Alber-
ta, and thereafter seized from the premises of the Edmonton
City Police; and for an order of certiorari in respect of such
seizure or seizures; and for an order declaring the said seizure
or seizures to be wrongful and unlawful, and for an order
requiring the Respondent to deliver all such property so seized
from the premises of the Applicant, and all copies which may
have been made thereof, to the Applicant forthwith.
On November 18, 1975 this application was
dismissed by the Trial Division. The Court held
that the declaratory relief and the order to deliver
the property to the applicant could only be
obtained by an action and, further, that the seizure
made by Swartzack at the Edmonton Police Sta
tion on July 29, 1975 was a seizure authorized by
section 231(1) (d) of the Income Tax Act. The
following passages are from the Court's reasons:
I am not able to accept the argument of applicant's counsel
that because said audit or examination was not being conducted
in applicant's place of business or where anything was being
done in connection with applicant's business, that said examina
tion and resultant seizure was outside the authority of Sec.
231(1)(d).
In my view, Sec. 231(1)(d) authorizes the audit, examina
tion, and seizure of a taxpayer's "documents, books, records,
papers or things" wherever they may be and for said purpose,
authorizes entry "into any premises or place" ... "where ...
any property is kept."
... I think that Mr. Swartzack had the power to seize said
property under the authority of Sec. 231(1)(d), no matter
where it might be in this country, and no matter how it arrived
at the location where it was when he seized it.
On November 19, 1975 the applicant appealed
to this Court from the order of the Trial Division.
On November 20, 1975, application was made
on behalf of the Minister of National Revenue for
a retention order pursuant to section 231(2) of the
Income Tax Act in the following terms:
ON BEHALF of the Minister of National Revenue I, Laurence
Edwin Mann, Director of the Regina District Office of the
Department of National Revenue hereby apply for an order
that the documents, books, records, papers or things seized on
the twenty-ninth day of July, 1975, under the authority of the
provisions of paragraph 231(d) of the Income Tax Act from
the:
Edmonton City Police
at 4 Sir Winston Churchill Square
Edmonton, Alberta
be retained by the Minister of National Revenue until they are
produced in any court proceedings.
IN SUPPORT of this Application, I produce the Affidavit of
Orville T. Dahl sworn the 20th day of November, 1975, which
in my opinion establishes that the Minister of National Reve
nue has reasonable and probable grounds to believe that there
has been a violation of the Income Tax Act or a Regulation
thereto and that the seized documents, books, records, papers
or things are or may be required in relation to proceedings
against Royal American Shows, Inc., Tampa, Florida, United
States of America.
Dahl's affidavit included the following para
graph:
11. As a result of my enquiries I know that documents,
books, records, papers and things were seized from the Edmon-
ton City Police at 4 Sir Winston Churchill Square, Edmonton,
Alberta on July 29, 1975, pursuant to paragraph 231(1)(d) of
the Income Tax Act.
On November 20, 1975, upon the foregoing
application, His Honour Judge McClelland made
an order in the following terms:
I HEREBY ORDER THAT the documents, books, records,
papers or things referred to in the above application made on
behalf of the Minister of National Revenue be retained by him
until they are produced in any court proceedings.
On May 26, 1976, the appeal from the order of
the Trial Division made on November 18, 1975
was dismissed by this Court on the ground that the
question had become academic.
The concept of jurisdiction can be a difficult and
elusive one as a measure of the ambit and condi
tions precedent of statutory authority, but it is the
one that must be applied in view of the terms of
section 28 of the Federal Court Act. In the present
case the applicant contends, in general terms, that
the validity of the retention order depends on the
legality of the seizure. In attempting to place this
contention within the scope of review contemplat
ed by section 28 the applicant argues that if a
judge makes a retention order pursuant to section
231(2) in a case in which there has not been a
seizure authorized by section 231(1)(d) he acts
beyond his jurisdiction or otherwise errs in law. It
is this proposition that must now be considered.
In my opinion this issue can only be framed in
terms of jurisdiction. If it is not a jurisdictional
question it is nothing upon which a section 28
application can be based. I cannot see that there is
any question of error of law within jurisdiction.
The question, as I see it, is the extent to which a
seizure pursuant to section 231(1)(d) should be
held to be a condition precedent to the exercise of
the authority conferred by section 231(2). The
answer to this question turns, of course, on a
consideration of the terms of subsections (1) and
(2) of section 231, which have been set out above.
On a reading of these subsections it appears to
me to be obvious that it cannot have been intended
that the power to make a retention order exists
without reference to the basis on which the Minis
ter has come into possession of the property; other
wise, its effect could be to give legal validity to the
retention by the Minister of property which has
come into his possession by means not authorized
by law. The retention order is, in effect, a prolon
gation of the consequences of the seizure. Section
231(2) as a whole is concerned with the length of
time for which property may be retained pursuant
to a seizure under section 231(1)(d). It limits the
time to 120 days unless the Minister obtains an
order authorizing him to retain the property until
it is produced in court proceedings. The words
"seizure" and "seized" in the subsection confirm
what in my view would have to be necessarily
implied, for the reasons indicated above—that it is
property that has been seized pursuant to section
231(1)(d) that a judge is empowered to make the
object of a retention order.
This view of the matter, assuming it to be
correct, does not, however, necessarily dispose of
the issue before us. Can a judge be said to lack
authority to proceed to make a retention order if,
on the material that is placed before him, there
purports to have been a seizure pursuant to section
231(1)(d) and the legality of that seizure has not
been successfully challenged before the judge
makes the retention order?
In the present case it was clear on the face of
the application for a retention order and the
affidavit in support thereof that the seizure had
been made in the hands of the Edmonton City
Police at what, from the address indicated, could
presumably be ascertained to be the Edmonton
City Police Station. Whether on such material the
Judge who made the retention order had a suffi
cient basis for assuming that there had been a
lawful seizure pursuant to section 231(1)(d) is, as
I see it, the issue. Was there such material before
the Judge that he could reasonably conclude that
the Edmonton City Police Station was a place
where an authorized person was empowered by
section 231(1) to enter, audit or examine and
seize? If the material did not permit such a conclu
sion then, in my opinion, he did not have authority
to proceed to make a retention order. It must be
sufficient on an application for a retention order if
the material in support thereof shows what pur
ports to have been a seizure pursuant to section
231(1)(d), but when the very issue as to the
legality of the seizure appears on the face of the
application the sufficiency of such material must
be subject to review.
I turn then to the question of whether a seizure
at the Edmonton City Police Station is one that
could be authorized by section 231(1)(d). In my
opinion section 231(1)(d) cannot be construed to
mean that an authorized person may seize and
take away any documents, books, records, papers
or things wherever and under whatever circum
stances he may find them. It is not an independent
and unqualified power of seizure. The object of
section 231(1) is to permit a person authorized by
the Minister to enter certain places for the purpose
of making an audit or examination. If in the course
of such audit or examination it appears to him that
there has been a violation of the Act or regulations
he may seize and take away any documents, books,
records, papers or things that may be required as
evidence of such violation. It is a power of seizure
that arises in certain defined circumstances. It is
related to the power to enter for the purpose of
audit or examination and is necessarily limited in
its potential scope by that power. The power to
seize can only be validly exercised if it is exercised
pursuant to an entry and audit or cxamination
authorized by section 231(1)(a).
The Edmonton City Police Station is obviously
not a place where any business is carried on or
anything is done in connection with any business
within the meaning of section 231(1). Nor do I
think that it can be said, in respect of the things
seized in this case, to be a place where books or
records are or should be kept within the meaning
of the section. The sense in which the word "kept"
is used must be that which is indicated in section
230 of the Act, which imposes the obligation to
"keep" records and books of account. It must refer
to the place where such books or records are kept
or should be kept by the person required to keep
them according to section 230. It is necessary then
to consider whether the Edmonton City Police
Station can be said to be a "place where . .. any
property is kept" within the meaning of section
231(1). On the English version of the section I
might be disposed to read these words as qualified
by the words "in connection with any business",
but the French version of the section excludes that
construction. Nevertheless, in the context of sec
tion 231(1) read as a whole, I do not think that the
word "property" can be taken in its broadest sense.
It would not appear to be intended to cover books
or records, which are separately provided for. A
comparison of the terms of paragraphs (a) and (b)
of section 231(1), moreover, suggests that "proper-
ty" is used in the section in a sense other than that
of "books and records and any account, voucher,
letter, telegram or other document". It is my
conclusion from the terms of paragraph (b) that
"property" is used in the sense of physical assets,
by an examination of which the accuracy of an
inventory or other information in books or records
may be ascertained, or tax liability may be other
wise determined, but not the material which forms
part of a company's or individual's records—in
other words, not documentary material. The places
specified for entry in section 231(1) are specified
with audit or examination in view. In this respect
section 231(1) is to be contrasted with section
231(4), which confers a power of entry for pur
poses of search.
The fact, as recited in the application for a
retention order and the supporting affidavit, that
"documents, books, records, papers or things"
were seized at the Edmonton City Police Station is
not a sufficient indication that this was a place at
which property was kept within the meaning of
section 231(1). In view of the place at which the
seizure was made there was not in my opinion
sufficient material before the Judge who made the
retention order to indicate that there had been
what he could assume to have been a lawful
seizure pursuant to section 231(1)(d). I therefore
conclude that the Judge acted beyond his jurisdic
tion in making the retention order. In view of this
conclusion it is unnecessary for me to consider
whether a lawful seizure can be made pursuant to
section 231(1) of the Income Tax Act of property
that is held pursuant to a seizure under the provi
sions of the Criminal Code. For these reasons I
would allow the section 28 application and set
aside the retention order.
* * *
URIE J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.