T-70-85
F. K. Clayton Group Limited and Frederick Keith
Clayton (Applicants)
v.
Minister of National Revenue, Canada and James
Bagnall, Director-Taxation of the London District
Tax Office of the Department of National Reve
nue, Taxation, (as at April 17, 1984) and R. O.
Bailey, Special Investigator under the Income Tax
Act, and Attorney General for Canada (Respon-
dents)
INDEXED AS: F. K. CLAYTON GROUP LTD. V. CANADA
(M.N.R.)
Trial Division, Walsh J.—Toronto, March 18;
Ottawa, March 27, 1986.
Constitutional law — Charter of Rights — Criminal process
— Search or seizure — Seizure and retention of documents
under Income Tax Act s. 231(1)(d) and 231(2) — Whether
contrary to Charter s. 8 — Whether Charter s. 24(1) requiring
order for return of documents to owner — Canadian Charter
of Rights and Freedoms, being Part I of the Constitution Act,
1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), ss. 8,
24(1),(2) — Income Tax Act, S.C. 1970-71-72, c. 63, ss.
231(1)(d),(2),(4),(9), 239 — Combines Investigation Act, R.S.C.
1970, c. C-23, s. 10(1),(3) — Narcotic Control Act, R.S.C.
1970, c. N-1, s. 10(1)(a).
Income tax — Seizures — Seizure and retention of docu
ments pursuant to Act s. 231(1)(d) and 231(2) — Both provi
sions contrary to Charter s. 8 — Criteria for order for return
of documents to owner — Income Tax Act, S.C. 1970-71-72,
c. 63, ss. 231(1)(d),(2),(4),(9), 239 — Canadian Charter of
Rights and Freedoms, being Part I of the Constitution Act,
1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), s. 8.
Judicial review — Prerogative writs — Certiorari — Income
tax — Seizure of documents pursuant to Act s. 231(1)(d) —
Retention of documents pursuant to County Court Judge's
order under Act s. 231(2) pending criminal proceedings —
Application to quash: a) seizure, b) application pursuant to
which retention order issued — Act s. 231(1)(d) and 231(2)
contrary to Charter s. 8 — Attack against retention not
collateral attack against County Court Judge's order as attack
not directed against order but against right to seek retention
order — As seizure not unreasonable and as Charter s. 24(1)
not necessarily requiring order for return of documents to
owner, documents, even if illegally obtained, may be retained
until termination of criminal proceedings — Federal Court
Act, R.S.C. 1970 (2nd Supp.), c. 10, ss. 18, 28 — Income Tax
Act, S.C. 1970-71-72, c. 63, s. 231(1)(d),(2) — Canadian
Charter of Rights and Freedoms, being Part I of the Constitu-
Lion Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11
(U.K.), ss. 8, 24(1).
In the course of a tax audit, a taxation officer discovered a
probable violation of section 239 of the Income Tax Act and
seized various documents, books and records pursuant to para
graph 231(1)(d) of the Act. Upon an application pursuant to
subsection 231(2) of the Act, a County Court Judge issued an
order authorizing the Minister to retain the documents until
their production in criminal proceedings.
The applicants move for an order pursuant to section 18 of
the Federal Court Act and section 24 of the Charter to quash
the seizure and the application for the retention order. They
argue that paragraph 231(1)(d) and subsection 231(2) of the
Act both violate section 8 of the Charter and that the seizure
and the application are therefore null and void. They further
argue that the search, seizure, removal and possession of the
documents is unreasonable, illegal, irregular, null and void. An
order for the return of the documents is also sought.
Held, paragraph 231(1)(d) and subsection 231(2) of the Act
are contrary to section 8 of the Charter but the documents can
be retained until the termination of the criminal proceedings.
On the facts, no fault can be found in the conduct of the
taxation officer who ordered the seizure nor in relying on
paragraph 231(1)(d) to make it. It should be noted that at that
time, none of the cases (Kruger, Vespoli, Southam) where
search or seizure provisions of statutes were struck down as
contrary to section 8 of the Charter had been decided. The real
issue is whether paragraph 231(1)(d) infringes the Constitution
Act and hence renders the seizure invalid. On the basis of the
majority decision of the Federal Court of Appeal in Kruger and
Vespoli—which struck down subsection 231(4)—and the com
prehensive and sweeping statements made by the Supreme
Court of Canada in Southam, the inevitable conclusion is that
paragraph 231(1)(d) and subsection 231(2) are in the same
category as subsection 231(4) and are contrary to section 8 of
the Charter.
The attack against the application for a retention order does
not constitute a collateral attack by prerogative writ on the
order issued by the County Court Judge. It is not the order of
the County Court Judge itself which is under attack but rather
the right pursuant to subsection 231(2) to seek such an order,
which right is itself dependent on the right to seize the docu
ments pursuant to paragraph 231(1)(d).
The main issue, however, is whether subsection 24(1) of the
Charter requires the return of the documents seized. That
provision requires consideration not merely of whether the
seizure is unconstitutional, but also of whether it was reason
able. As a question of fact, it would have been neither feasible
nor reasonable to delay taking possession of the documents; the
seizure was therefore reasonable. Given the criteria found in
the case law, the fact that the seizure was not unreasonable,
that subsection 24(1) of the Charter does not necessarily
require the return of illegally seized documents to their owner,
and that the law in Canada does not necessarily exclude from
consideration at trial illegally obtained evidence, the relevant
documents can be retained until the termination of the criminal
proceedings in which the respondents intend to use them. It
should be noted that if the documents were ordered returned at
this time, it might be difficult if not impossible for the Trial
Judge to obtain them to rule on their admissibility.
CASES JUDICIALLY CONSIDERED
APPLIED:
Hunter et al. v. Southam Inc., [1984] 2 S.C.R. 145; 84
DTC 6467; Minister of National Revenue v. Kruger Inc.,
[1984] 2 F.C. 535; 84 DTC 6478 (CA.); Vespoli, D. et
al. v. The Queen et al. (1984), 84 DTC 6489 (F.C.A.);
Lewis, G.B. v. M.N.R. et al. (1984), 84 DTC 6550
(F.C.T.D.); The Queen v. Dzagic, D. (1985), 85 DTC
5252 (Ont. H.C.); Dobney Foundry Ltd. v. A. G. Can.,
[1985] 3 W.W.R. 626 (B.C.C.A.); The Queen v. Rowbo-
tham, et al., judgment dated November 20, 1984, Ont.
S.C., Ewaschuk J., not yet reported.
DISTINGUISHED:
New Garden Restaurant and Tavern Limited et al. v.
M.N.R. (1983), 83 DTC 5338 (Ont. H.C.); The Queen v.
Roth, R.A. et al. (1984), 84 DTC 6181 (Ont. H.C.).
CONSIDERED:
Bertram S. Miller Ltd. v. The Queen, [1985] 1 F.C. 72
(T.D.); R. v. Rao (1984), 46 O.R. (2d) 80 (C.A.); Re
Belgoma Transportation Ltd. and Director of Employ
ment Standards (1985), 51 O.R. (2d) 509 (C.A.); Skis
Rossignol Canada Ltée/Ltd. v. , Hunter, [1985] 1 F.C.
162; 15 C.R.R. 184 (T.D.); Lagiorgia v. The Queen,
[1985] 1 F.C. 438; 85 DTC 5554 (T.D.); R. v. Jagodic et
al. (1985), 15 C.R.R. 146 (N.S.S.C.); Re Chapman and
The Queen (1984), 46 O.R. (2d) 65 (C.A.); R. v. Came-
ron (1984), 13 C.R.R. 13 (B.C.C.A.); R. v. Noble
(1984), 48 O.R. (2d) 643 (C.A.).
REFERRED TO:
Katz v. United States, 389 U.S. 347 (1967); R. v. Mar-
coux, R. and C. (1985), 85 DTC 5453 (Alta. Prov. Ct.);
The Queen and Stickney, judgment dated January 22,
1985, Alberta, McNaughton J., not yet reported; Minis
ter of National Revenue v. Coopers and Lybrand, [1979]
1 S.C.R. 495; (1978), 78 DTC 6528; Wilson v. The
Queen, [1983] 2 S.C.R. 594; 9 C.C.C. (3d) 97.
COUNSEL:
J. A. Giffen, Q.C. for applicants.
Susan P. Lee for respondents.
SOLICITORS:
Giffen & Partners, London, Ontario, for
applicants.
Deputy Attorney General of Canada for
respondents.
The following are the reasons for order ren
dered in English by
WALSH J.: Applicants move for an order pursu
ant to section 18 of the Federal Court Act [R.S.C.
1970 (2nd Supp.), c. 10] and section 24 of the
Constitution Act, 1982 [Schedule B, Canada Act
1982, 1982, c. 11 (U.K.)]—
(a) quashing the seizure and taking away of the
documents by respondent, Mr. R. O. Bailey, on
December 22, 1983;
(b) quashing the application pursuant to subsec
tion 231(2) of the Income Tax Act [R.S.C. 1952,
c. 148 (as am. by S.C. 1970-71-72, c. 63, s. 1)],
dated April 17, 1984, signed by the respondent
James Bagnall for the retention of the documents
by the Minister of National Revenue until they are
produced in any court proceedings.
ON THE GROUNDS THAT:
(i) Paragraph 231(1)(d) and subsection 231(2) of
the Income Tax Act are inconsistent with section 8
of the Constitution Act, 1982 and of no force or
effect.
(ii) The said application is inconsistent with sec
tion 8 of the Constitution Act, 1982 and of no
force or effect.
(iii) The said application is illegal, irregular, null
and void.
(iv) The search, seizure, removal and possession of
the seized effects as executed by the respondents
and their representatives is unreasonable, illegal,
irregular, null and void.
Applicants also seek an order for the return of
the documents, as well as any copies and extracts
thereof seized and taken away on December 22,
1983, by the respondent R. O. Bailey and retained
pursuant to the application of respondent James
Bagnall dated April 17, 1984.
Sections of the Income Tax Act in effect at the
relevant times which bear on the matter may be
cited 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
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 asisstance 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.
(4) Where the Minister has reasonable and probable grounds
to believe that a violation of this Act or a regulation has been
committed or is likely to be committed, he may, with the
approval of a judge of a superior or county court, which
approval the judge is hereby empowered to give on ex parte
application, authorize in writing any officer of the Department
of National Revenue, together with such members of the Royal
Canadian Mounted Police or other peace officers as he calls on
to assist him and such other persons as may be named therein,
to enter and search, if necessary by force, any building, recep
tacle or place for documents, books, records, papers or things
that may afford evidence as to the violation of any provision of
this Act or a regulation and to seize and take away any such
documents, books, records, papers or things and retain them
until they are produced in any court proceedings.
(9) Where any book, record or other document has been
seized, examined or produced under this section, the person by
whom it is seized or examined or to whom it is produced or any
officer of the Department of National Revenue may make, or
cause to be made, one or more copies thereof and a document
purporting to be certified by the Minister or a person thereunto
authorized by the Minister to be a copy made pursuant to this
section is admissible in evidence and has the same probative
force as the original document would have if it had been proven
in the ordinary way.
It is not in dispute that during the course of a
tax audit of F. K. Clayton Group Limited by R. O.
Bailey, an officer of the Department of National
Revenue, pursuant to section 231 of the Income
Tax Act ledgers and other books and documents of
the company for the years 1977 to 1982 were
examined as well as the tax returns of F. K.
Clayton Group Limited and Frederick Keith Clay-
ton for the taxation years 1978 to 1982.
As a result of the investigation it was ascer
tained that a number of items were charged to the
company allegedly for personal purchases or work
done for or on behalf of F. K. Clayton or his
family, and when questioned about them on
December 21, 1983 by Mr. Bailey in the presence
of another officer of the Department, R. J.
Churchill, he allegedly made a number of admis
sions relating to these entries and payments.
Mr. Bailey states in an affidavit dated April 17,
1984 that as a result of this he had reasonable and
probable grounds to believe that a violation of
section 239 of the Income Tax Act had been
committed by the F. K. Clayton Group Limited
and its President Frederick Keith Clayton so in the
course of his enquiry he seized pursuant to para
graph 231(1) (d) of the Act various documents,
books, registers, records, papers and other things
related to their affairs relating to the 1978 to 1982
fiscal periods, the seizure being made on Decem-
ber 22, 1983, and that they may be required as
evidence in court proceedings relating to the viola
tions of the Income Tax Act cited in detail in his
affidavit. This affidavit was made in support of an
application pursuant to subsection 231(2) of the
Act, and led to an order by Judge Street of the
County Court of Middlesex where the seizure was
made, dated April 19, 1984, authorizing the Min
ister to retain the said documents until they are
produced in court proceedings.
In a second affidavit dated June 12, 1985, Mr.
Bailey states that his investigation had commenced
in June 1983 being referred to him by another
auditor in relation to what appeared to be expenses
claimed by the company which were not properly
deductible and which Mr. Clayton had not includ
ed in his personal returns. Inquiries were also
made from third parties. This led to the appoint
ment with Mr. Clayton on December 21. In this
affidavit he states that it appeared to him that
violations of section 239 of the Act had been
committed indicating a pattern of wilful conduct
aimed at misrepresenting the amount of taxes
payable and that books, records and other docu
mentation were required as evidence of the said
violations, and in the circumstances where the
taxpayer had been directly confronted with the
evidence of improperly deducted and misrepresent
ed expenses these records should be secured as
"they may not have been safe if left in possession
of the taxpayers". He then proceeded to seize
them, the inventory being produced, copy being
delivered to Mr. Clayton on January 16, 1984, at
which time with consent of Mr. Clayton he
obtained other banking records covering December
1982, adding these to the inventory which only
included bank records up to December 9, 1982.
These additional bank records were not seized and
have since been returned so nothing turns on this.
A series of charges were laid on August 16,
1985 not only against respondents herein but also
against Gary M. Ballas, the Clayton external
accountant. There is no corresponding application
by him before the Court with respect to any
documents seized belonging to him.
A summary of the list of charges laid indicates
that with one exception relating to the purchase of
a Betamex for $1710.93 on December 18, 1980, no
charges were laid for any of the alleged improperly
entered items for the years prior to 1980, all of the
charges relating to the 1981 and 1982 taxation
years. Although it does not appear in the record
the Court was advised by counsel that the trials
have been set down for April 21, 1986.
Relying on the cross-examination of Mr. Bailey
on his affidavits, applicants' counsel submits that
he should instead of taking possession of the docu
ments have obtained a search warrant under the
Criminal Code [R.S.C. 1970, c. C-34]. He had,
according to his evidence, come to a reasonable
belief that there had been violations of section 239
of the Income Tax Act. Paragraph 231(1)(d) does
not require the approval or authorization for a
warrant from a judge or justice of the peace,
unlike subsections 231(4) and 231(2) both of
which require judicial intervention. Subsection
231(4) has already been held to contravene section
8 of the Constitution Act, 1982 by the majority
judgment of the Federal Court of Appeal in Min
ister of National Revenue v. Kruger Inc., [ 1984] 2
F.C. 535; 84 DTC 6478 and the companion case of
Vespoli, D. et al. v. The Queen et al. (1984), 84
DTC 6489 (F.C.A.), both judgments being
received September 27, 1984, as well as in subse
quent cases, such as Lewis, G.B. v. M.N.R. et al.
(1984), 84 DTC 6550 (F.C.T.D.), and, while these
judgments were not appealed to the Supreme
Court, the case of Hunter et al. v. Southam Inc.,
[1984] 2 S.C.R. 145; 84 DTC 6467 although
dealing with subsections 10(1) and (3) of the
Combines Investigation Act [R.S.C. 1970, c.
C-23] rather than with section 231 of the Income
Tax Act applies the same principles. At page 152
S.C.R.; 6470 DTC for example the judgment
states:
... absent exeptional circumstances, the provisions of s. 443 of
the Criminal Code, which extends to investigations of Criminal
Code offences the procedural safeguards the common law
required for entries and searches for stolen goods, constitute the
minimal prerequisites for reasonable searches and seizures in
connection with the investigation of any criminal offence,
including possible violations of the Combines Investigation Act.
As in the present case it was not the conduct of
the appellants, but rather the legislation under
which they acted which was in issue. No complaint
has been made with respect to Mr. Bailey's
conduct.
At pages 160-161 S.C.R.; 6474 DTC Dickson J.
[as he then was], rendering the Southam judgment
states:
A requirement of prior authorization, usually in the form of
a valid warrant, has been a consistent prerequisite for a valid
search and seizure both at common law and under most
statutes. Such a requirement puts the onus on the state to
demonstrate the superiority of its interest to that of the
individual. As such it accords with the apparent intention of the
Charter to prefer, where feasible, the right of the individual to
be free from state interference to the interests of the state in
advancing its purposes through such interference.
I recognize that it may not be reasonable in every instance to
insist on prior authorization in order to validate governmental
intrusions upon individuals' expectations of privacy. Neverthe
less, where it is feasible to obtain prior authorization, I would
hold that such authorization is a precondition for a valid search
and seizure.
and again on the same page in reference to the
American case of Katz v. United States, 389 U.S.
347 (1967):
Nevertheless, I would in the present instance respectfully adopt
Stewart J.'s formulation as equally applicable to the concept of
"unreasonableness" under s. 8, and would require the party
seeking to justify a warrantless search to rebut this presumption
of unreasonableness.
The cross-examination of Mr. Bailey dealt with
the unreasonableness of his taking possession of
the documents pursuant to paragraph 231(1) (d) of
the Act. He pointed out that it would have been
quite difficult to have obtained a warrant on
December 22, although there were 5 or 6 county
court judges in the building next to the tax depart
ment in London and a number of justices of the
peace in the same building who could issue a
search warrant under the Criminal Code as he felt
that it would take some days to prepare the docu
ments for it. Having confronted the taxpayer he
felt that this put the care of the records in jeop
ardy. At page 57 of his examination he states:
The difficulty, what I'm trying to bring out here is that when
your [sic] faced with confronting a taxpayer, then the situation
is different than one where the taxpayer hasn't been confront
ed, and you can write an Affidavit and take it before a judge. I
viewed this as having confronted a taxpayer, making him aware
of the violations under the Income Tax Act, and that I couldn't,
in my view, afford to leave the records out of my control at that
point, because I thought that the violations were serious enough
that it may lead to a full-scale investigation and possible
charges under the Income Tax Act.
He therefore did not think it feasible to leave his
associate Mr. Churchill there while he went before
a judge to get a warrant. The documentation
prepared and submitted to Judge Street to obtain
the continued retention order pursuant to subsec
tion 231(2) tends to bear out the need for consid
erable preparation.
It must be borne in mind that the occasion was
not a search of the records of the applicants for
evidence of the commission of criminal offences
for which a search warrant was necessary, but
rather the continuation of an audit which had
earlier given some indication that offences under
the Income Tax Act may have occurred, which as
the audit progressed and incidents of allegedly
improper entries and invoices multiplied, tended to
confirm these suspicions until Mr. Bailey had a
reasonable belief that this was the case, and
advised Mr. Clayton that it was a serious matter
which might result in prosecution of criminal
charges. He then took possession of the records in
question pursuant to paragraph 231(1) (d).
It should be noted that at this date neither the
Kruger, Vespoli, or Southam judgments had been
rendered and Mr. Bailey had no reason to doubt
that the legality of his taking possession of the
documents pursuant to this section could be ques
tioned. Applicants' counsel does not dispute the
right of the Minister to make investigations pursu
ant to section 231 of the Act, but merely the right
to seize and retain documents pursuant to para
graph 231(1)(d). While an income tax investiga
tion may in some respects resemble a search in
most cases no search warrant is required. A dis
tinction must be drawn between an investigation in
carrying out an audit and the actual seizure of
records and documents.
Although Mr. Bailey's notes made in the first
week of January 1984 respecting what transpired
on December 22, 1983 are slightly different from
what he states in his affidavits and cross-examina
tion thereon I do not consider any differences to be
significant. In his memorandum he states:
Bailey then advised Clayton that because of the number of
similar items every year the situation called for a more thor
ough examination. At this time he produced his Ministerial
Authorization and showed Clayton subsection 231(1)(d) allow
ing for the seizure of books and records. Bailey told Clayton
that his records were being placed under seizure and they
would be held for 120 days while we investigated further. At
that point a decision would be made on their need for prosecu
tion evidence and if so a court order to retain them would be
obtained.
Neither do I attribute any serious significance to
the fact that Bailey already had in his car boxes
which he used to remove the records seized nor the
fact that some of the records seized from F. K.
Clayton Group Limited were the property of
Dianne Clayton (Mrs. F. K. Clayton) or of Mr.
Clayton, nor the fact that no charges were laid for
the 1977, 1978 or 1979 taxation years and only
one for 1980. While it is possible that more docu
ments were seized and retained than are now
necessary for the prosecution of the criminal
charges laid, the issue before the Court on this
motion is not the return of a few such apparently
unnecessary documents and records, but the return
of all the documents seized.
I conclude that on the facts no fault can be
found of Mr. Bailey's conduct nor of his having
made the seizure he did relying on paragraph
231(1) (d) of the Act. The real issue before the
Court is whether paragraph 231(1)(d) infringes
the Constitution Act and hence renders the seizure
invalid.
Reference was made to the case of Bertram S.
Miller Ltd. v. The Queen, [1985] 1 F.C. 72
(T.D.), in which Justice Dubé dealing with war-
rantless search by virtue of the provisions of the
Plant Quarantine Act [R.S.C. 1970, c. P-13] had
this to say at page 83:
I cannot conclude from the jurisprudence to date, as applied
to the facts of the case at bar, that the warrantless search
powers conferred by paragraph 6(1)(a) of the Plant Quaran-
tine Act are necessarily unreasonable and that they ineluctably
collide with section 8 of the Charter. There may be circum
stances of emergency where the obtention of a warrant would
be unfeasible. In my view, however, paragraph 6(1)(a) is
inoperative to the extent of its inconsistency with section 8,
such as in the present case where it has not been established
that the obtaining of such a warrant was unfeasible or even
impracticable.
Counsel informed the Court that this judgment
was appealed, the appeal having been heard by the
Court in January but that no judgment has as yet
been rendered. This again raises the factual issue
of whether it was unfeasible or even impracticable
to obtain a search warrant under the Criminal
Code in the circumstances of the present case.
Again it must be emphasized that no search as
such was necessary as provided for in subsection
(4) of section 231 which has been found to be
inoperative by the Kruger and other cases (supra).
In the Ontario High Court of Justice, the case
of The Queen v. Dzagic, D. (1985), 85 DTC 5252
dealt with documents received during the course of
an audit which led to subsequent charges against
the taxpayer of various income tax evasion
offences. It was found that paragraph 231(1) (d) of
the Income Tax Act was inconsistent with section
8 of the Canadian Charter of Rights and Free
doms [being Part I of the Constitution Act, 1982,
Schedule B, Canada Act 1982, 1982, c. 11
(U.K.)]. However, exclusion of the use of the
documents in evidence was not upheld, it being
found that the declaration of unconstitutionality is
not in itself sufficient to justify the exclusion of
relevant evidence. Other compelling reasons would
be required. On the issue of the constitutionality of
paragraph 231(1) (d), the Court refused to follow
the cases of the New Garden Restaurant and
Tavern Limited et al. v. M.N.R. (1983), 83 DTC
5338 (Ont. H.C.) and The Queen v. Roth, R.A. et
al. (1984), 84 DTC 6181 (Ont. H.C.). Neither
judgment had had the benefit of the Southam
decision. It should be pointed out however that the
unanimous decision of the Alberta Court of
Appeal in the Southam case that subsection
231(4) was unconstitutional, which was upheld in
the Supreme Court, had already been rendered
before these judgments. The Southam case was
referred to in the New Garden Restaurant case but
was not followed. At pages 5340-5341 of the judg-
ment reported at 83 DTC 5338, Justice White
states:
I read the decision of the Alberta Court of Appeal as indicating
that, in their opinion, s. 10 of the Combines Investigation Act
in itself necessarily implied that before a search was conducted,
the Restrictive Trade Practices Commission, which authorized
the search, had already formed the belief of probable guilt of
the party searched. In my view, s. 231(1)(d) of the Act does not
imply in itself any such preconceived belief of guilt and thus in
my opinion, the Southam case is distinguishable from the case
at bar.
In my view, s. 231(1)(d) of the Act does not necessarily
imply in itself any unreasonable conduct on the part of the tax
investigator and thus does not, by its very wording, violate the
taxpayer's reasonable expectation of privacy, which is the
interest protected by s. 8 of the Charter.
In effect, the Income Tax Act contemplates a system of tax
collection based upon the fair and honest reporting of income
by the taxpayer. Such a tax system requires that the govern
ment be permitted in the ordinary course of events to check the
business records of the taxpayer in order to ascertain that the
income tax returns filed are reasonably accurate. The checking
and collating of such records by the government does not
violate the taxpayer's reasonable expectation of privacy since
by the very filing of his return the taxpayer is aware that he
must have records to back up the representations made in his
income tax return and that the records used in the preparation
of his income tax return must be as available for audit as the
very tax return filed with the government. It is only when a tax
investigator has formulated a belief of the taxpayer's guilt
based on reasonable and probable grounds that the taxpayer's
expectation of privacy would reattach to his records and docu
ments. In such circumstances, the obtention of an order pursu
ant to s. 231(4) of the Act, which order is in effect a search
warrant, is a condition precedent to a lawful search and seizure
made of the taxpayer's records by the investigator and a seizure
without warrant made pursuant to s. 231(1)(d) of the Act
would violate the taxpayer's rights.
Moreover, the public interest in a reasonably efficient system
of collecting tax revenue outweighs the taxpayer's expectation
of privacy in the circumstances contemplated by s. 231(1)(d) of
the Act which I interpret as specifically authorizing a seizure
without warrant in cases where the tax investigator comes upon
incriminating evidence in the course of his audit without having
formulated prior to the audit any belief of the guilt of the party
searched.
and again in the same judgment at page 5341:
For the above reasons, I find that s. 231(1)(d) of the Act
does not by its very wording necessarily imply any unreasonable
conduct on the part of the tax investigator and thus does not, in
the abstract, violate the applicants' right to be secure against
unreasonable search and seizure. Similarily, I find, by implica
tion, that s. 231(2) of the Act does not violate s. 8 of the
Charter.
My finding that s. 231(1)(d) and, by implication, s. 231(2)
of the Act do not, in the abstract, violate s. 8 of the Charter
would not however preclude the applicants in subsequent court
proceedings from relying on s. 24(2) of the Charter in order to
seek an order excluding the records and documents seized
pursuant to s. 231(1)(d) of the Act on the ground that, on the
facts, the seizures made by Mr. Piirik under s. 231(1)(d) were
made after he had formulated a belief of probable guilt and
thus, at a time when the order or warrant contemplated by s.
231(4) of the Act should have been obtained prior to his seizing
the documents.
Applicants' counsel also referred to the case of R.
v. Marcoux, R. and C., Provincial Court of Alber-
ta, (1985), 85 DTC 5453 which concerned the
constitutionality of subsection 231(3) of the Act
which is not in issue here. In that case, for what
ever such a concession is worth, it was stated at
page 5459:
At the outset of the Crown argument, Crown counsel admit
ted that sec. 231(1)(d) of the Income Tax Act is inconsistent
with section 8 of the Charter of Rights and Freedoms, and that
therefore, it is inoperative and has no force or effect.
Crown counsel had argued however, relying on the
decision of McNaughton J. in the Province of
Alberta in the case of The Queen and Stickney, an
unreported judgment dated January 22, 1985 that
notwithstanding that paragraph 231(1)(d) is inop
erative, documents seized pursuant to it should be
admitted in evidence since the defence had failed
to establish that the action of the officers of the
Department of National Revenue was unreason
able and to admit the documents would not bring
the administration of justice into disrepute. In the
Marcoux case however the Court found that the
auditors had already come to the conclusion that
there were discrepancies in the records and tax
returns of the defendants and had had the books
and records in their possession for several months
when they arrived at the Marcoux home on the
pretext that they wanted to receive explanation
and clarification of the books and • returns. The
Court found that the books should have been made
available to the Marcouxs in advance of their
interrogation; furthermore that the auditors had
delivered to them an inaccurate net worth state
ment, therefore acting unfairly and unreasonably.
Applicants' counsel was careful, as respondents'
counsel points out, not to seek to quash the order
of Judge Street pursuant to subsection 231(2) of
the Act as this Court would not have the right to
do so, but merely quash the application made
pursuant to that subsection by James Bagnall for
the retention of the documents until they are pro
duced in court proceedings.
Respondents' counsel argued that the applica
tion constitutes a collateral attack on the order of
Judge Street as it is he who would have to decide
before issuing the order for retention of the docu
ments beyond 120 days whether they had been
validly taken. This argument is to the effect that
for this Court to order the return of the documents
seized on the ground that paragraph 231(1)(d) is
unconstitutional would be in conflict with his
order. In fairness to Judge Street it should be
pointed but that his order is more in the nature of
an ex parte procedural one pursuant to the scheme
of section 231 of the Act and it is highly unlikely
that the constitutional question was raised before
him. Reference was made in this connection to the
Supreme Court of Canada case of Wilson v. The
Queen, [1983] 2 S.C.R. 594; 9 C.C.C. (3d) 97 in
which McIntyre J. stated at page 604 S.C.R.;
pages 120-121 C.C.C.:
The cases cited above and the authorities referred to therein
confirm the well-established and fundamentally important rule,
relied on in the case at bar in the Manitoba Court of Appeal,
that an order of a court which has not been set aside or varied
on appeal may not be collaterally attacked and must receive
full effect according to its terms.
At page 599 S.C.R.; 117 C.C.C. however he states:
It has long been a fundamental rule that a court order, made by
a court having jurisdiction to make it, stands and is binding and
conclusive unless it is set aside on appeal or lawfully quashed. It
is also well settled in the authorities that such an order may not
be attacked collaterally—and a collateral attack may be
described as an attack made in proceedings other than those
whose specific object is the reversal, variation, or nullification
of the order or judgment.
Applicants contend however that Judge Street did
not have jurisdiction to make the order since it was
based on an application arising from paragraph
231(1)(d) which is unconstitutional so that the
order under subsection 231(2) has no effect. The
argument that a collateral attack cannot be made
by a prerogative writ on an order issued by a judge
of another court is dealt with in the Federal Court
of Appeal in the Kruger case (supra) at page 545
F.C.; 6481 DTC of the judgment rendered by
Justice Pratte who stated:
Counsel for the appellants also contended that the Minister's
authorization could not be challenged by certiorari because
such a challenge was, in effect, a collateral attack on the
decision of Mr. Justice Ducros approving the authorization. As
Mr. Justice Ducros' decision could not be challenged directly
by certiorari, it could not, said counsel, be challenged indirect
ly. Moreover, counsel referred to the rule that a decision of a
Superior Court which has not been set aside or varied on appeal
may not be collaterally attacked. The answer to that argument
is that the respondents' attack on the Minister's authorization
does not constitute a collateral or indirect attack on Mr. Justice
Ducros' approval. The respondents challenge the validity of the
authorization to search and seize. That authorization, while it
was approved by Mr. Justice Ducros, was not given by him.
Indeed, subsection 231(4) confers on the Minister, not on the
Judge, the power to authorize a search and a seizure. In
challenging the authorization given by the Minister on jurisdic
tional grounds, the respondents do not ask the Court to ignore
the approval given by Mr. Justice Ducros; they merely assert
that, in spite of that approval, and for reasons that are entirely
foreign to that approval, the authorization is a nullity because
the Minister did not have the power to give it.
In dealing with paragraph 231(1) (d) there is of
course no ministerial authorization required but it
can be argued that it is even a weaker section than
subsection 231(4) in that it leaves the discretion to
the auditor who is examining the books to seize
such records as he deems necessary without any
prior authorization from his superiors or from any
court. Subsection 231(2) is merely a follow-up to
enable the records to be retained for more than
120 days. It is difficult to see how paragraph
231(1)(d) can stand unchallenged when subsection
231(4) has been found to be unconstitutional and
if paragraph 231(1) (d) is ineffective to permit the
seizure of the documents taken away during the
audit then surely an order under subsection 231(2)
to retain them cannot have any effect.
In the case of Minister of National Revenue v.
Coopers and Lybrand, [1979] 1 S.C.R. 495;
(1978), 78 DTC 6528 a pre-Charter case dealing
with the right of review by the Court of Appeal of
a seizure was made pursuant to subsection 231(4)
of the Act a distinction is made at page 509
S.C.R.; 6534 DTC between the Minister's actions
which were of an administrative nature and not
subject to a section 28 review and the jurisdiction
of the judge who was acting qua judge and not as
persona designata in making his decision to issue
the warrant which cannot be reviewed by the
Court of Appeal under a section 28 application.
The Court declined to decide whether an appeal
lay to the provincial courts from the authorization
of the Minister and the approval of the Judge.
Respondents' counsel contended however that
since there is no ministerial authorization involved
in subsection 231(2) of the Act the present pro
ceedings constitute a direct attack on Judge
Street's order and it cannot be set aside by certio-
rari in this Court.
For the reasons stated above however although
the jurisprudence is somewhat controversial I do
not conclude that the issue of the order sought
should be refused on the basis that it would consti
tute a collateral attack on the judgment of Judge
Street, since it is the right pursuant to subsection
231(2) to seek such an order which right is itself
dependent on the right to seize the documents
pursuant to paragraph 231(1)(d) which is under
attack and not the order of Judge Street itself.
Respondents' second line of argument relates to
the constitutional validity of paragraph 231(1) (d).
Some of the cases on this issue have already been
referred to and there have been a number of cases
dealing with warrantless searches and seizures
both before and after the Charter.
In the case of R. v. Rao (1984), 46 O.R. (2d) 80
(C.A.) dealing with paragraph 10(1)(a) of the
Narcotic Control Act [R.S.C. 1970, c. N-1] the
judgment in the Court of Appeal rendered by
Justice Martin at page 96 states:
Mr. Dambrot, on behalf of the Crown, in support of his
submission that warrantless searches have gained common
acceptance in Canada, referred us to a number of federal
statutes which confer power on designated officials to enter,
search, inspect or audit at business premises without a warrant.
Those statutes are listed in app. "A". In my view, however, a
clear distinction must be drawn between a general power to
enter private premises without a warrant to search for contra
band or evidence of crime and a power conferred on designated
officials to enter premises for inspection and audit purposes and
to seize records, samples or products in relation to businesses
and activities subject to government regulation.
The case of Re Belgoma Transportation Ltd. and
Director of Employment Standards (1985), 51
O.R. (2d) 509 (C.A.), also a post Charter case
which discussed the Southam and others stated at
page 512:
The standards to be applied to the reasonableness of a search
or seizure and the necessity for a warrant with respect to
criminal investigations cannot be the same as those to be
applied to search or seizure within an administrative and
regulatory context. Under the Employment Standards Act,
there is no necessity that the officer have evidence that the Act
has been breached. In the course of carrying out administrative
duties under the Act, what is commonly called a "spot audit"
may be carried out, which helps ensure that the provisions of
the Act are being complied with. The limited powers given for
this purpose as set out in the section are not unreasonable. The
"search or seizure" in the instant case, if such it is, is not aimed
at detecting criminal activity, but rather, as indicated, in
ensuring and securing compliance with the regulatory provi
sions of the Act enacted for the purpose of protecting the public
interest.
Counsel argues that paragraph 231(1)(d) and
subsection 231(2) are part of a statutory scheme
under the Income Tax Act arising from the admit
ted necessity of examining and verifying a taxpay
er's records.
While these arguments are persuasive particu
larly since the jurisprudence appears to still be
somewhat unsettled on the issue, I find that on the
basis of the majority decision of the Federal Court
of Appeal in the Kruger and Vespoli cases (supra)
with relation to subsection 231(4) and the compre
hensive and sweeping statements made by the
Supreme Court in the Southam case I must con
clude that paragraph 231(1) (d) and subsection
231(2) are in the same category as subsection
231(4) and are contrary to section 8 of the
Charter.
This does not conclude the matter however as
the main issue is the return of the documents
seized. As counsel for respondents points out it
may be doubtful whether they could be subpoena
ed for use in criminal proceedings even if they
were available after return to the applicants and
the same applies to the use of copies of them. If I
were ordering their return I would be tempted to
include a direction that they be retained by the
taxpayers for future use if necessary. This might
however, be an undue interference with the judge
conducting the criminal trial where the issue of
their admissibility may be raised, and as I am not
ordering their return I need not decide whether if
this were ordered conditions could be imposed.
On the issue of the return of the documents
seized there is some jurisprudence to the effect
that it should be up to the Trial Judge to deter
mine whether the evidence is admissible. In the
recent case of Lagiorgia v. The Queen, [1985] 1
F.C. 438; 85 DTC 5554 (T.D.), Justice Joyal of
this Court reviewed the jurisprudence referring
inter alia to a judgment I rendered in the case of
Lewis, G.B. v. M.N.R. et al. (1984), 84 DTC 6550
(F.C.T.D.), a judgment of Justice Denault in the
case of Skis Rossignol Canada LtéelLtd. v.
Hunter, [1985] 1 F.C. 162; 15 C.R.R. 184 (T.D.)
and a judgment of Justice Ewaschuk in the case of
The Queen v. Rowbotham, et al., an unreported
case dated November 20, 1984. In the Skis Ros-
signol Canada Ltée/Ltd. case, Justice Denault
after a review of the jurisprudence including the
Southam decision concluded that no special cir
cumstances had been established that would justify
the relief sought by the applicants. He stated [at
page 171 F.C.; 192 C.R.R.]:
The respondents' affidavit to the effect that they need the
evidence gathered for a charge already laid against the appli
cants justifies the Court in dismissing this motion. It will be up
to the judge of the Court of Sessions of the Peace to determine
whether the evidence thus obtained "would bring the adminis
tration of justice into disrepute".
The documents seized were ordered to be returned
except those necessary for the criminal prosecu
tion. In the Lagiorgia judgment Justice Joyal
states at page 446 F.C.; 5559 DTC:
The above-mentioned decisions of Walsh J. and Denault J. in
effect lead to the same result. Each allows the trial judge to
determine whether the evidence to be presented before him
should or should not be admitted, in light of the test set out in
subsection 24(2). I recognize the merits as well as the logic of
that reasoning. The determination by the trial judge can be
made much more judiciously. The trial judge would have before
him not only the illegally obtained evidence but all other
relevant circumstances material to the case. He could judge the
importance of the documents seized as evidence of an offence,
the grounds of defence other than the exclusion of the evidence
on which the prosecution is relying and the circumstances
surrounding the seizure.
Having said this however he points out that con
sidering the constitutional aspect of subsection
231(4) of the Income Tax Act which has been
declared to be null and void being unconstitutional
the Court must impose the sanction that the docu
ments seized be returned to the owner. The public
authority can use other legitimate means to carry
out their statutory responsibilities and enforce the
law.
As was pointed out subsection 24(1) of the
Charter is before the Court in the present applica
tion and not subsection 24(2) which will be a
matter to be decided by the Trial Judge.
The application of subsection 24(1) seems to
require consideration however of not merely
whether the seizure is unconstitutional, but wheth
er it was reasonable. The case of R. v. Jagodic et
al. (1985), 15 C.R.R. 146 (N.S.S.C.) considered
the Southam case and referred at pages 148-149
to extracts from the judgment of Dickson J. [as he
then was] in the Southam case as follows [at pages
157 and 159-160]:
... that an assessment of the constitutionality of a search and
seizure, or of a statute authorizing a search or seizure, must
focus on its "reasonable" or "unreasonable" impact on the
subject of the search or the seizure, and not simply on its
rationality in furthering some valid government objective.
The guarantee of security from unreasonable search and sei
zure only protects a reasonable expectation. This limitation on
the right guaranteed by s. 8, whether it is expressed negatively
as freedom from "unreasonable" search and seizure, or posi
tively as an entitlement to "reasonable" expectation of privacy,
indicates that an assessment must be made as to whether in a
particular situation the public's interest in being left alone by
government must give way to the government's interest in
intruding on the individual's privacy in order to advance its
goals, notably those of law enforcement.
and again at page 149 [page 161 S.C.R.]:
I recognize that it may not be reasonable in every instance to
insist on prior authorization in order to validate governmental
intrusions upon individuals' expectations of privacy. Neverthe
less, where it is feasible to obtain prior authorization, I would
hold that such authorization is a pre-condition for a valid
search and seizure.
I have already found as a question of fact that
under the circumstances of the present case it
would not have been feasible or reasonable to
delay taking possession of the documents in view
of the lengthy affidavits and documents required
to obtain the authorization of a judge for a search
warrant under the provisions of the Criminal
Code, especially as no "search" as such was neces
sary, but merely a taking of possession.
In the case of Dobney Foundry Ltd. v. A. G.
Can. in the British Columbia Court of Appeal,
[1985] 3 W.W.R. 626, Esson J.A. discusses [at
page 635] a recent judgment of the Ontario Court
of Appeal in Re Chapman and The Queen (1984),
46 O.R. (2d) 65 in which MacKinnon A.C.J.O.
stated at page 72:
"These most recent cases seem to agree with the Crown's
position that there is, indeed, no discretion in the court, but
come to exactly the opposite conclusion as to the result—
namely, that articles seized under an illegal search warrant
must be returned. I do not agree that it is as absolute in that
regard as the Crown argues it is for its position, i.e., that the
articles must be retained."
MacKinnon A.C.J.O. went on to observe that, with the
passage of the Charter, there is "a new player in this particular
game". As I understand his reasons, he regarded s. 24(1) of the
Charter as providing additional support for the existence of a
discretion on the part of the court, having quashed a search
warrant, to direct a return of the items seized even in the face
of an assertion by the Crown that they are required as evidence
in a criminal proceeding. What is significant for present pur
poses is that the decision does not support the view that the
articles must be returned.
What Chapman does decide is that, if the Crown asserts that
the items are needed for the purposes of a criminal prosecution,
the court has a discretion as to whether they should be ordered
to be returned or allowed to be retained by the Crown.
At page 636 the Dobney Foundry judgment sets
useful criteria:
(1) A reviewing court, on quashing a search warrant, has
power to order return of any goods seized under the warrant.
(2) If the Crown shows that the things seized are required to
be retained for the purposes of a prosecution, either under a
charge already laid or one intended to be laid in respect of a
specified chargeable offence, the court may refuse to order the
return.
(3) No particular formality is required in order for the
Crown to show the requisite element of necessity to retain the
things.
(4) The power to order return of goods is incidental to the
power to quash but may also arise under s. 24(1) of the Charter
if the search and seizure was unreasonable as well as illegal.
(5) The conduct of the prosecuting authorities in relation to
the search and seizure is a factor to be considered in deciding
whether to exercise the discretion.
(6) Other factors to be considered in exercising the discretion
may be the seriousness of the alleged offence, the degree of
potential cogency of the things in proving the charge, the
nature of the defect in the warrant and the potential prejudice
to the owner from being kept out of possession.
Here we are not of course dealing with an actual
search warrant but criteria (2) to (6) are appli
cable, in particular in connection with No. (5)
there has been no complaint whatsoever as to the
conduct of the auditor who seized the articles in
question, and looking at No. (6), the seizure was
only defective since it has now been found to be so,
the auditor acting in good faith and pursuant to a
section not yet found to be invalid at the time nor
do the applicants appear to have suffered any
prejudice by being kept out of possession. These
are not records for the current year which would
affect the operation of their business but old
records relating to the tax years in question. Appli
cants have access to them.
In the case of The Queen v. Rowbotham, et al.
an unreported judgment of Justice Ewaschuk in
the Supreme Court of Ontario dated November
20, 1984, dealing with the admission at trial of
documents seized under an unlawful search war
rant the judgment states at page 12:
Assuming the search warrant is unlawful under the applicable
Act, it is now accepted that a superior court judge can then go
on to determine the separate Charter question whether the
search or seizure is unreasonable: Re Chapman and the Queen
(1984), 12 C.C.C. (3d) 1 (Ont. C.A.). Where the judge then
determines that the search or seizure was unreasonable, he or
she is empowered pursuant to s. 24(1) of the Charter to order
the seized items returned: Re Chapman, supra. But it is also
clear that a s. 24(1) return does not resolve the question of the
admissibility of evidence at later proceeding. This is so since a
motions court "cannot have `regard to all the circumstances'
because all the circumstances are clearly not before the Court":
Re Chapman at p. 9.
It seems to me that, especially where the items seized are
testimonial in nature, e.g. documents, a motions court judge
should exercise his discretion not to return the items, albeit
seized unreasonably, where the Crown establishes to the judge's
satisfaction that the items have probative value in respect of
pending or laid charges.
At page 8 the judgment states:
It seems to me illogical to characterize a search and seizure
as unreasonable when made in good faith and in compliance
with current law. Indeed it seems to me, to the contrary, most
reasonable that the police, as is their duty, be required to
comply with the law as it stands on the day that they apply the
particular law in question: see by analogy R. v. Ali (1980), 51
C.C.C. (2d) 282 (S.C.C.).
In the case of R. v. Cameron (1984), 13 C.R.R. 13
(B.C.C.A.), the headnote reads in part [at page
141:
The defect in the warrant did not necessarily render that search
unreasonable, not every illegal search is unreasonable, but even
if it did such defect provided no basis for holding that the
evidence should have been excluded under s. 24 of the Charter.
In the case of R. v. Noble (1984), 48 O.R. (2d)
643 (C.A.), the headnote reads in part [at page
645]:
In deciding whether or not to admit the evidence, it is proper
for the trial judge to consider such matters as the nature and
extent of the illegality, the unreasonableness of the conduct
involved and whether the officers were acting in good faith as
distinct from knowingly infringing the accused's rights. The
fact that a situation of urgency existed requiring the police to
act quickly to prevent the loss or destruction of evidence could
also be a factor to be taken into account. Thus, evidence as to
the finding of a quantity of narcotics in a dwelling-house was
properly admitted at the accused's trial notwithstanding that
the search, having been conducted under the authority of a writ
of assistance, was unreasonable and in violation of s. 8 of the
Charter of Rights, in view of the evidence that the officer in
acting under his writ of assistance was doing so in good faith at
a time when there was no appellate decision holding that writs
of assistance were unconstitutional, that the search was carried
out in a reasonable manner with due regard to the accused's
other constitutional rights and that the officer reasonably con
sidered that he was confronted by a situation of urgency which
made the obtaining of a warrant impracticable.
Although these latter two cases refer to the
admissibility of evidence improperly seized which,
as I have already indicated is not an issue to be
decided in this Court on the present motion and
they really deal with subsection 24(2) of the
Charter rather than subsection 24(1), if the docu
ments were ordered returned at this time by
application of subsection 24(1) of the Charter this
would tend to be taking the issue of their admissi
bility out of the hands of the Trial Judge as it
might well be difficult if not impossible to obtain
them for production before him for his decision as
to their admissibility.
I conclude therefore that although paragraph
231(1)(d) and subsection 231(2) of the Act are
unconstitutional, the seizure which was carried out
was not unreasonable, and it should not be
automatically found that evidence obtained by an
illegal seizure must be returned although it is
required for use in criminal proceedings, and that
subsection 24(1) of the Charter does not necessari
ly require such an order. The law in Canada unlike
that in the United States does not necessarily
exclude from consideration at trial evidence which
has been illegally obtained. I find that in the
present state of our law sufficient jurisprudence
justifies a finding that the documents in question
can be retained until the termination of the crimi
nal proceedings for which respondents intend to
use them, but any documents not required for such
proceedings should be returned forthwith.
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.