Digests

Stanfield v. M.N.R.

T-1554-02

2004 FC 584, Hargrave P.

20/4/04

32 pp.

Concerned about "tax loss arrangements", M.N.R. sent applicant, Stanfield, demand letter in form of questionnaire advising criminal investigation had been undertaken re: promotion of transactions of sort claimed in applicant's income tax return--Indicated applicant not, for time being, under investigation--Stanfield concerned so sought review of Minister's demand for information--Substantial number of other taxpayers joined judicial review proceeding--Applicants seeking declaration request letter unlawful, prohibition restraining M.N.R. from acting against applicants for failure to respond to letter--Relying on R. v. Jarvis, [2002] 3 S.C.R. 757 in which Iacobucci and Major JJ. explained that compliance audits and tax evasion investigations are to be treated differently in that adversarial relationship crystallizes whenever predominant purpose of official inquiry to determine penal liability; at such time officials may no longer have recourse to powerful inspection tools provided by Income Tax Act (ITA), ss. 231.1(1), 231.2(1) and search warrants must be secured--Facts going back to 1998 audit of tax loss arrangement involving currency, commodity transactions straddling year-end, which CCRA's auditor described as method for realizing losses while deferring recognition of income--Auditor decided to review 1999 taxation year returns, but project became national in scope--In 2001, following information sharing, Investigations Division instructed Tax Avoidance Division to cease auditing 1998, 1999 returns--Investigations Division looks into criminal activities--Yet, one year later, Investigations told Tax Avoidance to recommence 1998 audit; notice of reassessment for that year issued--Shortly thereafter, Tax Avoidance told to recommence auditing applicants' 1999, 2000 tax years--Applicants seeking additional documents on which to further cross-examine Crown's deponent (auditor)-- Applicants arguing documents produced not making clear predominant purpose of investigation, whether adversarial situation crystallized so that taxpayers gained right to decline to furnish information--Applicants serving auditor with broadly worded direction to attend (Federal Court Rules, 1998, r. 91)--Seeking virtually all documents on this matter held by CCRA--But r. 91 may not be used to expand document production on judicial review to that of document discovery in action--Judicial review intended as relatively speedy remedy--Document production request that is excessively broad can approach abuse of Court's process--In Merck & Co. Inc. v. Apotex Inc. (1998), 80 C.P.R. (3d) 103, MacKay J. quashed subpoena duces tecum seeking range of documents similar to that sought herein--R. 91 direction to attend cannot be used to obtain full document discovery, as is clear intent herein--Denial of wholesale production not barring applicants from making more limited, specific document requests--What is relevant is more limited in judicial review than in action--In one case, Hugessen J. held cross-examination not examination for discovery: answers are evidence, not admissions; absence of knowledge is acceptable answer and witness cannot be required to inform himself; production of documents can be required only if witness has custody, control of them--Two kinds of relevance recognized: formal and legal--Formal relevance determined by issues of fact separating parties which, in judicial review, are defined by affidavits filed--Deponent's cross-examination confined to facts sworn to--But even if sworn to, fact not having legal relevance unless its existence, non-existence helpful in determining whether remedy sought can be granted--Yet, in Swing Paints Ltd. v. Minwax Company Inc., [1984] 2 F.C. 521 (T.D.), Muldoon J. did indicate affidavit deponent should not be permitted to hide behind skillfully sculpted evidence and should be subject to cross-examination on collateral questions arising from answers, matters as to which witness could be expected to be knowledgeable--In Weight Watchers International Inc. v. Weight Watchers of Ontario Ltd. (No. 2) (1972), 6 C.P.R. (2d) 169 (F.C.T.D.), Heald. J. held that cross-examination not confined within four corners of affidavit--Contrary to the opinion of Hugessen J., Martin J. held, after canvassing case law, in Bland v. National Capital Commission (1989), 29 F.T.R. 232 (F.C.T.D.), that witness could be required to inform himself--It may be that nature of proceedings will mandate slightly fuller production of documents, e.g. where witness is really party's agent-- Improper for lower echelon witness having limited knowledge of events, what is at stake, to hide behind narrow affidavit-- Litigants not to be encouraged to produce marginal witness as would foster injustice, waste time, money of all concerned, including public, Court--F.C.A., in unreported decision, Stella Jones Inc. v. Mariana Maritime S.A., [2000] F.C.J. No. 2033 (C.A.) (QL), broadened cross-examination on affidavit to relevant matters well outside four corners of affidavit and also broadened production of documents to cover material related to previous dealings--Motions Judge had gone wrong in excluding possibility previous dealings might shed relevant light--Crown's argument that, in requiring answers, documents Court should not go back before June, 2002 when Investigations Division apparently decided audit process to be recommenced, rejected--Nature of predominant purpose test considered--S.C.C. suggested open-ended list of factors which may indicate whether line between tax assessment audit, crystallization of adversarial relationship (dominant purpose penal liability determination) crossed--Liberty issue at stake since once information gets into hands of auditor, material available to Investigations Division--No crystallization until formal referral of file to Investigations Division--Court must consider whether investigations returned file having decided only audit required or had another agenda: to allow Audit Division to utilize its easy access to taxpayer's records to secure evidence for use in a prosecution--Here no clear evidence as to whether predominant purpose changed from audit to penal, then reverted to audit--Auditor's evidence under cross-examination far from assurance applicants not at risk of criminal investigation--Indicia that, for practical purposes, adversarial relationship had crystallized--Questionnaire sent by CCRA sought information hard to justify as merely needed for an audit--Fair to say 1998 tax year investigation relevant to three next years as part of investigation covering number of years--Request in direction to attend too broad as fishing expedition, seeking full discovery of documents--File requested, apparently in auditor's filing cabinet, should be produced as relevant bundle of documents as, while outside four corner's of affidavit, would indicate course of conduct on Minister's part, reveal predominant purpose of CCRA inquiries--Auditor must produce meeting minutes in her possession--Directives of Investigations Division to Audit Division to proceed must be produced as may be helpful in determining Minister's predominant purpose--Question as to whether anyone from CCRA's head office at a certain meeting should be answered as proper, relevant: counsel for applicants merely attempting to learn what happened at meeting auditor attended but about which can recall little--Auditor to re-attend for further cross-examination, having informed herself as required by these reasons--In complex cross-examination on affidavit, re-attendance often necessary--That should not necessarily be equated to situation involving contrary witness (who often must re-attend at own expense), but being uninformed can approach that situation--Costs of re-attendance herein costs in cause--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 231.1(1), 231.2(1) (as am. by S.C. 2000, c. 30. s 176)--Federal Court Rules, 1998, SOR/98-106, r. 91.