Date: 20020130
Docket: 2001-2342-IT-G,
2001-2343-IT-G,
2001-2344-IT-G
BETWEEN:
YVONNE SVASTAL,
PAUL SVASTAL,
PAUL & DOUGLAS AUTOMATIC SPRINKLERS LTD.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bowie J.
[1] The Appellants Yvonne Svastal and Paul Svastal are directors and shareholders of the Appellant Paul & Douglas Automatic Sprinklers Ltd. (P & D). Paul Svastal is also its president. The appeals before the Court are from reassessments under the Income Tax Act (the Act), which the Appellants all allege were made outside the normal reassessment period, and which they say were based on documents and information obtained by the Canada Customs and Revenue Agency (CCRA) in contravention of the Appellants' rights under sections 7 and 8 of the Canadian Charter of Rights and Freedoms. Those sections and section 24, provide:
7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.
8. Everyone has the right to be secure against unreasonable search or seizure.
...
24(1) Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.
24(2) Where, in proceedings under subsection (1), a court concludes that evidence was obtained in a manner that infringed or denied any rights or freedoms guaranteed by this Charter, the evidence shall be excluded if it is established that, having regard to all the circumstances, the admission of it in the proceedings would bring the administration of justice into disrepute.
The amounts of tax involved in these appeals are substantial. According to the Notices of Appeal, some $400,000 was added to the original assessment of P & D for the years 1991 to 1994, and some $115,000 in the case of Yvonne Svastal for the years 1990 to 1993, and some $513,000 in the case of Paul Svastal for the years 1990 to 1993. The Appellants were also assessed penalties under section 163 of the Act. The pleadings in these appeals are closed, and the issues joined include:
a) whether CCRA gathered evidence in breach of sections 7 and 8 of the Charter;
b) whether the reassessments under appeal were made outside the normal reassessment period of three years following the date of the original assessments, as fixed by subsection 153(1.1); and
c) if so, whether the Minister of National Revenue can satisfy the requirements of subsection 152(4).
There is no allegation in the Notices of Appeal that the Appellants had correctly reported their incomes, or that the original assessments of their incomes were correct. They raise only the issues relating to the alleged violations of the Charter in gathering evidence, and to the timeliness of the reassessments.
[2] The motions now before me are brought by the Appellants to secure a determination, before either production of documents or examinations for discovery take place, first, that the CCRA investigation was conducted in breach of the Charter, and second that the appropriate remedy under section 24 of the Charter is to vacate the reassessments under appeal, or alternatively, to exclude all of the evidence obtained in violation of the Charter, including any derivative evidence, to exempt the Appellants from the requirements of production and discovery, and to place on the Respondent the burden of proving the correctness of the reassessments at trial. The Appellants also seek directions which would give them the benefit of production and discovery for purposes of the motions, along with the right to call witnesses at the hearing of the motions, and exempting them from production and discovery pending disposition of the motions. In order that the Appellants' position may be fully understood, I shall set out here in full those parts of the Notice of Motion which describe the relief sought and the grounds for seeking it:
The Motion Is For an order:
(a) vacating the Notices of Reassessment dated July 30, 1997, in respect of the Appellants' 1991, 1992, 1993 and 1994 taxation years (the "Reassessments"), pursuant to section 24(1) of the Canadian Charter of Rights and Freedoms (the "Charter");
(b) in the alternative, pursuant to section 24(2) of the Charter:
(i) excluding from use as evidence at trial any and all evidence obtained by the Minister of National Revenue (the "Minister") in violation of sections 7 or 8 of the Charter;
(ii) excluding from use as evidence at trial any and all material obtained or prepared by the Minister that was directly or indirectly derived from evidence obtained by the Minister in violation of sections 7 or 8 of the Charter;
(iii) directing that there shall be no requirement for production of documents by the Appellants and no examination for discovery of the Appellants by the Respondent; and
(iv) directing that, at trial, the onus shall be on the Respondent to establish the validity of the Reassessments and there shall be no presumption of correctness of those Reassessments.
(c) for directions for the hearing of the motion as follows:
(i) granting leave to the Appellants to examine witnesses at the hearing of the motion in the same manner as at the hearing of an Appeal pursuant to sections 76, 144 and 146 of the General Procedure Rules of the Tax Court of Canada (the "Rules");
(ii) requiring the Respondent to provide documentary production and to attend for examination for discovery before hearing of the motion;
(iii) granting leave to the Appellants to examine for discovery employees and former employees of the Minister or Canada Customs and Revenue Agency having information relevant to the issues on the motion and appeal, before hearing of the motion, as may be required by the Appellants, pursuant to section 99 of the Rules;
(iv) directing that the Appellants are not required to provide documentary production or attend for examination for discovery pending disposition of the motion;
(v) any further directions which may be required for the expeditious hearing of the motion;
(d) for the Appellants' costs of the Motion and Appeal on a solicitor and client basis; and
(e) such further and other relief as this Honourable court deems just.
The Grounds for the Motion Are as follows:
(a) Sections 76, 93, 99, 137, 144 and 146 of the Rules.
(b) The Reassessments were based on information obtained or utilized in violation of sections 7 and 8 of the Charter and the Doctrine of Abuse of Process as follows:
(i) information unlawfully obtained by one or more authorized persons of the Respondent, through the Minister, purportedly acting under section 231.1(1) of the Income Tax Act (the "Act") by audit which was in effect a criminal investigation conducted in the absence of a search warrant;
(ii) the appropriation of the information referred to in subparagraph (i) above by Revenue Canada, Special Investigations (as it was then known), a criminal law enforcement arm of the state, for use in criminal proceedings;
(iii) Search Warrants unlawfully obtained by the Respondent, through the Minister based on the information unlawfully obtained or utilized; or
(iv) other information derived directly or indirectly as a result of the activities described in subparagraphs (i), (ii) or (iii) above.
(c) The information obtained in violation of the Charter was fundamental to the Reassessments. In the absence of such information, there was no basis for the Respondent, through the Minister, to issue the Reassessments. As such, the Appellants say that the Reassessments should be vacated pursuant to subsection 24(1) of the Charter;
(d) The admission into evidence before this Court of evidence obtained by the Minister in contravention of sections 7 or 8 of the Charter would bring the administration of justice into disrepute.
(e) Further, the Notices of Reassessment were made after the Appellants' normal reassessment period, as defined in section 152(3.1) of the Act, for each of the said taxation years;
(f) As a result of the expiry of the Appellants' normal reassessment period, the onus is on the Respondent under section 152(4)(a) of the Act to prove that the Appellants made a misrepresentation attributable to neglect, carelessness or wilful default or committed fraud in filing the return or in supplying any information under the Act;
(g) The said illegally obtained information should be excluded as evidence, pursuant to section 24(2) of the Charter. In the absence of such information, the Respondent has no admissible evidence to discharge its onus of proof as set out in subparagraph (f) above;
(h) In criminal proceedings arising out of the same matters which are the subject of the Reassessments, the Department of Justice failed to provide full and fair disclosure to the Defence and then withdrew the charges at a pre-trial judicial conference prior to the matter proceeding to trial; and
(i) The Appellants' rights under sections 7 or 8 of the Charter will be infringed if the Appellants are required to provide documentary production and submit to examination for discovery without a prior determination of whether the Appellants' Charter rights have been violated and if so, what the appropriate remedy should be.
[3] When the matter came before me, counsel advised that I was asked at this stage only to make orders for directions as requested in paragraphs (c)(i) to (v) of the Notice of Motion.
[4] The Appellants placed some six kilograms of affidavit material before me. The Respondent answered with about two kilograms. I do not propose to comment upon the contents of the affidavits, except to say that they establish two things to my satisfaction. The first is that criminal charges were brought against each of these Appellants, and then subsequently were withdrawn by the prosecution, with the result that there has been no determination as to the applicability of the Charter to the evidence gathered by CCRA in the course of its investigation, nor will there be any in the context of the prosecutions. The second is that there are serious issues between the parties relating to the investigation, which involve disputes as to the facts, and also as to what remedy, if any, is appropriate to be applied under section 24 of the Charter. The trial of those issues is likely to require several days of Court time.
[5] Counsel for the Appellants referred me to several cases in which this Court has dealt with applications to exclude evidence on Charter related grounds. In Donovan[1] and in Norwood,[2] motions were brought at the opening of, or during, the trial to exclude certain evidence. In Jurchison,[3] as here, an application was brought by way of an interlocutory motion for essentially the same relief as is sought here. The Appellants had been prosecuted for tax evasion. In the course of that proceeding a judge of the Provincial Court, on a preliminary motion, had held certain evidence to be inadmissible because it had been obtained in a way that violated the Appellants' rights under section 8 of the Charter, and because to admit it in that proceeding would have brought the administration of justice into disrepute. That decision was affirmed by the Ontario Superior Court, General Division. On hearing the motion in Jurchison, I accepted the decisions of the Ontario Courts that the evidence had been obtained illegally, and ordered that the evidence would be inadmissible at trial, that the Appellants should not be examined for discovery, and that the onus of proof would be on the Respondent at trial to justify the assessments under appeal.
[6] This Order was set aside on appeal. Sexton J.A., for a unanimous Court, held that because the Charter issue had not been raised in the pleadings, the issue was not a proper one to be dealt with by way of a motion under Rule 58. He went further, however, and said:[4]
Normally, the admissibility of evidence is a matter best left to the Trial Judge who, having all the circumstances and evidence before him can make the most informed decision.
As to the part of the Order which provided that the Appellants not be subject to examination for discovery, he said:[5]
... It may well be that certain questions on discovery could be seen to have a genesis in the evidence taken in breach of the taxpayers' rights. However, until such questions are asked no such determination can be made. The Crown has the right to discovery and this right should not lightly be extinguished. In my view, it is preferable to allow the discovery to proceed with the taxpayer being given the right to object to any questions which are felt to have their genesis in the impugned evidence. Then a Motions Judge will be in a better position to assess the propriety of the question.
[7] A motion similar to the one now before me was brought before Mogan J. of this Court in Warawa v. The Queen.[6] That motion was expressly said to be brought pursuant to Rule 58, which permits the Court to determine, before the trial, a question of law raised by a pleading. Mogan J. dismissed the motion on the ground that the question before him was not simply a question of law, but involved issues of fact as well. In doing so he canvassed those authorities, of which the Federal Court of Appeal decision in Jurchison is but one, which recognize the distinction to be made between a criminal proceeding and a civil proceeding such as an income tax appeal (including one in which the Minister has assessed penalties under the Act[7]) when considering the remedies to be granted under section 24 of the Charter, and whether it would bring the administration of justice into disrepute to admit the illegally obtained evidence.
[8] In O'Neil Motors Ltd. v. The Queen,[8] Bowman J., as he then was, vacated certain reassessments on the grounds that the fundamental basis on which they were founded was evidence obtained through an illegal search and seizure. In that case, it was conceded by counsel for the Respondent that the search and seizure in question violated the Appellant's rights under section 8 of the Charter. That conclusion had previously been reached by a judge of the Provincial Court of Newfoundland in a prosecution of the Appellant under section 239 of the Act. It was also conceded by counsel for the Respondent that without the illegally obtained evidence the reassessments could not be sustained. In those circumstances Bowman J. vacated the assessments, but in doing so he said:
I would not want my conclusion in this case to be taken as a wholesale sanctioning of the vacating of all assessments where some component of the Minister's basis of assessment was unconstitutionally obtained information. Other cases may arise in which a simple exclusion of evidence is sufficient, others in which the evidence is of little or no significance in the making of the assessments or where its introduction would not bring the administration of justice into disrepute, or still others in which Suarez solution will commend itself. In the exercise of the discretion vested in the court under section 24 of the Charter one must be vigilant in balancing, on the one hand, the rights of the subject that are protected under the Charter, and on the other, the importance of maintaining the integrity of the self-assessing system. As each case arises these and, no doubt, other factors will play a role and all factors must be assigned their relative weight. In the circumstances of this case I have concluded that the most appropriate exercise of my discretion is to vacate the assessments.
An appeal was dismissed by the Federal Court of Appeal. In giving the unanimous Reasons, Linden J., referring to the passage I have just quoted, said:[9]
I would like specifically to underscore the words of the Tax Court Judge, with which I fully agree, to the effect that this type of extreme remedy must not be considered to be an automatic one, being reserved only for cases of serious violations where other remedies are insufficient.
[9] From these authorities it is clear that issues as to the admissibility of evidence, and other remedies under section 24 of the Charter, should not be dealt with as interlocutory matters except in unusual circumstances. There are no unusual or compelling circumstances in the present case. Indeed, this case is a much less suitable one than Jurchison, in my view. In Jurchison there had been a determination by a Court of competent jurisdiction that certain evidence had been illegally obtained, and that finding had been affirmed on appeal. Both judges used very strong language to condemn the conduct of the Revenue Canada officers. In the present case there has been no such determination. Counsel asserts that the charges against these Appellants were withdrawn because the evidence required to secure convictions was illegally obtained. That may, or may not, be so. It is equally possible that failure to make proper disclosure in accordance with R. v Stinchcombe,[10] or some other reason of which I know nothing, led to the Crown's decision. The subject matter of these motions will, in all probability, occupy several days of trial. The Appellants want to have that trial before they are required to produce documents or submit to discovery. Disclosure of documents by an Appellant under Rule 81 is limited to those documents that assist the Appellant to prove facts alleged in the Notice of Appeal, or to disprove facts alleged in the Reply to the Notice of Appeal. No further production of documents is required without an Order of the Court. So far as examinations for discovery are concerned, the Appellants may object to answer questions that they believe to be inspired by illegally obtained evidence, in accordance with the judgment of the Federal Court of Appeal in Jurchison. Should that happen, then a motions judge may have to rule on the propriety of the question. Objections as to the admissibility of specific evidence will be dealt with by the trial judge, in due course.
[10] The motions are dismissed, with costs of one motion only to the Respondent in the cause.
Signed at Ottawa, Canada, this 30th day of January, 2002.
|
"E.A. Bowie" |
J.T.C.C.
COURT FILE NO.: 2001-2342(IT)G, 2001-2343(IT)G and
2001-2344(IT)G
STYLE OF CAUSE: Yvonne Svastal, Paul Svastal and Paul & Douglas Automatic Sprinklers Ltd. and
Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: January 15, 2002
REASONS FOR ORDER BY: The Honourable Judge E.A. Bowie
DATE OF ORDER: January 30, 2002
APPEARANCES:
Counsel for the Appellants: Brian Heller and Irving Marks
Counsel for the Respondent: David W. Chodikoff
COUNSEL OF RECORD:
For the Appellants:
Name: Brian Heller and Irving Marks
Firm: Heller, Rubel and Robins Appleby & Taub
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2342(IT)G
BETWEEN:
YVONNE SVASTAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on common evidence with the motions of Paul Svastal (2001-2343(IT)G) and Paul & Douglas Automatic Sprinklers Ltd. (2001-2344(IT)G) on January 15, 2002, at Toronto, Ontario, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the Appellant: Brian Heller and Irving Marks
Counsel for the Respondent: David W. Chodikoff
ORDER
UPON motion by the Appellant for an Order vacating the reassessments under the Income Tax Act for the taxation years 1990, 1991, 1992 and 1993; and for other relief in the alternative;
AND UPON reading the pleadings and other material filed;
UPON hearing counsel for the parties;
It is ordered that the Appellant's motion is dismissed, with costs to the Respondent in the cause.
Signed at Ottawa, Ontario, on the 30th day of January, 2002.
|
"E.A. Bowie" |
J.T.C.C.
2001-2343(IT)G
BETWEEN:
PAUL SVASTAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on common evidence with the motions of Yvonne Svastal (2001-2342(IT)G) and Paul & Douglas Automatic Sprinklers Ltd. (2001-2344(IT)G) on January 15, 2002, at Toronto, Ontario, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the Appellant: Brian Heller and Irving Marks
Counsel for the Respondent: David W. Chodikoff
ORDER
UPON motion by the Appellant for an Order vacating the reassessments under the Income Tax Act for the taxation years 1990, 1991, 1992 and 1993; and for other relief in the alternative;
AND UPON reading the pleadings and other material filed;
UPON hearing counsel for the parties;
It is ordered that the Appellant's motion is dismissed, with costs to the Respondent in the cause.
Signed at Ottawa, Ontario, on the 30th day of January, 2002.
|
"E.A. Bowie" |
J.T.C.C.
2001-2344(IT)G
BETWEEN:
PAUL & DOUGLAS AUTOMATIC SPRINKLERS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on common evidence with the motions of Yvonne Svastal (2001-2342(IT)G) and Paul Svastal (2001-2343(IT)G) on January 15, 2002,
at Toronto, Ontario, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the Appellant: Brian Heller and Irving Marks
Counsel for the Respondent: David W. Chodikoff
ORDER
UPON motion by the Appellant for an Order vacating the reassessments under the Income Tax Act for the taxation years 1991, 1992, 1993 and 1994; and for other relief in the alternative;
AND UPON reading the pleadings and other material filed;
UPON hearing counsel for the parties;
It is ordered that the Appellant's motion is dismissed, with costs to the Respondent in the cause.
Signed at Ottawa, Ontario, on the 30th day of January, 2002.
|
"E.A. Bowie" |
J.T.C.C.
[1] Donovan v. The Queen, [1999] 1 C.T.C. 2140 (TCC); varied 2000 DTC 6339 (F.C.A.).
[2] Norwood v. The Queen, [2000] C.T.C. 2900 (T.C.C.); varied 2001 DTC 5111 (F.C.A.).
[3] Jurchison v. The Queen; Norway Insulation Inc. v. The Queen; 2000 DTC 1660 (T.C.C.); reversed 2001 DTC 5301 (F.C.A.).
[4] at paragraph 10.
[5] at paragraph 14.
[6] unreported, 20 December 2001.
[7] Donovan v. The Queen, supra, at 2000 DTC 6339, paragraph (11).
[8] 96 DTC 1486 (T.C.C.); affirmed 98 DTC 6424 (F.C.A.).
[9] supra, at page 6428.
[10] [1991] 3 S.C.R. 326.