Date: 20001220
Docket: T-2407-96
BETWEEN:
GEORGE WILLIAM HARRIS
Plaintiff
- and -
HER MAJESTY THE QUEEN and
THE MINISTER OF NATIONAL REVENUE
Defendants
REASONS FOR ORDER AND ORDER
HENEGHAN J
[1] Her Majesty the Queen and the Minister of National Revenue (the "Defendants") seek directions pursuant to rule 54 of the Federal Court Rules, 1998, SOR/98-106 (the "Rules") governing the procedure to be followed in this action. Specifically, the Defendants seek directions on the following matters:
| 1. Directions that the documents listed in Schedule "2" of the affidavit of Mike Hiltz (the "documents") are subject to statutory privilege under subsection 241(1) and (2) of the Income Tax Act, R.S.C. 1985, c. I (5th Supp.) (the "Act"). |
| 2. Directions that these proceedings are not legal proceedings relating to the administration and enforcement of the Act as defined by paragraph 241(3)(b) of the Act. |
| 3. Directions that the documents are immune from disclosure on the ground that there is a specified government interest pursuant to section 37 of the Canada Evidence Act, R.S.C. 1985, c. C-5, as amended. . |
| 4. Directions that the documents are privileged on the basis of case-by-case privilege. |
| 5. If privilege does not apply, directions that the documents and the information in them as well as the evidence concerning them are to be treated as confidential under rules 29, 151 and 152 of the Rules. |
FACTS
[2] For the purpose of dealing with this Notice of Motion, the facts can be stated briefly. George William Harris ("the Plaintiff") is a member of an unincorporated public interest group called "Choices". Choices is an organization interested in social justice and fiscal matters. The interest of its members in an advance tax ruling issued by the Minister of National Revenue in 1991, concerning the apparent beneficial tax treatment of a Canadian resident trust following its relocation outside the country, gave rise to the present litigation.
[3] The ruling in favour of the unidentified taxpayer meant that the change of residence for the trust would not attract income tax liability. The ruling by Revenue Canada, now Canada Customs and Revenue Agency, was subject to a ten year waiver allowing Revenue Canada to reverse its position.
[4] This ruling only became public in 1996 upon the release of the report by the Auditor General. In 1996, the Auditor General issued a "strongly worded" report criticizing the 1996 ruling and the apparent secretness with which it was made. The report also criticized the lack of documentation associated with the ruling and the fact that the taxpayer who obtained the 1996 ruling was bolstered by a non-public 1985 ruling also in its favour.
[5] Following the release of the Auditor General's report, Choices requested that the Attorney General refer the 1991 ruling to a court. There was no response by the Attorney General. Mr. Harris, a member of Choices, then issued a statement of claim relying on the Auditor General's criticism and requested a declaration about the legality of the 1991 ruling.
[6] This matter has already received judicial attention, since the Attorney General brought a motion to strike the statement of claim on the grounds that it disclosed no reasonable cause of action and that Mr. Harris lacked standing to bring this action.
[7] The motion was allowed by Giles A.S.P. and the statement of claim stricken out. That order was successfully appealed to the Trial Division where Muldoon J. found that the test to determine standing was satisfied.1 The ruling of the Trial Division was upheld by the Federal Court of Appeal2. Application for leave to appeal was dismissed by the Supreme Court of Canada on October 26, 2000, without reasons.
[8] Following dismissal of the application for leave to appeal to the Supreme Court of Canada, the action is now proceeding to trial. This means that the parties must complete pre-trial steps, including discovery of documents and oral discovery examinations. The Defendants have prepared an Affidavit of Documents which contain various schedules referring to documents which are relevant to this proceeding. The documents described in Schedule "2" are said to be subject to privilege against disclosure.
ISSUE
[9] The primary matter at issue in the present notice of motion for directions concerns the applicability of section 241 of the Act. This motion was precipitated by a recent request by counsel for the Plaintiff for disclosure of the identity of the taxpayer who is the subject of the 1991 tax ruling, together with the disclosure of all communications, including the request for the advance tax ruling, between the taxpayer and the Minister. This request was made to counsel for the Defendants by a letter dated November 28, 2000 from counsel for the Plaintiff.3
ARGUMENTS
Defendants' Submissions
[10] The Defendants object to the provision of this information on several grounds. In the first place, the Defendants say that this request by counsel for the Plaintiff represents a complete change of the position presented to date in the statement of claim filed by the Plaintiff, and in various pleadings submitted to the Federal Court Trial Division upon appeal of the order of the Prothonotary, to the Federal Court of Appeal and to the Supreme Court of Canada.
[11] The Defendants object to the disclosure of this information. The Defendants say that the Plaintiff intends to use this information for exactly the purpose rejected by the Federal Court of Appeal in Kastner v. Painblanc [1994] F.C.J. no. 1671, DRS 95-01978, Appeal no. A-39-94, where Hugesson J.A., speaking for the Court, said at paragraph 4:
| . . . An action at law is not a fishing expedition and a plaintiff who starts proceedings simply in the hope that something will turn up abuses the Court's process.4 |
[12] Second, the Defendants argue that the requested information is confidential taxpayer information, the disclosure of which is prohibited.
[13] The Defendants raise three arguments against the disclosure of this information. First, the Defendants say that section 241 of the Act, supra, is a complete statutory bar to the disclosure of this information. Second, the Defendants argue that the information is immune from disclosure by virtue of section 37 of the Canada Evidence Act, supra. The Defendants rely on the certificate filed by Roy Shultis, the Director General, Income Tax Rulings Directorate in the Policy and Legislation Branch, in support of their claim of public interest immunity. Finally, the Defendants submit that the requested communications are privileged under the case-by-case privilege recognized by common law.
[14] The Defendants say that the information in question is confidential taxpayer information which was provided to the Minister in confidence and in the expectation that it would remain confidential. The Defendants claim that the unidentified taxpayer, like any other taxpayer, is entitled to the expectation, bolstered by the Act, that this information would remain confidential. The Defendants argue that the release of confidential taxpayer information would be detrimental to the effective enforcement of the self-reporting income tax regime in Canada. The Defendants further argue that section 241(3)(b) of the Act merits a narrow interpretation, limited to those situations concerning proceedings taken by or against a particular taxpayer with respect to his or her own tax liability. In this regard the Defendants rely on the minority decision of the Supreme Court of Canada in Slattery (Trustee of) v. Slattery5
Plaintiff's Submissions
[15] On the issue of a change in the Plaintiff's position concerning revelation of confidential material, the Plaintiff replies that he personally is not looking for any confidential information. Rather, the information is sought by counsel for the Plaintiff in order to assist the Plaintiff in proving the allegations set out in the statement of claim.
[16] The Plaintiff relies on the characterization of the Plaintiff's claim, set forth by the Federal Court of Appeal in its decision, at paragraph 60 as follows:
| [60] In my view, Mr. Harris' statement of claim raises a justiciable issue. His claim that the Minister of National Revenue acted illegally or improperly or for ulterior motives, namely favouritism and preferential treatment by way of a covert deal when he interpreted the provisions of the Act in favour of a specific trust, raises a question of a potential violation of the Act that a court may assess by reference to the Minister's duty to follow the Act "absolutely," as this Court held in Ludmer.6 |
[17] The Plaintiff says that he is entitled to prove the cause of action identified by the Federal Court of Appeal and in order to do so, his counsel requires the identity of the taxpayer. In oral submissions, counsel for the Plaintiff provided fuller details as to why he requires the identity of the taxpayer.
[18] In the words of counsel, the Federal Court of Appeal refers to the Plaintiff's cause of action as alleging a covert operation. Counsel for the Plaintiff says that the identity of the taxpayer is relevant to this aspect of the Plaintiff's claim and that it is necessary information. At the same time, the Plaintiff and his counsel agree to abide by any confidentiality order that might be issued by this Court in connection with the disclosure of the requested information and that such compliance would include non-disclosure of the taxpayer's identity to the Plaintiff, personally.
[19] As for the arguments against disclosure on the basis of section 241(3) of the Act, the Plaintiff submits that this action falls squarely within the exception recognized in section 241(3)(b), being a proceeding for the administration and enforcement of the Act. The Plaintiff says that his claim is for maladministration of the Act arising out of preferential and beneficial treatment of one taxpayer in circumstances which are not generally available to all taxpayers, and that the Minister wrongfully and illegally failed to apply the provisions of the Act.
[20] The Plaintiff concedes that the information in question is taxpayer information but argues that neither the prohibition in section 241(3) nor the public interest immunity provision in section 37 of the Canada Evidence Act, supra, apply in this case to prevent disclosure of the material in question. Finally, the Plaintiff argues that the case by case privilege arguments made by the Defendants are no different than the argument advanced under the Canada Evidence Act. The Plaintiff says that the provisions of the Act govern the issue at hand and if the documents are admissible within the exception in section 241(3)(b), then other claims to privilege fall.
ANALYSIS
[21] The first argument raised by the Defendants against the disclosure of the taxpayer information, that is concerning a change in the Plaintiff's position, is more in the nature of a complaint than an argument. The Plaintiff justifiably relies on the decision of the Federal Court of Appeal in characterizing his cause of action as being a claim of maladministration of the Act. In my opinion, the Court of Appeal understood that the pursuit of this action would require access to taxpayer information, as well as access to departmental memoranda and the like.
[22] I am not persuaded that the Plaintiff has commenced this action simply as a fishing trip. He has successfully weathered the issue of public interest standing in the Federal Court Trial Division, Federal Court of Appeal and in the Defendants' unsuccessful application for leave to appeal to the Supreme Court of Canada. In any event, protections can be put in place to allow the disclosure of the taxpayer's name to Plaintiff's counsel but not to the Plaintiff personally. This situation is contemplated by rule 152 of the Rules.
[23] The Defendants' argument on a putative change in position by the Plaintiff, is rejected.
[24] As for the second ground of objection, that is the statutory and common law protection against disclosure of confidential taxpayer information, these arguments rest on the question whether this action relates to the "administration and enforcement of the Act" as these words are used in section 241(3)(b) of the Act.
[25] Section 241 of the Income Tax Act provides as follows:
| 241. (1) Except as authorized by this section, no official shall (a) knowingly provide, or knowingly allow to be provided, to any person any taxpayer information; (b) knowingly allow any person to have access to any taxpayer information; or (c) knowingly use any taxpayer information otherwise than in the course of the administration or enforcement of this Act, the Canada Pension Plan, the Unemployment Insurance Act or the Employment Insurance Act or for the purpose for which it was provided under this section. (2) Notwithstanding any other Act of Parliament or other law, no official shall be required, in connection with any legal proceedings, to give or produce evidence relating to any taxpayer information. (3) Subsections 241(1) and 241(2) do not apply in respect of (a) criminal proceedings, either by indictment or on summary conviction, that have been commenced by the laying of an information or the preferring of an indictment, under an Act of Parliament; or (b) any legal proceedings relating to the administration or enforcement of this Act, the Canada Pension Plan, the Unemployment Insurance Act or the Employment Insurance Act or any other Act of Parliament or law of a province that provides for the imposition or collection of a tax or duty. |
| 241. (1) Sauf autorisation prévue au présent article, il est interdit à un fonctionnaire: a) de fournir sciemment à quiconque un renseignement confidentiel ou d'en permettre sciemment la prestation; b) de permettre sciemment à quiconque d'avoir accès à un renseignement confidentiel; c) d'utiliser sciemment un renseignement confidentiel en dehors du cadre de l'application ou de l'exécution de la présente loi, du Régime de pensions du Canada, de la Loi sur l'assurance-chômage ou de la Loi sur l'assurance-emploi, ou à une autre fin que celle pour laquelle il a été fourni en application du présent article. (2) Malgré toute autre loi ou règle de droit, nul fonctionnaire ne peut être requis, dans le cadre d'une procédure judiciaire, de témoigner, ou de produire quoi que ce soit, relativement à un renseignement confidentiel. (3) Les paragraphes (1) et (2) ne s'appliquent: a) ni aux poursuites criminelles, sur déclaration de culpabilité par procédure sommaire ou sur acte d'accusation, engagées par le dépôt d'une dénonciation ou d'un acte d'accusation, en vertu d'une loi fédérale; b) ni aux procédures judiciaires ayant trait à l'application ou à l'exécution de la présente loi, du Régime de pensions du Canada, de la Loi sur l'assurance-chômage ou de la Loi sur l'assurance-emploi ou de toute autre loi fédérale ou provinciale qui prévoit l'imposition ou la perception d'un impôt, d'une taxe ou d'un droit. |
[26] For present purposes, sections 241(3)(b) is the critical section. If section 241(3)(b) applies to the requested information, then the information can be disclosed.
[27] The information in question is clearly taxpayer information. This point has been conceded by the Plaintiff, but in any event, there is no other way to describe the information in issue. Obviously, it is information which was provided by the taxpayer to the Minister and his officials for the purpose of obtaining an advance tax ruling.
[28] As well, there is no doubt that an advance tax ruling is something which falls within the scope of the Act. The point was decided by Rip T.C.C.J. in Owen Holdings Ltd. v. The Queen, 97 D.T.C. 380 (T.C.C.).
[29] As for whether the release of this information, in some form, falls within the exception provided in section 241(3)(b) of the Act, I turn to the decision of Slattery (Trustee of) v. Slattery, supra, where the Supreme Court of Canada stated the purposes and policy underlying section 241:
| In my view, s. 241 involves a balancing of competing interests: the privacy interest of the taxpayer with respect to his or her financial information, and the interest of the Minister in being allowed to disclose taxpayer information to the extent necessary for the effective administration and enforcement of the Income Tax Act and other federal statutes referred to in s. 241(4). |
| Section 241 reflects the importance of ensuring respect for a taxpayer's privacy interests, particularly as that interest relates to a taxpayer's finances. Therefore, access to financial and related information about taxpayers is to be taken seriously, and such information can only be disclosed in prescribed situations. Only in those exceptional situations does the privacy interest give way to the interest of the state. |
| As alluded to already, Parliament recognized that to maintain the confidentiality of income tax returns and other obtained information is to encourage the voluntary tax reporting upon which our tax system is based. Taxpayers are responsible for reporting their incomes and expenses and for calculating the tax owed by Revenue Canada. By instilling confidence in taxpayers that the personal information they disclose will not be communicated in other contexts, Parliament encourages voluntary disclosure of this information. The opposite is also true: if taxpayers lack this confidence, they may be reluctant to disclose voluntarily all of the required information (Edwin C. Harris, Canadian Income Taxation (4th ed. 1986), at pp. 26-27.7 |
[30] In my opinion, the present case falls squarely within the "exceptional situations" contemplated by the Supreme Court of Canada in Slattery, supra. This case raises allegations directly focused on the administration and enforcement of the Act. These issues, which focus on the general implementation of the Act, are of such importance to the Canadian public that the privacy interests of the individual must give way to the interests of the state. In my opinion, the present case falls within the exception found in section 241(3)(b) of the Act.
[31] The Defendants are asking the Court to adopt and apply the opinion expressed by McLachlin J. (as she then was) in Slattery, supra. Speaking for the minority, she expressed the view that the exemption found in section 241(3)(b) should be limited to "proceedings specifically provided for in the Income Tax Act".8
[32] Nevertheless, it is the majority opinion, written by Iacobucci J., which is binding on the Court. He spoke about the scope of section 241(3)(b) at as follows:
| The connecting phrases used by Parliament in s. 241(3) are very broad. The confidentiality provisions are stated not to apply in respect of proceedings relating to the administration or enforcement of the Income Tax Act. |
| (...) |
| So, both the connecting phrases of s. 241(3) suggest that a wide rather than narrow view should be taken when considering whether a proposed disclosure is in respect of proceedings relating to the administration or enforcement of the Income Tax Act.9 |
| (Emphasis added.) |
[33] In light of this broad interpretation, it appears that the present action, which challenges the manner in which the Act was interpreted by the Minister when the tax ruling in question was made, clearly falls within the exception found in section 241(3)(b). The Act is one of general application and is intended to apply to all taxpayers in the same way.
[34] Finally, in light of the following statements by the Federal Court of Appeal, this Court cannot allow the Minister to employ section 241 for the purpose of avoiding allegations of "maladministration" of the Act. In The Queen v. Diversified Holdings Limited, 91 D.T.C. 5029 (F.C.A.) at p. 5031, Décary J.A. made the following comments:
| Section 241 cannot be interpreted in a vacuum. The legislative intent, admittedly, is the protection of the confidentiality of information given to the Minister for the purposes of the Income Tax Act. The privilege is not established in favour of Revenue Canada but in favour of those, particularly the taxpayer, who give information to the Minister on the understanding that such information will remain confidential. |
| (...) |
| Section 241 was not enacted for the purpose of helping the Minister out of a negligence claim that has been brought against him. Should there be anything remaining confidential in the documents in question, the taxpayer himself or any concerned person could object to their production. |
| (Emphasis added.) |
[35] The claim for public interest immunity rests on section 37 of the Canada Evidence Act, supra. Section 37(1) and 37(2) provide as follows:
| 37. (1) A minister of the Crown in right of Canada or other person interested may object to the disclosure of information before a court, person or body with jurisdiction to compel the production of information by certifying orally or in writing to the court, person or body that the information should not be disclosed on the grounds of a specified public interest. Where objection made to superior court (2) Subject to sections 38 and 39, where an objection to the disclosure of information is made under subsection (1) before a superior court, that court may examine or hear the information and order its disclosure, subject to such restrictions or conditions as it deems appropriate, if it concludes that, in the circumstances of the case, the public interest in disclosure outweighs in importance the specified public interest. |
| 37. (1) Un ministre fédéral ou toute autre personne intéressée peut s'opposer à la divulgation de renseignements devant un tribunal, un organisme ou une ersonne ayant le pouvoir de contraindre à la production de renseignements, en attestant verbalement ou par écrit devant eux que ces renseignements ne devraient pas être divulgués pour des raisons d'intérêt public déterminées. Opposition devant une cour supérieure (2) Sous réserve des articles 38 et 39, dans les cas où l'opposition visée au paragraphe (1) est portée devant une cour supérieure, celle-ci peut prendre connaissance des renseignements et ordonner leur divulgation, sous réserve des restrictions ou conditions qu'elle estime indiquées, si elle conclut qu'en l'espèce, les raisons d'intérêt public qui justifient la divulgation l'emportent sur les raisons d'intérêt public invoquées lors de l'attestation. |
[36] On the issue of public interest immunity, I refer to the decision of the Supreme Court of Canada in R. v. Snider, [1954] S.C.R. 479. In that case, the Minister of National Revenue objected, by means of an affidavit, to the production of the income tax returns of the accused and the giving of oral evidence on the grounds that such production would be injurious to the public interest. The Court held that the Minister's affidavit was not conclusive on the issue.
[37] The British Columbia Court of Appeal followed Snider in a civil case, in Gronlund v. Hansen (1968), 64 W.W.R. 74, 68 D.L.R. (2d) 223 (B.C.C.A.). The Court found that the Minister's affidavit in support of a claim for public interest immunity was not conclusive.
[38] In the present case, the certificate of Roy Shultis was submitted in support of the Defendants' claim of public interest immunity in relation to the information sought by the Plaintiff. In my opinion, the opinion of the Defendant Minister as to the alleged injury to the public interest flowing from disclosure of this information, is not binding on me. The exception provided in section 241(3)(b), to the general bar against disclosure of taxpayer information, overrides the public interest immunity which is claimed here. In my opinion, the public interest lies in determining whether the Minister discharged his statutory duty in applying the Act.
[39] Similar reasoning applies, in my opinion, to the submissions made about the applicability of the common law privilege against disclosure of information which has been provided on a confidential basis. The issue of the common law case by case privilege was considered in detail by the Supreme Court of Canada in M.(A.) v. Ryan, [1997] 1 S.C.R. 157.
[40] In Ryan, supra, the Supreme Court of Canada considered the common law principles underlying the recognition of privilege from disclosure of confidential information and the application of the Canadian Charter of Rights and Freedoms to those principles.
[41] The Supreme Court of Canada acknowledged that the class of information which can be subject to a claim of privilege is not closed and claims of privilege are to be assessed in relation to the circumstances giving rise to the claim, as well as in relation to the established principles governing the exclusion of relevant evidence on the basis of privilege. However, the decision in Ryan, supra, is not determinative here.
[42] In the present case, the Defendants are not seeking to extend privilege to a new class of evidence. They are already equipped with a general protection against disclosure of taxpayer information in section 241 of the Act. However, that barrier will fall if the requested information is subject to section 241(3)(b) and that question has already been answered. The submissions on the basis of the common law case-by-case privilege do not operate to rebuild the wall.
[43] Likewise, I am not persuaded that the common law privilege concerning delivery of information in confidence overrides the section 241(3)(b) exception. After all, that provision of the Act is specifically directed to the issue of disclosure of confidential information. By its nature, let alone by definition, information provided by a taxpayer is confidential. The Act makes provision, in exceptional circumstances, for disclosure of that information. In the circumstances of this case, I find that the common law privilege discussed by the Supreme Court of Canada in Ryan, supra, does not add anything to the Defendants' position.
[44] The Defendants, in their Notice of Motion and their submissions, ask that the taxpayer be given the opportunity to make representations concerning the scope of any order which may be made pursuant to rules 151 and 152 of the Rules. At the same time, throughout their submissions, counsel for the Defendants continually emphasized that they were speaking on behalf of the taxpayer in making those submissions against the disclosure of the information in question.
[45] As stated repeatedly by the Defendants, no allegations have been made against the taxpayer and the taxpayer is not a party to these proceedings. The Statement of Claim alleges wrong-doing on the part of the Minister, not on the part of the taxpayer.
[46] That being so, the arguments on behalf of the taxpayer concerning the release of the information, have already been put before the court.
[47] In conclusion, I find this present action is one for the "administration and enforcement" of the Act. The exception provided for in section 241(3)(b) applies and the Defendants shall disclose the requested information, subject to rules 151 and 152 of the Rules. The Defendants shall disclose the name of the taxpayer to the Solicitor of the Plaintiff only, upon provision of the written undertaking required by rule 152 that the information will not be provided to any person, including the Plaintiff, except to any solicitor who may be assisting in the conduct of this litigation.
[48] The relevant material in the control of the Defendants, as "control" is interpreted in accordance with the Rules of this Court and related jurisprudence, will be made available to counsel for the Plaintiff, in a redacted form to eliminate irrelevant details but with sufficient detail to allow the Plaintiff to conduct meaningful discovery. All such material will be marked "confidential" in accordance with rule 152.
[49] All oral discoveries will be subject to the provisions of rules 151 and 152. Since these directions apply to the conduct of pre-trial steps, including discovery of documents and oral discovery examinations, rule 29 does not apply, since discovery proceedings are not normally public hearings.
[50] The following directions will be issued:
| 1. The documents listed in Schedule "2" of the Affidavit of Mike Hiltz are not subject to statutory privilege under subsection 241(1) and (2) of the Act. |
| 2. That these proceedings are legal proceedings relating to the administration and enforcement of the Act as defined by paragraph 24(3)(b) of the Act. |
| 3. That the documents are not immune from disclosure on the ground that there is a specified government interest pursuant to section 37 of the Canada Evidence Act. |
| 4. That the documents are not privileged on the basis of case-by-case privilege. |
| 5. That the documents and the information in them as well as the evidence concerning them are to be treated as confidential under rules 151 and 152 of the Federal Court Rules, 1998. |
"E. Heneghan"
J.F.C.C.
OTTAWA, ONTARIO
December 20, 2000
__________________1Harris v. Canada, [1999] 2 F.C. 392 (T.D.).
2Harris v. Canada, [2000] 4 F.C. 37 (C.A.).
3Defendants' Motion Record, page 455.
4Kastner v. Painblanc [1994] F.C.J. No. 1671, DRS 95-01978, Appeal No. A-39-94.