Judgments

[1996] 3 F.C. 505

T-1774-95

T-1775-95

T-1776-95

AGT Limited (Applicant)

v.

The Attorney General of Canada (Respondent)

Indexed as: AGT Ltd. v. Canada (Attorney General) (T.D.)

Trial Division, Rothstein J.—Calgary, March 27; Ottawa, May 31, 1996.

Income tax — Validity and enforceability of notices of requirements issued under Act, s. 231.2(1), in course of tax audit, concerning telephone company’s documents and information filed with CRTC subject to latter’s confidentiality order.

Evidence — Telephone company providing information to CRTC with request for confidentiality — CRTC granting request as to certain of information — MNR issuing notices of requirements that company disclose information — Information not subject to common law privilege under “Wigmore Rules” as company not assured CRTC would grant request.

AGT was an Alberta telephone company that took over the operations and assets of the Alberta Government Telephone Commission when the latter was privatized. AGT came under the jurisdiction of the CRTC and became a taxable entity. In an advance tax ruling, the Minister of National Revenue allowed the original cost, about $4 billion, as undepreciated capital cost, as opposed to net book value. Before the CRTC, for the purposes of establishing AGT’s revenue requirements, AGT took a more conservative approach to its income tax liability than in its income tax returns to the Minister. The CRTC and other parties issued interrogatories, some of which were answered by AGT with a request that they remain confidential. It was of the opinion that making public the information would prejudice its position vis-à-vis the Minister in any subsequent reassessment. If the Minister had access to such information, he might be prompted to reassess AGT. At the least, AGT’s negotiating position with the Minister would be impaired.

CRTC Rules provide that the Commission must weigh the public interest in disclosure against the specific direct harm to an applicant that might result from such disclosure. In the instant case, the CRTC denied AGT’s requests for confidentiality in respect of some information, but allowed others.

This was an application for judicial review concerning the validity and enforceability of notices of requirements to provide documents and information issued to AGT by the Minister pursuant to subsection 231.2(1) of the Income Tax Act. The requirements require production of documents and information provided to the CRTC in confidence by AGT.

Held, the application should be dismissed.

The scope of subsection 231.2(1) of the Act is broad enough to allow the requirements herein. An examination of the relevant case law yields the following propositions: (1) the expectation of privacy in relation to business records is relatively low; (2) as long as the Minister’s purpose is related to the administration and enforcement of the Income Tax Act, relevance of the material sought to a particular issue is not a prerequisite to a requirements notice under subsection 231.2(1); (3) documents may be compelled even if they are not required to be prepared or kept under the Income Tax Act; (4) it is not necessary that a requirements notice set out the grounds or particulars for which the documents sought are required; (5) as long as the documents pertain to a genuine inquiry into the tax liability of a person, they may be subject of a requirements notice under subsection 231.2(1). The requirements herein were in conformity with the above.

The confidential documents submitted to the CRTC are not subject to common law privilege. The common law privilege is defined by the “Wigmore Rules” as set out in R. v. Gruenke, [1991] 3 S.C.R. 263. First, the documents were submitted to the CRTC with the request that they remain confidential, but AGT could not be assured that the CRTC would agree with the request. In fact, the CRTC, exercising the discretionary power it is granted in this regard, ruled that some documents should be disclosed and others remain confidential. Therefore, they did not originate in a confidence that they would not be disclosed. As a result, the first of the “Wigmore” tests has not been met and it was not necessary to consider the others.

The requirements were not an abuse of process. While it may have been open to the Minister to apply to the CRTC to vary its confidentiality orders, there was nothing in subsection 231.2(1) that suggested that it could not be invoked by the Minister in the face of such confidentiality orders. It would be quite a leap of logic to conclude that the CRTC’s discretionary confidentiality orders override other statutory powers, especially when the person invoking the statutory power was not a party before the CRTC. It was not necessary for the Minister to apply to the CRTC to vary its confidentiality orders. Nor were the requirements an application to vary the confidentiality orders. The power given to the Minister to obtain information from taxpayers was an alternative to the Minister having to seek a variation of a CRTC confidentiality order, and, by extension, the necessity of having to appeal a negative ruling to the Federal Court of Appeal. This power does not derogate from the general supervisory role of the Federal Court of Appeal. That the Income Tax Act enabled the Minister of National Revenue to obtain access to confidential information has no bearing on the general relationship between the CRTC and regulated entities” they may continue to have full confidence in the efficacy of CRTC confidentiality orders.

This was not a case of operational conflict (arising when a person is subjected to conflicting orders from different authorities such that compliance with one would necessitate violation of the other). The CRTC confidentiality orders were binding on the CRTC, not on AGT. By contrast, the Minister’s requirements notices were binding on AGT.

There was no merit to the argument that in the particular circumstances of this case, a seizure under subsection 231.2(1) of the Income Tax Act was unreasonable and violated section 8 of the Charter in that respect. First, the fact that counsel was involved in preparing the documents was irrelevant since no solicitor-client privilege was claimed. Second, when AGT chose to ask the CRTC to base its revenue requirement on information different from that reflected in its income tax returns, it voluntarily assumed the obligation to bring into existence documents which it now wishes to withhold from the Minister. It knowingly assumed an obligation for a beneficial purpose and could not later argue that the obligation had the effect of denying him his rights. Third, the fact that the confidentiality orders were based on a public interest finding in favour of confidentiality was not a relevant consideration in this case. The orders were made with respect to participants in proceedings before the CRTC. The Minister was not a party to those proceedings. Moreover, subection 231.2(1) was also in the public interest. Fourth, relevance was not a prerequisite for a requirements notice under subsection 231.2(1). The requirements must only be related to the administration and enforcement of the Income Tax Act. Finally, it was sufficient that the Minister was conducting an audit of AGT and that the documents he was seeking were business records pertaining to AGT’s income tax liability.

Senior officials of the MNR Audit Division had called upon the CRTC in the hope of securing confidential information with regard to AGT by “diplomatic ways”. This initiative, undertaken in order to avoid the risk of a court challenge that might be occasioned by serving a notice of requirements, was not an “innocent visit” but rather constituted a “back door” attempt to obtain documents from another Government agency to which the Minister, in the absence of a requirements notice, was not entitled. However, while the actions of the Minister’s officials in contacting the CRTC were regrettable, those actions did not provide a basis for relief with respect to the requirements that were ultimately issued.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Alberta Government Telephones Reorganization Act, S.A. 1990, c. A-23.5.

CRTC Telecommunications Rules of Procedure, SOR/79-554, ss. 18(2), 19(1),(5),(10),(11) (as am. by SOR/86-832, s. 3).

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. 7, 8.

Fisheries Act, R.S.C., 1985, c. F-14.

Income Tax Act, S.C. 1970-71-72, c. 63, s. 231(3).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 231.2(1).

Railway Act, R.S.C., 1985, c. R-3, ss. 350, 358.

Telecommunications Act, S.C. 1993, c. 38, ss. 12(1), 37, 38, 39.

CASES JUDICIALLY CONSIDERED

APPLIED:

James Richardson & Sons, Ltd. v. Minister of National Revenue et al., [1984] 1 S.C.R. 614; (1984), 9 D.L.R. (4th) 1; [1984] 4 W.W.R. 577; 7 Admin. L.R. 302; [1984] CTC 345; (1984), 84 DTC 6325; 54 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; [1990] 2 C.T.C. 103; 76 C.R. (3d) 283; 47 C.R.R. 151; 90 DTC 6243; 106 N.R. 385; 39 O.A.C. 385; confg R. v. McKinlay Transport Ltd. (1987), 62 O.R. (2d) 757; 48 D.L.R. (4th) 765; 40 C.C.C. (3d) 94; [1988] 1 C.T.C. 426; 87 DTC 6314; 26 O.A.C. 352 (C.A.); confg R. v. McKinlay Transport Ltd. and C.T. Transport Inc. (1987), 58 O.R. (2d) 310; 37 D.L.R. (4th) 454; 32 C.C.C. (3d) 1; [1988] 1 C.T.C. 421; 27 C.R.R. 109; 87 DTC 5051 (H.C.); R. v. Gruenke, [1991] 3 S.C.R. 263; [1991] 6 W.W.R. 673; (1991), 67 C.C.C. (3d) 289; 8 C.R. (4th) 368; 7 C.R.R. (2d) 108; 75 Man. R. (2d) 112; 130 N.R. 161; 6 W.A.C. 112; R. v. Fitzpatrick, [1995] 4 S.C.R. 154; (1995), 129 D.L.R. (4th) 129; 102 C.C.C. (3d) 144; 43 C.R. (4th) 343; 188 N.R. 248.

DISTINGUISHED:

Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General), [1989] 3 F.C. 540 (1989), 24 C.I.P.R. 13; 24 C.P.R. (3d) 484; [1989] 2 C.T.C. 63; 89 DTC 5205; 27 F.T.R. 82 (T.D.); British Columbia Telephone Co. v. Shaw Cable Systems (B.C.) Ltd., [1995] 2 S.C.R. 739; (1995), 125 D.L.R. (4th) 443; 31 Admin. L.R. (2d) 169; 183 N.R. 184.

REFERRED TO:

Canadian Bank of Commerce v. Attorney General of Canada, [1962] S.C.R. 729; (1962), 35 D.L.R. (2d) 49; 62 DTC 1236; 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; AGT — Issues Related to Income Taxes, Telecom Decision CRTC 93-9.

AUTHORS CITED

Wigmore, John Henry. Evidence in Trials at Common Law. McNaughton Revision, vol. 8. Boston: Little, Brown & Co., 1961.

APPLICATION for judicial review attacking the validity and enforceability of notices of requirements to provide documents and information issued to AGT by the Minister pursuant to subsection 231.2(1) of the Income Tax Act, the requirements requiring production of documents and information provided to the CRTC in confidence by AGT. Application dismissed.

COUNSEL:

Al Meghji for applicant.

Naomi Goldstein for respondent.

SOLICITORS:

Bennett Jones Verchere, Calgary, for applicant.

Deputy Attorney General of Canada for respondent.

The following are the reasons for order rendered in English by

Rothstein J.

INTRODUCTION

The issue in this judicial review is the validity and enforceability of notices of requirements to provide documents and information (referred to as requirements or notice of requirements) issued to the applicant (AGT) by the Minister of National Revenue (Minister) pursuant to subsection 231.2(1) of the Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1 (as amended).[1]

The requirements require production of “Documents and Information filed with the CRTC and not previously produced for the years 1990 to July, 1995”. Three identical requirements were issued by the Minister, one dated July 20, 1995 addressed to and served on George K. Petty, President and CEO of AGT, a second dated July 24, 1995 addressed to and served on Jim McGillicuddy, Tax Manager for AGT and a third, dated July 27, 1995 addressed to and served on AGT counsel, Al Meghji, a lawyer with the Calgary law firm of Bennett, Jones, Verchere and one of AGT’s counsel in this case.[2]

BACKGROUND

The documents sought by the Minister under the requirements and which AGT does not wish to produce are answers to interrogatories provided to the CRTC in confidence by AGT. Some background as to why such documents came into existence will help to place the dispute in context.[3]

Prior to October 4, 1990 telephone service in the Province of Alberta was provided by the Alberta Government Telephone Commission. As the Commission was a crown corporation that was exempt from federal and provincial income tax, it never made a claim for capital cost allowance for income tax purposes. By the Alberta Government Telephones Reorganization Act[4] the Commission was restructured as of October 4, 1990 to provide for privatization. Telus Corporation was acquired by the Province of Alberta to act as a holding company. Most telephone operations and assets were transferred to AGT, a subsidiary of Telus. At this time AGT came under the jurisdiction of the CRTC and became a taxable entity.

In preparation for privatization, the Minister was asked for an advance tax ruling as to whether depreciable assets for tax purposes should be valued at original cost, approximately $4 billion, or at net book value, i.e. original cost less depreciation, of about $2.2 billion. The tax ruling allowed the original cost as undepreciated capital cost. The additional capital cost allowance for income tax purposes available by use of the original cost as undepreciated capital cost as opposed to net book value was referred to as additional tax deductions (ATD). In addition to the ATDs arising from the use of the original cost of assets as opposed to net book value for income tax purposes, there were a number of other matters relating to privatization which resulted in further ATDs.

AGT made an application to the CRTC for purposes of the CRTC establishing AGT’s revenue requirements, initially for 1992. Once revenue requirements are determined, rates are set with a view to recovering the allowed revenue. The revenue is intended to cover AGT’s expenses, cost of capital and perhaps other items; but of relevance here, the allowed revenue is intended to cover AGT’s income tax liability. AGT should be in a position after attending to its expenses, including its income tax liability, to meet its cost of capital which includes interest on debt and its allowed return on equity.

Before the CRTC, AGT took a more conservative approach to its income tax liability than in its income tax returns to the Minister. Its reasons include intergenerational equity. Since its risk adjusted ATDs in its submissions to the CRTC reflected AGT’s best judgment of the more likely outcome of its ultimate tax liability than its filed income tax returns, using its liability as reflected in its income tax returns for revenue requirements purposes would pose a greater risk to a post-audit generation than a pre-audit generation. Further, AGT expressed the concern that future competition would affect urban communities more than rural ones, leaving the rural users to absorb a greater proportion of tax costs as a result of any reassessment by the Minister. Finally there was a concern that attempting to recover past income taxes reassessed by the Minister would amount to retrospective rate making.

The CRTC did not accept AGT’s submissions. In particular, it found that setting rates in future years to take account of any additional income tax liability would not constitute retrospective rate making any more than any other changes to accounting estimates requiring future recovery. Accordingly, it found that it would be able to make adjustments to AGT’s rates in the future to reflect any differences between the amount of ATDs accounted for in prior periods and the amount permitted by the Minister on a reassessment.

Leading up to Telecom Decision CRTC 93-9 on July 23, 1993, there were a number of proceedings, including income tax specific proceedings. In these proceedings, the CRTC and other parties issued interrogatories which were answered by AGT. Some answers relating to income tax issues were provided to the CRTC with a request that they remain confidential. In addition there were proceedings subsequent to July 23, 1993 in which AGT responded to interrogatories with similar confidentiality requests.

Without addressing in detail AGT’s reasons for seeking confidentiality, suffice it to say that AGT was of the opinion that making public the information it sought to keep confidential would prejudice its position vis-à-vis the Minister in any subsequent reassessment by the Minister. For example, AGT may have assessed the risk of reassessment of its ATDs in its submissions to the CRTC for revenue requirements purposes. For the Minister to have access to such information might prompt the Minister to reassess AGT or at least would damage AGT’s negotiating position with the Minister.

The CRTC has specific rules dealing with confidentiality requests.[5] In essence, the Rules provide that the CRTC must weigh the public interest in disclosure against the specific direct harm to an applicant that might result from such disclosure. In accordance with this approach, the CRTC denied AGT’s requests for confidentiality in respect of some information, but allowed others. It is the documents which the CRTC found were entitled to confidentiality to which AGT says the Minister’s requirements should not apply.

ISSUES

AGT acknowledges that by its wording, subsection 231.2(1) is very broad and could apply to any document or any information. However, it raises a number of defences which it says disentitle the Minister from relying on the requirements issued under that section in this case.

1. The case law has narrowed the scope of requirements under subsection 231.2(1) and what the Minister seeks in this case is outside the boundaries of subsection 231.2(1) as determined by the jurisprudence.

2. Common law privilege attaches to the documents in that they were produced with the understanding that they would not be disclosed.

3. The Minister’s requirements constitute an abuse of the process in view of the confidentiality rulings of the CRTC.

4. There is an operational conflict created for AGT between the Minister’s requirements and the CRTC’s confidentiality orders. The Minister should go before the CRTC to ask for a variation of its confidentiality orders rather than proceeding by way of requirements.

5. The requirements constitute an unreasonable seizure contrary to section 8 of the Canadian Charter of Rights and Freedoms.[6]

1.         The Scope of Subsection 231.2(1)

Counsel for AGT says that much of the information sought by the Minister is irrelevant. He points to admissions in cross-examination of the Minister’s deponent to that effect. In any event, counsel says the Minister was indifferent as to whether information or documents could possibly be relevant and therefore his conduct is not reasonable. Further, he says, there is evidence to indicate the information sought is not necessary to determine AGT’s tax liability. He submits that this is a fishing expedition which, he says, is not permitted under subsection 231.2(1) of the Income Tax Act.

In James Richardson & Sons, Ltd. v. Minister of National Revenue et al.,[7] Wilson J., relying on Canadian Bank of Commerce v. Attorney General of Canada,[8] found that subsection 231(3) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended (now with differences that are inconsequential for purposes of this case, subsection 231.2(1) of the current Income Tax Act)[9] was not to be construed as broadly as its language on its face could suggest. In Richardson, the Minister had served requirements on Richardson to disclose information about certain of its trading customers whose tax liability was not under investigation. Wilson J. called such a general check on compliance with the Income Tax Act a fishing expedition into the affairs of Richardson’s customers. However, she did state that if the tax liability of a customer was the subject of a genuine inquiry, the Minister would have been entitled to require Richardson to disclose information about its customer even if innocent taxpayers’ information was disclosed in the process.

In R. v. McKinlay Transport Ltd.,[10] the question was whether a requirements notice under subsection 231(3) of the Income Tax Act, S.C. 1970-71-72, c. 63, was a reasonable seizure under section 8 of the Canadian Charter of Rights and Freedoms. In the Ontario High Court [(1987), 58 O.R. (2d) 310], Trainor J. found that relevance was a prerequisite to a requirements notice under subsection 231(3). He also said, amongst other things, that a requirements notice could be attacked on the grounds that the Minister was on a fishing expedition. In addition, he was of the opinion that where the issues had not been clearly identified, it would be incumbent on the Minister to set out the grounds for the demand in order that relevance could be ascertained. In the Ontario Court of Appeal [(1987), 62 O.R. (2d) 757], Grange J.A. found that a requirements notice was subject to being objectively tested to determine whether it was authorized by the section and whether it was relevant to the tax liability of a specific person.

At the Supreme Court of Canada, Wilson J. observed that subsection 231(3) was enacted because of the reality that under Canada’s self-reporting income tax system, some persons would attempt to avoid paying their full share of the tax burden. She then addressed the criteria to be met in order that a search be reasonable. After analyzing the criteria in the criminal context as set forth by Dickson J. (as he then was) in Hunter et al. v. Southam Inc.,[11] she concluded that such criteria were not applicable to regulatory provisions under the Income Tax Act. In particular, she found that the Hunter requirement that there be reasonable grounds for believing that a particular taxpayer had failed to observe the provisions of the Income Tax Act is not a requirement for the Minister acting under subsection 231(3). She specifically found that the other Hunter requirements were also not applicable. Thus, there is no necessity that there be reasonable grounds to believe that a requirements notice will turn up something related to a particular assessment or that only documents strictly relevant to the assessment may be authorized to be seized. Further, she concluded that subsection 231(3) provided for the compelled production of a wide array of documents and not just those which are required to be prepared and maintained under the Income Tax Act.

Wilson J. does not grant the Minister unconditional power to search and seize documents under the Income Tax Act. She observes that if a seizure involves entry onto private property of a taxpayer, the Hunter safeguards may be required. However, she also concludes that subsection 231(3) is the least intrusive means by which effective monitoring of compliance with the Income Tax Act can be effected. She states, at pages 649-650:

In my opinion, s. 231(3) provides the least intrusive means by which effective monitoring of compliance with the Income Tax Act can be effected. It involves no invasion of a taxpayer’s home or business premises. It simply calls for the production of records which may be relevant to the filing of an income tax return. A taxpayer’s privacy interest with regard to these documents vis-à-vis the Minister is relatively low. The Minister has no way of knowing whether certain records are relevant until he has had an opportunity to examine them. At the same time, the taxpayer’s privacy interest is protected as much as possible since s. 241 of the Act protects the taxpayer from disclosure of his records or the information contained therein to other persons or agencies.

Having considered Richardson and McKinlay, I conclude:

1. The expectation of privacy in relation to business records is relatively low.

2. As long as the Minister’s purpose is related to the administration and enforcement of the Income Tax Act, relevance of the material sought to a particular issue is not a prerequisite to a requirements notice under subsection 231.2(1).

3. Documents may be compelled even if they are not required to be prepared or kept under the Income Tax Act.

4. It is not necessary that a requirements notice set out the grounds or particulars for which the documents sought are required.

5. As long as the documents pertain to a genuine inquiry into the tax liability of a person, they may be the subject of a requirements notice under subsection 231.2(1).

In the case at bar, the Minister had been conducting an audit of AGT. In 1994, the Minister became aware that confidential information had been filed with the CRTC by AGT pertaining to income tax issues. The Minister requested such information from AGT but not all of it was produced. The information not produced was that which had been supplied to the CRTC and which was subject to the CRTC’s confidentiality orders. The Minister then sought to obtain the confidential information from the CRTC. The CRTC would not disclose the information (I will return to this issue). It was at that point the requirements were issued.

As the Minister had been conducting an extensive audit of AGT, this is the case of a genuine inquiry into the income tax liability of AGT. There is no doubt that the subject-matter of the documents which the Minister sought pertains to AGT’s tax liability. The Minister is entitled to business records, which these are, whether relevant or irrelevant to any specific issue. The fact that the documents may not have been prepared for purposes of the Income Tax Act is of no consequence.

I do not see any general condition precedent to the Minister invoking subsection 231.2(1) that he first attempt to obtain the documents voluntarily or that he limit his requirements by some preliminary determination of likely relevance. Certainly the Minister may not invoke subsection 231.2 (1) in bad faith. However, the fact that he acknowledges that some of the information he seeks is not relevant, is not fatal to the Minister.

In the absence of some other specific rationale to the contrary, the Minister is entitled in the present case to the documents he seeks from AGT.

2.         Common Law Privilege

AGT says the confidential documents submitted to the CRTC are subject to common law privilege and, therefore, production cannot be compelled by the Minister using a requirements notice under subsection 231.2(1). This argument, I think, goes to whether there is a reasonable expectation of privacy with respect to the documents. As Wilson J. pointed out in McKinlay, business records are subject to a low expectation of privacy. However, while such expectation may be low, it is not zero.

Common law privilege is defined by the “Wigmore rules” [Wigmore, Evidence in Trials at Common Law, vol. 8, McNaughton Revision, para. 2285] as outlined in cases such as R. v. Gruenke.[12] The “Wigmore rules” are set forth in Gruenke, at page 284:

(1) The communications must originate in a confidence that they will not be disclosed.

(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.

(3) The relation must be one in which the opinion of the community ought to be sedulously fostered.

(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.

Gruenke distinguishes between those situations in which there is a prima facie presumption of privilege and those when the prima facie presumption is against privilege. At page 286, Lamer C.J. states:

The term “case-by-case” privilege is used to refer to communications for which there is a prima facie assumption that they are not privileged (i.e., are admissible). The case-by-case analysis has generally involved an application of the “Wigmore test” (see above), which is a set of criteria for determining whether communications should be privileged (and therefore not admitted) in particular cases. In other words, the case-by-case analysis requires that the policy reasons for excluding otherwise relevant evidence be weighed in each particular case.

As I understand AGT’s argument, while there is no presumption of privilege over the documents, application of the “Wigmore rules” to the circumstances of this case will result in them being found to be privileged and exempt from seizure under subsection 231.2(1).

I turn to the first of the “Wigmore rules”—the documents must originate in a confidence that they will not be disclosed. In the case at bar, the documents in question were submitted to the CRTC by AGT with the request that they remain confidential. The CRTC ruled that some documents should be disclosed and others should remain confidential. In making such rulings, the CRTC had regard for sections 350 and 358 of the Railway Act, R.S.C., 1985, c. R-3, as amended, and sections 18 and 19 of the CRTC Telecommunications Rules of Procedure.[13] In relevant part they provide:

350. Where information concerning the costs of a railway company or other information that is by its nature confidential is obtained from the company by the Commission in the course of any investigation under this Act, the information shall not be published or revealed in such a manner as to be available for the use of any other person, unless in the opinion of the Commission the publication is necessary in the public interest.

…

358. (1) The Commission may, by notice served on any railway, telegraph, telephone or express company or any officer, servant or agent of the company, require it, the officer, servant or agent to furnish the Commission, at or within any time stated in the notice, with a written statement or statements showing in so far, and with such detail and particulars, as the Commission requires

…

(3) Any information furnished to the Commission by any return, or any evidence taken by the Commission in connection therewith, shall not be open to the public, or published, but shall be for the information of the Commission only.

…

(5) The Commission may authorize any part of the information obtained by it to be made public when, and in so far as, there may appear to the Commission to be good and sufficient reasons for so doing, ….

[CRTC Telecommunications Rules of Procedure]

18. …

(2) A party who is unable or unwilling to provide a full and adequate response to an interrogatory shall

…

(c) where the party contends that the information sought is of a confidential nature, provide a response that sets out the reasons therefor as required by subsection 19(2),

and file with the Secretary a copy of the response provided.

…

19. (1) Where a document is filed with the Commission by a party in relation to any proceeding, the Commission shall place the document on the public record unless the party filing the document asserts a claim of confidentiality at the time of such filing.

…

(5) Where a claim for confidentiality is made in connection with a document that has not been filed by a party, the Commission may require the party to file the document and, after the document has been filed, the document shall

(a) be reviewed by the Commission in confidence; and

(b) be dealt with as provided in subsection (10) or (11), whichever is applicable.

…

(10) Where the Commission is of the opinion that, based on all the material before it, no specific direct harm would be likely to result from disclosure, or where any such specific direct harm is shown but is not sufficient to outweigh the public interest in disclosing the document, the document shall be placed on the public record.

(11) Where the Commission is of the opinion that, based on all the material before it, the specific direct harm likely to result from public disclosure justifies a claim for confidentiality, the Commission may

(a) order that the document not be placed on the public record;

(b) order disclosure of an abridged version of the document; or

(c) order that the document be disclosed to parties at a hearing to be conducted in camera. [Emphasis added.]

It is apparent that sections 350 and 358 of the Railway Act confer a discretion on the CRTC to disclose confidential information where it considers the public interest requires such disclosure. Sections 18 and 19 of the Rules provide a procedure and criteria under which the CRTC is to determine whether information that is confidential should be revealed. The CRTC is required to exercise its discretion based on the specific direct harm criteria in subsections 19(10) and (11) of the Rules as to whether, and the extent to which, to order disclosure of documents submitted in confidence in any given case.[14] It is these discretionary provisions under which the Commission acted with respect to the documents in question in this case. For example, in its decision on requests for disclosure, dated January 20, 1992, the Commission states:

This letter constitutes the Commission’s decision regarding requests of the parties to this proceeding for public disclosure and for further responses in relation to the responses to interrogatories filed by AGT….

…

In assessing AGT’s claims for confidentiality, the Commission is governed by the provisions of sections 350 and 358 of the Railway Act and section 19 of the CRTC Telecommunications Rules of Procedure. In each case, the Commission has weighed the public interest in disclosure and the specific direct harm that might result from such disclosure. In applying these principles, the Commission has considered a number of factors.

The Commission goes on to give examples of the matters it considered. One was the extent of competition in a particular market. The Commission states:

The Commission considers that, other things being equal, the greater the degree of competition, the greater the specific harm that could be expected to result from disclosure.

The Commission concluded that some information, for which confidentiality was requested, should be placed on the public record. Other information should remain confidential. The Commission states:

Having regard to these considerations, the Commission has decided that all or part of the information subject to a claim of confidence in the interrogatories listed in Appendix A of this decision should be placed on the public record of this proceeding. In each such case, the Commission has concluded that the specific direct harm likely to be caused by disclosure would not outweigh the public interest in disclosure. Accordingly, unless otherwise expressly indicated in Appendix A, AGT is directed to place on the public record all of the information which was subject to a claim of confidence in each of the interrogatories listed in Appendix A.

The requests for public disclosure that are the subject of this decision which relate to interrogatories that are not listed in Appendix A are hereby denied.

In Gruenke, supra, it was found that the communications between the accused and a pastor and counsellor did not originate in a confidence that they would not be disclosed. The pastor and counsellor testified that they were unclear as to whether they were expected to keep confidential what the accused told them. This led the Court to the conclusion that the accused did not make her admissions to them in the confident belief they would not be disclosed.

In the case at bar, the basis of the privilege claim is that the documents were submitted to the CRTC with a claim for confidentiality pursuant to sections 18 and 19 of the CRTC Telecommunications Rules of Procedure. There is no evidence of any other reason supporting the argument that they originated in the confidence that they would not be disclosed. Undoubtedly, AGT hoped the CRTC would rule that the documents not be disclosed; but in making their submissions, they left themselves in the hands of the CRTC. The CRTC was bound to follow the relevant provisions of the Railway Act and CRTC Telecommunications Rules of Procedure and exercise its discretion as to whether to allow AGT’s claim for confidentiality in whole or in part. This inevitably leads to the conclusion that AGT could not have originated the documents it submitted to the CRTC in the confidence they would not be disclosed.

AGT says that from its experience with the CRTC and from the way in which the CRTC dealt with its first submission of documents with a request for confidentiality, it had confidence that the CRTC would not disclose the documents which AGT considered confidential. Indeed after its first submission, and because of the CRTC’s first decision, AGT probably had some confidence that a number of the documents subsequently submitted would not be disclosed. However, AGT could not have had such confidence with respect to its first submission of documents and indeed could never be certain that a new argument from another party might not result in the CRTC deciding to order further disclosure. Further, there is some indication in the material that the CRTC revisited at least one of its confidentiality decisions.[15] In addition, the CRTC indicates in its August 7, 1992 decision, that AGT had submitted that the material in question in this case was of a “uniquely sensitive nature” and that the CRTC agreed that the circumstances are unique. That the CRTC considered it necessary to revisit one of its confidentiality decisions and that the circumstances in this case were unique, suggests that little reliance could be placed on prior decisions of the CRTC with respect to confidentiality.

In all the circumstances, I am convinced that AGT could not have originated the documents it submitted to the CRTC in the confidence that they would not be disclosed. As a result, the first of the “Wigmore” tests has not been met and it is not necessary to go on to consider the other tests. Common law privilege is simply not applicable in this case.

3.         Abuse of the Process

AGT says that requirements are an abuse of the process for the following reasons:

1. Access to the documents should only be made by way of application to the CRTC to vary its confidentiality orders. The requirements should not be used to circumvent such procedure.

2. The requirements constitute an “end run” around the CRTC’s confidentiality orders. The confidentiality orders have been filed in the Federal Court. This Court should not, in effect, sanction a variation of such confidentiality orders, especially when they have been filed in this Court, in the absence of truly compelling reasons which are not present here.

3. The requirements undermine the supervisory role of the Federal Court of Appeal over actions of the CRTC.

4. The requirements undermine the relationship between regulated entities and the CRTC and the confidence regulated entities must have in the efficacy of CRTC orders pertaining to the confidentiality of information submitted by these entities.

1.         Is it necessary for the Minister to apply to the CRTC to vary its confidentiality orders?

It may be open to the Minister to apply to the CRTC to vary its confidentiality orders. However, I see nothing in subsection 231.2(1) that suggests that it cannot be invoked by the Minister even in the face of such confidentiality orders. I accept that the statutory power of the Minister may be subject to statutory or common law exceptions. Such statutory exceptions are not confined to the Income Tax Act. Thus, if the Railway Act or Telecommunications Act, S.C. 1993, c. 38, provided for an absolute privilege with respect to specific returns made to the CRTC, a requirements notice might not be effective in respect of such documents. No such statutory exception has been pointed out in this case. Similarly, if common law exceptions applied, such as common law privilege, the requirements notice might not be effective. However, it has already been determined that the common law privilege exception is not applicable in this case.

What is left is a discretionary order of the CRTC made as a result of submissions of the parties before it. The Minister was not such a party. It would be quite a leap of logic to conclude that the CRTC’s discretionary confidentiality orders override other statutory powers, especially when the person invoking the statutory power was not a party before the CRTC. It is not necessary for the Minister to apply to the CRTC to vary its confidentiality orders.

2.         The requirements notice constitutes an end run around the CRTC confidentiality orders.

The end-run argument is just a variation of the argument that the Minister must seek a variation of the CRTC confidentiality orders. In this end run argument, the context is that the CRTC orders have been filed in the Federal Court and that sanctioning requirements under subsection 231.2(1) constitutes a variation of the CRTC orders by this Court.

AGT relies on Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General)[16] for the proposition that a confidentiality order should only be varied for “truly compelling reasons”. However, Smith, Kline & French Laboratories Ltd. is not applicable. In that case, the Minister did not proceed under subsection 231.2(1), but simply applied to the Court to vary a confidentiality order of the Court. Here, however, we are not dealing with an application to vary. If the Minister was simply proceeding as a private citizen to obtain documents subject to a confidentiality order, he would have to apply to vary the CRTC confidentiality orders as he attempted to do in respect of a sealing order of this Court in Smith, Kline. Here, however, the Minister is proceeding under subsection 231.2(1) of the Income Tax Act. Parliament has conferred on the Minister special power in relation to the administration and enforcement of the Income Tax Act and it is that scheme that is at play and not an application to vary a confidentiality order. Indeed, the confidentiality orders are not varied. They remain in place. They are binding on the CRTC and any person who seeks the information from the CRTC. That is not the route the Minister has followed in this case.

3.         Undermining of supervisory role of Federal Court of Appeal.

It is argued that issuance of the requirements notice undermines the supervisory role of the Federal Court of Appeal over the CRTC. Again, the gist of this argument is that the Minister should seek a variation of the CRTC orders from the CRTC. If he is dissatisfied with the result of such application his recourse is to the Federal Court of Appeal.

The general scheme of supervision by the Federal Court of Appeal over the CRTC is not in issue. That scheme subsists. However, it may not operate in the face of legislation to the contrary. For example, subsection 12(1) of the Telecommunications Act provides for a petition to the Governor in Council for variation or recision of an order of the CRTC.[17] This is a statutory form of recourse from orders of the CRTC which does not involve the Federal Court of Appeal. By the same reasoning, the Income Tax Act gives the Minister the power to obtain information from taxpayers. This power, in effect, is an alternative to the Minister having to seek a variation of a CRTC confidentiality order and, by extension, the necessity of having to appeal a negative ruling to the Federal Court of Appeal. This power does not derogate from the general supervisory role of the Federal Court of Appeal. Each operates within its own sphere. This argument is without merit.

4.         Undermining the relationship between the CRTC and regulated entities.

If any person without alternative specific statutory authority seeks confidential information from the CRTC, a variation order would seem to be the only way in which that person could obtain access to such documents. The Minister is in a different and preferred position by virtue of the specific power conferred upon him under the Income Tax Act. The CRTC’s orders are binding on the CRTC. They do not purport to affect the operation of another statute under which the Minister seeks, and is entitled to seek, confidential documents from taxpayers including regulated entities such as AGT. When the Minister sought to obtain confidential information from the CRTC without issuing a requirements notice, the CRTC refused the request. It is clear that regulated entities may continue to have full confidence in the efficacy of CRTC confidentiality orders. That other statutory provisions enable the Minister of National Revenue to obtain access to confidential information has no bearing on that general relationship.

4.         Operational Conflict

AGT relies on the decision of the Supreme Court of Canada in British Columbia Telephone Co. v. Shaw Cable Systems (B.C.) Ltd.[18] Operational conflict arises when a person is subjected to conflicting orders from different authorities such that compliance with one would necessitate violation of the other. In such case, the person may seek guidance from the Court as to which order to follow.

In the present case there are no conflicting orders of this nature. The CRTC confidentiality orders are binding on the CRTC in proceedings before that tribunal. They are for the benefit of AGT but they do not bind AGT. They do not purport to prevent AGT from voluntarily disclosing documents or information as it sees fit or from complying with lawful disclosure obligations under the Income Tax Act. By contrast, the Minister’s requirements notices are binding on AGT. AGT must comply with them. There is no operational conflict.

5.         Unreasonable Seizure Contrary to Section 8 of The Charter

AGT submits that the requirements in this case constitute an unreasonable seizure and therefore violate section 8 of the Charter.

AGT’s Charter attack in this case is not against the constitutional validity of subsection 231.2(1) of the Income Tax Act. Indeed, it cannot be, as Wilson J. in McKinlay concluded at page 650 that the seizure contemplated by subsection 231(3) of the Income Tax Act is reasonable and does not violate section 8 of the Charter. Rather, AGT submits that in the particular circumstances of this case, a seizure under subsection 231.2(1) of the Income Tax Act is unreasonable, and violates section 8 of the Charter in that respect.

AGT says that whether a search and seizure is or is not reasonable requires a balancing of the individual’s right to privacy and the government’s interest in law enforcement. In Hunter et al. v. Southam Inc., supra, Dickson J. states, at pages 159-160:

The guarantee of security from unreasonable search and seizure only protects a reasonable expectation. This limitation on the right guaranteed by s. 8, whether it is expressed negatively as freedom from “unreasonable” search and seizure, or positively as an entitlement to a “reasonable” expectation of privacy, indicates that an assessment must be made as to whether in a particular situation the public’s interest in being left alone by government must give way to the government’s interest in intruding on the individual’s privacy in order to advance its goals, notably those of law enforcement.

In favour of the privacy interest of the individual, AGT submits:

1. The documents were prepared with the assistance of counsel.

2. The documents were not brought into existence voluntarily.

3. The documents are the subject of confidentiality orders which reflect the view of the CRTC that it is in the public interest that they remain confidential.

4. The documents are not required by the Income Tax Act.

5. The documents were brought into existence with the expectation that they would be treated as confidential.

AGT submits that these reasons outweigh the Minister’s interest in law enforcement. AGT says that the Minister has admitted that a large number of documents are irrelevant, the Minister’s audit has been completed, the initial reasons advanced for requiring the documents have been satisfied, and the material before the Court does not specify why the documents are required.

I will deal first with AGT’s expectations. As to the involvement of counsel, the short answer is that solicitor-client privilege is not claimed. If there is no solicitor-client privilege in respect of the documents, and indeed there cannot be because the documents have been disclosed to a third party, the CRTC, there is no basis for an argument that there is some expectation of privacy because of the involvement of counsel.

As to the fact the documents were not brought into existence voluntarily, the recent decision of the Supreme Court of Canada in R. v. Fitzpatrick[19] is instructive. In that case, reports which a fisherman was required to keep and submit under the Fisheries Act [R.S.C., 1985, c. F-14] were used in a prosecution of that fisherman under the Act. The Supreme Court held it was not contrary to fundamental justice under section 7 of the Charter for an individual to be convicted of a regulatory offence on the basis of a record or return that he was required to submit as one of the terms of his participation in the regulated sphere.

In the case at bar, AGT chose to ask the CRTC to include in its revenue requirements for rate-making purposes an allowance for income tax on a more conservative basis than the income tax liability reflected in AGT’s income tax returns. While there may have been some reasons for doing so, AGT was not compelled to do so. When it chose to do so, it was faced with interrogatories that it was then required to answer and which it now says the Minister should not see. I think the words of La Forest J. in Fitzpatrick, at page 178 are apposite:

… the individual is furnishing information that is meant to benefit him or her, through proper and fair distribution of scarce fishing resources. Just because this information may later be used in an adversarial proceeding, when the state seeks to enforce the restrictions necessary to accomplish its regulatory objectives, does not mean that the state is guilty of coercing the individual to incriminate himself. The state required certain information to be provided, and the individual voluntarily assumed the obligation to do so in deciding to become a fisher in the first place. It ill lies in the mouth of someone who knowingly assumes an obligation for a beneficial purpose to argue later that this obligation has the effect of denying him his rights. [Emphasis added.]

It was open to AGT to claim an allowance for income tax on the basis of the returns it filed with the Minister. When it chose to claim an allowance for income tax on a more conservative basis, it voluntarily assumed the obligation to bring into existence documents which it now wishes to withhold from the Minister. The fact that the CRTC served interrogatories on AGT requiring the documents in question is of no consequence. It was AGT that voluntarily initiated the process. As La Forest J. pointed out in Fitzpatrick, it ill lies in the mouth of one who knowingly assumes an obligation for a beneficial purpose to argue later that the obligation has the effect of denying him his rights.

As to AGT’s argument that the documents are subject to confidentiality orders which are based on a public interest finding in favour of confidentiality, this is not a relevant consideration in this case. The Minister was not a party to the proceedings that led to such orders. The context in which they were made was with respect to participants in proceedings before the CRTC. The public interest implication of such orders cannot be taken further than that. Moreover, subsection 231.2(1) of the Income Tax Act under which the Minister is proceeding is also in the public interest.

Whether the documents are or are not required to be maintained pursuant to the provisions of the Income Tax Act is not a consideration. Wilson J., at page 642 of McKinlay, states:

First, s. 231(3), even construed narrowly in accordance with prior authority, envisages the compelled production of a wide array of documents and not simply those which the state requires the taxpayer to prepare and maintain under the legislation.

This argument does not avail to the benefit of AGT in this case.

I have already dealt with AGT’s argument that the documents in question were brought into existence in the expectation that they would be kept confidential. On the evidence, the documents were brought into existence in the expectation the CRTC would rule on whether they would be kept confidential. Some documents were ordered to be placed on the public record. The evidence does not support AGT’s argument.

As to AGT’s argument that the Minister does not have a compelling case for disclosure of the documents because he has admitted that many of them are irrelevant, McKinlay, supra, stands for the proposition that relevance is not a prerequisite for a requirements notice under subsection 231.2(1). (See McKinlay, at page 650.)

Contrary to AGT’s submission, the Minister’s audit was not unconditionally completed. In her June 14, 1995 letter to AGT, Marlene White, manager of the Minister’s audit team for AGT states:

We have now completed our audit of the above noted years and wish to formalize our position papers into a proposal letter. In some instances where additional questions were asked and a reply was not given to date, we have made the necessary assumptions to put our proposals forward ….

It is apparent that the audit was based on the information in the possession of the Minister at the time. The letter expressly refers to information not yet provided. Utilizing assumptions in respect of information not yet provided, the audit was completed. But it is quite clear that the Minister was still seeking information which AGT was refusing to disclose. The audit was therefore not unconditionally completed as it is obvious that the Minister was still seeking the answers to certain questions.

As to whether the specific reasons initially given for requiring the documents must subsist to support the requirements notice, I conclude that they need not. The requirements must only be related to the administration and enforcement of the Income Tax Act. An audit is surely encompassed in these terms and supports the requirements notice.

Finally, the Minister need not specify why the documents are required with any greater degree of particularity than is apparent in the evidence in this case. It is clear the Minister was conducting an audit of AGT and that the documents he was seeking were business records pertaining to AGT’s income tax liability. That is sufficient.

I am satisfied in the circumstances of this case, the requirements under subsection 231.2(1) do not constitute an unreasonable seizure.

COMMUNICATIONS BETWEEN THE MINISTER’S OFFICIALS AND THE CRTC

Earlier, I said I would return to the attempt by the Minister’s officials to obtain AGT’s confidential information from the CRTC. According to the evidence, three representatives of the Minister visited the CRTC. Counsel for the Minister says this was an innocent visit simply to ascertain whether the CRTC would disclose the subject documents. I have some difficulty with this characterization of what occurred. The visit was occasioned as a result of a May 8, 1995 memo from the Acting Director/Audit, at the Edmonton Tax Service Office, to the Interim Assistant Deputy Minister, Verification, Enforcement and Compliance Research Branch. The memo raises the concern that if requirements are issued, they could be subject to an adverse court decision:

We are considering the issuance of requirements on AGT for this information, but are concerned over any “down side” that may result from an adverse court decision. Numerous companies are regulated by the CRTC as well as any number of other regulators in the country. Should we lose, a significant flow of information on other files may be closed off.

As an alternative, the memo states:

There may be diplomatic ways to have the CRTC provide the information to Revenue Canada but this avenue has not been explored locally, as protocol would deem this to be a ministerial matter. [Emphasis added.]

As a result of the memo, three representatives of the Minister visited the CRTC on June 22, 1995. At that meeting, the CRTC refused to provide information to the Minister’s officials and it was therefore decided to issue the requirements.

What occurred raises a number of questions. What was meant by “diplomatic channels” referred to in the memo to the Interim Assistant Deputy Minister? Why would protocol deem this to be a ministerial matter? Why would an “innocent” visit require three representatives of the Minister? There was some indication that two of the three representatives were senior personnel. One was the Director, Large Business Audit Division. Most significantly, why would the Minister’s officials not have told AGT that representatives would be requesting confidential information directly from the CRTC?

One explanation for the procedure followed by the Minister’s officials is, as counsel for the Minister submits, that it was entirely innocent. The other is that in order to avoid the risk of a court challenge that might be occasioned by serving a notice of requirements under subsection 231.2(1), it constituted a “back door” attempt by the Minister’s officials to obtain documents from another Government agency to which the Minister, in the absence of a requirements notice, was not entitled. Regrettably, I must conclude that the evidence is consistent with the latter explanation.

Parliament has conferred on the Minister, in subsection 231.2(1), extensive powers of search and seizure on taxpayers. Subsection 231.2(1) has been found to be constitutionally valid. In the absence of consent by the taxpayer, the Minister’s officials must proceed under the statutory power conferred on the Minister and in no other way.

The May 8, 1995 memo states:

Audit is of the opinion that supplying complete information to the audit team is in the “public interest” and any increased reassessment can hardly be held by AGT not to be in the overall public interest.

Indeed, compliance with the Income Tax Act is in the public interest. But that objective does not justify attempts to obtain information to that end from other Government departments by extra-legal means in order to avoid a court challenge to the lawful procedures provided by the Income Tax Act. If the courts, through a proper interpretation of the legislation and/or the facts, limit the Minister’s power under subsection 231.2(1), the Minister must accept that verdict, just as the taxpayer must accept a wider interpretation of the Minister’s authority under subsection 231.2(1).

It must be remembered that Parliament, because of its concern that some taxpayers will not voluntarily conform to the requirements of the Income Tax Act, has conferred wide powers of search and seizure on the Minister. The Minister’s actions, therefore, must be beyond reproach. The public must have confidence that in their dealings with the Minister, the Minister is not acting outside the scope of the powers conferred upon him by Parliament.

Having said this, the Minister’s officials’ actions do not affect the Minister’s authority under subsection 231.2(1) once he invokes that authority. Therefore, while the actions of the Minister’s officials in contacting the CRTC are regrettable, those actions do not provide a basis for relief to AGT with respect to the requirements that were ultimately issued.

CONCLUSION

Although counsel for the respondent was not mentioned in these reasons except where her submissions were not accepted with respect to the Minister’s officials’ visit to the CRTC, her argument was of significant assistance to the Court.

This application for judicial review is dismissed. In order to preserve the efficacious result of a successful appeal, the Minister should not enforce the notice of requirements until after the time for appeal has expired or if notice of appeal is filed, until the appeal is determined, provided AGT acts expeditiously on the appeal.

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