Judgments

[1997] 3 F.C. 40

A-55-97

Angelo Del Zotto and Herbert B. Noble (Appellants) (Plaintiffs)

v.

Her Majesty the Queen in Right of Canada, the Minister of National Revenue, John Edward Thompson and D. Reilly Watson (Respondents) (Defendants)

Indexed as: Del Zotto v. Canada (C.A.)

Court of Appeal, Strayer and MacGuigan JJ.A. and Henry D.J.—Toronto, May 12, 13 and 14; Ottawa, June 10, 1997.

Constitutional law — Charter of Rights — Criminal process — Appeal from dismissal of actions for declarations Income Tax Act, s. 231.4 contravening Charter, s. 8 — S. 231.4 permitting Minister to authorize inquiry into anything relating to administration, enforcement of Act — After indicating intention to charge Del Zotto with tax evasion under s. 239(1)(a), (d), Revenue Canada commencing s. 231.4 inquiry — Only Noble subpoenaed — Appeal allowed — S. 8 right evolving into right to reasonable security of one’s privacy — Intrusiveness of search, gathering of evidence for prosecution of taxpayer determining whether preconditions for search established in Hunter et al. v. Southam Inc. apply — S. 231.4 inherently oriented towards criminal prosecution — Trial Judge not giving sufficient weight to fact inquiry criminal investigation — Search involving order to appear for examination under oath with documents sufficient for violation of s. 8 — Any threatened seizure bringing s. 8 into play — Since s. 8 protecting privacy rights of people, not places, Del Zotto having reasonable expectation of privacy over documents, information held by others at different places — Right to privacy protected prior to actual physical search, i.e. as soon as any government action threatens security of individual’s privacy interest — S. 231.4 struck down as violating Charter, s. 8.

Income tax — Seizures — Appeal from trial judgment dismissing actions for declarations Income Tax Act, s. 231.4 contravening Charter, ss. 7, 8 — S. 231.4 permitting Minister to authorize inquiry into anything relating to administration, enforcement of Act — Revenue Canada proposing to charge Del Zotto with tax evasion under s. 239(1)(a),(d) — S. 231.4 inquiry commenced — Only Noble summoned as witness — Appeal allowed — S. 231.4 inquiry inherently oriented towards criminal prosecution — Trial Judge not giving adequate weight to fact inquiry criminal investigation — Possibility Del Zotto could be subpoenaed — Reasonable expectation of privacy in peril from beginning of inquiry — Given inherent orientation of s. 231.4, any threatened seizure sufficient to bring s. 8 into play — Unlimited investigation into financial affairs over six years revealing many aspects of private life — Revenue Canada must have reasonable, probable cause to set up criminal inquiry into financial affairs of taxpayer — As violating Charter, s. 8, s. 231.4 struck down.

This was an appeal from a Trial Division judgment dismissing actions for declarations that Income Tax Act, section 231.4 contravened Charter, sections 7 and 8. Section 231.4 permits the Minister to authorize an inquiry into anything relating to the administration or enforcement of the Act. A hearing officer appointed to conduct an inquiry has all the powers conferred on a commissioner by the Inquiries Act, sections 4 and 5, i.e. the power to summon witnesses, including the same power as a court of record to enforce the attendance of witnesses and to compel them to give evidence. The appellant, Del Zotto, was suspected of tax evasion. In 1986 Revenue Canada began an investigation into his financial affairs and in 1991 departmental officials advised him that they proposed to charge him with tax evasion under paragraphs 239(1)(a) and (d). In late 1992 National Revenue appointed an inquiry officer and obtained the appointment of a hearing officer. Del Zotto was advised that an inquiry would be made into his financial affairs for the years 1979 to 1985 inclusive. The inquiry got under way but Del Zotto was not summoned as a witness, although it was acknowledged that he might be. The appellant, Noble, was summoned to appear with all documents in his possession or control relating to the financial affairs of Del Zotto for the taxation years in question.

Charter, section 7 guarantees the right not to be deprived of life, liberty or security of the person except in accordance with the principles of fundamental justice. Section 8 guarantees the right to be secure against unreasonable search or seizure.

Held, (Strayer J.A. dissenting), the appeal should be allowed.

Per MacGuigan J.A. (Henry D.J. concurring): An inquiry under section 231.4 is inherently oriented towards criminal prosecution, based not on the labels used but on what is really in question in such a proceeding, i.e. on the values of criminality or innocence in play.

The right to be secure against unreasonable searches and seizures under Charter, section 8 has evolved into a right to the reasonable security of one’s privacy. The locus classicus for section 8 is Hunter et al. v. Southam Inc. wherein it was held that section 8 must be broadly and liberally construed to effect its purpose, which is to secure a person’s right to a reasonable expectation of privacy against governmental encroachments. In the absence of exigent circumstances, section 8 requires prior authorization by a judicial officer as a precondition to a criminal law seizure, on a standard of reasonable and probable grounds both as to the commission of an offence and as to the evidence to be afforded by the search.

What determines whether the principles and guidelines in Hunter apply is the intrusive nature of the search in question and the gathering of evidence for the prosecution of the taxpayer. The Trial Judge correctly concluded that “a full weighing of all the circumstances [was] required”, but he did not give adequate weight to the focussed criminal investigation in the case at bar, and was unduly influenced by Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission) in relation to the lesser form of intrusion and the low degree of expectation of privacy for business affairs which he had analyzed to exist. It was enough for a violation of section 8 if the proposed search involves an order to appear for examination under oath with documents (subpoena duces tecum), under the principle that section 8 confers an entitlement to a reasonable expectation of privacy. It was unnecessary to wait for Del Zotto to be subpoenaed. His right to a reasonable expectation of privacy was in peril from the time the inquiry began. A trigger is needed for the invocation of Charter, section 8, which does not apply in the absence of a search or seizure. Given the inherent orientation of section 231.4 towards criminal prosecution, any threatened seizure is sufficient to bring section 8 into play.

Since section 8 protects the privacy rights of people, not places, Del Zotto had a reasonable expectation of privacy over documents and information held by other people at different places. An investigation into all cash received and all cash spent is necessarily, in today’s modern world, a window into most of a person’s private life. The combination of forced documentary production and forced oral testimony can be particularly intrusive. The right to privacy is protected in advance of any physical search, that is, as soon as any government action threatens the security of the individual’s privacy interest. National Revenue has no right to conduct a criminal investigation into the financial affairs of taxpayers merely by setting up an inquiry under section 231.4, a procedure which establishes no safeguards for the taxpayer. What is required for validity is a judicial inquiry based upon reasonable and probable cause, the normal standard for criminal investigation.

No justification under Charter, section 1 having been advanced, section 231.4 violated Charter, section 8 and had to be struck down.

Per Strayer J.A. (dissenting): Characterization as a criminal process did not mean that the preconditions for a search as established by the Supreme Court in Hunter et al. v. Southam Inc. had automatically to be met before an inquiry under section 231.4 could be commenced. It is only when particular uses of the subpoena power by such an inquiry, or particular subsequent uses of evidence obtained through such subpoenas threaten to endanger Charter, section 7 or 8 rights that those rights should be invoked.

A subpoena issued to Noble would not per se invade Del Zotto’s right to know the Crown’s “case to meet”. In the absence of evidence as to the relationship between Del Zotto and Noble, there was no reason for the Court to assume that any question put to, or document demanded from Noble, would disclose Del Zotto’ś defence to a charge which had not yet been laid. There is a proper time and method for protecting an accused’s rights against self-incrimination, but this was not it.

The rights in section 8 apply differently depending on the reasonable expectation of privacy in respect of the subject-matter and the nature of the intrusion on such privacy. Such factors go to the reasonability of any seizure.

One had to look at the total context of the process to determine whether a statutory scheme is “regulatory” or “criminal”. The “context” in which these matters must be judged involves a number of factors: the nature and the purpose of the legislative scheme whose administration or enforcement is in question; the mechanism for discovery or mandatory production employed and the degree of its potential intrusiveness; and the availability of judicial supervision. All of these factors must be considered in determining whether a seizure, real or potential, would be unreasonable within section 8. The predominant purpose of the inquiry was to seek evidence for possible prosecution of Del Zotto under paragraphs 239(1)(a) and (d). Those paragraphs were designed to ensure compliance with the self-reporting requirements of the Income Tax Act and those paragraphs have been characterized as part of what is really a regulatory scheme.

In comparison with a search, a subpoena duces tecum does not result in a major intrusion upon one’s privacy. Furthermore, the only subpoena duces tecum issued herein was directed to Noble. Any documents which he may have had concerning Del Zotto’s financial affairs were presumably no longer private to Del Zotto; but whether they were, because of some relationship between him and Noble, was a matter to be explored on evidence before the hearing officer. Further, a subpoena duces tecum can be attacked generally or in respect of a particular document either before the hearing officer or, if necessary, on judicial review, if it can be demonstrated that in the particular circumstances someone’s constitutional right is about to be violated. Objections could then be raised as to the relevance of a particular document to the legitimate purposes of the inquiry.

There was no basis for declaring section 231.4 invalid. Theoretical and potential invalid uses or consequences of the use of section 231.4 do not justify a declaration of total invalidity. Nothing had as yet happened in this inquiry to justify a declaration of its invalidity. Although the terms of reference of the inquiry were unnecessarily broad, it was open to Noble or Del Zotto to insist that these terms be confined in their application to the scope of subsection 231.4 so that personal documents having nothing to do with the collection of income tax would not need to be produced. The time for a witness to object is when the Crown seeks to use his own evidence against him. Thus the time for raising the objection was not at the inquiry, but at any subsequent trial of Del Zotto. If a person is called at an inquiry, he can successfully object to testify if the predominant purpose is to obtain evidence to incriminate him. Here that predominant purpose in respect of Del Zotto has been admitted, but Del Zotto has not yet been called and may never be called.

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.) [R.S.C., 1985, Appendix II, No. 44], ss. 1, 7, 8, 11, 13.

Combines Investigation Act, R.S.C. 1970, c. C-23, ss. 17, 34 (as am. by S.C. 1974-75-76, c. 76, s. 16).

Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44], s. 52(1).

Criminal Code, R.S.C., 1985, c. C-46.

Federal Court Act, R.S.C., 1985, c. F-7, s. 28.

Income Tax Act, R.S.C. 1952, c. 148 (as am. by S.C. 1970-71-72, c. 63, s. 1), ss. 231(3),(7),(8),(12), (13),(14),(15), 231.4 (as enacted by S.C. 1986, c. 6, s. 121), 239 (as am. by S.C. 1988, c. 55, s. 182; c. 61, s. 25).

Income Tax Act (The), S.C. 1948, c. 52, s. 115(4).

Income War Tax Act, 1917 (The), S.C. 1917, c. 28, s. 8(3).

Inquiries Act, R.S.C., 1985, c. I-11, ss. 4, 5.

Public Inquiries Act, R.S.O. 1980, c. 411.

Securities Act, S.B.C. 1985, c. 83.

Tobacco Tax Act, R.S.O. 1990, c. T.10.

CASES JUDICIALLY CONSIDERED

APPLIED:

Baron v. Canada, [1993] 1 S.C.R. 416; (1993), 99 D.L.R. (4th) 350; 78 C.C.C. (3d) 510; 18 C.R. (4th) 374; 13 C.R.R. (2d) 65; [1993] 1 C.T.C. 111; 93 DTC 5018; 146 N.R. 270; affg [1991] 1 F.C. 688 (1991), 91 DTC 5055; 122 N.R. 47 (C.A.); Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 425; (1990), 65 D.L.R. (4th) 161; 54 C.C.C. (3d) 417; 29 C.P.R. (3d) 97; 76 C.R. (3d) 129; 47 C.R.R. 1; 106 N.R. 161; 39 O.A.C. 161; Starr v. Houlden, [1990] 1 S.C.R. 1366; (1990), 68 D.L.R. (4th) 641; 55 C.C.C. (3d) 472; 110 N.R. 81; 41 O.A.C. 161; Schreiber v. Canada (Attorney General), [1997] 2 F.C. 176 (C.A.).

DISTINGUISHED:

British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3; (1995), 123 D.L.R. (4th) 462; [1995] 5 W.W.R. 129; 4 B.C.L.R. (3d) 1; 60 B.C.A.C. 1; 97 C.C.C. (3d) 505; 7 C.C.L.S. 1; 38 C.R.R (4th) 133; 27 C.R.R. (2d) 189; 180 N.R. 241; 99 W.A.C. 1.

CONSIDERED:

Yang v. R. (1996), 31 O.R. (3d) 66 (Gen. Div.); Del Zotto v. Canada (Minister of National Revenue — M.N.R.), [1993] F.C.J. No. 885 (C.A.) (QL); Hunter et al. v. Southam Inc., [1984] 2 S.C.R. 145; (1984), 55 A.R. 291; 11 D.L.R. (4th) 641; [1984] 6 W.W.R. 577; 33 Alta. L.R. (2d) 193; 27 B.L.R. 297; 14 C.C.C. (3d) 97; 2 C.P.R. (3d) 1; 41 C.R. (3d) 97; 9 C.R.R. 355; 84 DTC 6467; 55 N.R. 241; R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627; (1990), 68 D.L.R. (4th) 568; 55 C.C.C. (3d) 530; 76 C.R. (3d) 283; 47 C.R.R. 151; [1990] 2 C.T.C. 103; 90 DTC 6243; 106 N.R. 385; 39 O.A.C. 385; R. v. S. (R.J.), [1995] 1 S.C.R. 451; (1995), 121 D.L.R. (4th) 589; 96 C.C.C. (3d) 1; 36 C.R. (4th) 1; 26 C.R.R. (2d) 1; 177 N.R. 81; 78 O.A.C. 161; R. v. Dyment, [1988] 2 S.C.R. 417; (1988), 73 Nfld. & P.E.I.R. 13; 55 D.L.R. (4th) 503; 229 A.P.R. 13; 45 C.C.C. (3d) 244; 66 C.R. (3d) 348; 38 C.R.R. 301; 10 M.V.R. (2d) 1; 89 N.R. 249; R. v. Plant, [1993] 3 S.C.R. 281; (1993), 145 A.R. 104; [1993] 8 W.W.R. 287; 12 Alta. L.R. (3d) 305; 84 C.C.C. (3d) 203; 24 C.R. (4th) 47; 17 C.R.R. (2d) 297; 157 N.R. 321; 55 W.A.C. 104; Cock v. Attorney-General (1909), 28 N.Z.L.R. 405 (C.A.); R. v. Colarusso, [1994] 1 S.C.R. 20; (1994), 110 D.L.R. (4th) 297; 87 C.C.C. (3d) 193; 26 C.R. (4th) 289; 19 C.R.R. (2d) 193; 49 M.V.R. (2d) 161; 162 N.R. 321; 69 O.A.C. 81.

REFERRED TO:

R. v. Norway Insulation Inc. (1995), 28 O.R. (3d) 432; [1995] 2 C.T.C. 451; 29 C.R.R. (3d) 163; 95 DTC 5328 (Gen. Div.); R. v. Harris, R. (1995), 95 DTC 5653 (B.C.S.C.); R. v. Jarvis, [1997] A.J. No. 214 (Alta. Prov. Ct.) (QL); R. v. Soviak, [1997] O.J. No. 1215 (Prov. Div.) (QL); Guay v. Lafleur, [1965] S.C.R. 12; (1964), 47 D.L.R. (2d) 226; [1964] C.T.C. 350; 64 DTC 5218; Phillips v. Nova Scotia (Commission of Inquiry into the Westray Mine Tragedy), [1995] 2 S.C.R. 97; (1995), 124 D.L.R. (4th) 129; 31 Admin. L.R. (2d) 261; 39 C.R. (4th) 141; 180 N.R. 1; R. v. Kabbebe, [1997] A.Q. No. 273 (Que. C.A.) (QL).

APPEAL from the Trial Division judgment (Del Zotto v. Canada, [1997] 2 F.C. 428 (1997), 143 D.L.R. (4th) 340 (T.D.)) dismissing actions for declarations that Income Tax Act, section 231.4 contravened Charter, sections 7 or 8. Appeal allowed.

COUNSEL:

Edward L. Greenspan, Q.C. and David W. Stratas for appellant Angelo Del Zotto.

Mahmud Jamal and Alan D. Gold for appellant Herbert B. Noble.

Ivan S. Bloom, Q.C. and Gordon S. Campbell for respondent Her Majesty the Queen in right of Canada.

Graham F. Pinos, Q.C. for respondent D. Reilly Watson.

SOLICITORS:

Greenspan & Associates, Toronto, and Osler, Hoskin & Harcourt, Toronto, for appellant Angelo Del Zotto.

Osler, Hoskin & Harcourt, Toronto and Gold & Fuerst, Toronto, for appellant Herbert B. Noble.

Deputy Attorney General of Canada for respondent Her Majesty the Queen in right of Canada.

Graham F. Pinos, Q.C., Toronto, for respondent D. Reilly Watson.

The following are the reasons for judgment rendered in English by

Strayer J.A. (dissenting): I have had the opportunity to read a draft of the reasons of my colleague MacGuigan J.A. and I regret that I am unable to agree with him. Instead I would dismiss the appeal because I am in agreement with the reasoning of the learned Trial Judge [[1997] 2 F.C. 428.

The Trial Judge rejected the appellants’ action for declarations, based on section 7 and section 8 of the Charter [Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]]. With respect to section 7 his conclusions were essentially to the effect that any guarantees under that section related to self-incrimination and as Del Zotto, the “target” of the inquiry and the person the Crown hopes to prosecute, has not been subpoenaed it is at best premature to invoke section 7. With respect to section 8 he concluded that having regard to the context in which the subpoena duces tecum is being used, the regulatory context of the inquiry, and the limited intrusiveness of such a subpoena, there is no unreasonable seizure involved at the stage of the issue of the subpoena. I adopt his reasoning and the comments which follow are simply an elaboration of certain aspects considered by him.

Briefly put I am unwilling to accept that because some might characterize this as a criminal process the preconditions for a search as proclaimed by the Supreme Court in Hunter et al. v. Southam Inc.[1] must automatically be met before an inquiry under section 231.4 of the Income Tax Act [S.C. 1970-71-72, c. 63 (as enacted by S.C. 1986, c. 6, s. 121)] can be commenced. If particular uses of the subpoena power by such an inquiry, or particular subsequent uses of evidence obtained through such subpoenas threaten to endanger section 7 or 8 rights, it is only then that those rights should be invoked.

The appellants’ case suffers from verbal excess: the inflation of language which detracts from precise consideration of what is involved here. The factum tells us that:

Such Inquiries are a hallmark of the worst of the police states that the world has seen.[2]

Much was heard of the Star Chamber, now dead some 350 years but still the stuff of legal rhetoric. Revenue Canada was said to have “passed” (sic) the Rubicon.[3] Counsel argued that this whole process would destroy the “Golden Thread” of the common law, a familiar[4] but unhelpful metaphor in the application of finely balanced Charter guarantees. The possible prosecution of Del Zotto was equated to an ordinary criminal prosecution, and the requirement that any witness be obliged to appear in private before a hearing officer (where he would be represented by counsel) was equated to anyone being obliged to face and respond to a police interrogation.

As I understand it, the appellants’ proposition is essentially as follows. No process whereby any person (whether or not connected in any way to a potential accused) might be compelled to testify or produce documents concerning that potential accused, can be initiated unless the Crown first meets the conditions laid down in Hunter et al. v. Southam Inc.[5] for the issuance of a search warrant involving the search of business or private premises. For these purposes it is irrelevant what the nature of the document sought or the questions put may be; nor is the fact that such evidence and such testimony will be given in private with counsel for the witness and the potential accused present before a hearing officer appointed by a judge of the Tax Court. It is equally irrelevant that an inquiry of this type has been held[6] to be an administrative process where there are no findings of guilt or responsibility, that oral evidence taken there cannot be used directly in a subsequent trial, and that various protections exist under sections 7 and 13 of the Charter with respect to the use of original or derivative self-incriminatory evidence should such a situation arise.

I am unable to accept this proposition nor do I think it is consistent with the Supreme Court jurisprudence most relevant to the statutory provisions in question here, namely sections 231.4 and 239 [as am. by S.C. 1988, c. 55, s. 182; c. 61, s. 25] of the Income Tax Act.

Section 7 of the Charter

I agree with the analysis of the Trial Judge on this matter. I would only add that I find it particularly difficult to understand how the appellants can argue at this time that a subpoena issued to Noble will per se invade the right of the potential accused, Del Zotto, to know the Crown’s “case to meet”. It was explained that the real meaning of this requirement is that the accused should not be obliged to disclose his defence until after he has been charged, a trial ensues, and the Crown has closed its case. While I do not in any way question that right, I do not understand why this automatically presents a barrier to anyone—whether in any way connected to the potential accused or not—from being the object of a subpoena duces tecum . It is common ground that there is no evidence on the record as to what relationship Noble has to Del Zotto if any. Why then should this Court assume that any question put to, or document demanded from, Noble will disclose the defence of Del Zotto to a charge which has not yet even been laid? This would mean that no one could be subpoenaed even to produce public records concerning Del Zotto or to testify as to his public movements or public utterances. With respect, I think the appellants overreach when they make this argument. As I will suggest below, there is a proper time and method for protecting an accused’s undoubted rights against self-incrimination, but this is not it.

Section 8 of the Charter

I find the appellants’ argument that the inquiry is simply evidence gathering for a criminal prosecution to be overly simplistic, leading to the premature and unnecessary conclusion that all rules applicable to a Criminal Code [R.S.C., 1985, c. C-46] prosecution apply including the principles in Hunter et al. v. Southam Inc. No doubt many Charter guarantees, including all of section 11 (applying to anyone “charged with an offence”) would apply at the appropriate time. However the rights in section 8 apply differently depending on the reasonable expectation of privacy in respect of the subject-matter and the nature of the intrusion on such privacy. Such factors go to the reasonability of any seizure.

Thus while the “full panoply” of constitutional rights are of course available to the appellants, one must consider, in the specific context, what are the relevant constitutional rights. I agree with my colleague on the importance of the privacy interest, but it is an interest which is conditioned in many ways by conflicting public interests.

I should say first, in addressing the requirements of section 8 in the present case, that I find those decisions of the Supreme Court on mandatory production of documents not involving searches to be much more relevant than those involving the conditions for issuing search warrants. I also distinguish cases such as Starr v. Houlden[7] on the basis that they involved the criminal nature of potential and public findings of fact or law. An inquiry such as we are concerned with makes no findings and is conducted in private.

In my view the two most pertinent cases are the Thomson case[8] and R. v. McKinlay Transport Ltd.[9] both decided on March 29, 1990. The McKinlay case is particularly relevant since it involved a form of discovery under the Income Tax Act. The Thomson case involved the compulsory production of evidence to determine whether an offence under section 34 [as am. by S.C. 1974-75-76, c. 76, s. 16] of the Combines Investigation Act had been committed by those ordered to testify and to produce documents. Neither case involved a search warrant. In both cases the processes were held not to infringe on section 8 rights. On the other hand, cases such as Hunter[10] and Baron v. Canada[11] involved the preconditions for the issue of search warrants.

Like my colleague MacGuigan J.A. I take guidance from what was said by Sopinka J., on behalf of a unanimous Court in Baron,[12] that labels as to whether a statutory scheme is “regulatory” or “criminal” are not determinative in deciding whether an unreasonable search or seizure is authorized. Instead he affirmed that one must look at the total context of the particular process in question. Baron involved the use of search warrants issued under the Income Tax Act without the issuing judge being allowed any discretion once reasonable grounds were established. While acknowledging that the Court had found the Income Tax Act to be regulatory in McKinlay, Sopinka J. concluded that because a “physical entry and search” would be authorized in the case before him the issue of the search warrants should meet the preconditions as defined in Hunter. He went on to say, however:

Physical search of private premises … is the greatest intrusion of privacy short of a violation of bodily integrity. It is quite distinct from compelling a person to appear for examination under oath and to bring with them certain documents, under a subpoena duces tecum (Thomson Newspapers, supra), or to produce documents on demand (McKinlay Transport, supra). Both La Forest and L’Heureux-Dubé JJ. acknowledged in Thomson Newspapers, supra, at pp. 520 and 594, respectively, that the power to search premises is more intrusive of an individual’s privacy than the mere power to order the production of documents. [Emphasis added.]

Clearly, then, Sopinka J. was not prepared to say that section 8 precludes any mandatory production of documents where a prosecution is potentially involved.

It appears to me from the jurisprudence that the “context” in which these matters must be judged involves a number of factors: the nature and the purpose of the legislative scheme whose administration or enforcement is in question; the mechanism for discovery or mandatory production employed and the degree of its potential intrusiveness; and the availability of judicial supervision. One must consider all of these factors in determining whether a seizure, real or potential, would be unreasonable within the meaning of section 8.

The Thomson case involved the validity of orders to testify and to produce documents, issued by a member of the Restrictive Trade Practices Commission under section 17 of the Combines Investigation Act.[13] There was no judicial involvement in the issue of such orders and no preconditions as to their issue. For all practical purposes these orders were like a subpoena duces tecum. The orders in question made it clear that the purpose of the inquiry was to determine whether the objects of the orders had committed an offence of predatory pricing under the Combines Investigation Act, an offence punishable with imprisonment. Similarly in the present case, although no such order exists stating a purpose of prosecution, the Crown acknowledges that the predominant purpose of the inquiry is to seek evidence for possible prosecution of Del Zotto under paragraphs 239(1)(a) and (d) of the Income Tax Act. A majority of a five-member court in Thomson held that section 17 did not violate section 8 of the Charter. While there are five-separate judgments it appears that the three who upheld section 17 vis-à-vis section 8 of the Charter looked at various of the contextual factors mentioned above. La Forest J. stated that expectations of privacy are different in respect of regulatory and criminal matters. He said that the fact that there was possible imprisonment involved as a sanction for this offence under the Combines Investigation Act did not necessarily make the matter criminal for purposes of a reasonable expectation of privacy. He then analyzed the nature and purpose of the Combines Investigation Act and found that it was a scheme of economic regulation concerning matters of concern for the economy, but did not involve the control of acts morally or socially reprehensible within the normal scope of the criminal law. He pointed out the importance for business to observe the requirements of free competition and to conform to the law without regular inspection. Because the effectiveness of the law was so dependent on self-regulation in areas not normally open to official surveillance it was important that there be an effective system of penalties for its non-observance. Thus the penalties related to the regulatory purpose of the Act. He stated that the conduct for which a penalty was imposed

… is made criminal for strictly instrumental reasons.[14]

He went on to make comparisons with the Income Tax Act in this respect, in particular section 239 which is one of the sections in issue in the present case. He observed:

As a final comment, I would point out that the Combines Investigation Act is not, as regards sanctions, unlike the Income Tax Act. Under section 239 of the latter Act, a taxpayer can be liable to imprisonment to a term “not exceeding 5 years”, provided he is, at the election of the Attorney General of Canada, proceeded against by way of indictment. The offences in relation to which this punishment can be imposed are defined in s. 239(1). They include making “false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act” (s. 239(1)(a)); destroying, altering or secreting records or books “to evade payment of a tax imposed by this Act” (s. 239(1)(b)); making or acquiescing in the omission of “a material particular” from the “records or books of account of a taxpayer” (s. 239(1)(c)); evading “wilfully, in any manner … compliance with this Act or payment of taxes imposed by this Act” (s. 239(1)(d)); and conspiring “with any person to commit an offence described by paragraphs (a) to (d)” (s. 239(1)(e)). All of these offences relate to conduct that might well be discovered by the exercise of the power to order the production of documents which s. 231(3) confers on the Minister of National Revenue. This has not prevented this Court from characterizing s. 231(3) as a regulatory or administrative power of investigation; see R. v. McKinlay Transport Ltd., supra. I do not see why we should regard the possibility of imprisonment as having a different effect in the case of s. 17 of the Combines Investigation Act.[15]

While it might be said that his comments on the Income Tax Act in the context of the Thomson case were obiter dicta, it should be noted that this case, and the McKinlay case which actually involved the Income Tax Act, were decided on the same day and he makes reference to McKinlay in this passage. Further, in his concurring judgment in McKinlay he adopts his reasons in Thomson in support of his conclusion in McKinlay that the Income Tax Act, though supported by penal sanctions, is essentially of an administrative nature.[16] The two decisions are therefore interrelated.

La Forest J. went on to conclude that in this kind of regulatory context the expectations of privacy are much less in respect to enforcement for the purpose of section 8. This led him to conclude that the procedure in question in Thomson, which was much like a subpoena duces tecum, did not involve any unreasonable seizure within the meaning of section 8 of the Charter.

L’Heureux-Dubé J. agreed in Thomson that both the Combines Investigation Act and the Income Tax Act are regulatory in nature and she cited this as an important reason for the expectations of privacy being somewhat less.

Sopinka J. in Thomson concluded that section 17 did not violate section 8 of the Charter, but he did not rely on section 17 being part of a regulatory scheme. He decided the matter instead on the basis of the nature of an order under section 17 compelling the production of documents. He found this not to be a “seizure” within the meaning of section 8. He therefore did not have to address the question of whether it was “reasonable”. His decision is however important in underlining the modest degree of intervention involved with an order such as a subpoena duces tecum. Even if, as now seems to be the predominant view, one treats such orders as “seizures”, the limited degree of intervention involved, as underlined by the reasoning of Sopinka J., is an important factor in determining the reasonability of a “seizure”.

Wilson J. with whom Lamer J. [as he then was] concurred in a separate opinion in Thomson, agreed with the general principles set out above but characterized the Combines Investigation Act as being of a criminal nature and therefore she thought more stringent controls were appropriate with respect to seizures. This does not much concern our analysis of the Income Tax Act, however, because as noted below, in the McKinlay case she characterized that Act as regulatory and upheld the relevant provisions.

In McKinlay the same five-member Court upheld subsection 231(3) of the Income Tax Act which authorized the conduct of an income tax audit by service on behalf of the Minister of letters on taxpayers demanding information and the production of documents. Again this scheme was attacked under section 8 of the Charter because it did not involve any preconditions for the issue of such letters as set out in the Hunter case. Wilson J. with whom Lamer, La Forest, and L’Heureux-Dubé JJ. concurred, analyzed the nature and purpose of the Income Tax Act. She noted that it is [at page 636] “[a] chief source of revenue for the federal government”. (It might be observed in passing that it is also a chief source of revenue for all provincial governments except that of Quebec.) The Act operates on a self-reporting basis. It is necessary that the Minister have some adequate powers of inspection because there will always be those who do not comply with reporting requirements. She stated that:

The Minister must be capable of exercising these powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act.[17]

She concluded that the demands for information in question violated no reasonable expectation of privacy, given the general nature and purpose of the Act. Further she emphasized that this kind of demand was “the least intrusive means” for monitoring compliance. Sopinka J., while concurring in the result did so on the same basis as adopted by him in Thomson, namely that there was no seizure involved and therefore section 8 was not engaged. Again this at least underlines the lack of intrusiveness of a mere demand for documents.

The McKinlay case is very pertinent because, although it did not involve a potential prosecution (except for non-compliance with the demand for information) it involved a form of compulsion not very different from a subpoena duces tecum. Further, in one way it was more intrusive in that the information was simply provided to the Minister without an administrative process such as an inquiry under section 231.4 where the target of an investigation can be represented by counsel and where objections can be made to relevancy.

Drawing on these cases which are most pertinent because they directly or indirectly support the regulatory nature of the Income Tax Act and the contextual approach to what is a reasonable seizure, I will refer to a few salient features of the present case.

First it should be observed that section 8 of the Charter does not apply to the compulsion of testimony. As observed by L’Heureux-Dubé J. in the Thomson case:

To hold that an order to testify constitutes a “seizure”, presumably a “seizure” of one’s thoughts, would be to stretch that word beyond any meaning.[18]

Secondly, instead of dwelling on generalities concerning section 239 of the Income Tax Act, it is important to see just what it provides.

239. (1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation,

(b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer,

(c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer,

(d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by the Act, or

(e) conspired with any person to commit an offence described in paragraphs (a) to (d),

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or

(g) both the fine described in paragraph (f) and imprisonment for a term not exceeding 2 years.

(2) Every person who is charged with an offence described in subsection (1) may, at the election of the Attorney General of Canada, be prosecuted upon indictment and, if convicted, is, in addition to any penalty otherwise provided, liable to

(a) a fine of not less than 100%, and not more than 200%, of the amount of the tax that was sought to be evaded; and

(b) imprisonment for a term not exceeding 5 years.

In the present case Revenue Canada has advised Del Zotto that he may be charged under paragraphs 239(1)(a) and (d), all part of the same scheme. What is striking about the offences described in paragraphs 239(1)(a) to (e) is that they all involve possible tax evasion through false returns, falsified documents, wilful evasion or conspiracy to commit any of the foregoing. This is not a typical criminal law but is a law designed to ensure compliance with the self-reporting requirements of the Income Tax Act and was characterized as part of what is really a regulatory scheme by La Forest J. in the passage from Thomson quoted above. As he said in connection with the Combines Investigation Act, such conduct

… is made criminal for strictly instrumental reasons.

There cannot be the exaggerated claims to privacy connected with the administration of the Income Tax Act which the appellants assert. The Act requires all manner of disclosure. The taxpayer must, for example, disclose: his place of residence; his age; his social insurance number; his marital status or whether he is living common law; his sources and amounts of income; his dependants, their ages and possible physical conditions if handicapped; the amounts and objects of his charitable or political donations, if he is to claim tax credits; whom he employs and entertains if he seeks to deduct the costs as business expenses; and details of his pension arrangements. If he is employed he must disclose many of these details not only to Revenue Canada but also to his employer so that mandatory tax deductions can be made.

A subpoena duces tecum is not a major intrusion of privacy as compared to a search. This has been recognized on several occasions.[19] It should further be noted that in the present case the only subpoena duces tecum which has ever been issued has been directed not to Del Zotto, the supposed “target”, but to Noble, a person whose status is unknown to the Court. It is not irrelevant that any documents which Noble may have about Del Zotto are presumably no longer private to Del Zotto: if they are because of some relationship between him and Noble that is a matter to be explored on evidence before the hearing officer.

Further, a subpoena duces tecum can be attacked generally or in respect of a particular document either before the hearing officer or if necessary on judicial review, if it can be demonstrated that in the particular circumstances someone’s constitutional right is about to be violated.[20] Objections could also be raised then as to the relevance of a particular document to the legitimate purposes of the inquiry.

Section 231.4 under which this inquiry is held guarantees both the witness and the “target” of the inquiry the right to be “represented” by counsel save in exceptional circumstances. Notwithstanding the suggestions of counsel for the appellants, I can find no authority for the proposition that counsel representing a witness or a target would not be allowed to raise objections as to relevance or constitutionality in respect of a particular subpoena or a particular document. The natural meaning of “represented” must include that right.

All of these factors when taken together lead me to conclude, as did the learned Trial Judge, that the holding of an inquiry and the issuing of subpoenas duces tecum cannot per se be seen as inevitably leading to an unreasonable seizure within the meaning of section 8 so as to justify its termination at this point.

Remedies

The learned Trial Judge emphasized that the mere establishment of the inquiry and the issue of a subpoena to Noble did not violate section 8. On the appeal the appellants, who had asked in their original relief for a declaration that section 231.4 is invalid or in the alternative that this particular inquiry is invalid, criticized the learned Trial Judge for deciding only the last question. I think it is obvious from his judgment that he considered there to be no basis for declaring the whole section to be invalid. With this I agree.

This is not a case such as Hunter or Baron where the section can have little or no valid application because it lacks an essential ingredient. The gravamen of the appellants’ complaint is that in certain circumstances an inquiry established under this section, or a particular subpoena issued by such an inquiry, or the production of a particular document, or the use in subsequent proceedings of evidence gleaned by the inquiry, could violate someone’s constitutional rights under sections 7 or 8 of the Charter. The same could be said of an inquiry established under the federal Inquiries Act[21] and the various comparable provincial statutes which authorize in the broadest possible terms the establishment of commissions of inquiry with powers of subpoena, etc. There have been many instances of successful attacks on particular terms of reference of such commissions or on particular actions or findings of commissioners, some relating to constitutional rights similar to those in question here. But just because the Inquiries Act could on occasion be used for unconstitutional purposes, this would not justify a declaration of its total invalidity. Nor in my view do theoretical and potential invalid uses or consequences of the use of section 231.4 justify a declaration as to its invalidity.

Nothing has as yet happened in this particular inquiry to justify a declaration of its invalidity.

It is true that the terms of reference of the inquiry are very broad and, I think, unnecessarily so. They authorize an inquiry

… into the financial affairs of the said Angelo Del Zotto, for the taxation years 1979 to 1985 inclusive.

But it is surely open to Noble or Del Zotto to insist that these terms be confined in their application to the scope of subsection 231.4(1) which authorizes an inquiry

231.4 (1) … relat[ing] to the administration or enforcement of this Act.

Therefore personal documents having nothing to do with the collection of income tax need not be produced. As noted earlier, objections can be taken before the hearing officer and if necessary judicial review may be sought, but all at the time the problem actually arises. At most, a particular subpoena could be attacked instead of waiting to dispute specific documents. But the appellants have not sought this remedy.

As for concerns about self-incrimination, these too should be raised and dealt with before the inquiry or even later if the Crown seeks to use self-incriminating evidence or documents, or evidence derived therefrom, at a subsequent trial. As was held in R. v. S. (R.J.),[22] a witness may be compelled to testify in a trial of another for a crime in which the witness may be implicated, but may object later in his own trial to any evidence derived from his own testimony in the first trial. That is, the time for a witness to object is when the Crown seeks to use his own evidence against him. The same may be true where it is sought to use evidence against an accused at trial derived from compelled evidence from his wife at an earlier proceeding.[23] But that is because she, like the accused, would not be a compellable witness at the trial. This means that the time for raising the objection is not at the inquiry in this case, but at any subsequent trial of Del Zotto. Again, as held by the Supreme Court in British Columbia Securities Commission v. Branch[24] if a person is called at an inquiry (the first proceeding) he can successfully object to testify if the predominant purpose is to obtain evidence to incriminate him. In the present case that predominant purpose in respect of Del Zotto has been admitted. But Del Zotto has not been called yet and may never be called.

In short if there are circumstances in which the use of this inquiry power, or the subsequent use of evidence derived from it, may impinge on constitutional rights there will be opportunities to assert those rights at the time when an intrusion is imminent and demonstrable. So far the Court has only been treated to hypothetical possibilities.

For these reasons I am of the view that the appeal should be dismissed and that no declaration should be made at this time of invalidity of either the Act or the inquiry.

***

The following are the reasons for judgment rendered in English by

MacGuigan J.A.: This case involves a constitutional challenge to the “inquiry provision,” section 231.4 of the Income Tax Act, R.S.C. 1952, c. 148, as amended (the Act), on the basis of sections 7 and 8 of the Canadian Charter of Rights and Freedoms (the Charter).

I

The appellant Del Zotto fell under suspicion of tax evasion following a 1985 audit by the Audit Branch of Revenue Canada. In 1986 an investigation into his financial affairs was begun by the Special Investigations Branch (SI) of Revenue Canada, which led in turn to the initiation of an inquiry into his financial affairs for the years 1979 through 1985, authorized by section 231.4, which reads as follows:

231.4 (1) The Minister may, for any purpose related to the administration or enforcement of this Act, authorize any person, whether or not he is an officer of the Department of National Revenue, to make such inquiry as he may deem necessary with reference to anything relating to the administration or enforcement of this Act.

(2) Where the Minister, pursuant to subsection (1), authorizes a person to make an inquiry, the Minister shall forthwith apply to the Tax Court of Canada for an order appointing a hearing officer before whom the inquiry will be held.

(3) For the purposes of an inquiry authorized under subsection (1), a hearing officer appointed under subsection (2) in relation thereto has all the powers conferred on a commissioner by sections 4 and 5 of the Inquiries Act and that may be conferred on a commissioner under section 11 thereof.

(4) A hearing officer appointed under subsection (2) in relation to an inquiry shall exercise the powers conferred on a commissioner by section 4 of the Inquiries Act in relation to such persons as the person authorized to make the inquiry considers appropriate for the conduct thereof but the hearing officer shall not exercise the power to punish any person unless, on application by the hearing officer, a judge of a superior or county court certifies that the power may be exercised in the matter disclosed in the application and the applicant has given to the person in respect of whom he proposes to exercise the power 24 hours notice of the hearing of the application or such shorter notice as the judge considers reasonable.

(5) Any person who gives evidence in an inquiry authorized under subsection (1) is entitled to be represented by counsel, and, on request made by him to the Minister, to receive a transcript of the evidence given by him.

(6) Any person whose affairs are investigated in the course of an inquiry authorized under subsection (1) is entitled to be present and to be represented by counsel throughout the inquiry unless the hearing officer appointed under subsection (2) in relation to the inquiry, on application by the Minister or a person giving evidence, orders otherwise in relation to the whole or any part of the inquiry on the ground that the presence of the person and his counsel, or either of them, would be prejudicial to the effective conduct of the inquiry.

Pursuant to subsection 231.4(3) above, a hearing officer appointed to conduct an inquiry has all the powers conferred on a commissioner by sections 4 and 5 of the Inquiries Act, R.S.C., 1985, c. I-11, which state:

4. The commissioners have the power of summoning before them any witnesses, and of requiring them to

(a) give evidence, orally or in writing, and on oath or, if they are persons entitled to affirm in civil matters on solemn affirmation; and

(b) produce such documents and things as the commissioners deem requisite to the full investigation of the matters into which they are appointed to examine.

5. The commissioners have the same power to enforce the attendance of witnesses and to compel them to give evidence as is vested in any court of record in civil cases.

The first predecessor provision of section 231.4 was enacted in 1917 but allowed inquiries only into “the income of any taxpayer”: The Income War Tax Act, 1917, S.C. 1917, c. 28, subsection 8(3). In 1948 that wording was changed to allow inquiries “relating to the administration or enforcement of this Act: The Income Tax Act, S.C. 1948, c. 52, subsection 115(4). The inquiry provision was further amended by providing for the inclusion of certain procedural protections for the taxpayer, such as the appointment of an independent hearing officer: S.C. 1970-71-72, c. 63, subsections 231(7), 231(8), 231(12), 231(13), 231(14), 231(15). Section 239 of the Act is also relevant, since it is common ground that the inquiry provision is used for the investigation of tax evasion offences under that provision, which reads as follows:

239. (1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation,

(b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer,

(c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer,

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act, or

(e) conspired with any person to commit an offence described by paragraphs (a) to (d),

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or

(g) both the fine described in paragraph (f) and imprisonment for a term not exceeding 2 years.

(2) Every person who is charged with an offence described in subsection (1) may, at the election of the Attorney General of Canada, be prosecuted on indictment and, if convicted is, in addition to any penalty otherwise provided, liable to

(a) a fine of not less than 100%, and not more than 200%, of the amount of the tax that was sought to be evaded; and

(b) imprisonment for a term not exceeding 5 years.

On April 19, 1991, at a meeting with officials of SI, counsel for the appellant Del Zotto was advised that Revenue Canada proposed to charge him with income tax evasion under paragraphs 239(1)(a) and (d) of the Act (Case on Appeal, Vol. XV, at page 2495). The amount of federal taxes sought to be evaded was stated to be $1,669,062 (Case on Appeal, Vol. VII, at page 1058).

Sections 7 and 8 of the Charter are as follows:

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.

In the latter part of 1992 National Revenue appointed an inquiry officer and obtained the appointment of a hearing officer from the Chief Judge of the Tax Court. The appellant Del Zotto was advised on 21 April 1993 that an inquiry would be made into his financial affairs for the taxation years 1979 to 1985 inclusive and that the calling of evidence would begin on 6 May 1993 (Case on Appeal, Vol. VII, at page 1089). The appellant Del Zotto was not himself initially called as a witness, though the letter of 30 September 1992 from the Assistant Deputy Minister to the Deputy Minister of the Department requesting the setting up of the commission of inquiry admitted that “it is a possibility that Angelo Del Zotto may also be subpoenaed before the Inquiry” (Case on Appeal, Vol. VII, at page 1059). The witness subpoenaed to appear on 6 May was the appellant Noble, who was summoned to appear with all documents in his possession or control relating to the financial affairs of the appellant Del Zotto for the taxation years 1979 to 1985 inclusive, including documents relating to five named corporations (Case on Appeal, Vol. VII, at pages 1090-1091).

On 6 May counsel for both appellants requested an adjournment to allow the inquiry’s powers to be tested by this Court (Case on Appeal, Vol. VII, at page 1044 ff). The adjournment was granted the next day.

The section 28 challenge brought before this Court was to the appointment of the hearing officer to preside over the inquiry. This Court held, following Guay v. Lafleur, [1965] S.C.R. 12, that the inquiry was a purely administrative matter which can neither decide nor adjudicate upon anything, and that the application for judicial review had therefore to be dismissed: [Del Zotto v. Canada (Minister of National Revenue—M.N.R.), [1993] F.C.J. No. 885 (C.A.) (QL)]. However, the Court (per Hugessen J.A.) added (at page 6 (QL)):

In his argument counsel for the applicant expressly declined to make any Charter-based attack on section 231.4. In light of the fate suffered by adjacent and related sections of the Income Tax Act [he referred to Baron v. Canada, [1993] 1 S.C.R. 416; and to Minister of National Revenue v. Kruger Inc., [1984] 2 F.C. 535, such an attack cries out to be made.

It is that attack which is before us in the case at bar, following a decision on the merits by the Trial Division on 24 January 1997 [[1997] 2 F.C. 428.

II

What is the character of an investigation launched by SI?

First, it should be noted that the objective of Special Investigations is “to plan and administer criminal investigation programs”: Taxation Operations Manual (T.O.M.) of Revenue Canada, subsection 1111(1), Case on Appeal, Vol. VIII, at page 1252. Moreover, “only cases with a prosecution potential will be selected for full-scale investigation”: T.O.M., subsection 1112(3), Case on Appeal, Vol. VIII, at page 1253.

In the case at bar, on 26 January 1986 the Audit Department made a T-124 fraud referral concerning the appellant Del Zotto to SI. On 24 April SI formally decided to keep the Del Zotto matter for preliminary investigation and opened a file. A full-scale investigation was decided on in 1989.

I have already related the setting up of the inquiry in 1992. A section 231.4 inquiry is an investigative tool in the criminal process. In the words of T.O.M. (Case on Appeal, Vol. VII, at page 1172):

11(12)01 INQUIRIES UNDER

SECTION 231.4 OF

THE INCOME TAX ACT

11(12)1.1 When Use is Justified

(1) An Inquiry may be conducted as a means of strengthening our case in either of two areas of the investigation.

(2) Firstly, witnesses whose evidence is material to our case in an anticipated prosecution are examined under oath to determine what they will say in Court. Even then, the story might later be varied but, should any witness give contradictory evidence from that given under the Inquiry, this can be put to the witness. Unless a justifiable reason can be given for the change in his sworn testimony, it can leave him open to a charge of perjury. In any event, it definitely weakens the value of his testimony, especially concerning any statements he might make that would otherwise be damaging to the Crown’s case. The evidence is admissible but has little probative value.

(3) Secondly, the following types of witness may be questioned under oath to draw out facts not otherwise obtainable:

(A) Witnesses known to have information material to the case, who have not and will not divulge it in voluntary interview or interrogation, but who are believed to be of the type that, if questioned under oath, will tell the truth.

(B) Witnesses—perhaps friendly to the tax evader—who will not reveal what they know in an interview but who infer or admit that, if they were put under oath, they would tell the truth.

(C) Witnesses who are impartial but who are most reluctant to become involved.

(D) Witnesses whose evidence is required to fill in major gaps in the documentary evidence available.

(4) Witnesses appearing in an Inquiry will normally have been interviewed at an earlier stage in the investigation, but there is no point in doggedly questioning, under oath, a subject who has lied persistently in voluntary interview. He is no doubt lying because he feels his own best interests are served by so doing and he can be expected to lie under oath just as readily as he would in other circumstances.

11(12)1.2 Timing

(1) An Inquiry is not normally implemented until the more conventional methods of investigation have been exhausted.

There can be no doubt from reading the Department’s own understanding of what an inquiry is about that it can be thought of only in a criminal investigatory context: note, for instance, the references to “an anticipated prosecution,” “perjury,” and “the tax evader”. Departmental witness McCarney admitted that, absent settlement, a prosecution always followed an inquiry (Case on Appeal, Vol. II, at page 354). For good measure, T.O.M. acknowledged that “An Inquiry is never irrevocably closed; in practice, its proceedings are simply adjourned sine die” (Case on Appeal, Vol. VII, at page 1176).

National Revenue’s own interpretation of its mandate cannot, of course, be taken as definitive of the purpose of section 231.4. It does, however, reveal its breadth, and, more important, its effects on a taxpayer.

It can hardly be a surprise that lower courts have consistently held that, when a case is put in the hands of SI, even if the statute is otherwise a regulatory one, the case at that moment becomes a criminal investigation: R. v. Norway Insulation Inc. (1995), 28 O.R. (3d) 432 (Gen. Div.); R. v. Harris, R. (1995), 95 DTC 5653 (B.C.S.C.); Yang v. R. (1996), 31 O.R. (3d) 66 (Gen. Div.); R. v. Jarvis, [1997] A.J. No. 214 (Alta. Prov. Ct.) (QL), decided 25 February 1997; R. v. Soviak, [1997] O.J. No. 1215 (Prov. Div.) (QL), decided 24 March 1997. Typical is the decision of LaForme J. in Yang, which dealt with the seizure of tobacco under the Tobacco Tax Act [R.S.O. 1990, c. T.10]. After stating that in his view the provisions of the Act in question were quasi-criminal law, LaForme went on to add (at page 76):

Even if I am wrong in my general comments respecting the potential nature of the provisions, namely s. 24 of the Tobacco Tax Act, Special Investigations transformed the purpose of the provisions from merely regulatory to quasi-criminal when it relied on the section to undertake a full-scale investigation for purposes of laying charges against targeted individuals and businesses.

In a case such as that at bar, the conclusion as to the existence of a criminal investigation must be a fortiori.

I believe the words of Hugessen J.A. for this Court, relating to a neighbouring provision of the Act in Baron v. Canada, [1991] 1 F.C. 688 at pages 693-694, which the Supreme Court did not disagree with in arriving at the same conclusion, are highly persuasive:

As a preliminary matter, it is as well to make clear at the outset that in my opinion we are dealing with procedures that are criminal in their nature. It is not necessary at this stage to characterize in constitutional terms the source of Parliament’s legislative power, a question on which the Supreme Court has recently divided and which awaits a definitive resolution by a majority of the members of that Court (see Knox Contracting Ltd. v. Canada, [1990] 2 S.C.R. 338).

It is enough simply to read the section under attack and its repeated reference to “offence” to realize that the section is concerned with the detection and prosecution of crime, albeit a limited category of crime, namely offences under the Income Tax Act . This makes the legislation different in kind from the type of administrative enforcement mechanisms found in adjacent sections of the Income Tax Act such as were upheld by the Supreme Court in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627.

The requirements of a self-reporting and self-assessing income tax system may justify an easing of Charter [Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act 1982, Schedule B, Canada Act, 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] standards where the primary purpose of a search is simply to ensure that taxes are paid as and when due. Where as here, however, we are dealing with provisions whose stated aim is the discovery and preservation of evidence “for the purpose of a criminal proceeding” nothing less than the full panoply of Charter protection is appropriate.

It is true, as La Forest J. has pointed out in Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 425, at pages 515-516, that one cannot conclude from the sanctions alone, that a particular provision is criminal or regulatory,[25] and that the Supreme Court held in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, that a provision of the Act was regulatory in nature, though obviously it was of a different frame of mind on the appeal from this Court’s decision in Baron v. Canada, [1993] 1 S.C.R. 416, where it held that the same provision violated section 8 of the Charter.

In Baron, Sopinka J. held for a unanimous Court that what is ultimately important are not labels but the values at stake in a particular context. The Court had held in McKinlay Transport, supra, that in the context of a mere income tax audit, the Income Tax Act was a regulatory statute, and no Charter issue was raised by compulsion to produce information and documents. Sopinka J. distinguished that case as involving merely the effective monitoring of compliance with the Act. In Baron “[t]he purpose of the search is to provide evidence to be used in the prosecution of ITA offences” (at page 444).

Justice Sopinka put the result in Baron (striking down the provision of the Act as unconstitutional) on two grounds (at page 445):

Given the intrusive nature of searches and the corresponding purpose of such a search to gather evidence for the prosecution of a taxpayer, I see no reason for a radical departure from the guidelines and principles expressed in Hunter [v. Southam].

The intrusive nature of the power to search premises in Baron is, of course, not matched by the subpoena duces tecum in the case at bar, but it seems to me that the equally important factor of gathering information for the prosecution of a taxpayer is present with greater force in this case. Later, Sopinka J. disapproved of fishing expeditions by the state, and went on to say (at page 448):

This Court established in Hunter that a standard of credibly based probability rather than mere suspicion should be applied in determining when an individual’s interest in privacy is subordinate to the needs of law enforcement.

We have it from the mouth of National Revenue that such a standard was intended to be short-circuited in the case at bar.

In the words of the respondent’s witness McCarney, who drafted the memorandum to the Deputy Minister recommending that an inquiry be established, “In my personal opinion, from my vantage point at Head Office, I do not think we had grounds for a search warrant on Del Zotto” (Case on Appeal, Vol. II, at pages 224-225). In other words, the Department lacked reasonable and probable cause for a proper criminal investigation, and moved to an inquiry as a back-door alternative, since that procedure did not require any showing of reasonable and probable cause.

I can conclude only that an inquiry under section 231.4 is inherently oriented towards criminal prosecution, based not on the labels used but on what is really in question in such a proceeding, in other words, on the values of criminality or innocence in play. I regard such a conclusion as a fortiori in the case at bar.

III

The right to be secure against unreasonable searches and seizures under section 8 of the Charter has evolved into a right to the reasonable security of one’s privacy.

The locus classicus for section 8 law is Hunter et al. v. Southam Inc., [1984] 2 S.C.R. 145, where Dickson J. (as he then was) held for the Court that section 8 must be broadly and liberally construed to effect its purpose, which is to secure a person’s right to a reasonable expectation of privacy against governmental encroachments. In the absence of exigent circumstances, section 8 requires prior authorization by a judicial officer as a precondition to a criminal-law seizure, on a standard of reasonable and probable grounds both as to the commission of an offence and as to the evidence to be afforded by the search. In analyzing section 8, Dickson J. said for the Court (at page 158), “There is, further, nothing in the language of the section to restrict it to the protection of property or to associate it with the law of trespass.”

In R. v. Dyment, [1988] 2 S.C.R. 417, La Forest J. (with whom Dickson C.J. concurred), penned concurring reasons for decision which put a great deal of emphasis on privacy under section 8 (at pages 427-428):

The foregoing approach is altogether fitting for a constitutional document enshrined at the time when, Westin tells us, society has come to realize that privacy is at the heart of liberty in a modern state; see Alan F. Westin, Privacy and Freedom (1970), pp. 349-50. Grounded in man’s physical and moral autonomy, privacy is essential for the well-being of the individual. For this reason alone, it is worthy of constitutional protection, but it also has profound significance for the public order. The restraints imposed on government to pry into the lives of the citizen go to the essence of a democratic state.

Claims to privacy must, of course, be balanced against other societal needs, and in particular law enforcement, and that is what s. 8 intended to achieve.

Justice La Forest continued [at pages 429-430]:

Finally, there is privacy in relation to information. This too is based on the notion of the dignity and integrity of the individual. As the Task Force [on Privacy and Computers, Information Canada, 1972] put it (p. 13): “This notion of privacy derives from the assumption that all information about a person is in a fundamental way his own, for him to communicate or retain for himself as he sees fit.” In modern society, especially, retention of information about oneself is extremely important. We may, for one reason or another, wish or be compelled to reveal such information, but situations abound where the reasonable expectations of the individual that the information shall remain confidential to the persons to whom, and restricted to the purposes for which it is divulged, must be protected. Governments at all levels have in recent years recognized this and have devised rules and regulations to restrict the uses of information collected by them to those for which it was obtained; see, for example, the Privacy Act, S.C. 1980-81-82-83, c. 111.

One further general point must be made, and that is that if the privacy of the individual is to be protected, we cannot afford to wait to vindicate it only after it has been violated. This is inherent in the notion of being secure against unreasonable searches and seizures. Invasions of privacy must be prevented, and where privacy is outweighed by other societal claims, there must be clear rules setting forth the conditions in which it can be violated. This is especially true of law enforcement, which involves the freedom of the subject.

In R. v. Plant, [1993] 3 S.C.R. 281, at pages 292-293, Sopinka J. (for 6 of 7 members of the Court) also fastened on the significance of informational privacy under section 8:

Some indication of the parameters of the protection afforded by s. 8 with respect to informational privacy can be derived from the following passage from the reasons of La Forest J. in Dyment, supra, at pp. 429-30, commenting on the Report of the Task Force on Privacy and Computers:

In modern society, especially, retention of information about oneself is extremely important. We may, for one reason or another, wish or be compelled to reveal such information, but situations abound where the reasonable expectations of the individual that the information shall remain confidential to the persons to whom, and restricted to the purposes for which it is divulged, must be protected.

Consideration of such factors as the nature of the information itself, the nature of the relationship between the party releasing the information and the party claiming its confidentiality, the place where the information was obtained, the manner in which it was obtained and the seriousness of the crime being investigated allow for a balancing of the societal interests in protecting individual dignity, integrity and autonomy with effective law enforcement. It is, then, necessary to apply this contextual approach to the facts of the case at bar.

The United States Supreme Court has limited application of the Fourth Amendment (the right against unreasonable search and seizure) protection afforded by the United States Constitution to situations in which the information sought by state authorities is personal and confidential in nature: United States v. Miller, 425 U.S. 435 (1976). That case determined that the accused’s cheques, subpoenaed for evidence from a commercial bank, were not subject to Fourth Amendment protection. While I do not wish to be taken as adopting the position that commercial records such as cancelled cheques are not subject to s. 8 protection, I do agree with that aspect of the Miller decision which would suggest that in order for constitutional protection to be extended, the information seized must be of a “personal and confidential” nature. In fostering the underlying values of dignity, integrity and autonomy, it is fitting that s. 8 of the Charter should seek to protect a biographical core of personal information which individuals in a free and democratic society would wish to maintain and control from dissemination to the state. This would include information which tends to reveal intimate details of the lifestyle and personal choices of the individual.

In Plant the police action was merely to check the electrical consumption at the address in question, and this was held to reveal very little about the personal lifestyle or private decisions of the occupant. It is significant, however, that Justice Sopinka specifically reserved the Court’s decision as to an accused’s cheques subpoenaed for evidence from a commercial bank. (This issue surfaced recently in this Court in Schreiber v. Canada (Attorney General), [1997] 2 F.C. 176 to which I shall return in a moment.)

Subsequently in R. v. Colarusso, [1994] 1 S.C.R. 20, at page 60, La Forest J., writing for the majority of the Court, said:

This really goes to the underlying reason for the protection afforded by s. 8; one must not overemphasize the purely physical aspects of the seizure. In both Hunter and Dyment, the Court emphasized that what is protected by s. 8 is people, not places or things. The principal right protected by s. 8 is individual privacy, and the provision must be purposively applied to that end.

He then proceeded to quote the paragraph above relating to privacy in relation to information.

This Court’s most recent consideration of section 8 occurred in Schreiber, supra, where a majority held that the Canadian standard for the issuance of a search warrant was required to be satisfied for a letter of request to a foreign country to search and seize a citizen/resident’s banking documents and records. Linden J.A. rested this holding squarely on Hunter (at page 235):

On the facts in Hunter, Dickson J. held that the provision of the statute authorizing certain broad-ranging searches was inconsistent with section 8 of the Charter. He did this on the basis that the authorization did not have to be granted by an impartial and judicial arbiter and because authorization did not depend on evidence of reasonable and probable grounds, established upon oath, to believe that an offence had been committed.

He emphasized the guarantee of “security” in section 8. Stone J.A. in dissent took a different point of view on this (at pages 207-208):

It would be wrong, in my view, to emphasize the word “secure” at the expense of the remaining language of section 8, when that section guarantees the right to be secure against “unreasonable search and seizure” by Canadian state actors. In the present case, as I understand the facts, the Canadian authorities neither possessed the ability to carry out a search or seizure in Switzerland nor requested that the Swiss authorities should do so as their agents.

This difference of opinion is not relevant to the case at bar.

As I have already suggested, I believe the Trial Judge, was misled by his reliance on Thomson. The Supreme Court had no difficulty in unanimously distinguishing Thomson as well as McKinlay in Baron. Whether one conceives of the Act as regulatory legislation whose application is not in all instances governed by that fact, or, as seems better to me, as legislation with a regulatory side (audit and payment) and a criminal investigatory side, makes no difference to the realism of the judicial scrutiny as to what is really underway. In the opinion of the Court in Baron what mattered was the intrusive nature of the search in question and the gathering of evidence for the prosecution of the taxpayer.

I am strengthened in my approach by the conclusions advanced by the Supreme Court in Starr v. Houlden, [1990] 1 S.C.R. 1366. That case involved a commission of inquiry pursuant to the Ontario Public Inquiries Act [R.S.O. 1980, c. 411] (with powers similar to those under the federal Inquiries Act and under section 231.4 of the Income Tax Act) to inquire into the facts surrounding the relationships between Patty Starr and other persons. The issue that fell for decision by the Supreme Court was whether such a provincial inquiry was ultra vires the province as an infringement of the federal criminal law power.

In the course of his reasons for decision Lamer J. (as he then was) wrote for six of seven judges (at pages 1407-1409):

Second, it is not necessary for the Commissioner to make findings of guilt in the true sense of the word for the inquiry to be ultra vires the province. It suffices if the inquiry is in effect a substitute police investigation and preliminary inquiry into a specific allegation of criminal conduct by named, private citizens. In my view, the investigation the Commissioner is asked to undertake, and the findings of fact he will make as a result of his investigation, place him in a similar position as a judge conducting a preliminary inquiry under s. 535 of the Criminal Code.

…

In essence the inquiry is entering into the preliminary stages of the judicial criminal process by taking evidence, determining its sufficiency and ultimately deciding whether a prima facie case exists ….

The foregoing description is very like what is proposed by the respondents in the case at bar: a substitute police investigation into a specific allegation of criminal conduct, viz., the making of false or deceptive statements in a tax return under paragraph 239(1)(a) of the Act, by a named private citizen. It does not seem to be forbidden to the inquiry even to pass over to being a preliminary inquiry, in which the hearing officer would determine the sufficiency of the evidence, and ultimately decide whether a prima facie case exists, though I am aware of no duty on the hearing officer to go so far.

Because of the different circumstances of Starr, the sanction there was quite different, the unconstitutionality of the provincial action as transgressing on criminal law, from what is needed in the case at bar. But from Justice Lamer’s embrace of the New Zealand Court of Appeal decision in Cock v. Attorney-General (1909), 28 N.Z.L.R. 405, at page 425, where an inquiry was held to be “virtually a trial for the offence without the protection that the law gives to accused persons,” it is obvious that the vice of a substitute police investigation has a broader meaning for him. (In New Zealand, with no issues of federalism, the governmental excess led to a writ of prohibition at common law.)

The Supreme Court’s decision in British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3, which was particularly urged on us by the respondents, allowed company officers to be required to testify and to produce documents, on a holding that the British Columbia Securities Act [S.B.C. 1985, c. 83] is regulatory in nature and indeed forms part of a much larger framework which regulates the securities industry throughout Canada. The primary goal of securities legislation was said to be the protection of the investor, the secondary goals capital market efficiency and ensuring public confidence in the system. Given this background, it was not surprising that the Court found a low expectation of privacy. In particular, Sopinka and Iacobucci JJ. held for the Court that “[d]ocuments produced in the course of a business which is regulated have a lesser privacy right attaching to them than do documents that are, strictly speaking, personal” (at page 41, emphasis added). Such business records, dedicated to a special regulated purpose, are a long way from the general records of a taxpayer in the course of administering his/her affairs. These general records cannot be swept into the kind of narrow category appropriate under securities legislation.

The Trial Judge acknowledged that “it is not in dispute that subsection 231.4(3) provides for warrantless seizures contrary to the Hunter criteria” (at page 462). He was correct, I believe, in his conclusion that “[a] full weighing of all the circumstances is required” (at page 463). He does not, however, in my view give adequate weight to the focussed criminal investigation in the case at bar, and was unduly influenced by Thomson in relation to the lesser form of intrusion and the low degree of expectation of privacy for business affairs which he analyzed to exist.

Is it enough for violation of section 8 if the proposed search is less intrusive than that in Hunter and Baron, involving rather an order to appear for examination under oath with documents (under a subpoena duces tecum)? I believe it is, under the principle asserted by Dickson J. in Hunter that section 8 confers an entitlement to a reasonable expectation of privacy (at page 159). Moreover, as Linden J.A. said of Hunter in Schreiber (at page 235), “the existence of an actual illegal search conducted under the statute was apparently not of importance to the holding of unconstitutionality.”

The whole inquiry is aimed at the financial affairs of the appellant Del Zotto over a six-year period. Although he is not at present under subpoena, there is a possibility that he will be summoned himself. On the facts of this case, it is not enough to wait for the appellant Del Zotto to be subpoenaed. His right to a reasonable expectation of privacy is in peril from the time the inquiry begins.

As I see it, the section 231.4 process is inherently oriented towards criminal prosecution, a conclusion that is particularly obvious in the present case, where the appellant Del Zotto is not only subject to being summoned but has even been told under what paragraphs of subsection 239(1) he will eventually be prosecuted. In respect of its inherent orientation, section 231.4 is like the inquiry in Starr, and not at all like the normal commission inquiry under the Inquiries Act, which has a general public purpose.

Of course, a trigger is needed for the invocation of section 8 of the Charter. Section 8 does not apply in the absence of a search or seizure. In my view, given the inherent orientation of section 231.4, any threatened seizure is sufficient to bring section 8 into play.

Since section 8 protects the privacy rights of people, not places, the appellant Del Zotto has a reasonable expectation of privacy over documents and information held by other people at different places. Anything to do with his financial affairs over six years may include many items of a very personal or private nature such as personal expenditures (e.g. gifts to friends and relatives, reading materials), donations (e.g. to churches, charities or political parties), personal tastes (e.g. food, clothes), his relationship with family members (what he buys for them, what they give to him), and so on. Documents and information concerning his financial affairs over six years, without limitation, could reveal incredibly intimate and personal details about his preferences, habits, opinions, hopes and activities. The same is true for witnesses who have knowledge of his financial affairs during 1979-1985—their own personal preferences may become relevant to the terms of reference of the inquiry. Simply put, as the appellants emphasized, an investigation into all cash received and all cash spent is necessarily, in today’s modern world, a window into most of a person’s private life.

Although, as I have noted, Sopinka J. withheld judgment in Plant as to cheques subpoenaed for evidence, the matter has now been settled in this Court by Schreiber where Linden J.A. held (at page 232):

In contrast, the bank records sought in the letter of request, unlike electricity consumption records, reveal important and personal details about an individual. The heightened privacy interest in banking records was described by Puddester J. in R. v. Eddy (T.) as a “substantially greater expectation of privacy relating to the records of an individual’s personal financial position, and the pattern of the individual’s operating on his or her bank account” ((1994), 119 Nfld. & P.E.I.R. 91 (S.C.T.D.), at p. 126). Puddester J. found in that case that warrantless inquiries by the police at a bank regarding the identity of a bankbook holder and about a major transaction which took place on that account did interfere with a reasonable expectation of privacy.

The combination of forced documentary production and forced oral testimony can be particularly intrusive, if an invoice leads to questions about the activity which gave rise to the invoice and all the context surrounding it. As a result, in the words of Linden J.A. in Schreiber, “the right to privacy is protected in advance of any physical search, that is, as soon as any government action threatens the security of the individual’s privacy interest” (at page 218).

None of this is to say that National Revenue has no right to conduct a criminal investigation into the financial affairs of Del Zotto or anyone else. It is rather to say that it has no special right to do so merely by setting up an inquiry under section 231.4, a procedure which establishes no safeguards for the taxpayer. The hearing officer appointed is not a judicial officer, nor are there any rules for the inquiry, except such guidance (see T.O.M.) as suits the Crown. Although the taxpayer is entitled to counsel, “unless the hearing officer … orders otherwise,” there is some doubt whether in such an administrative proceeding the counsel would be entitled to question witnesses. As the Supreme Court held in Guay v. Lafleur, supra, and this Court reiterated in the judicial review hearing in this case, such an inquiry is a purely administrative one. In my opinion what is rather required for validity is a judicial inquiry based upon reasonable and probable cause, the normal standard for criminal investigation.

Since the respondent advanced no justification under section 1 of the Charter, I am of the view that section 231.4 of the Act violates section 8 of the Charter, and that striking the provision down under subsection 52(1) of the Constitutional Act, 1982 [Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] is an appropriate remedy. Reading the statute down would have been a much simpler matter in Baron than here, but the Court was not disposed to do so. I am equally disinclined. As the section 231.4 process is in my opinion vitiated from the outset, with the issuance of a subpoena duces tecum to the appellant Noble, it is unnecessary to await further actual infringements.

IV

Since I have resolved the matter under section 8 of the Charter, I find no need to deal with the arguments advanced under section 7.

I would allow the appeal with costs here and below, set aside the decision of the Trial Division, and declare that section 231.4 of the Income Tax Act and subpoenas issued under it are of no force or effect under subsection 52(1) of the Constitution Act, 1982.

Henry D.J.: I agree.

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