[1994] 2 F.C. 640
T-2022-93
Angelo Del Zotto (Applicant)
v.
Her Majesty the Queen in Right of Canada, the Minister of National Revenue, John Edward Thompson and D. Reilly Watson (Respondents)
Indexed as: Del Zotto v. Canada (T.D.)
Trial Division, McKeown J.—Toronto, November 25, 1993; Ottawa, January 24, 1994.
Practice — Stay of proceedings — Application to stay inquiry under Income Tax Act, s. 231.4 — Applicant subject of criminal investigation — Action challenging Income Tax Act, s. 231.4 under Charter, s. 24 — Serious issue to be tried — Applicant suffering irreparable harm if Tax Court order not stayed — S. 231.4 inquiry integral to criminal prosecution — Although viva voce evidence may not be subject-matter of criminal charges, derivative evidence relating to potential third parties may be — S.C.C. cases protecting derivative and other evidence based on Charter, s. 24 — Applicant should not have to rely on Court’s discretion — Balance of convenience favouring applicant — Respondent moving slowly — Inquiry ordered six years after commencement of criminal investigation, 1 1/2 years after last contact between Revenue Canada and applicant — No evidence of harm to respondent if inquiry stayed — Public interest in prosecution of crime in circumstances not outweighing potential injury to applicant.
Practice — Res judicata — Applicant raising Charter challenge to Income Tax Act, s. 231.4 in F.C.T.D. — Crown arguing matter res judicata as Charter issue could have been raised at earlier F.C.A. hearing — Federal Court Act, s. 18 providing declaration of constitutional validity to be brought before Trial Division — While F.C.A. could have dealt with constitutional issue by agreement of parties, applicant not splitting case — Proceeding as contemplated by Rules — Issues fundamentally different in two proceedings — Doctrines of issue estoppel, res judicata not applicable in public law cases — Special circumstances exception applicable — Action for declaration concerning Income Tax Act provision characterized as “crying out for a Charter review” by F.C.A; commenced in timely fashion before F.C.A. hearing or decision — Applicant not attempting to relitigate issue after another court rejecting it — No abuse of process in circumstances.
Federal Court jurisdiction — Trial Division — Within Court’s jurisdiction to stay Tax Court order under Income Tax Act, s. 231.4 — Test in Manitoba (Attorney General) v. Metropolitan Stores Limited met — Although applicant not seeking relief against Tax Court order in statement of claim, action meaningless if stay denied — Federal Court Act, s. 50(1)(b) and R. 1909 empowering Court to “stay proceedings” not before it regardless of Charter, s. 24.
Income tax — Practice — Application to stay I.T.A. s. 231.4 inquiry — Inquiry ordered six years after commencement of criminal investigation — M.N.R. moving at sedate pace — No resort mode to statutory search, seizure powers — Short delay of inquiry not harming public interest — Charter-based attack on s. 231.4 serious issue to be tried — Action concerning I.T.A. subsection characterized by F.C.A. as “crying out for a Charter review” — Irreparable harm to applicant if stay denied — F.C.T.D. having jurisdiction to stay T.C.C. order.
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], s. 24.
Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, ss. 17, 50(1)(b).
Federal Court Act, R.S.C., 1985, c. F-7, ss. 18 (as am. by S.C. 1990, c. 8, s. 4), 28 (as am. idem, s. 8).
Federal Court Rules, C.R.C., c. 663, RR. 400, 600(4), 1909.
Income Tax Act, S.C. 1970-71-72, c. 63, s. 231.4 (as enacted by S.C. 1986, c. 6, s. 121).
CASES JUDICIALLY CONSIDERED
APPLIED:
Manitoba (Attorney General) v. Metropolitan Stores Ltd., [1987] 1 S.C.R. 110; (1987), 38 D.L.R. (4th) 321; [1987] 3 W.W.R. 1; 46 Man. R. (2d) 241; 25 Admin. L.R. 20; 87 CLLC 14,015; 18 C.P.C. (2d) 273; 73 N.R. 341; Del Zotto, A. v. M.N.R. (1993), 93 DTC 5455 (F.C.A.); Grandview (Town of) v. Doering, [1976] 2 S.C.R. 621; (1975), 61 D.L.R. (3d) 455; [1976] 1 W.W.R. 388; 7 N.R. 299; Kindler v. Canada (Minister of Justice), [1989] 2 F.C. 38 (T.D.); Ref. re Competition Act (1989), 62 D.L.R. (4th) 565 (B.C.S.C.).
DISTINGUISHED:
Maynard v. Maynard, [1951] S.C.R. 346; [1951] 1 D.L.R. 241.
REFERRED TO:
Del Zotto, A. v. M.N.R. (1993), 93 DTC 5271 (F.C.A.); Haig et al. v. Canada et al. (1992), 57 F.T.R. 1 (F.C.T.D.); Yri-York Ltd. v. Canada (Attorney General), [1988] 3 F.C. 186; (1988), 30 Admin. L.R. 1; 16 F.T.R. 319; 83 N.R. 195 (C.A.).
APPLICATION to stay Tax Court order. Application allowed.
COUNSEL:
Edward L. Greenspan, Q.C., Alan D. Gold and David W. Stratas for applicant.
Ivan Bloom, Q.C. and John Vaissi-Nagy for respondents.
SOLICITORS:
Greenspan, Rosenberg & Buhr, Toronto, for applicant.
Deputy Attorney General of Canada for respondents.
The following are the reasons for order rendered in English by
McKeown J.: The issues are whether the applicant has proven on a balance of probabilities that all three branches of the test in Manitoba (Attorney General) v. Metropolitan Stores Ltd., [1987] 1 S.C.R. 110, at pages 128 and 129, have been satisfied and whether I have jurisdiction to make an order staying an order of the Tax Court of Canada.
The courts have been particularly reluctant to interfere with criminal investigations by granting relief in the nature of injunction to individuals who are subject to such investigation. There are two factors present in the motion before me which meet that concern. Firstly, the Minister has moved both before and after the initiation of the 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)] at a “somewhat sedate pace” to quote from Hugessen J.A. [(1993), 93 DTC 5271 (F.C.A.)] in an earlier stay application in connection with an application to review and set aside a decision of the Tax Court of Canada made under subsection 231.4(2) on a pure question of statutory construction. Secondly, this inquiry was ordered more than six years after the commencement of the criminal investigation and nearly a year and a half after the last contact between Revenue Canada and the applicant. During that time no resort was made to search and seizure powers in the Act and counsel for the respondents admitted there were no reasonable and probable grounds to obtain a search warrant. I am unable to see how the public interest is harmed in these circumstances by delaying the commencement of an inquiry for a further short period of time. The applicant has agreed to proceed on an expedited basis.
There is a serious issue to be tried here. I need only refer to the words of Hugessen J.A. [(1993), 93 DTC 5455 (F.C.A.)] in the earlier section 28 [Federal Court Act, R.S.C., 1985, c. F-7 (as am. by S.C. 1990, c. 8, s. 8)] application where he stated at page 5456:
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 (See Baron v. Canada, [1993] 1 S.C.R. 416; M.N.R. v. Kruger Inc., [1984] 2 F.C. 535), such an attack cries out to be made. It remains, however, that it was not made and we must deal with this case on the basis on which it was presented to us, namely as a pure question of statutory construction.
The respondents take the view that this 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]] question could have been argued in the earlier hearing before the Federal Court of Appeal and the matter is therefore res judicata and an abuse of power.
The statement of claim herein was issued August 17, 1993, over two weeks prior to the hearing before the Federal Court of Appeal. The Federal Court of Appeal was informed that the Charter issue was the subject of the statement of claim. Section 18 [as amended by S.C. 1990, c. 8, s. 4] of the Federal Court Act provides for a declaration of constitutional invalidity to be brought before the Federal Court Trial Division. While the constitutional issue might have been dealt with by the Federal Court of Appeal by agreement of the parties or otherwise, this is not an example of an applicant splitting his case. The applicant has proceeded in the manner contemplated by Rules 400 and 600(4) of the Federal Court Rules [C.R.C., c. 663]. See also Denault J. in Haig et al. v. Canada et al. (1992), 57 F.T.R. 1 (F.C.T.D.). This case is distinguishable from Maynard v. Maynard, [1951] S.C.R. 346. The issues are fundamentally different in the two proceedings; that is, in the Federal Court of Appeal the proceeding relates to the order of the Tax Court and in the Federal Court Trial Division, the proceeding relates to the question of invalidity of a subsection of the Income Tax Act and all aspects of the section are attacked.
Furthermore, the doctrines of issue estoppel and res judicata do not apply in public law cases. Even if the doctrines do apply in this case the special circumstances exception enunciated by the Supreme Court of Canada in Grandview (Town of) v. Doering, [1976] 2 S.C.R. 621 applies. Ritchie J. referred to the rule at page 634:
Later in his judgment, Chief Justice Dewar cited the cases of Henderson v. Henderson ((1843), 3 Hare 100) and Ord v. Ord ([1923] 2 K.B. 432) and quoted the following passage from Vice-Chancellor Wigram’s reasons for judgment in the former case at p. 115:
… I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
In my view there are “special circumstances” in the case before me. This action for a declaration concerns a subsection of the Income Tax Act which three members of the Federal Court of Appeal have characterized as “crying out for a Charter review” and was commenced in a timely fashion even before the Federal Court of Appeal heard or gave its decision on the matter before it. This is not a case where a party is attempting to relitigate an issue after another court has rejected it. There can be no abuse of process in such circumstances. There is a serious issue to be tried.
Also the applicant would suffer irreparable harm. There is affidavit evidence setting out the irreparable harm. This evidence has not been impugned. There are cases where courts have held that this type of inquiry would be an integral step in an eventual criminal prosecution and the damage resulting would be unacceptable, as noted by Oppal J. in Ref. re Competition Act (1989), 62 D.L.R. (4th) 565 (B.C.S.C.) at page 568:
While the viva voce evidence may not be the subject matter of criminal charges, the same cannot be said for derivative evidence or evidence relating to potential third parties.
See also Yri-York Ltd. v. Canada (Attorney General), [1988] 3 F.C. 186 (C.A.). While there are recent Supreme Court of Canada cases which protect derivative and other evidence, they are based on subsection 24(2) of the Charter and the applicant should not have to rely on the Court’s discretion. In any event the Crown gave no undertaking in the matter before me not to use any of the evidence obtained should section 231.4 be declared constitutionally invalid.
The balance of the convenience clearly lies with the applicant. This is not a matter where the respondent has moved with all due speed. There is no evidence that the respondent’s position will suffer any harm if the matter is stayed. The public interest in the prosecution of crime in light of the circumstances in this motion does not outweigh the potential injury to the applicant.
I am satisfied that the three branches of the test in Metropolitan Stores have been met. I am also satisfied I have jurisdiction to stay the order of the Tax Court. Although the applicant has not sought relief against the order of the Court in its statement of claim, if I did not grant this stay the action would be meaningless. I rely on the reasoning of Pinard J. in Kindler v. Canada (Minister of Justice), [1989] 2 F.C. 38 (T.D.). He relies on section 24 of the Charter and section 17 of the Federal Court Act [R.S.C. 1970 (2nd Supp.), c. 10]. He also relies on paragraph 50(1)(b) of the Federal Court Act and Rule 1909 which, he states, confers jurisdiction on the Court necessary to dispose of the application regardless of section 24 of the Charter.
Pinard J. goes on to say, at page 47:
Paragraph 50(1)(b) above accordingly allows the Court to “stay proceedings”, and these are not limited to those before the Court. In New Brunswick Electric Power Commission v. Maritime Electric Company Limited, [1985] 2 F.C. 13, Stone J. of the Appeal Division of this Court confirmed this, at page 24:
Subsection 50(1) of the Act is not on its face limited to proceedings “before the Court”. The inclusion of those words or words of like effect would, I think, have removed any doubt as to the intention of Parliament. Omission of them from subsection 50(1) lends some support to an argument that by “proceedings” Parliament intended to confer power, in appropriate circumstances, to stay proceedings in addition to those pending in the Court itself.
I have the jurisdiction to make the stay order in the matter before me and I grant the stay order as requested.