Minister of National Revenue (Appellant)
v.
Huron Steel Fabricators (London) Limited
(Respondent)
and
Minister of National Revenue (Appellant)
v.
Herman Fratschko (Respondent)
Court of Appeal, Thurlow J., Cameron and
Sweet D.JJ.—Toronto, May 30, 31 and June 29,
1973.
Evidence—Income tax—Privilege from disclosure—Certifi-
cate of Minister that public interest precludes production of
income tax returns of non-litigant—Income Tax Act, section
241—Federal Court Act, s. 41(1).
The Minister of National Revenue assessed the Huron
Steel Co. and Fratschko, its controlling shareholder, to
income tax for certain years, alleging that certain agree
ments to which the Huron Steel Co., Fratschko and one,
Pelon, were party were a sham, that money purporting to be
paid thereunder by the Huron Steel Co. to Pelon Holdings
Ltd. for consulting services was in fact a payment by
Fratschko to one, Peckham, for the latter's shares in the
Huron Steel Co., that Pelon Holdings Ltd. rendered no
consulting services to the Huron Steel Co., and that Peck-
ham was the beneficial owner of all the shares in Pelon
Holdings Ltd. at all relevant times. The Huron Steel Co. and
Fratschko appealed the assessments. On examination for
discovery it was admitted for the Minister that his allega
tions were based on Pelon Holdings Ltd.'s income tax
returns for the relevant years, but the Minister, relying on
section 41(1) of the Federal Court Act, refused to produce
those returns at plaintiffs' demand on the ground that com
pleteness and accuracy of income tax information would be
prejudiced if he was required to produce the income tax
returns of non-litigants. The Court examined the income tax
returns in question and found that they contained nothing
which could adversely affect any public interest.
Held, affirming Heald J., production of the income tax
returns should be ordered.
Per Thurlow J. and Sweet D.J. Section 241 of the Income
Tax Act does not apply in terms to prevent production and
there is no basis for refusing disclosure in some supposed
public interest in protecting from disclosure returns of a
whole class of taxpayer or of particular taxpayers. More
over, section 41 of the Federal Court Act is a procedural
provision and does not confer any new right based on
grounds of public interest not heretofore recognized as
being sufficient to justify privilege from production.
Re Snider [1954] S.C.R. 479, discussed.
Per Cameron D.J. Production in this case should be
ordered because of the special circumstances.
APPEAL from Heald J. [1972] F.C. 1007.
COUNSEL:
G. W. Ainslie, Q.C., and E. A. Bowie for
appellant.
J. A. Giffen, Q.C., and G. L. Bladon for
respondents.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Giffen, Pensa, Lewis, Bladon and Wilson,
London, for respondents.
THURLOW J.—The issue in these appeals is
whether the income tax returns of a defunct
company, which I shall refer to as Pelon, for the
years 1964, 1965 and 1966, upon which the
income tax assessments of the respondents in
question in these proceedings are admittedly
based, are immune from production on discov
ery on the ground that the public interest in
keeping them confidential outweighs the public
interest in making them available to the
respondents for use in establishing their rights.
The claim for immunity was put forward in an
affidavit of the Deputy Minister of National
Revenue for Taxation, paragraphs 4 to 7 of
which read as follows:
4. I have carefully examined the returns of income filed by
Pelon Holdings Limited for its 1964, 1965 and 1966 taxa
tion years, and each return of income comprises the corpo
rate income tax return prescribed by the Defendant together
with a balance sheet and operating statement for Pelon
Holdings Limited.
5. I am of opinion that the completeness and the accuracy
of the information which a taxpayer is required by law to
disclose in his return of income would be prejudiced if the
Defendant was required on an examination for discovery or
by way of production or inspection of documents to produce
or disclose returns of income and attached financial state
ments of persons who were not parties to the litigation.
6. I am of opinion that the practice of the Defendant in
refusing to make production on an examination for discov
ery of the returns of income filed by persons who are not
parties to the litigation is essential to the proper administra
tion of the Income Tax Act and for the protection of the
revenue.
7. On the grounds of the public interest set forth in the
previous two paragraphs, I am of opinion that the returns
and attached financial statements of Pelon Holdings Limited
filed with the Defendant for its 1964, 1965 and 1966 taxa
tion years are documents which belong to a class and which
contain information which should be withheld from produc
tion and discovery.
The learned trial judge after considering this
affidavit and after examining the returns in
question concluded that in the present case the
public interest in the proper administration of
justice far outweighed in importance any public
interest that might be protected by upholding
the claim for privilege for the whole class speci
fied in the affidavit and he accordingly ordered
production of the returns. On considering the
affidavit in the light of the arguments put for
ward at the hearing of the appeal and after
examining the returns, I too am of the opinion
that production of the returns should be
ordered.
It will be observed that the only public inter
est specified in the affidavit as likely to be
prejudiced by production of returns of persons
who are not parties to the litigation is that
referred to in paragraph 5, that is to say, the
public interest in the completeness and accuracy
of the information which a taxpayer is required
by law to disclose in his return. This, to my
mind, amounts to nothing more than the putting
forward by a somewhat different wording of an
alleged public interest in keeping a whole class
of documents from disclosure on grounds of the
necessity to ensure candour and truthfulness by
persons who file income tax returns. Such a
reason at best has, in my opinion, very little
weight or validity by itself and I think has even
less when considered in the light of the legal
obligation upon the person making the return to
be accurate and truthful on pain of severe
penalties both for untruthfulness and for omis
sions. Compare Conway v. Rimmer [1968] A.C.
910 and Regina v. Lewes Justices [1971] 2 All
E.R. 1126.
On the basis of the alleged public interest,
and, in my view, it is the only one put forward
by the affidavit, there is no case for immunity
of the returns in question from production in
these proceedings based on what has in times
past usually been referred to as Crown privi
lege. Such an immunity prevents the use of a
document for any purpose in the proceedings,
even by consent of the parties, and counsel for
the appellant, who referred to it as Crown privi
lege in the classic sense, did not rely on it. Nor
did he contend that section 241(2) of the
Income Tax Act applied to the present proceed
ings. His position as I understood it, was based
on section 41 of the Federal Court Act, R.S.C.
1970 c. 10 (2nd Supp)," and was that section
241 of the Income Tax Act, S.C. 1970-71-72, c.
63, 2 ' shows that the disclosures made by taxpay
ers in their income tax returns are confidential
communications and that there is a public inter
est in maintaining their confidential character
which, save in exceptional circumstances, is not
outweighed by the public interest in the
administration of justice, that the present cases
are not exceptional and that the learned trial
judge erred in concluding that the public interest
in the administration of justice outweighed the
public interest established by the affidavit in
keeping the returns in question confidential. In
particular he urged that the learned trial judge
had not disclosed why in his view the public
interest in disclosure outweighed the public
interest specified in the affidavit and that he had
failed to take into account (1) that full disclo
sure of the assumptions made by the Minister
and of the material relied on by the Minister in
making them had been given at the oral exami
nation for discovery; (2) that the documents
even if disclosed would not be admissible in
evidence and so would be of no assistance as
proof at the trial, and (3) that because the Minis
ter has declined to produce the returns on dis
covery it will not be open to him under the rules
to use them at the trial.
In my view the alleged public interest in main
taining the confidential character of income tax
returns is not the interest put forward in the
affidavit and is not specified therein as the
public interest to be weighed against the public
interest in the proper administration of justice. I
do not think, therefore, that it could be said that
the learned trial judge erred in reaching his
conclusion even if he in fact attributed no
weight whatever to it. Nor am I persuaded that
he failed to take into account any of the three
considerations which I have outlined. Having
examined the returns I do not think it can be
said that the disclosure by the Minister of the
material relied on in making the assessment was
full save in the sense that the returns were
identified as the source of his information on
several points and I have no difficulty in con
ceiving of a number of ways in which the
returns, whether admitted in evidence or not,
may be of very considerable usefulness to the
respondents at the trial in endeavouring to rebut
any case put forward by the Minister, if for no
other purpose. Moreover, in such a situation it
is of no importance whatever that the Minister
by declining to produce them would have dis
abled himself from using them at the trial.
Counsel for the respondents put forward
three specific facts assumed by the Minister on
the basis of the return in question which, in
order to succeed at the trial, the respondents
will have the onus of disproving, viz., (1) that at
the material times the shares of Pelon were
beneficially owned by one Peckham; (2) that at
material times Pelon provided no services to the
respondent Huron; and (3) that in 1966, 1967
and 1968 Pelon was an inactive company. The
onus which the income tax law places on a
taxpayer to demolish the assumed facts upon
which the taxation rests is not so easily dis
charged in most cases as to permit counsel or
anyone else lightly to assume or to accept that
nothing is to be found in the documents upon
which an assessment is based that will either aid
the establishment of the taxpayer's case or help
to destroy the Minister's assumptions and when,
as here, the Minister's assumptions have admit-
tedly been based on the returns in question it
seems to me to be manifest both that the need
of the respondents for production of these
returns is made out, an impression which to my
mind is reinforced by my examination of the
returns, and that a very strong public interest in
keeping them from production would be
required to outweigh the public interest in the
proper administration of justice which would be
served by their production.
The Minister's submission that there is a
strong public interest in withholding the returns
appears to be based on the remark of Lord Reid
in Conway v. Rimmer [1968] A.C. 910 at p. 946
when reviewing In Re Joseph Hargreaves Ltd.
[1900] 1 Ch. 347 that "if the state insists on a
man disclosing his private affairs for a particu
lar purpose it requires a very strong case to
justify that disclosure being used for other pur
poses," on that portion of the judgment of Lord
Denning M.R. in Alfred Crompton Amusement
Machines Ltd. v. Commissioners of Customs
and Excise [1972] 2 W.L.R. 835 at p. 859 in
which confidence as a ground of privilege from
production is discussed and on the reasons of all
three judges of the Court of Appeal in England
in Norwich Pharmacal Co. v. Commissioners of
Customs and Excise [1972] 3 All E.R. 813.
With respect to the comment of Lord Reid I
should have thought that where, as here, the
return has already been used by the Minister for
a purpose other than that for which it was filed
it does not seem to lie well with him to put
forward the confidential nature of the same
return as a bar to its disclosure to the party
affected by the use he has made of it. But be
that as it may, the confidential nature of income
tax returns in this country has been considered
by the Supreme Court in Re Snider [1954]
S.C.R. 479 and though that case is distinguish
able from the present, first, on the ground that
the questions before the Court related to the
production of income tax returns in criminal as
opposed to civil proceedings and, second, on the
ground that there the questions also related
solely to the income tax returns of the accused
person, it appears to me that the comments of
several members of the Court offer a guide to
the importance to be attached to the alleged
confidential character of such returns.
Rand J. speaking for himself and Rinfret C.J.
said at page 483:
It is claimed that the circumstances give rise to such a
privilege in the Crown and that the public interest emanates
from an undertaking on its part, implied by the Income Tax
Act, toward all income taxpayers that the contents of the
returns of none of them will be revealed beyond the circle of
officials concerned in administering the statute. Sec. 121 of
that Act forbids the disclosure of and information obtained
under it to any person "not legally entitled thereto". For the
purposes of his argument, however, Mr. Varcoe puts that
aside as being irrelevant to the proposition urged.
I am unable to agree with either of these contentions. I
can find nothing in the statute indicating such an undertak
ing. The disclosure of a person's return of income for
taxation purposes is no more a matter of confidence or
secrecy than that, say, of his real property which for genera
tions has been publicly disclosed in assessment rolls. It is in
the same category as any other fact in his life and the
production in court of its details obtained from his books or
any other source is an everyday occurrence. The ban against
departmental disclosure is merely a concession to the inbred
tendency to keep one's private affairs to one's self. Now
that, in this competitive society, is a natural and unobjec
tionable tendency but it has never before been elevated to
such a plane of paramount concern. The most confidential
and sensitive private matters are daily made the subject of
revelation before judicial tribunals and it scarcely seems
necessary to remark on the relative insignificance to any
legal or social policy of such a fact as the income a man has
been able to produce. I should say, therefore, that the only
privilege furnished is that given by the statute and that it is a
privilege for the benefit of the individual and not the Crown.
Kellock J. speaking for himself and Kerwin,
Taschereau and Fauteux JJ. (as they then were)
said at page 490:
Mr. Varcoe refused to take any such position in the case at
bar but based the appeal upon the ground of an undertaking
on the part of the Crown that tax returns will be kept
confidential by the department. Neither in criminal nor in
civil proceedings are documents which are merely "official"
or "confidential" within the rule as to non-disclosure on the
ground of public interest. In Asiatic Petroleum Company v.
Anglo-Persian Oil Company Limited [1916] 1 K.B. 822,
Swinfen Eady, L.J., (with the subsequent approval of the
Privy Council in Robinson v. South Australia [1931] A.C.
704 at 714, said p. 830 that the foundation of the rule
is that the information cannot be disclosed without injury
to the public interests, and not that the documents are
confidential or official, which alone is no reason for their
non-production: Smith v. East India Co., 1 Ph. 60;
Hennessy v. Wright, 21 Q.B.D., 509.
In my view of the statute, there is no provision as to the
confidential character of returns filed except that provided
for by ss. 82(2), 93 and 121, with which I have already
dealt.
It is also worthy of note that the answer given
by the Court to the third question, which asked
whether sections 81 and 121 of the Income War
Tax Act and the Income Tax Act (which were
the forerunners of section 241 of the present
Act) affected the right of the Minister to object
on the ground of prejudice to the public interest
to the production of the documents mentioned
in Question I, was not a simple negative but
was:
The Minister has no right to object to the production of the
documents.
The statutory provisions with respect to dis
closure have undergone notable changes since
the Snider case was decided but it appears to me
to follow from the reasoning in that case that in
this country there is no basis for a conclusion
that the disclosures which the Income Tax Act
requires the taxpayer to make are confidential
and there is no immunity for them from produc
tion in legal proceedings except to the extent
that Parliament has expressly spelled out such
immunity in the statute. Here, as previously
mentioned, it is conceded that the statute by its
terms does not apply to prevent production and
in my view there is no basis for a further
immunity based on some supposed public inter
est in protecting from disclosure either the
whole class claimed in the affidavit or particular
returns, short of there being some feature ap
plicable to a particular return, if such is conceiv
able, which might serve to render it immune
from production on grounds which would sup
port a claim for what was referred to as Crown
privilege in the classic sense that is to say, the
exceptional case reserved by the answer of the
Supreme Court to Question I in the Snider case.
There must, moreover, be reason at least to
doubt that section 41 of the Federal Court Act
can be relied on as establishing any new right or
basis for a claim to immunity. The section, as I
read it, gives statutory sanction to the authority
of the Court to examine a document for which
immunity is claimed on grounds heretofore
known to the law as grounds for claiming
Crown privilege and to weigh the public interest
asserted in favour of immunity against that in
the proper administration of justice. It is thus a
procedural provision and I do not read it as
conferring any new right based on grounds of
public interest not heretofore recognized as
being sufficient to justify privilege from
production.
I would dismiss the appeals with costs.
* * *
SWEET D.J. concurred.
* * *
CAMERON D.J.—I agree with the conclusions
arrived at by the other members of the Court,
and would also dismiss the appeals with costs. I
do so with some reluctance in view of the
provisions of section 241 of the Income Tax
Act, S.C. 1970-71-72, c. 63 referred to in the
judgment of The Honourable Mr. Justice
Thurlow.
I concur because of the special facts in this
case, namely:
1. That the appellant has based the assess
ments made upon the respondents upon infor
mation contained in the Pelon Company's tax
returns for the years 1964, 1965 and 1966,
but now opposes the production of these
returns although they might be of consider
able assistance to the respondents in any
effort they might make to establish that the
assumptions leading to the assessments
lacked validity, and
2. That the Pelon Company is now defunct.
I would add also, that in my view, any ques
tion as to the relevancy and admissibility of
these documents at trial is a matter to be decid
ed by the Judge presiding thereat.
' 41. (1) Subject to the provisions of any other Act and to
subsection (2), when a Minister of the Crown certifies to
any court by affidavit that a document belongs to a class or
contains information which on grounds of a public interest
specified in the affidavit should be withheld from produc
tion and discovery, the court may examine the document
and order its production and discovery to the parties, sub
ject to such restrictions or conditions as it deems appropri
ate, if it concludes in the circumstances of the case that the
public interest in the proper administration of justice out
weighs in importance the public interest specified in the
affidavit.
(2) When a Minister of the Crown certifies to any court
by affidavit that the production or discovery of a document
or its contents would be injurious to international relations,
national defence or security, or to federal-provincial rela
tions, or that it would disclose a confidence of the Queen's
Privy Council for Canada, discovery and production shall be
refused without any examination of the document by the
court.
2 241. (1) Except as authorized by this section, no official
or authorized person shall
(a) knowingly communicate or knowingly allow to be
communicated to any person any information obtained by
or on behalf of the Minister for the purposes of this Act,
or
(b) knowingly allow any person to inspect or to have
access to any book, record, writing, return or other docu
ment obtained by or on behalf of the Minister for the
purposes of this Act.
(2) Notwithstanding any other Act or law, no official or
authorized person shall be required, in connection with any
legal proceedings,
(a) to give evidence relating to any information obtained
by or on behalf of the Minister for the purposes of this
Act, or
(b) to produce any book, record, writing, return or other
document obtained by or on behalf of the Minister for the
purposes of this Act.
(3) Subsections (1) and (2) do not apply in respect of
criminal proceedings, either by indictment or on summary
conviction, under an Act of the Parliament of Canada, or in
respect of proceedings relating to the administration or
enforcement of this Act.
(4) An official or authorized person may,
(a) in the course of his duties in connection with the
administration or enforcement of this Act,
(i) communicate or allow to be communicated to an
official or authorized person information obtained by or
on behalf of the Minister for the purposes of this Act,
and
(ii) allow an official or authorized person to inspect or
to have access to any book, record, writing, return or
other document obtained by or on behalf of the Minis
ter for the purposes of this Act;
(b) under prescribed conditions, communicate or allow to
be communicated information obtained under this Act, or
allow inspection of or access to any written statement
furnished under this Act to the government of any prov
ince in respect of which information and written state
ments obtained by the government of the province, for the
purpose of a law of the province that imposes a tax
similar to the tax imposed under this Act, is communicat
ed or furnished on a reciprocal basis to the Minister; or
(c) communicate or allow to be communicated informa
tion obtained under this Act, or allow inspection of or
access to any book, record, writing, return or other docu
ment obtained by or on behalf of the Minister for the
purposes of this Act, to or by any person otherwise legally
entitled thereto.
(5) Notwithstanding anything in this section, the Minister
may permit a copy of any book, record, writing, return or
other document obtained by him or on his behalf for the
purposes of this Act to be given to the person from whom
such book, record, writing, return or other document was
obtained or the legal representative of such person, or to the
agent of such person or of such legal representative author
ized in writing in that behalf.
(6) An order or direction made in the course of or in
connection with any legal proceedings requiring an official
or authorized person to give evidence relating to any infor
mation or produce any book, record, writing, return or other
document obtained by or on behalf of the Minister for the
purposes of this Act, may, by notice served upon all inter
ested parties, be appealed forthwith by the Minister or by
the person against whom the order or direction is made to
(a) the court of appeal of the province in which the order
or direction is made, in the case of an order or direction
made by a court or other tribunal established by or
pursuant to the laws of the province, whether or not such
court or tribunal is exercising a jurisdiction conferred by
the laws of Canada; or
(b) the Federal Court of Appeal, in the case of an order or
direction made by a court or other tribunal established by
or pursuant to the laws of Canada.
(7) The court to which an appeal is taken pursuant to
subsection (6) may allow the appeal and quash the order or
direction appealed from or dismiss the appeal, and the rules
of practice and procedure from time to time governing
appeals to the courts shall apply, mutatis mutandis, to an
appeal instituted pursuant to subsection (6).
(8) An appeal instituted pursuant to subsection (6) shall
stay the operation of the order or direction appealed from
until judgment is pronounced.
(9) Every one who, being an official or authorized person,
contravenes subsection (1) is guilty of an offence and liable
on summary conviction to a fine not exceeding $1,000 or to
imprisonment for a term not exceeding 2 months, or to both
such fine and imprisonment.
(10) In this section,
(a) "official" means any person employed in or occupy
ing a position of responsibility in the service of Her
Majesty, or any person formerly so employed or formerly
occupying a position therein;
(b) "authorized person" means any person engaged or
employed, or formerly engaged or employed, by or on
behalf of Her Majesty to assist in carrying out the pur
poses and provisions of this Act; and
(e) "court of appeal" has the meaning assigned by para
graphs (a) to (j) of the definition "court of appeal" in
section 2 of the Criminal Code.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.