T-2478-80
T-5461-80
T-5580-80
James Richardson and Sons Limited (Applicant
and Plaintiff)
v.
Minister of National Revenue (Respondent and
Defendant)
Trial Division, Smith D.J.—Winnipeg, December
10 and 11, 1980; June 11, 1981.
Judicial review — Prerogative writs — Certiorari —
Applications for certiorari and action for declaration — Min
ister seeking information from broker for use in checking on
compliance by commodities futures traders with Income Tax
Act — Broker declining to give information on ground that it
was for use in test project rather than genuine enquiry into tax
liability of specific person — Validity of Income Tax Act, s.
231(3), which empowers Minister to require information from
any person questioned — Orders requiring information made
by official rather than by Minister — Delegation of Minister's
s. 231(3) powers intra vires — Technical argument that
authorization invalid on its face since "Revenue Canada"
non-existent and cannot have Deputy Minister cannot succeed
— No requirement of reasonable and probable grounds in s.
231(3) cases — Taxation powers under s. 91, B.N.A. Act
include taking steps to ascertain who owes taxes — Requiring
broker to supply information falls within "administration or
enforcement" of Act — Requirement for information not to be
ruled against as "purely speculative in nature" — Applicabili
ty of The Canadian Bank of Commerce v. The Attorney
General of Canada, [19621 S.C.R. 729 to facts of instant case
discussed — 'Specific person or persons" not meaning only
"named person or persons" — In context of wide powers set
out in s. 231(3), meaning "person or persons sufficiently
described that they are readily identifiable" — Argument that
Minister not making genuine and serious inquiry into specific
tax liability fails — S. 231(3) in pith and substance falling
under s. 91, B.N.A. Act and not invalidated if affecting prop
erty and civil rights in Province — Requirement that informa
tion be furnished "without delay" in sufficient compliance with
statutory provision that requirement to state information to be
given "within such reasonable time as may be stipulated
therein" — Requirement for information not infringing right
to enjoyment of property as declared to exist in Canadian Bill
of Rights — Court having to weigh private rights of individual
against necessity for efficient operation of government —
Required information available only from brokers — Income
Tax Act, S.C. 1970-71-72, c. 63, ss. 221(1)(/), 231(3) —
Income Tax Regulations, SOR/73-390, as amended by SOR/
75-298, s. 900(2)(b) — Department of National Revenue Act,
R.S.C. 1970, c. N-15, ss. 2(1), 3(1) — The British North
America Act, 1867, 30 & 31 Vict., c. 3 (U.K.) [R.S.C. 1970,
Appendix II, No. 5], ss. 91(3), 92(13) — Canadian Bill of
Rights, S.C. 1960, c. 44 [R.S.C. 1970, Appendix III], ss. 1(a),
2(e).
The applicant seeks certiorari to quash two orders requiring
it to produce certain information concerning the commodities
securities trading transactions of its customers. The applicant
also seeks a declaration that the respondent's orders are invalid
on the ground that subsection 231(3) of the Income Tax Act,
which authorizes the Minister to require information or docu
ments from any person for purposes related to the administra
tion or enforcement of the Act, is contrary to the Canadian Bill
of Rights. The respondent requested the information in ques
tion in order to verify compliance with the Income Tax Act by
traders in the commodities futures market. The information
was provided on a test basis to enable the Department to
determine the feasibility of the project. When the Department
decided to proceed with the project, and requested more specif
ic information to enable it to identify the transactions of each
customer, the applicant objected on the ground that the infor
mation was not related to "a genuine and serious inquiry into
the tax liability of a specific person or persons", and therefore
the Department did not have the authority to demand the
information. The applicant submits that the requirements were
invalid because they were not made by the Minister himself.
Paragraph 221(1)(f) of the Income Tax Act enables the Gover
nor in Council to make regulations authorizing a designated
officer to exercise powers or perform duties of the Minister
under the Act. Paragraph 900(2)(b) of the Income Tax Regu
lations delegates the Minister's functions under subsections
231(2) and (3) to the Director-Taxation in a District Office. It
is alleged that the Minister's functions under section 231
cannot be delegated because it is a judicial function. The
applicant also argues that the requirements are invalid since the
words "Revenue Canada Taxation", a non-existent entity,
appeared at the top of the requirements. The applicant also
submits that the respondent acted without jurisdiction because
the orders were not issued for any purpose related to the
administration or enforcement of the Income Tax Act and
because there was no genuine and serious inquiry into the tax
liability of a specific person or persons. It also argues that
subsection 231(3) is ultra vires because it contravenes subsec
tion 92(13) of The British North America Act, 1867, which
gives the provinces exclusive legislative jurisdiction over prop
erty and civil rights. In rebuttal, the respondent submits that
the applicant failed to rebut the presumption enunciated in
Hewson v. The Ontario Power Company of Niagara Falls
(1905), 36 S.C.R. 596 that jurisdiction has not been exceeded.
The applicant contends that subsection 231(3) infringes upon
paragraph 1(a) of the Canadian Bill of Rights, which guaran
tees the right to enjoyment of property and the right not to be
deprived thereof except by due process of law, and paragraph
2(e), which prevents the construction of laws so as to deprive a
person of the right to a fair hearing. Finally, subsection 231(3)
provides that the requirement shall state that the information
or documents are required "within such reasonable time as may
be stipulated therein". One of the requirements did not specify
a date, but required that the information be provided "without
delay". The applicant submits that the requirement is invalid
because it did not comply with the statute.
Held, the applications are dismissed. The intention of Parlia
ment in enacting paragraph 221(1)(/) was clearly to deal with
the powers conferred and the duties imposed upon the Minister
by the statute. Therefore the Governor in Council was empow
ered to delegate the powers in the manner provided by Regula
tion 900(2)(b), which is therefore intra vires. Although the
words "Revenue Canada Taxation" appear at the top of the
requirement letters, the context of the letters and all the
preceding correspondence, discussions and things done leave no
doubt that the letters were written by an official of the Depart
ment of National Revenue. On the question of whether the
words "administration or enforcement of this Act" include the
respondent's actions, subsection 91(3) of the B.N.A. Act gives
the Parliament of Canada exclusive legislative authority with
respect to "The raising of Money by any Mode or System of
Taxation". The word "raising" embraces the imposing and
levying of taxes as well as ascertaining taxes owed and collect
ing those taxes. Thus Parliament has wide powers of legislation
in connection with the enforcement and administration of the
Income Tax Act. The Minister is seeking information verifying
the accuracy of income tax returns. This is clearly for purposes
related to the administration or enforcement of the Act. The
respondent may reasonably believe that there has been a failure
to comply with provisions of the Income Tax Act by the
applicant's clients, but cannot prove anything against a particu
lar client without the information requested. It is the respond
ent's duty to try to ascertain the facts and it should not be ruled
against on the ground that the respondent's action is purely
speculative. The applicant's claims that the requirements are
discriminatory because other securities brokers are not required
to provide such information, and that they are fundamentally
unfair, fail because they are not supported by the evidence. The
claim that the requirements breach the rules of natural justice
fails because it is too general. On the question of whether there
is a serious inquiry into the tax liability of a specific person or
persons, "specific person or persons" means, in the context of
the statutory provisions and the very wide powers set out in
subsection 231(3), "person or persons sufficiently described
that they are readily identifiable". They thus apply to all
persons who are in a described or identified group. In the
present case the described group is all clients of the applicant
who had trading transactions in the commodities securities
market during the years in question. The Minister seeks to
verify the returns of each customer separately, each being a
specific individual, as yet unnamed, whose liability to income
tax is being investigated. The requirements should not be
regarded as a "fishing expedition". The requirements were
therefore serious inquiries into specific tax liability. Concerning
the question of whether subsection 231(3) contravenes the
B.N.A. Act, it has already been decided that the Minister, in
making his requirements, did so for the purpose of administer
ing and enforcing the Income Tax Act. There is no indication
that the real purpose of subsection 231(3) is to interfere with
provincial power over property and civil rights. Subsection
231(3) is in its pith and substance concerned with taxation and
is therefore valid under subsection 91(3) of the B.N.A Act. If
federal legislation in its pith and substance falls under one or
more of the heads of section 91, it is valid and its validity is not
affected by the fact that matters under provincial legislative
authority may be affected. Since subsection 231(3) has been
found to be intra vires, the failure to rebut the presumption of
jurisdiction supports such a finding. Subsection 231(3) gives to
the Minister powers that are necessary to carry out his duties
under the Act. As to the submission that subsection 231(3)
must be construed strictly because it is a taxing statute, the rule
does not apply where the meaning of legislation is clear.
Subsection 231(3) authorizes the Minister, for any of the
purposes described, to demand from any person any informa
tion. These words mean precisely what they say, the only
limitation being that the information must be related to
income. It was submitted that the Minister was not acting for
the purpose of the administration or enforcement of the Act
because there was no investigation under way of a specific
person or persons. There is no statement of law as to how far an
inquiry must have proceeded before a requirement is author
ized, nor even that it must have started. The word "related" is
just as applicable to an intended inquiry as to one that is
already under way. The fact that the Department has sought
information about transactions of and profits made by com
modities securities traders for years is conclusive evidence that
it is a genuine and serious matter which can certainly be
designated as an inquiry. With respect to the contention that
subsection 231(3) contravenes the Canadian Bill of Rights, all
the Minister is demanding is information. The requirements do
not involve infringement of anyone's right to enjoyment of
property nor do they threaten that anyone may be deprived of
that right. In any case, the closing words of paragraph 1(a)
"except by due process of law" are conclusive to negative the
claim. The present hearing is hopefully the fair hearing protect
ed by paragraph 2(e). Although the applicant's clients, whose
right to privacy in relation to their securities transactions may
be affected, are not parties to the proceedings, the Court is
aware of their rights. Where there is a conflict between the
rights of the individual and the need of the government to be
efficient in carrying out its responsibilities, a balance between
the two must be struck. The need for the Department to
ascertain the facts of the situation is very real due to the
potential loss to the national revenue. The only practical way to
obtain the information sought is by the method followed. The
respondent has undertaken to keep the requested information
confidential. Thus the position of the individual traders is not as
serious as that of the Department, and their right to privacy
must yield to the need for efficient operation of government.
The Canadian Bill of Rights has not been breached. Finally the
requirement was not invalid for failure to comply with the
statutory wording regarding time within which to comply with
the requirement. The purpose of the statutory provision is to
ensure that the person from whom the information is required
will have a reasonable time to comply. A reasonable time is not
exact, but it can be ascertained for the circumstances of a
particular case. The Minister must satisfy the Court that a
reasonable period of time for compliance elapsed before pro
ceedings were started. Even where a specified period is stated,
the Minister might have to satisfy the Court that it is a
reasonable time. Here, the purpose of the legislation is satisfied
by the words "without delay".
CASES JUDICIALLY CONSIDERED
APPLIED:
Proprietary Articles Trade Association, et al. v. Attor-
ney-General for Canada, et al., [1931] A.C. 310; Attor-
ney-General for British Columbia v. Attorney-General
for Canada et al., [1937] A.C. 368; Nykorak v. The
Attorney General of Canada, [1962] S.C.R. 331; 33
D.L.R. (2d) 373; The Attorney General of Canada v. The
Canadian Pacific Railway et al., [1958] S.C.R. 285.
DISTINGUISHED:
In re Solway, [1979] 2 F.C. 471; 79 DTC 5116; [1979]
CTC 154 (F.C.T.D.); In re M.N.R. v. Paroian, Courey,
Cohen & Houston (1980), 80 DTC 6077 (Ont. C.A.);
Duma Construction Company Ltd. v. Her Majesty The
Queen, [1975] 3 W.W.R. 286; 75 DTC 5273 (Alta.
D.C.); In re The Insurance Act of Canada, [1932] A.C.
41; In re The Board of Commerce Act, 1919 and The
Combines and Fair Prices Act, 1919, [1922] 1 A.C. 191.
CONSIDERED:
Attorney General of Canada v. Bélanger (1962), 63 DTC
1289 (Que. Q.B.); Granby Construction and Equipment
Ltd. v. Milley (1974), 47 D.L.R. (3d) 427; 74 DTC 6300
(B.C.S.C.); Re Corsini and The Queen (1979), 49 C.C.C.
(2d) 208 (Ont. H.C.); The Canadian Bank of Commerce
v. The Attorney General of Canada, [1962] S.C.R. 729;
62 DTC 1236 (S.C.C.), affirming (1961), 62 DTC 1014;
31 D.L.R. (2d) 625 (Ont. C.A.), affirming (1961), 61
DTC 1264 (Ont. H.C.); Attorney-General for the
Dominion of Canada v. Attorney-General for the Prov
ince of Alberta et al., [ 1916] 1 A.C. 588.
REFERRED TO:
Granby Construction and Equipment Ltd. v. Milley
(1974), 50 D.L.R. (3d) 115; [1975] 1 W.W.R. 730; 74
DTC 6543 (B.C.C.A.); Hewson v. The Ontario Power
Company of Niagara Falls (1905), 36 S.C.R. 596; The
Citizens Insurance Company of Canada v. Parsons
(1881), 7 A.C. 96; The King v. Imperial Tobacco Com
pany of Canada Limited, [1938] Ex.C.R. 177; His
Majesty The King v. Imperial Tobacco Company of
Canada Limited, [1939] S.C.R. 322; In the Matter of
Three Bills Passed by the Legislative Assembly of
Alberta At the 1937 (Third Session) Thereof Entitled
Respectively: An Act Respecting the Taxation of Banks;
An Act to Amend and Consolidate the Credit of Alberta
Regulations Act; An Act to Ensure the Publication of
Accurate News and Information, [1938] S.C.R. 100;
Attorney-General for Canada v. Attorney-General for
Ontario et al., [1937] A.C. 355; The Queen v. Wel
Holdings Ltd. et al. (1979), 79 DTC 5081; [1979] CTC
116 (F.C.T.D.).
APPLICATIONS.
COUNSEL:
W. C. Kushneryk for applicant.
B. J. Meronek and B. H. Hay for respondent.
SOLICITORS:
Pitblado & Hoskin, Winnipeg, for applicant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
rendered in English by
SMITH D.J.: The applicant and plaintiff herein
has launched several proceedings in which the
same issues arise. In this Court three proceedings
have been begun, namely:
1. An application by way of originating notice of
motion, dated May 16, 1980 and filed May 20,
1980, for an order of certiorari to quash a
decision or order of the defendant dated May 8,
1980 and served on the same day, requiring the
plaintiff to produce to officers of the Depart
ment of National Revenue:
(a) A complete listing of customer name and
address, identifying each by the account number
for the calendar year 1977,
(b) A complete listing of branch office locations,
identifying each by the office number, for the
calendar year 1977,
as used in the preparation of clients' commodity
monthly statements for the Securities Division
of the plaintiff.
2. An application by way of originating notice of
motion, dated November 14, 1980 and filed
November 20, 1980, for an order of certiorari to
quash a similar decision or order of the defend
ant, dated October 8, 1980, and served on the
same day, requiring the plaintiff to provide simi
lar information to the Minister for the calendar
years 1978 and 1979. The requirement went
further in terms, than that of May 8, 1980, by
requiring, in addition to the names, addresses
and account numbers of all persons on whose
behalf the plaintiff carried out trading in com
modities during those calendar years, and the
company's office through which such trading
was carried out, production of the details of all
monthly transactions resulting in a net gain or
loss position for each calendar year for each
such person as used in the preparation of clients'
commodity statements for the Securities Divi
sion.
3. An action by statement of claim issued on
November 20, 1980, for declarations that the
May 8, 1980, and October 8, 1980, decisions or
orders of the defendant are invalid on several
grounds. One of the declarations asked for is
that paragraphs 231(3)(a) and (b) of the
Income Tax Act, S.C. 1970-71-72, c. 63,
infringe paragraphs 1(a) and 2(e) of the
Canadian Bill of Rights, S.C. 1960, c. 44
[R.S.C. 1970, Appendix III]. No allegation of
infringement of any provision of the Canadian
Bill of Rights is contained in either of the
originating notices of motion mentioned supra.
The applicant also, by originating notice of
motion, dated May 16, 1980, applied for similar
relief in the Manitoba Court of Queen's Bench.
This motion was heard by Morse J. and on Octo-
ber 30, 1980 was dismissed on the ground that the
Court lacked jurisdiction. On November 27, 1980,
the applicant appealed this decision to the Manito-
ba Court of Appeal. This appeal was set down for
hearing on January 6, 1981.
The application occasioned by the decision or
order of May 8, 1980, no. 1 supra, came before me
on June 2, 1980, and was adjourned sine die, with
consent of both parties. It was again set down for
hearing on December 10, 1980, as was the applica
tion occasioned by the decision or order of October
8, 1980.
At the opening of the hearing in the present
application on December 10, 1980, counsel for the
applicant, pursuant to a notice of motion filed on
December 5, 1980, applied for the following
orders:
1. An order consolidating for all purposes the
originating notices of motion for orders of cer-
tiorari to quash the decisions or orders of the
defendant (respondent) dated May 8, 1980 and
October 8, 1980, and the statement of claim
issued in this Court on November 20, 1980, for
declarations that those decisions or orders are
invalid.
2. An order giving directions for the method of
service on all interested parties of the appropri
ate notice by or on behalf of the applicant,
giving notice that the applicant wishes to bring
in question the constitutional validity of para
graphs 231(3)(a) and (b) of the Income Tax
Act of Canada.
3. Adjournment of the hearing to allow cross-
examination on affidavits of Herman Theodore
Yaeger filed November 25, 1980, in this Court,
in Court Nos. T-2478-80 and T-5461-80 (the
files for the two originating notices of motion).
4. An order adjourning all of the above, pending
the hearing and determination of this matter by
the Manitoba Court of Appeal, scheduled for
January 6, 1981, including any possible appeal
or appeals therefrom.
Counsel for the respondent had no objection to
the two originating notices of motion and the
statement of claim being consolidated. This
appeared to be the sensible thing to do and I so
ordered.
Counsel for the respondent also had no objection
to the application for order no. 2 (supra). No
argument concerning this point was presented on
behalf of either party.
Counsel for the respondent objected strongly to
any adjournment for the purpose of cross-examin
ing Mr. Yaeger on his affidavits, stating that Mr.
Yaeger was in Court and could be examined on
that day or the next. After a short argument
counsel for the applicant stated he would be pre
pared to cross-examine Mr. Yaeger that afternoon.
I ordered that this cross-examination begin at 3
p.m. that day, December 10, 1980. It was com
menced at that time and completed that afternoon.
Counsel for the respondent objected to any
adjournment being granted pending the final
determination of the matters being dealt with by
the Manitoba Court of Appeal. A lengthy argu
ment ensued. After considering the arguments of
both counsel I came to the conclusion that the
matters before me should continue, and I so
ordered.
The situation which led to all the proceedings
mentioned supra has developed over a long period.
In or about October, 1975, the respondent
decided that it was necessary to check on compli
ance with the Income Tax Act by traders in the
commodities futures market, and that specific and
independent information as to the dealings of such
traders is available only from commodities futures
market brokers. The applicant is among the largest
of such brokers in Canada.
At the respondent's request the applicant agreed
to maintain its clients' commodities monthly state
ments in a machine sensitive form, commencing
January 1, 1976. In February, 1977, the respond
ent advised the applicant that the Department
wished to have the file of such statements made
available to it for use in an Income Tax Compli
ance Project. The applicant had objections to
doing so, but at the Department's request did
agree to provide the Department with one month's
commodities statements file to enable the Depart
ment to determine whether the information on it
could be used, as desired, in the form presented.
The information was to be confidential and used
only for testing purposes and was given subject to
the condition that other investment dealers had
been requested to provide similar information.
Correspondence and discussions ensued during
the following two and a quarter years. On June 28,
1979, the respondent wrote the applicant, (Exhibit
"H" to the affidavit of H. T. Yaeger of November
25, 1980), stating that the Department was now in
a position to process the information on the files
for all of the months of 1977 (except January, for
which month the file had not been retained). The
letter stated:
—the Department will guarantee the confidentiality of the data
including assurances that no direct or indirect use will be made
of any information obtained from the files during the test
period.
—on completion of the test period:
(1) the Department will advise the corporation of any intent
to use the information in an Income Tax compliance
project and at that time, as discussed, we will serve a
requirement for the information contained on these files.
(2) the Department agrees to treat the other Canadian
Commodity brokers in a similar manner by also request
ing their files and using the information as required in
the project.
Copies of the 1977 files (except January) were
supplied and translated for the project. However,
they did not contain all the needed information.
On December 21, 1979, the Department wrote the
applicant, (Exhibit "J" to Mr. Yaeger's affidavit)
stating that, for the next step in testing the infor
mation, the following were required:
(1) A complete listing of office locations, identifying each by
the office number.
(2) A complete listing of customer name and address, identify
ing each by the account number.
On February 25, 1980, the applicant's solicitors,
Pitblado & Hoskin, replied to this letter (see
Exhibit "K" to Mr. Yaeger's affidavit), stating, in
part:
It is our understanding that this information is required for a
test project and is not related to a genuine and serious enquiry
into the tax liability of any specific person or persons.
It appears that this exploratory project is being based on
information from Richardsons alone and not from any other
security house.
As solicitors for Richardsons, we have a real concern about
the authority of the Department to demand this information
and the right of Richardsons to provide it, except under clear
statutory authority and a binding order or notice.
Richardsons have an obligation to keep confidential the
business of their customers, and any voluntary breach of this
obligation by Richardsons would be improper and would harm
Richardsons name and competitive position if it became known.
In our opinion, neither Section 231(3) or any other section of
the Income Tax Act authorizes the Department to request the
information concerned unless it is related to "a genuine and
serious enquiry into the tax liability of a specific person or
persons".
The preceding words in quote are taken from the case of the
Canadian Bank of Commerce vs Attorney General of Canada,
Supreme Court of Canada June 25, 1962, 62 DTC 1236 at
page 1238.
These two letters, of December 21, 1979, and
February 25, 1980, indicate clearly the differing
positions of the parties. On the one hand, each of
the monthly statements which had been provided
to the respondent contained the numbers of the
accounts for which transactions had been com
pleted in that month, the number of the office
which had handled the transaction, and the
amount gained or lost by the client as a result of
the transaction, but did not give the name or
address of the client, or the location of the office.
The amounts of gain or loss shown on the state
ments were of no assistance in the Income Tax
Compliance Project unless they could be identified
with the specific clients for whom the transactions
had been made.
On the other hand the applicant was concerned
that providing the names and addresses of the
clients for whom the transactions had been made
constituted a breach of the duty of confidentiality
owed to those clients, and also that the practical
effect of providing this information, if it became
known, would be seriously detrimental to the
applicant's name and competitive position. The
parties had a further important difference in their
view of the law. The respondent has, throughout
the whole period, maintained that the Department
has full legal right and power to require the appli
cant to provide all the information asked, but the
applicant has been equally strong in maintaining
that the respondent has no such right or power.
No progress was made toward solving the differ
ences between the parties. On May 8, 1980, by
formal decision or order, the respondent required
the applicant to provide the information in ques
tion, for the year 1977, and the applicant launched
the originating notice of motion, dated May 16,
1980, which was filed on May 20, 1980. As stated
earlier, this matter was adjourned sine die on June
2, 1980. Subsequently, the respondent, by formal
decision or order, dated October 8, 1980, required
the applicant to provide similar information for the
years 1978 and 1979, and the applicant launched
the second originating notice of motion. The appli
cant also, on November 20, 1980, issued a state-
ment of claim in an action in this Court, claiming
the same relief as was asked for in the two notices
of motion. Further, the applicant filed a notice,
dated December 9, 1980, that in the action or
proceeding it would bring in question the constitu
tional validity of paragraphs 231(3)(a) and (b) of
the Income Tax Act of Canada.
Subsection (3) of section 231 of the Income Tax
Act reads as follows:
231... .
(3) The Minister may, for any purposes related to the
administration or enforcement of this Act, by registered letter
or by a demand served personally, require from any person
(a) any information or additional information, including a
return of income or a supplementary return, or
(b) production, or production on oath, of any books, letters,
accounts, invoices, statements (financial or otherwise) or
other documents,
within such reasonable time as may be stipulated therein.
While the requirement order of May 8, 1980
states that it is made pursuant to paragraph
231(3)(b) of the Income Tax Act and that of
October 8, 1980, indicates that it is made under
paragraph 231(3)(a) of that Act, it is clear that
the validity of the whole of subsection (3) is being
called in question by the applicant (plaintiff).
The grounds on which the validity of the deci
sions or orders of May 8, 1980 and October 8,
1980 is called in question are set out in almost
identical terms in the two originating notices of
motion in this Court, as follows:
1. That the Respondent acted without jurisdiction and in excess
of its jurisdiction in issuing the Decision or Order referred to
herein.
2. That the said Decision or Order:
(a) is not issued for any purpose related to the administra
tion or enforcement of the Income Tax Act;
(b) is purely speculative in nature;
(c) is discriminatory;
(d) is fundamentally unfair;
(e) is contrary to the rules of natural justice;
(f) is not a genuine and serious inquiry into any specific tax
liability.
3. That paragraph 231 (3) of the Income Tax Act which
purports to authorize the making of such a Decision or Order
contravenes the provisions of Section 92 (13) of the British
North America Act 1867 as amended and is not within the
legislative competence of Parliament under Section 91 or other
wise of the said Act.
4. Such further and other grounds as counsel may advise and
this Honourable Court may permit.
Paragraph 1 of these grounds is simply a general
allegation of lack or excess of jurisdiction. Many
of the detailed grounds alleged in support of it are
contained in the six short subparagraphs lettered
(a) to (f) inclusive of paragraph 2, and in para
graph 3. However, some of the grounds are not
contained in any of those subparagraphs or
paragraph 3.
Counsel raised a question about the validity of
the making of the decisions or orders requiring the
information that was being demanded. These deci
sions or orders were not made by the Minister
himself, but by Mr. Stubel, Director-Taxation,
Winnipeg office. Paragraph 221(1) (f) of the
Income Tax Act provides:
221. (1) The Governor in Council may make regulations
(I) authorizing a designated officer or class of officers to
exercise powers or perform duties of the Minister under this
Act,
Paragraph 900(2)(b) of the Income Tax Regu
lations, SOR/73-390, as amended by SOR/75-
298, enacted by Order in Council provides, in part:
900... .
(2) An official holding a position of Director-Taxation in a
District Office of the Department of National Revenue, Taxa
tion, may exercise the powers and perform the duties of the
Minister under
(b) subsections ... 231(2) and (3) of the Act,
Counsel submitted that the Minister did not
have the power to delegate the function of making
decisions or orders under subsections 231(2) and
(3) of the Act, because in making such decisions or
orders he was acting judicially and a judicial func
tion, as distinct from an administrative one, cannot
be delegated. He relied on three cases, which cases
should be considered.
The earliest of these cases is Granby Construc
tion and Equipment Ltd. v. Milley (1974), 47
D.L.R. (3d) 427; 74 DTC 6300 (B.C.S.C.). In that
case documents in a man's residence in Vancouver
and in safety deposit boxes in his name in a bank
in Prince Rupert were seized. The seizure was
made under subsection 231(4) of the Income Tax
Act, which provides that a search and seizure may,
with the approval of a County Court Judge, be
authorized when the Minister has reasonable and
probable grounds to believe that a violation of the
Act has been committed. The authorization had
been signed by the Director of the Special Investi
gations Division, and approved by a County Court
Judge. In an action of replevin of the documents
seized, it was held by the Trial Court Judge that
the motion for replevin was entitled to succeed and
that the authorization was invalid, because subsec
tion 231(4) conferred on the Minister a judicial
function that could not be delegated without
express statutory words. Paragraph 221(1)(f), per
mitting delegation of "powers and duties" could
not be construed to extend to a judicial function.
Bouck J. said, beginning near the bottom of page
435 of the D.L.R. report:
The opening words of S. 231 (4) [of the Income Tax Act,
1972]—"When the Minister has reasonable and probable
grounds to believe"—illustrate that Parliament intended the
Minister to be satisfied on reasonable and probable grounds
that a violation of the Act or a Regulation has been or is likely
to be committed. Such a requirement was not contained in the
earlier statute where Parliament described the acts of the
Minister as being "for any purpose related to the administra
tion or enforcement of this Act."
He went on to say:
The new section contemplates the Minister taking a more
active role, if not the sole leading role, in any decision made to
invoke the provisions of S. 231 (4), and changes the status of
the Minister from being involved in the implementation of a
mere ministerial act to that of applying a judicial discretion
vested in him by Parliament.
At page 439 he said:
The authority to delegate as set out in S. 221 (1) (f) describes
"powers" and "duties" but makes no express mention of the
Minister's judicial function. The rule of statutory interpretation
I must apply states that a judicial function cannot be delegated
except by express words contained in the statute.
He held the authorization for search and seizure
to be invalid. The decision was appealed to the
British Columbia Court of Appeal, whose decision
is reported in (1974), 50 D.L.R. (3d) 115; [1975]
1 W.W.R. 730; 74 DTC 6543 (B.C.C.A.). The
Court of Appeal reversed the judgment of Bouck
J. McFarlane J.A., delivering the judgment of the
Court, said, at page 120 of the D.L.R. report:
Recognizing as I do that the exercise of the powers conferred
by S. 231 (4) may involve serious interference with rights of
property and privacy, I am of the opinion that the intention of
Parliament is clearly stated in S. 221 (1) (f).
In my opinion, the powers and duties of the Minister intend
ed to be dealt with are the powers conferred and the duties
imposed on him by the statute, including the powers and duties
described in S. 231 (4). This meaning being plain, it is idle, in
my opinion, to attempt to attach adjectives such as administra
tive, legislative, judicial or quasi-judicial to those powers and
duties. I think, therefore, that S. 221 (1) (f) empowered the
Governor in Council to delegate the exercise of the powers
conferred and the performance of the duties imposed on the
Minister by S. 231 (4) to the Director in the manner provided
by Regulation 900 (5) which I therefore find to be Mira vires.
The same reasoning applies to delegation of the
powers conferred on the Minister by subsection
231(3), which in my opinion is also intra vires.
The second case, chronologically, is: Re Corsini
and The Queen (1979), 49 C.C.C. (2d) 208 (Ont.
H.C.), a decision of Cory J. in the Supreme Court
of Ontario. It is also a search and seize case. It was
concerned, inter alia with what was submitted to
be an error on the face of the record, that the
authorization applied to an entity that did not
exist. At the top left hand corner of the application
and authorization there were the words "Revenue
Canada Taxation" and below those words were the
words "Deputy Minister". The submission was
that there is no such entity as Revenue Canada
Taxation.
Subsection 2(1) of the Department of National
Revenue Act, R.S.C. 1970, c. N-15, provides:
2. (1) There shall be a department of the Government of
Canada called the Department of National Revenue over which
the Minister of National Revenue appointed by commission
under the Great Seal shall preside.
Subsection 3(1) makes similar provision for two
officers to be designated respectively as "the
Deputy Minister of National Revenue for Taxa
tion" and "the Deputy Minister of National Reve
nue for Customs and Excise."
It was argued that since "Revenue Canada"
does not exist, it cannot have a Deputy Minister,
and as a result the authorization on its face is
invalid. At page 215 Cory J. said:
The argument is a strong and cogent one. The applicable
principle that a man's home is his castle has often been
repeated. The right to enter, inspect, search and seize should be
restricted to the terms of the enactment providing for such
entrance, search and seizure.
The learned Judge then referred to two judg
ments of Cattanach J. in the Federal Court of
Canada, Trial Division, that had been cited to him
in support of the foregoing argument. The first is:
In re Solway, [1979] 2 F.C. 471; 79 DTC 5116;
[1979] CTC 154 (F.C.T.D.). In that case the
Court was considering the affidavit of a man made
in support of an application to have Solway attend
as a judgment debtor. Cattanach J., after setting
out subsection 2(1) of the Department of National
Revenue Act, stated in part, at pages 472-473
[Federal Court Reports]:
Therefore, Parliament in enacting section 2(1) (supra) as it
did named this particular department of the Government of
Canada the "Department of National Revenue". That 'being so
the Department cannot be called by any other name such as
"Revenue Canada, Taxation" unless such a change in name is
authorized by Parliament by the enactment of an appropriate
statute. This Parliament has not done. Accordingly the name of
a department as is prescribed by a statute of the Parliament of
Canada cannot be changed by any executive or administrative
action as must have been the case in this instance, nor at the
whim of some individual.
If the affiant, as he swears he is, is an employee of the
Revenue Canada, Taxation, he would not be an employee of the
Department of National Revenue and if he is not an employee
of that Department then he is not entitled to have access to the
information with respect to which he purports to swear.
The second case is: The Queen v. Wel Holdings
Ltd. et al. (1979), 79 DTC 5081; [1979] CTC 116
(F.C.T.D.). It was to the same effect.
On the facts of the case before him Cory J. did
not uphold the foregoing argument. He found that
the officer who made the application, Mr. Brad-
shaw, was described by his proper official title
(Assistant Director General Compliance for Spe
cial Investigations of the Department of National
Revenue) in two places in the application. He did
say, however:
I hasten to add that if the proper description of Mr. Bradshaw
were not so clearly set out in the application, I would not have
come to this conclusion.
In the present case the facts are to some extent
similar to those in the Corsini case except for the
important difference that it is not a search and
seizure case, but merely a demand for information.
It thus falls under subsection 231(3) of the Income
Tax Act, not subsection 231(4). The only docu
ments before me that are related to the Corsini
situation are the two requirement letters of May 8,
1980 and October 8, 1980. Both of these docu
ments have at the top left corner the following
printed words, English and French:
Revenue Canada Revenu Canada
Taxation Impôt
The letter of May 8, 1980, has, below the signa
ture of Mr. Stubel, his proper official title, viz:
Director-Taxation, Department of National Reve
nue. That of October 8, 1980, has, below his
signature the words: Director-Taxation, Winnipeg
District Office. On this document there is no
mention of the Department of National Revenue,
but in the first paragraph there are the words: ".. .
you are aware that the Minister of National Reve
nue wishes to obtain from you a listing of your
clients for whom it is part of your business to
engage in commodity transactions." In the context
of the letter and all the preceding correspondence,
discussions and things done there can be no doubt
that the letter was written by the Director of
Taxation, Winnipeg District Office of the Depart
ment of National Revenue. There is no affidavit
and no one is swearing, as Mr. Justice Cattanach
said was the case in In re Solway, that he is an
employee of Revenue Canada Taxation.
In my view this highly technical argument
cannot succeed in the present case.
The third case referred to by counsel for the
applicant is In re M.N.R. v. Paroian, Courey,
Cohen & Houston (1980), 80 DTC 6077 (Ont.
C.A.), a decision of the Ontario Court of Appeal.
Like the two already discussed, it is an entry and
search case. In such cases, as we have seen, subsec
tion 231(4) requires that the Minister must have
reasonable and probable grounds to believe that a
violation of the Act or of a regulation has been
committed or is likely to be committed and that
his proposed action must have the approval of a
judge before he can authorize entry, search and
seizure. In cases under subsection 231(3) neither
of these requirements exist, no doubt because such
cases do not involve invasion of private property.
All that is required is that the demand for infor
mation be made "for any purposes related to the
administration or enforcement of this Act".
In my view, the views expressed by Morden J.A.
in delivering the judgment of the Court in the
Paroian case, cogent as they were to the kind of
case he was dealing with, are not relevant to the
issues in the case presently before me.
Counsel did refer to one case where subsection
231(3) was applicable. The case is Duma Con
struction _Company Ltd. v. Her Majesty The
Queen, [1975] 3 W.W.R. 286; 75 DTC 5273
(Alta. D.C.). In that case the requirement made
by the Director of Taxation at Edmonton was that
the appellant produce certain documents (para-
graph 231(3)(b)) by forwarding them to the Dis
trict Taxation Office at Edmonton. The District
Court Judge (R. H. Belzil) held that the power to
order production did not extend to requiring the
documents to be sent somewhere. This would mean
parting with the documents without any safeguard
for their return.
In the present case the requirements do not
demand that any documents in the possession of
the applicant be forwarded anywhere. They ask
only for information to be derived from documents
and for lists of customers and branch offices. In
my view this case does not assist the applicant.
•
In his argument supporting the constitutional
validity of subsection 231(3) of the Income Tax
Act, counsel for the respondent referred to several
cases. The first was: Hewson v. The Ontario Power
Company of Niagara Falls (1905), 36 S.C.R. 596.
This case was cited as authority for the rule that,
in construing an Act of the Parliament of Canada,
there is a presumption in law that the jurisdiction
has not been exceeded. Taschereau C.J. began his
reasons for judgment, by stating that the first
ground upon which the appellant attempted to
support his case is that the Dominion Act incor
porating the respondent company, 50 & 51 Vict.,
c. 120, is ultra vires and unconstitutional. He then
proceeded to say [at page 603]:
Now, upon him was the burden of establishing the soundness
of that contention; the presumption in law always is that the
Dominion Parliament does not exceed its powers.
Counsel submitted that the applicant had failed
to discharge that onus. I agree, but as I have
already concluded that the enactment of subsec
tion 231(3) was intra vires of the Canadian Parlia
ment, I do so only to say that if my reasons for
coming to that conclusion are not completely con
vincing, in my opinion the applicant has not proved
the contrary.
Other cases cited on behalf of the respondent
included:
1. Attorney-General for British Columbia v.
Attorney-General for Canada et al., [1937]
A.C. 368. This case was also referred to by
counsel for the applicant.
2. Nykorak v. The Attorney General of Canada,
[1962] S.C.R. 331; 33 D.L.R. (2d) 373.
3. The Attorney General of Canada v. The
Canadian Pacific Railway et al., [1958] S.C.R.
285.
All three cases are authorities for the general
rule that if legislation enacted by Parliament is, in
pith and substance legislation under one of the
heads of section 91 of The British North America
Act, 1867, 30 & 31 Vict., c. 3 (U.K.) [R.S.C.
1970, Appendix II, No. 5], it is valid, and its
validity is not affected by the fact that it may
affect property and civil rights or some other head
of section 92, legislation about which is within the
exclusive power of the provinces.
The first of these cases was concerned with the
validity of section 498A of the Criminal Code.
Lord Atkin, delivering the judgment of the Privy
Council, said, at page 375:
The only limitation on the plenary power of the Dominion to
determine what shall or shall not be criminal is the condition
that Parliament shall not in the guise of enacting criminal
legislation in truth and in substance encroach on any of the
classes of subjects enumerated in S. 92. It is no objection that it
does in fact affect them. If a genuine attempt to amend the
criminal law, it may obviously affect previously existing civil
rights.
The second case was concerned with section 50
of the Exchequer Court Act, R.S.C. 1952, c. 98,
which dealt with the relationship of master and
servant between the Crown and a member of the
armed forces for the purpose of determining liabil
ity in actions by and against the Crown. It was
held to be valid legislation by Parliament, under
head 7 of section 91 of The British North America
Act, 1867, notwithstanding that it might inciden
tally affect property and civil rights within the
province.
The third case dealt with the validity of section
198 of the Railway Act, R.S.C. 1952, c. 234,
which provided that no railway to which the Act
applied, which acquired land, whether by purchase
or compulsory taking, thereby acquired title to
mines and minerals in the land, unless they were
expressly purchased by and conveyed to it. The
section was held to be valid legislation of Parlia
ment relating to interprovincial railways, under
exception (a) to head 10 of section 92, notwith
standing that provincial legislation existed to the
effect that a conveyance of land was to be deemed
to include mines and minerals. I quote, in part, a
paragraph from the judgment of Mr. Justice
Rand, at page 290:
Powers in relation to matters normally within the provincial
field, especially of property and civil rights, are inseparable
from a number of the specific heads of s. 91 of the British
North America Act under which scarcely a step could be taken
that did not involve them. In each such case the question is
primarily not how far Parliament can trench on s. 92 but rather
to what extent property and civil rights are within the scope of
the paramount power of Parliament.
Turning to paragraph 2 of the grounds on which
the validity of the requirement orders is ques
tioned, and first to subparagraph (a) it may be
useful to begin by stating the power of Parliament
in relation to taxation. Head 3 in section 91 of The
British North AMerica Act, 1867 gives the Parlia
ment of Canada exclusive legislative authority
with respect to "The raising of Money by any
Mode or System of Taxation". It would be dif
ficult to find words that would confer wider or
more all-embracing taxation power. Raising
money by taxation of income clearly falls within
those words. To my mind the word "raising"
embraces not only the imposing and levying of
taxes but also the taking of steps both to ascertain
whether individuals owe taxes and to collect those
taxes. Thus Parliament has wide powers of legisla
tion in connection with the administration and
enforcement of the Income Tax Act.
In considering the allegation in subparagraph
(a) of paragraph 2 the question to be answered is:
What is comprehended by the terms "administra-
tion and enforcement"? In relation to the present
applications the circumstances narrow the question
greatly. Do they include requiring a broker to
supply the Department with the names and
addresses of all his clients for whom he has bought
or sold securities, together with the account
number of each client and the amount of the gains
or losses sustained by each client by those transac
tions in each month of the year? Counsel for the
applicant submits that they do not include the
making of such a requirement.
In support of his submission, counsel supplied to
the Court a volume which contained, in addition to
sections 91 and 92 of The British North America
Act, 1867 and subsections 231(2),(3) and (4) of
the Income Tax Act, the judgments rendered in
nine cases, mostly by the Privy Council. The nine
cases were concerned with the constitutional valid
ity or invalidity of provisions contained in certain
federal and provincial statutes. A careful review of
the judgments in the nine cases has led me to
conclude that none of them dealt with a situation
analogous to that which concerns us at this point,
and that none of them affords any real assistance
to determine the narrow point I am now consider
ing, namely, whether the words "administration or
enforcement of this Act" include the action taken
by the respondent to obtain information from the
applicant concerning the securities trading activi
ties of its clients. They will be considered in con
nection with the general issue of the constitutional
ity of subsection 231 (3) of the Act.
The argument of counsel for the applicant on
this point is not convincing. As counsel for the
respondent said, what the Minister is seeking to
obtain is information verifying or otherwise the
accuracy of income tax returns. He is asking for
records of transactions that may attract tax. This
is clear from the requirements themselves and also
from the correspondence between the parties. In
my opinion what he is doing is clearly for purposes
related to the administration or enforcement of the
Act. Therefore the argument of counsel for the
applicant on this point fails.
Subparagraph (b) of paragraph 2 states that the
decision or order is purely speculative in nature.
This is true in the sense that the respondent has no
ground to believe, and until the information asked
for is obtained, will be unable to say that any
particular client or clients of the applicant may
have failed to report all his commodities securities
transactions for the three calendar years in ques
tion, as required by the Income Tax Act. If he had
evidence now that such was the case he would
probably be directing his attention to such person
or persons.
The respondent may have good grounds for
suspecting that one or more of the applicant's
many clients, whose names are unknown to him,
may have failed to report in his or their income tax
returns all commodities securities transactions for
those three years. Some support for thinking this
to be true may be inferred from paragraph 2 of
Mr. Yaeger's two affidavits of November 25,
1980, "That in or about October 1975 the
Respondent decided that it was necessary to check
on compliance with the Income Tax Act by traders
in the commodities futures market." One is
inclined to doubt that without some such grounds
he would have embarked on the lengthy investiga
tion we are here concerned with. It would obvious
ly be improper for him to make any allegations of
this kind without solid facts; mere suspicions
would not do. On the other hand, having reason
able grounds for thinking that some traders in
securities may be failing to report properly in their
income tax returns the profits and losses resulting
from their trading activities, it would certainly be
the respondent's duty to try to ascertain the facts.
The applicant stated at one time that there were
other ways in which the respondent could obtain
the information he is seeking. However, there is
nothing in the evidence to indicate what these
other methods might be, if in fact they do exist.
The only evidence on this point is found in para
graph 3 of Mr. Yaeger's affidavit where he swears:
"That specific and independent information as to
the dealings of such traders is available only from
commodities futures market brokers. The Appli
cant is among the largest of such brokers in
Canada."
Paragraph 21 of Mr. Yaeger's affidavit states
further:
21. THAT without receipt of the information contained in the
said requirements, it is virtually impossible for all practical
purposes for the Minister to enforce the provisions of the Act in
a serious and genuine attempt to ensure compliance by traders
in the commodities futures market, where there is no other
independent means of ascertaining the existence of these
transactions.
In the result it is my view that the respondent's
action in requiring the applicant to provide the
information requested should not be ruled against
on the ground that "it is purely speculative in
nature."
Subparagraph (c) claims that the respondent's
decision or order "is discriminatory". This claim
arises from the applicant's belief that it is the only
securities broker from whom information similar
in kind is being sought. There is no evidence from
which it can be concluded that such is the case.
Mr. Yaeger was cross-examined by Mr. Kush-
neryk on this point at some length.
At page 19 of the transcript of his cross-exami
nation there are reported the following questions
and answers:
Q. Isn't it so, Mr. Yaeger, that in fact it is only James
Richardson & Sons Limited that your department is
attempting to obtain this information and these records
from?
A. No, that's not correct.
Q. Well, correct me.
A. We have made other enquiries from other brokerage
houses.
Q. From what other brokerage houses?
A. In Toronto.
Q. What other brokerage houses?
A. Okay. I haven't got the document here. I have seen a
memo that has crossed my desk. I have knowledge of the
fact that there are other brokerage houses that have been
enquired into.
Questioned further, he admitted that the Win-
nipeg office of the Department, (which is the
office where he works), was concerned, at the
present time, in this project, only with James
Richardson and Sons Limited. On re-examination
he was asked one question only, by Mr. Meronek.
Q. Who was the subject matter of the commodities project
with which the account was involved?
A. All commodities traders.
The applicant's claim that the respondent's deci
sion or order is discriminatory fails.
Subparagraph (d) claims that the respondent's
decision or order "is fundamentally unfair." It is
clear that this claim rests on the same mistaken
view of the facts as that in subparagraph (c), that
the project was concerned with James Richardson
and Sons Limited only. It fails for the same
reason.
Subparagraph (e) claims that the respondent's
decision or order is contrary to the rules of natural
justice. This claim is too general. Neither in the
pleadings nor in the argument of counsel was any
indication given as to what rule or rules of natural
justice are alleged to be infringed by the decision
or order. Further, it is not my understanding of the
law that rules of natural justice, even if definitely
ascertained and clearly stated, can render invalid
specific rules that fall within the jurisdiction of the
legislature which enacts them. For these reasons
this claim also fails.
Subparagraph (f) claims that the respondent's
decision or order "is not a genuine and serious
inquiry into any specific tax liability." On this
claim is based one of the principal arguments of
the applicant's counsel. For authority, counsel
relies on the case of The Canadian Bank of Com
merce v. The Attorney General of Canada, which
was heard by Morand J. in the Supreme Court of
Ontario, reported in (1961), 61 DTC 1264 (Ont.
H.C.). It was appealed to the Ontario Court of
Appeal, whose decision is reported in (1961), 62
DTC 1014; 31 D.L.R. (2d) 625 (Ont. C.A.); and
further appealed to the Supreme Court of Canada,
whose decision is reported in [1962] S.C.R. 729;
62 DTC 1236.
In the Bank of Commerce case, the Minister
required information and production of documents
from the Bank relating to the accounts of one of its
customers, the Union Bank of Switzerland. This
differs significantly from the factual situation in
our case, since the transactions of only one account
were being inquired into, and it was named, where
as in our case information about all the transac
tions of all the plaintiff's clients in the commodi
ties securities futures field is being sought, and
none of them has been named. They are described
simply as clients or customers of the plaintiff
(applicant) who have had trading transactions in
the indicated field during the calendar years 1977
to 1979 inclusive. Each of them has an account
number and they are readily identifiable by the
plaintiff (applicant), as are their trading transac
tions.
Morand J., in his judgment in the Supreme
Court of Ontario in the Bank of Commerce case,
said, at page 1265:
It was admitted on the hearing of this motion that the Minister
was acting in good faith and that this requirement (for infor
mation and production) relates to a genuine and serious inquiry
into the tax liability of some specific person or persons; that the
Minister had good reason to believe that such person or persons
are among those referred to in the special case. The Minister
refused to state who the person or persons were or to designate
the person or persons in any way, shape or form.
I note that the parties had agreed to a special
stated case, and that paragraph 11 of the special
case included in the information sought much
private information about the affairs of other per
sons in addition to the Union Bank of Switzerland.
These are the persons referred to in the latter
portion of the quoted extract from Morand J.'s
judgment.
He decided that the plaintiff must furnish the
information and produce the documents as
requested in the requirement.
The majority of the Ontario Court of Appeal
came to the same conclusion, the judgment being
written by Porter C.J.O. The headnote in the DTC
report of the case states the decision as follows:
Held: The appeal was dismissed (one dissenting). The Appel
lant bank was obligated to furnish the information and produce
the documents requested in the Minister's requirement and was
subject to the penalty for failure to comply therewith. Section
126 (2) provides that the Minister may, for any purpose related
to the administration or enforcement of the Act, require from
any person, any information, etc. [Note: Section 126 (2) was
the number of the Section at that date. It is now Section 231
(3).] Although the appellant's own tax liability was not under
investigation, the section conferred on the Minister, when
acting for the specified purpose, the power to require from the
appellant information and documents in its possession which
might relate to the tax liability of third persons. It was conclu
sively shown that the Minister was acting for purposes relating
to the administration or enforcement of the Act and not for
some other purpose unrelated to income tax liability. Since the
Minister was acting for the purposes specified in the Act, his
acts were administrative and not judicial, and as such were not
subject to review. The question whether the Minister, in per
forming his duties, placed upon the Appellant an unnecessarily
onerous burden, was not subject to review.
Schroeder J.A. wrote a strong dissenting judg
ment, based mainly on his view that Parliament
did not intend to confer on the Minister or certain
officials in his Department the full sweeping
powers that a literal interpretation of paragraph
126(2)(b) would indicate, which provision, in his
opinion should be construed as limited to authoriz
ing a demand for information or production either
with reference to a specified person or corporation
or that it be otherwise particularized.
In the Supreme Court of Canada all nine judges
were in agreement that the plaintiff's appeal
should be dismissed. Two judgments were written,
one by Chief Justice Kerwin, concurred in by
Taschereau, Abbott and Judson JJ., the other by
Cartwright J. [as he then was], concurred in by
Locke, Fauteux, Martland and Ritchie JJ. One
difference between them was that the Chief Jus
tice was of the opinion, on the pleadings and
agreed facts, that the Union Bank of Switzerland
was "a person under investigation", whereas Cart-
wright J. held that it might or might not be under
investigation. The significance to the present case
of the difference lies in the fact that the Union
Bank of Switzerland was the only person named in
the requirement for information (though many
other individuals and corporations were referred to
in the stated case). If the Union Bank was not
under investigation, the situation in that case was
more nearly parallel to that with which we are
here concerned, where no person or corporation
has been "named" as being under investigation.
The two judgments were in agreement that in
addressing the requirement to the appellant the
Minister was acting for purposes related to the
administration or enforcement of the Income Tax
Act and that the purpose of the requirement was to
obtain information relevant to the tax liability of
some specific person or persons whose tax liability
was under investigation. Both judgments expressly
agreed with significant findings of Porter C.J.O. in
the Ontario Court of Appeal decision. Neither of
them referred to the judgment of Schroeder J.A. in
that Court, but it is obvious from the judgments
that none of the Judges of the Supreme Court
agreed with his conclusions.
One question still requires consideration,
namely: what is meant by the words "specific
person or persons" as used in the foregoing judg
ments? Do they mean only "named person or
persons"? I think not. In the Bank of Commerce
case the Union Bank of Switzerland was the only
person "named" in the requirement. Cartwright
J.'s finding that that Bank might not be under
investigation does not appear to have caused him
any concern. It was sufficient that many other
persons and corporations were "referred to" in the
stated case, some of whom were under investiga
tion and some not. In my view, in the context of
the statutory provisions and the very wide power
set out in subsection 231(3), these words mean
"person or persons sufficiently described that they
are readily identifiable." They may thus apply to
all persons who are in a described or otherwise
identified group. In the present case there is a
described group, namely: all customers or clients
of the applicant (plaintiff) who had trading trans
actions in the commodities securities market
during the three years in question. The Minister,
by the requirement, is seeking information to
verify the accuracy or otherwise of the income tax
returns of each of those customers or clients for
those three years. Each client's returns must be
dealt with separately from those of all the others.
In my view, each of them may be regarded as a
specific individual, as yet unnamed, whose liability
to income tax is being looked into along with that
of each of the other members of the group. I
therefore conclude that on the facts of this case the
requirements for information made by the Minis
ter should not be regarded as "a fishing expedi
tion." My final conclusion is that the claim of the
applicant that the Minister's decisions or orders
are not genuine and serious inquiries into any
specific tax liability fails.
I turn now to the claim set out in paragraph 3 of
the applicant's originating notices of motion that
subsection 231(3) of the Income Tax Act contra
venes the provisions of subsection 92(13) of The
British North America Act, 1867, as amended and
is not within the legislative competence of Parlia
ment under section 91 or otherwise of the said Act.
As indicated earlier in these reasons this will
include consideration of judgments in some of the
nine cases filed by counsel for the applicant.
The first of these cases is: In re The Insurance
Act of Canada, [1932] A.C. 41. It was the last of a
line of cases, decided by the Privy Council, involv
ing the constitutional validity of insurance legisla
tion, the first of which was The Citizens Insurance
Company of Canada v. Parsons (1881), 7 A.C. 96.
In this latest case the legislation in question was
sections 11 and 12 of the Insurance Act of
Canada, R.S.C. 1927, c. 101 and sections 16, 20
and 21 of the Special War Revenue Act, R.S.C.
1927, c. 179. Sections 11 and 12 of the Insurance
Act prohibited any Canadian or foreign company
and any alien person from carrying on insurance
business in Canada unless under a licence from the
Government of Canada. Other sections provided
penalties for breach of section 11 or 12. Section 16
of the Special War Revenue Act required every
person resident in Canada who insured any prop
erty in Canada with any British or foreign com
pany or underwriter, not licensed under the Insur
ance Act, to pay a tax of five per centum of the net
cost of such insurance to the Government of
Canada. The Judicial Committee of the Privy
Council held that all the sections were ultra vires
the Canadian Parliament.
Viscount Dunedin, delivering the judgment of
the Committee, reviewed the earlier cases and
ended with the following paragraph:
Their Lordships cannot do better than quote and then para
phrase a portion of the words of Duff J. in the Reciprocal
Insurers' case. He says: "In accordance with the principle
inherent in these decisions their Lordships think it is no longer
open to dispute that the Parliament of Canada cannot, by
purporting to create penal sanctions under s. 91, head 27,
appropriate to itself exclusively a field of jurisdiction in which,
apart from such a procedure, it could exert no legal authority,
and that if, when examined as a whole, legislation in form
criminal is found, in aspects and for purposes exclusively within
the Provincial sphere, to deal with matters committed to the
Provinces, it cannot be upheld as valid." If instead of the words
"create penal sanctions under s. 91, head 27" you substitute the
words "exercise taxation powers under s. 91, head 3," and for
the word "criminal" substitute "taxing," the sentence expresses
precisely their Lordships' views.
I agree entirely with the law as stated in the
quoted paragraph. In my opinion, however, it does
not help the applicant, for as stated earlier, I have
found that the Minister, in making his require
ments for information, is doing so for the purpose
of administering and enforcing the Income Tax
Act. There is nothing in the circumstances of this
case that suggests any other purpose. There is no
indication that under the guise of administering or
enforcing the Act the real purpose of subsection
231(3) is to interfere with the provincial power
over property and civil rights under head 13 of
section 92 of The British North America Act,
1867 or with provincial powers under any other
provisions of that Act. The fact that the legislation
affects civil rights does not render it invalid. This
point is illustrated by the second case cited by
counsel, namely, Proprietary Articles Trade Asso
ciation, et al. v. Attorney-General for Canada, et
al., [1931] A.C. 310.
In that case the issue was whether the Combines
Investigation Act, R.S.C. 1927, c. 26 was invalid
in whole or in part and whether section 498 of the
Criminal Code was invalid.
Section 32 of the Combines Investigation Act
made it an indictable offence, punishable by fine
or imprisonment, to be a party to the formation or
operation of a combine which was to the detriment
of the public and restrained or injured trade or
commerce.
Section 498 of the Code made it an indictable
offence, punishable by fine or imprisonment, to
conspire, combine, or agree to unduly limit trans-
portation facilities, restrain commerce, or lessen
manufacture or competition.
The Privy Council held that all the legislation
was infra vires the Parliament of Canada, under
section 91, head 27 (criminal law) of The British
North America Act, 1867. The headnote reads, in
part:
The legislation being in its pith and substance within enumerat
ed heads of S. 91 it was not material that it affected property
and civil rights in the Provinces (S. 92, head 13), or if it
affected, which it did not, the administration of justice in the
Provinces (S. 92, head 14).
The judgment was delivered by Lord Atkin, who
said at pages 326 and 327:
If then the legislation in question is authorized under one or
other of the heads specifically enumerated in s. 91, it is not to
the purpose to say that it affects property and civil rights in the
Provinces. Most of the specific subjects in s. 91 do affect
property and civil rights but so far as the legislation of Parlia
ment in pith and substance is operating within the enumerated
powers there is constitutional authority to interfere with prop
erty and civil rights.
There is no doubt in my mind that subsection
231(3) of the Income Tax Act is, in its pith and
substance concerned with taxation and is therefore
valid under section 91, head 3 of The British
North America Act, 1867.
The third case cited by counsel is an insurance
case, earlier than the first case. It is Attorney-
General for the Dominion of Canada v. Attorney-
General for the Province of Alberta et al., [1916]
1 A.C. 588. Section 4 of the Canadian Insurance
Act, 1910, 9 & 10 Edw. 7, c. 32, provided for a
licence from the Government of Canada as a
prerequisite for carrying on the business of insur
ance in this country. Section 70 provided for a fine
for the first offence of breach of this requirement
and for imprisonment for a second offence. The
judgment of the Privy Council contains a state
ment of the applicable law that has been quoted
and applied on many occasions since then. It was
held [headnote, at pages 588-589]:
... that the legislation was ultra vires of the Parliament of
Canada, since the authority conferred by the British North
America Act, 1867, S. 91, head (2.), to legislate as to "the
regulation of trade and commerce" does not extend to the
regulation by a licensing system of a particular trade in which
Canadians would otherwise be free to engage in the provinces
It was further held:
... since it could not be enacted under the general power
conferred by S. 91 to legislate for the peace, order, and good
government of Canada as it trenched upon the legislative
authority conferred on the provinces by S. 92, head (13), to
make laws as to "civil rights in the province".
Whatever support this judgment might be
thought to afford to the applicant's case is, in my
opinion, on the facts of this case, completely nega
tived by the extract, quoted supra from the judg
ment in the Proprietary Articles case.
The fourth case cited by counsel is In re The
Board of Commerce Act, 1919 and The Combines
and Fair Prices Act, 1919, [ 1922] 1 A.C. 191. The
first of these Acts established the Board of Com
merce. The second authorized the Board to
restrain and prohibit such trade combinations as it
might consider to be detrimental to the public
interest; power also to restrict accumulations of
food, clothing and fuel beyond the reasonable
needs of a private person for his household and of
a trader for his business, and to require the surplus
to be offered for sale at fair prices, with power to
impose criminal sanctions for any breach of the
Act.
The Privy Council held both Acts to be ultra
vires the Parliament of Canada, because they
interfered seriously with "property and civil rights
in the Provinces", a subject reserved exclusively to
the provinces under section 92, head 13 of The
British North America Act, 1867. They were not
authorized by anything in section 91, including
head 2—Trade and Commerce, and head 27—
Criminal Law.
Once again, in my opinion, this case does not
assist the applicant, because of my finding that
subsection 231(3) of the Income Tax Act is valid
federal legislation under head 3 of section 91—
Taxation.
The other cases cited by counsel are:
The fifth —The King v. Imperial Tobacco Company of
Canada Limited, [1938] Ex.C.R. 177.
The sixth —His Majesty The King v. Imperial Tobacco
Company of Canada Limited, [1939] S.C.R.
322, appeal to the Supreme Court of Canada
from the Exchequer Court of the fifth case.
The seventh —Attorney-General for British Columbia v.
Attorney-General for Canada et al., [1937]
A.C. 368.
The eighth —In the Matter of Three Bills Passed by the
Legislative Assembly of Alberta At the 1937
(Third Session) Thereof, Entitled Respec
tively:
"An Act Respecting the Taxation of
Banks";
"An Act to Amend and Consolidate the
Credit of Alberta Regulations Act";
"An Act to Ensure the Publication of
Accurate News and Information", [1938]
S.C.R. 100.
The ninth —Attorney-General for Canada v. Attorney-
General for Ontario et al., [1937] A.C. 355.
Having read the judgments in all these cases I
deem it unnecessary to discuss them for the pur
poses of the matters before me. In my view none of
them assist the applicant (plaintiff).
What we are here concerned with is the validity
of a portion of an Act of the Parliament of
Canada, namely, subsection 231(3) of the Income
Tax Act. In respect of such legislation the funda
mental principle, long established, may be stated
as follows: if legislation enacted by Parliament, in
its pith and substance falls under one or more of
the heads of section 91 of The British North
America Act, 1867, it is valid, and its validity is
not affected by the fact that some head or heads of
section 92, for which legislative authority is vested
exclusively in the provinces, may be affected by it.
Example: head 13—Property and Civil Rights in
the Province; head 16—Generally all Matters of a
merely local or private Nature in the Province. On
the other hand, if in form or in the guise of
legislation under one or more heads of section 91,
it is in pith and substance legislation on a subject-
matter given exclusively to the provinces, it is
invalid.
As indicated earlier in these reasons, in my view
subsection 231(3) of the Income Tax Act clearly
falls within head 3 of section 91—The raising of
Money by any Mode or System of Taxation. It
gives powers to the Minister of National Revenue
that are necessary for the purpose of enabling him
to carry out his duties and responsibilities under
the Income Tax Act. The duty of the Department
to administer and enforce the Act necessarily
involves the duty and responsibility of ascertain
ing, by every reasonable means who owes taxes
and how much he owes. So far as the evidence
goes, the only practical means of ascertaining what
persons are trading in commodities securities, and
which of them have made profits or sustained
losses thereby, and the amounts of such profits or
losses, is by getting the information from the
brokers who handled the transactions. All the
information required from the applicant is needed.
In my view the two requirements made are valid
and reasonable, and their validity is not prejudiced
by the fact that they may cause the applicant a
good deal of inconvenience and expense.
Two or three other points raised in argument by
counsel require brief attention. Counsel for the
applicant referred to the rule that a taxing statute
is to be construed strictly, and cited several cases
in which the rule was applied or discussed. I do not
question the rule and I do not dispute the authority
of the cases cited. However the rule does not mean
that where the words used in a statute have a
clearly expressed meaning they are to be construed
in a narrower sense or to be given a meaning other
than their natural grammatical meaning. I do not
understand any of the cited cases as expressing a
different view of the law.
In the present case, the meaning of subsection
231(3) of the Income Tax Act is quite clear. It
authorizes the Minister, for any of the purposes
described, to demand from any person any infor
mation. In my view those words mean precisely
what they say, the only limitation being that, as
they are found in the Income Tax Act and as the
purpose of the demand for information is the
administration or enforcement of the Act, the
information must be related to income.
Counsel for the applicant also submitted that in
the present case there is no investigation under
way, of the applicant, of any customer of the
applicant, or of anybody, that therefore the Minis
ter was not acting for the purpose of the adminis
tration or enforcement of the Act. Counsel for the
respondent replied by referring to Attorney Gener
al of Canada v. Bélanger (1962), 63 DTC 1289
(Que. Q.B.). In that case a demand had been
served for an income tax return to be filed, which
demand had not been complied with. The Quebec
Court of Queen's Bench reversed the judgment of
the Trial Court, which had dismissed the charge of
failing to file the return as demanded. Ouimet J. at
page 1292, said:
(a) It is not necessary to prove that "the demand is made in
the course of an investigation instituted by virtue of the Income
Tax Act."
(b) A demand for a return of income in accordance with
section 126 (2) [now 231(3)] can be made outside of the course
of an investigation instituted by the Minister or another author
ized person.
Counsel for the applicant pointed out that the
Supreme Court decision in the Bank of Commerce
case, supra, was given a few weeks after the
Bélanger case and of course takes precedence over
the Bélanger decision. I agree that to whatever
extent they conflict, the Bank of Commerce deci
sion prevails. The question is to what extent they
conflict. What the Bélanger case actually decided
was that it was not necessary to conduct an audit,
seize books or documents or commence an investi
gation before demanding an income tax return. I
do not understand the Bank of Commerce decision
to mean that that decision was wrong. In the Bank
of Commerce case it was mutual ground that the
requirement related to a genuine and serious inqui
ry into the tax liability of some specific person or
persons. This was a matter of fact. It was an
important fact in leading the Court to conclude
that the Minister was acting for purposes of the
administration or enforcement of the Act.
Nowhere in any of the judgments in that case is
there a statement of how far the inquiry must have
proceeded before a requirement is authorized, nor
even that it must have started. The word "related"
is just as applicable to an intended inquiry as to
one that is already under way.
Quite apart from what I have said in the forego
ing paragraph, in my opinion this is a genuine and
serious inquiry which it was decided several years
ago was necessary. Having been unable to obtain
the needed information voluntarily the Minister is
now formally seeking to obtain it by the means
provided in subsection 231(3). From the beginning
it has been clear that the Department was seeking
information about the transactions of and profits
made by commodities securities traders. The fact
that this objective has been pursued for so many
years and has reached this stage is pretty conclu
sive evidence that it is a genuine and serious
matter which can certainly be designated as an
inquiry.
I have already expressed supra my view of the
meaning, in the context of the Income Tax Act, of
the words "specific person or persons."
Counsel for the applicant raised a technical
point in connection with the requirement of May
8, 1980. Subsection 231(3) provides that the
requirement shall state that the information or
documents are required "within such reasonable
time as may be stipulated therein". The require
ment of October 8, 1980 specified that the infor
mation be provided by December 8, 1980, which
complied with the statutory provision. That of
May 8, 1980, however, did not specify a date or
period of time, but required that the information
be provided "without delay". Counsel submitted
that these words did not comply with the statute,
which must be construed strictly, and that conse
quently the requirement was invalid.
Counsel for the respondent contended that, in
the context of the particular requirement, the
words "without delay" meant "within a reasonable
time"—"don't drag your feet"—"get on with it",
and thus constituted sufficient compliance with the
statute.
The purpose of the statutory provision is to
ensure that the person from whom the information
is required will have a reasonable time (which will
vary considerably depending on the amount of
information, the time required to collect and com
pile it, and other circumstances) to comply, and
that he will comply within that reasonable time.
The words "without delay" do not comply strictly
with the statute, but in the sense of "within a
reasonable time", which is the meaning courts
have frequently held to be the correct meaning,
and which in my opinion is the right meaning in
the circumstances of this case, they afford the
applicant all the protection intended by the stat
ute. A reasonable time is not exact, as is a stated
period or a terminating date, but it can be ascer
tained for the circumstances of a particular case.
If, in the present case, the information is not
forthcoming and legal proceedings are begun, the
Minister will have to satisfy the Court that a
reasonable period of time for compliance with the
requirement elapsed before the proceedings were
started.
Even in respect of the requirement of October 8,
1980, wherein a period of two months was stated
for compliance, the Minister might well have to
satisfy the Court that two months was a reason
able time. In my view this would be so if an
objection were raised, soon enough, that the period
allowed was not sufficient, and a prima facie case
was made for a longer period.
In my view, in the circumstances of this case,
the purpose of the statutory rule is sufficiently
satisfied by the words "without delay" in the
requirement of May 8, 1980. I very much doubt
that the words "within such reasonable time as
may be stipulated" in subsection 231(3) are
intended to render totally invalid a requirement
worded as is the one in question here, particularly
since there is no ground for concluding that the
applicant has been prejudiced by it or is likely to
be prejudiced by it. My final conclusion is that the
requirement of May 8, 1980 should not be
declared invalid on this ground.
The only remaining matter that requires con
sideration is the claim, in the action begun in this
Court by statement of claim issued on November
20, 1980, that paragraphs 231(3)(a) and (b)
infringe paragraphs 1(a) and 2(e) of the Canadian
Bill of Rights. These paragraphs provide:
1. It is hereby recognized and declared that in Canada there
have existed and shall continue to exist without discrimination
by reason of race, national origin, colour, religion or sex, the
following human rights and fundamental freedoms, namely,
(a) the right of the individual to life, liberty, security of the
person and enjoyment of property, and the right not to be
deprived thereof except by due process of law;
2. Every law of Canada shall, unless it is expressly declared
by an Act of the Parliament of Canada that it shall operate
notwithstanding the Canadian Bill of Rights, be so construed
and applied as not to abrogate, abridge or infringe or to
authorize the abrogation, abridgment or infringement of any of
the rights or freedoms herein recognized and declared, and in
particular, no law of Canada shall be construed or applied so as
to
(e) deprive a person of the right to a fair hearing in accord
ance with the principles of fundamental justice for the deter
mination of his rights and obligations;
In respect of paragraph 1(a) the only thing to
which the claim of infringement could possibly
apply is "the right ... to . .. enjoyment of prop
erty, and the right not to be deprived thereof." All
the Minister is demanding is information. The
requirements do not involve infringement of any-
one's right to enjoyment of property nor do they
involve or threaten that anyone will or may be
deprived of that right. Even if that were not so, the
closing words of paragraph 1(a), "except by due
process of law", are conclusive, in my opinion, to
negative the claim. It is clear from what has been
said earlier that, as I view the facts and the law,
the Minister in making these two requirements is
acting in due process of law.
In respect of paragraph 2(e), if it has any
application to the applicant, the present hearing of
the two motions is designed to ensure a fair hear
ing and I hope and think is doing so. Their clients,
whose right to privacy in relation to their securities
transactions may be affected if the motions are
rejected, are not parties to these proceedings, but
the Court is not unaware of their rights. Always in
cases of this kind there is a conflict between the
private rights of the individual and the purpose
and need of government to be efficient in carrying
out its responsibilities. Striking a balance between
the two is necessary, but concluding which should
prevail is often difficult.
In the present case the needs of the Department
of National Revenue to ascertain and collect,
wherever possible, the income tax which traders in
commodities securities transactions have become
liable to pay, resulting from profits made on those
transactions, are important, possibly of serious
proportions. There are many persons in Canada
who engage in this trade, and sometimes very
substantial profits are made in the course of a
year, and even on single transactions. From the
number of cases in which charges of income tax
fraud come before the courts it seems likely that
on some occasions some trader or traders may
yield to the temptation to not report one or more
trading profits on their income tax returns. The
temptation is no doubt greater in cases where the
profits have been large. The temptation may easily
be great because the risk of discovery may seem
slight. Generally, only the trader and his broker
know, or at least need know, what profits the
trader has made, and only the trader knows, or at
least need know, whether all the profits he has
made from these trading transactions have been
entered on his income tax returns. Whether the
failure to report such profits is deliberate or results
from oversight or some other accidental error, the
end result is loss to the national revenue, part of
which loss is borne by the provinces under the tax
revenue sharing arrangements existing between
Canada and the provinces. The loss in any year to
the several governments may be nil, or insignifi
cant, but on the other hand it may be quite
substantial. Thus the need for the Department to
ascertain the facts of the situation is very real. As
mentioned earlier, the evidence of the respondent
is that the only practical way in which the facts
can be ascertained is by getting the information
from the brokers. This is what the Minister's
requirements of May 8 and October 8, 1980 are
intended to do. No indication or suggestion of any
other practicable way in which the needed infor
mation can be obtained has been presented to the
Court. I therefore accept the respondent's evidence
on this point as correct.
The position of the client traders of the appli
cant, who are not parties to these proceedings but
may be affected by their result, is, in my opinion,
not as serious. The right of the individual to
privacy must yield to the need for efficient opera
tion of government where the situation is suf
ficiently serious to warrant it. Here, information is
being asked, or demanded, concerning their secu
rity trading transactions, which information the
respondent has undertaken to keep strictly confi
dential. To my mind, this means that only the
departmental personnel who are necessarily
required to deal with it will have any knowledge of
what it contains. There should be very little or no
danger that any of it will become a matter of
public knowledge. This undertaking, of course,
does not extend to any case in which the informa
tion obtained is such as to indicate that further
proceedings should be taken. For example, if
criminal or civil proceedings should be commenced
against a trader, in which proceedings the infor
mation which leads to it may be necessary evi
dence, the trader's right to privacy would yield to
the requirements of justice.
In my view, in the circumstances of this case,
the Minister's requirements should not be held to
constitute a breach of paragraph 2(e) of the
Canadian Bill of Rights, with regard to the appli
cant's trading clients. If subsequent proceedings
are taken against any of them, resulting from the
information obtained, they will be fully protected,
under the law, in their right to a fair hearing.
The end result, arrived at with difficulty and not
without doubt, is that the two applications, begun
by the applicant herein by originating notices of
motion dated respectively May 16, 1980 and
November 14, 1980 and filed respectively May 20,
1980 and November 20, 1980, together with the
claim in the action begun by the plaintiff (appli-
cant in the two motions) by statement of claim
dated and filed November 20, 1980, all of which
proceedings were consolidated by order of this
Court on December 10, 1980, are dismissed with
costs. There will be only one set of costs for the
hearing on December 10 and 11, 1980.
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.