T-988-87A
T-989-87B
Solvent Petroleum Extraction Inc., Organic
Research Inc., Organic Research Limited Part
nership, Becker Engineering Limited, Union Fars
Equipment, Inc., Seona Wilder, Dara Wilder,
Gerald Byerlay, C & C Auto Truck and Equip
ment Sales Inc., Diversified Machine Tool Inc.
and Ronald Johnson (Applicants)
v.
Minister of National Revenue (Respondent)
INDEXED AS: SOLVENT PETROLEUM EXTRACTION INC. v.
CANADA (M.N.R.)
Trial Division, Dubé J.—Vancouver, February 16
and 24, 1988.
Income tax — Seizures — Motion challenging validity of
search warrants issued by Federal Court Judge — Affidavits
supporting applications for search warrants outlining steps
taken to obtain information, materials required and why —
Applicants already supplying reams of documents, but
respondent wanting more — No discretion not to issue warrant
for non-disclosure of taxpayer's cooperation — Judge shall
issue warrant if satisfied Income Tax Act, s. 231.3 require
ments met — Judge having concluded M.N.R. having no
alternative to seeking warrant — Warrants sufficiently specific
— Statute, as amended, providing for search and seizure
procedure not offending Charter.
Constitutional law — Charter of Rights — Search or sei
zure — Income Tax Act, s. 231.3 eliminating defects of former
s. 231(4) as outlined in Re Print Three Inc. et al. and the
Queen (1985), 20 C.C.C. (3d) 392 (Ont. C.A.) — New search
and seizure procedure within reasonable limits prescribed by
law under Charter, s. 1.
These were motions to quash warrants to enter and search
the applicants' premises. The applications for the warrants were
supported by detailed affidavits, setting out the materials
required and the reasons why they were required. The warrants
were challenged on four grounds: 1) the issuing Judge had not
been informed that the documents sought had already been
willingly produced 2) Revenue Canada had other means of
getting the information it sought 3) the warrants were too
general and too vague 4) the warrants offended sections 7 and 8
of the Charter.
Held, the motions should be denied.
Although the applicants had supplied reams of documents,
the respondent wanted more and if the requirements of subsec-
tion 231.3(3) of the Income Tax Act have been met, the Judge
shall issue the warrant. Neither the issuing judge nor the
reviewing judge should attempt to decide whether the taxpayers
have sufficiently cooperated or whether more documents are
required to complete the investigation. It was only fraud, or
perhaps an absence of any evidence, that could vitiate a war
rant issued under this section.
As to the second issue, the Judge who issued the warrant
must have concluded from the considerable information at his
disposal that all reasonable steps had been taken by the Depart
ment and that the final alternative was to apply for warrants to
obtain the information it needed to pursue its investigation. The
reviewing judge should not interfere with that discretion.
As to the third ground, the warrants were sufficiently specif
ic in the circumstances. They described particulars of all the
offences that the affiant had reasonable grounds to believe were
committed, the premises to be searched, and gave a general
description of each type of document, followed by the items
under investigation to which it related. The standard of "rea-
sonable grounds to believe" refers merely to the civil standard
of reasonable probability.
Finally, as to the fourth ground, the additional safeguards
afforded by the new section 231.3 of the Income Tax Act make
the search and seizure procedure acceptable and within the
"reasonable limits prescribed by law" under section 1 of the
Charter. The new section 231.3 eliminates the deficiencies of
the former subsection 231(4) as set out in Re Print Three Inc.
et al. and the Queen, and for which it was found to be ultra
vires as it contravened section 8 of the Charter.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
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. 7, 8.
Competition Act, R.S.C. 1970, c. C-23 (as am. by S.C.
1986, c. 26, s. 19).
Criminal Code, R.S.C. 1970, c. C-34, s. 443.
Federal Court Rules, C.R.C., c. 663, R. 320.
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 231, 231.3
(as enacted by S.C. 1986, c. 6, s. 121).
CASES JUDICIALLY CONSIDERED
APPLIED:
McLeod and Red Lake Supermarkets v. The Queen
(Supreme Court of Ontario, O'Leary J., October 1987).
DISTINGUISHED:
Re Pacific Press Ltd. and The Queen (1977), 37 C.C.C.
(2d) 487 (B.C.S.C.).
CONSIDERED:
Hellenic Import-Export Co. et al. v. M.N.R. et al.,
[1987] 1 C.T.C. 281 (B.C.S.C.); Hellenic Import-Export
Company Limited et al. v. M.N.R. et al. (No. 2) (1987),
87 DTC 5299; [1987] 2 C.T.C. 36 (B.C.S.C.); Re
Church of Scientology and The Queen (No. 4) (1985), 17
C.C.C. (3d) 499 (Ont. H.C.); Canada (Director of Inves
tigation and Research) v. Calgary Real Estate Board
Co-operative Ltd., [1987] 3 F.C. 676 (T.D.); McIntosh
Paving Co. et al. v. Hunter, Director of Investigation &
Research of Combines Investigation Branch et al. (1987),
15 C.P.R. (3d) 500 (Ont. H.C.); Re United Distillers
Ltd. (1946), 88 C.C.C. 338 (B.C.S.C.); Re Times Square
Book Store and The Queen (1985), 21 C.C.C. (3d) 503
(Ont. C.A.); Re Print Three Inc. et al. and The Queen
(1985), 20 C.C.C. (3d) 392 (Ont. C.A.); Minister of
National Revenue v. Kruger Inc., [1984] 2 F.C. 535; 13
D.L.R. (4th) 706; 84 DTC 6478 (C.A.); confg. [1984] 1
F.C. 120; (1983), 150 D.L.R. (3d) 176 (T.D.).
REFERRED TO:
Wilson v. The Queen, [1983] 2 S.C.R. 594; Vespoli, D. et
al. v. The Queen et al. (1984), 84 DTC 6489 (F.C.A.); R.
v. DeBot (1986), 54 C.R. (3d) 120 (Ont. C.A.).
COUNSEL:
M. R. V. Storrow, Q.C. and M. O. MacLean
for applicants.
P. W. Halprin, Q.C. for respondent.
SOLICITORS:
Davis & Company, Vancouver, for applicants.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for order ren
dered in English by
DUBÉ J.: These motions challenge the validity of
warrants to enter and search the premises of the
applicants issued by Mr. Justice John C. McNair
in May, 1987.
The applications for those warrants were sup
ported by lengthy affidavits of Maurice Kin
Chung Ma, a registered industrial accountant
working for the Department of National Revenue,
at the Vancouver District Office. The affidavits set
out in great detail the materials required and the
reasons why they are required. With the support
material, they fill four large binders. Mr. Ma was
cross-examined by the applicants before the hear
ing of the instant motion. The warrants are chal
lenged on four separate grounds with which I will
deal separately.
First, the applicants claim that full disclosure of
the information available to the respondent was
not made to McNair J. resulting in material non-
disclosure. Basically, the applicants contend that
the documents sought had already been willingly
produced, that there had been voluntary compli
ance and that, generally, the applicants had co
operated fully with the respondent: that informa
tion was not brought to the attention of the Judge
and resulted in material non-disclosure.
At the opening of the hearing, counsel for the
applicants moved to file an affidavit of Robert
James Crump, a counsel for one of the applicants.
Counsel for the respondent objected to the late
filing, and with good cause, as Rule 320 [Federal
Court Rules, C.R.C., c. 663] specifies that such an
affidavit must be filed at least two clear days
before the hearing. However, I allowed the filing
of the affidavit on condition that the affiant be
produced for cross-examination if required by the
respondent.
In his affidavit the affiant alleges inter alia, that
"all documents requested by Revenue Canada
employees prior to the issuance of the warrants in
dispute in this matter were turned over to Revenue
Canada". In response, I allowed the respondent to
examine viva voce an officer of the Department,
Mr. William Lucas, a supervisor who was familiar
with the file. His version of the events, and most
particularly of the last meeting held between
departmental officers and counsel for the appli
cants on October 1, 1986, varied with that of Mr.
Crump. He produced a memo that he prepared
immediately after that meeting wherein it appears
that the discussions were not particularly harmoni
ous and that counsel for the applicants had refused
to produce some documents.
In one instance Mr. Lucas, according to his own
memo, reminded Mr. Crump of "the outstanding
demand". Mr. Crump replied that "our defense
[sic] in court will be that Wilder gave you the
information previously and that it was unreason
able to have to do it again". My appreciation of
the situation is that the applicants did indeed
supply reams of documents but that the respon
dent wanted more.
The applicants rely on a Supreme Court of
British Columbia decision, Hellenic Import-
Export Co. et al. v. M.N.R. et al., [1987] 1 C.T.C.
281. The Judge who had granted the application
for warrants under section 231 of the Income Tax
Act [S.C. 1970-71-72, c. 63] had not been
apprised of what had transpired between the
respondent and the petitioners and their solicitors
and more particularly of the fact that the petition
ers' solicitor was informed by the investigating
officer that no further documents were required.
Madam Justice Proudfoot quashed the warrants
on the basis of material non-disclosure. She said,
at page 284, that:
The failure to disclose the material facts referred to matters
which were not of a trivial or technical nature to the judge who
signed the warrant, and is in itself, fatal ... It was not for the
informant, for whatever reason, to make the decision as to what
Callaghan, J. would be told.
However, another Judge of the same Court took
a different position in Hellenic Import-Export
Company Limited et al. v. M.N.R. et al. (No. 2)
(1987), 87 DTC 5299; [1987] 2 C.T.C. 36
(B.C.S.C.). Madam Justice Southin said as follows
at pages 5305 DTC; 46 C.T.C.:
As I have indicated, I think that only fraud or perhaps an
absence of any evidence can vitiate a warrant issued under this
section. With the greatest of deference, I do not agree with
much of what Madam Justice Proudfoot said in her reasons
quashing the earlier warrant.
The applicants also rely on Re Pacific Press
Ltd. and The Queen (1977), 37 C.C.C. (2d) 487
wherein Nemetz C.J. of the B.C. Supreme Court
quashed a search warrant issued under the Crimi
nal Code [R.S.C. 1970, c. C-34]. He said, at page
495, that:
The issuing of any search warrant is a serious matter,
especially when its issuance against a newspaper may have, as
it did, the effect of impeding its publication ... the Justice of
the Peace "should have reasonable information before him to
entitle him to judicially decide whether such warrant should
issue or not". In my opinion, no such reasonable information
was before him since there was no material to show:
1. whether a reasonable alternative source of obtaining the
information was or was not available, and
2. if available, that reasonable steps had been taken to obtain it
from that alternative source.
In that case, it appears that there was no ma
terial information before the Justice as to what
steps had been taken to obtain the information. In
the case at bar, as mentioned earlier, there are
very substantial affidavits outlining all steps taken
to obtain the information from the applicants.
In a recent case before the Supreme Court of
Ontario, McLeod and Red Lake Supermarkets v.
The Queen, wherein O'Leary J. gave oral reasons
in October, 1987, the complaint of the applicant
was that there had been a non-disclosure, "that the
applicant co-operated" and had turned over
"numerous records". The applicant argued that
the first judge had therefore the discretion not to
issue the warrant. The third paragraph of the
transcript of the oral reasons for judgment reads
as follows:
I am of the view there is no such discretion in the judge. If he is
satisfied that the requirements of s. 231.3(3) have been met,
then the statute says he shall issue the warrant. At that point it
is of no consequence that the judge thinks that the Director
already has enough evidence or that the taxpayers would allow
the search and deliver the documents without the warrant.
I share the view expressed by O'Leary J. It was
not for the first judge nor is it for me to decide
whether or not the taxpayers have sufficiently
co-operated and whether or not the investigators
need more documents to complete their investiga
tion.
This takes us to the second ground advanced by
the applicants, namely that Revenue Canada had
other means of getting the information it sought
than by applying for warrants to enter and search.
Of course, I must not substitute my own discretion
for that of McNair J. (see Wilson v. The Queen,
[1983] 2 S.C.R. 594, at page 608). Obviously, he
must have concluded from the considerable infor
mation placed at his disposal that all reasonable
steps had been taken by the Department and that
the final alternative was to apply for warrants so
as to obtain the information it needed to pursue its
investigation.
In Re Church of Scientology and The Queen
(No. 4) (1985), 17 C.C.C. (3d) 499, the Ontario
High Court of Justice held that on an application
to quash a search warrant the Court is limited to
defects in jurisdiction which, however, could
include a case where the search warrant was
obtained by means involving fraud: the application
for leave to adduce such evidence must be based
upon allegations of deliberate falsehood or omis
sion or reckless disregard for the truth.
In Canada (Director of Investigation and
Research) v. Calgary Real Estate Board Co
operative Ltd., [1987] 3 F.C. 676 (T.D.), I
reviewed the jurisprudence in the matter of the
right to cross-examine the affiant on his affidavit
leading to a warrant under the Competition Act
[R.S.C. 1970, c. C-23 (as am. by S.C. 1986, c. 26,
s. 19)]. I found, along with the Supreme Court of
Ontario in Re Church of Scientology, supra, that
there is a presumption of validity with respect to
an affidavit supporting the application for a search
warrant. I endorsed as well the decision of that
same Court in McIntosh Paving Co. et al. v.
Hunter, Director of Investigation & Research of
Combines Investigation Branch et al. (1987), 15
C.P.R. (3d) 500 (Ont. H.C.) to the effect that
before cross-examination should be permitted an
allegation of deliberate falsehood or omission or
reckless disregard for the truth with respect to
essential material should be made and should be
established before a warrant is quashed.
If the judge is satisfied that there are reasonable
grounds to believe that an offence has been com
mitted and that documents establishing the offence
are likely to be found in the designated premises,
he issues the warrant essential to the search and
seizure.
I now turn to the third ground, namely that the
warrants are too general and too vague and do not
comply with the materials before McNair J. The
applicants first rely on Re United Distillers Ltd., a
British Columbia Supreme Court decision (1946),
88 C.C.C. 338 (B.C.S.C.) wherein Farris C.J.
quashed a warrant on the following grounds, at
page 344:
I find that the warrant to search was issued without there
being contained in the information sufficient material to entitle
the Justice of the Peace acting in a judicial capacity to issue the
warrant. I also find that the description of the documents as
contained in the warrant itself was insufficient, and in addition
thereto it was left to the discretion of the police as to what
documents should be seized. I also find that on the warrant
itself the description of the offence committed was so vague and
general as not to enable the person whose premises were being
searched to know the exact object•of the search. I accordingly
direct that the said warrant to search is hereby quashed.
Those same principles were taken up by the
Ontario Court of Appeal in Re Times Square
Book Store and The Queen (1985), 21 C.C.C.
(3d) 503 (Ont. C.A.). This more recent decision
confirmed the principle that the judge acting as an
independent judicial officer must be satisfied on a
balance of probabilities that there are to be found
on the specified premises items which will afford
evidence that an offence as defined by the Crimi
nal Code has been committed. The Court added
further that the warrant should be reasonably
specific when dealing with books and magazines.
The Court found that the information to obtain
the warrant in that case was sufficient but that the
warrant itself was defective in that the particulars
pertaining to the location of the unnamed maga
zines and the scenes shown on their covers were
not included in the warrant. As a result of those
omissions, more was left to the discretion of the
police officers to determine what is obscene than is
acceptable.
In another Ontario Court of Appeal decision of
the same year, Re Print Three Inc. et al. and The
Queen (1985), 20 C.C.C. (3d) 392 the Court was
dealing with search and seizure under the former
subsection 231(4) of the Income Tax Act and the
court went along with two decisions of the Federal
Court of Appeal, Minister of National Revenue v.
Kruger Inc., [1984] 2 F.C. 535; 13 D.L.R. (4th)
706; 84 DTC 6478; and Vespoli, D. et al. v. The
Queen et al. (1984), 84 DTC 6489 to the effect
that subsection 231(4) is in violation of section 8
of the Canadian Charter of Rights and Freeedorns
[being Part I of the Constitution Act, 1982,
Schedule B, Canada Act 1982, 1982, c. 11(U.K.)]
ultra vires. (I will return to the Kruger decision
later.)
In Print Three, the Court however dealt with
the respondents' secondary position that the search
warrants issued under the Criminal Code lacked
the necessary specificity required by section 443
and by the authorities. They had argued that the
warrants were drawn in such broad terms that
they breached the respondent's rights to be safe
from unreasonable search and seizure guaranteed
by section 8 of the Charter. Their position was
that the Income Tax inspector had already con
ducted an exhaustive investigation of the respond
ent's records and referred to three instances of
possible breaches of the Income Tax Act in their
information: the warrants should have been limited
to the few documents relating to those breaches.
The warrants in that instance described distinct
categories of items to be searched and were
restricted to specific years. The descriptions con
cluded with the words "relating to or necessary for
the determination of taxable income and tax pay
able". The Court found that because of the extent
and complexity of business affairs made possible
by modern technology and merchandising meth
ods, it was impossible to define with more preci
sion the documents sought in those cases. On that
ground, the Court held that having regard to the
nature of the offence, there was sufficient
specificity and particularity in the warrants and in
that regard did not breach section 8 of the
Charter.
The warrants attacked in these motions before
me are quite elaborate. They first describe the
particulars of all the offences that the affiant has
reasonable grounds to believe were committed by
the various parties who are now the applicants.
Then, in each case, they describe the premises to
be searched. To each warrant there is attached an
appendix which outlines the research projects
involved, the relevant period to which the docu
ments pertain and a general description of each
type of document. The descriptions conclude with
the words "relating to or necessary for the deter
mination of". Thereafter follow the items under
investigation, such as scientific research expendi
tures, taxable income and tax payable under the
Income Tax Act. In my view, these warrants show
sufficient specificity in the circumstances.
The standard of "reasonable ground to believe"
is not to be equated with proof beyond reasonable
doubt as in a criminal offence, but merely the civil
standard of reasonable probability (see R. v.
DeBot (1986), 54 C.R. (3d) 120 (Ont. C.A.), at
page 132).
Finally, the fourth ground advanced by the
applicants is that the warrants offend the Canadi-
an Charter of Rights and Freedoms and in par
ticular sections 7 and 8.
In Kruger Inc. v. Minister of National Revenue,
Canada, [1984] 1 F.C. 120; (1983), 150 D.L.R.
(3d) 176 (T.D.) I found that the former subsection
231(4) of the Income Tax Act dealing with search
and seizure was in contravention of the Charter
and therefore ultra vires. That decision was con
firmed by the Federal Court of Appeal [ 1984] 2
F.C. 535; 13 D.L.R. (4th) 706; 84 DTC 6478
(C.A.). Pratte J., speaking for the majority put the
question and gave his answer as follows at pages
549 F.C.; 716-717 D.L.R.; 6483 DTC:
What is challenged is the constitutionality of that subsection in
so far as it confers on the Minister, when he has grounds to
believe that one particular offence has been committed, the
power to authorize a general search and seizure relating to the
violation of any of the provisions of the Income Tax Act.
However, I cannot accept the general proposition that the mere
fact that a taxpayer has, at a particular time, committed an
offence under the Income Tax Act or the Regulations, however
trifling that offence, affords sufficient justification for the
general power of search and seizure conferred by subsection
231(4). In my view, that subsection violates section 8 of the
Constitution Act, 1982 in that it contravenes the right of the
taxpayer "to be secure against unreasonable search or seizure".
In the Print Three case aforementioned, Mac-
Kinnon A.C.J. canvassed the jurisprudence and
the grounds for holding the subsection in breach of
section 8 of the Charter. For convenience, these
grounds may be outlined as follows:
(i) The section authorized entry to search for all documents
that may afford evidence to any violation of the Act;
(ii) This section authorized entry to search for all documents
that may afford evidence to the violation of a regulation
respecting the Act;
(iii) It did not provide for an independent arbiter;
(iv) There was no requirement that the authorizing authority
be satisfied on reasonable grounds that an offence had been
committed;
(v) It did not require a belief that evidence was likely to be
found at the place of the search;
(vi) There was no requirement that the grounds of the Minister
as to his belief be presented to the Judge;
(vii) This section provided no direction as to what was to be
issued by the Judge in granting approval, (i.e. was it to be a
Warrant?);
(viii) The Minister was not required in the authorization to
specify the things to be searched for.
The new section 231.3 [as enacted by S.C. 1986,
c. 6, s. 1211 was clearly designed by Parliament to
meet those objections. The amended provision now
provides these safeguards:
(i) For an independent arbiter (a judge) to issue the warrant;
(ii) That the warrant should be in writing with contents as
specified in subsection 4;
(iii) That the warrant may only issue for an offence under the
Act; offences under the Regulations having been dropped;
(iv) That the judge must be satisfied on reasonable grounds
that an offence under the Act has been committed and that
evidence is likely to be found at the place of the search and that
such grounds be presented on oath to the judge;
(v) The warrant is required to be reasonably specific as to any
document or thing to be searched for and seized;
(vi) The judge is permitted on his own motion or on summary
application by an interested person to order the return of any
document or thing seized, if
(a) it will not be required for an investigation for a criminal
proceeding, or
(b) if it was not seized in accordance with the warrant.
It is true that subsection 231.3(5) still provides
that a person may seize "in addition to the docu
ment or thing referred to in subsection (1), any
other document or thing that he believes on
reasonable grounds affords evidence of the com
mission of an offence under this Act". But, in my
view, the additional safeguards afforded by the
new section 231.3 clearly make the search and
seizure procedure acceptable and within the "rea-
sonable limits prescribed by law" under section 1
of the Charter.
Consequently, the motions to quash are denied
and any orders of the Court with regards to the
sealing of documents obtained pursuant to the
search warrants are vacated subject to the claims
for solicitor/client privileges with respect to docu
ments seized from the premises of Walsh Micay
and Company in Winnipeg and Clark Dymond
Crump in Calgary. The Crown is not seeking costs
and none will be granted. Both sides have request
ed a twenty-day stay of proceedings to allow for
possible appeals, which request is hereby granted.
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.