Canada (National Revenue) v. Hydro-Québec

Canada (National Revenue) v. Hydro-Québec
Court (s) Database
Federal Court Decisions
Date
2018-06-15
Neutral citation
2018 FC 622
File numbers
T-1838-17
Notes
Digest
Decision Content
Date: 20180615
Docket: T-1838-17
Citation: 2018 FC 622
[ENGLISH TRANSLATION]
Ottawa, Ontario, June 15, 2018
PRESENT: The Honourable Mr. Justice Roy
BETWEEN:
MINISTER OF NATIONAL REVENUE
Applicant
and
HYDRO-QUÉBEC
Respondent
ORDER AND REASONS
[1] The Attorney General, on behalf of the Minister of National Revenue, is issuing a requirement pursuant to section 231.2 of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) [ITA] and section 289 of the Excise Tax Act (R.S.C., 1985, c. E-15) [ETA] for which a judicial authorization is required. As we will see, a binding judicial authorization relates to cases involving an unnamed person and may even pertain to more than one person insofar as an ascertainable group of unnamed persons is defined. Given that subsections 231.2(3) and 289(3), which deal with this judicial authorization, refer to subsection 1 of these respective sections, I am reproducing the text of section 231.2 in its entirety:
Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.)
Requirement to provide documents or information
Production de documents ou fourniture de renseignements
231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act (including the collection of any amount payable under this Act by any person), of a listed international agreement or, for greater certainty, of a tax treaty with another country, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,
231.2 (1) Malgré les autres dispositions de la présente loi, le ministre peut, sous réserve du paragraphe (2) et, pour l’application ou l’exécution de la présente loi (y compris la perception d’un montant payable par une personne en vertu de la présente loi), d’un accord international désigné ou d’un traité fiscal conclu avec un autre pays, par avis signifié à personne ou envoyé par courrier recommandé ou certifié, exiger d’une personne, dans le délai raisonnable que précise l’avis :
(a) any information or additional information, including a return of income or a supplementary return; or
a) qu’elle fournisse tout renseignement ou tout renseignement supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;
(b) any document.
b) qu’elle produise des documents.
Unnamed persons
Personnes non désignées nommément
(2) The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection 231.2(1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection 231.2(3).
(2) Le ministre ne peut exiger de quiconque — appelé « tiers » au présent article — la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une ou plusieurs personnes non désignées nommément, sans y être au préalable autorisé par un juge en vertu du paragraphe (3).
Judicial authorization
Autorisation judiciaire
(3) A judge of the Federal Court may, on application by the Minister and subject to any conditions that the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection (1) relating to an unnamed person or more than one unnamed person (in this section referred to as the “group”) if the judge is satisfied by information on oath that
(3) Sur requête du ministre, un juge de la Cour fédérale peut, aux conditions qu’il estime indiquées, autoriser le ministre à exiger d’un tiers la fourniture de renseignements ou la production de documents prévues au paragraphe (1) concernant une personne non désignée nommément ou plus d’une personne non désignée nommément — appelée « groupe » au présent article —, s’il est convaincu, sur dénonciation sous serment, de ce qui suit :
(a) the person or group is ascertainable; and
a) cette personne ou ce groupe est identifiable;
(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.
b) la fourniture ou la production est exigée pour vérifier si cette personne ou les personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la présente loi;
(c) and (d) [Repealed, 1996, c. 21, s. 58(1)]
c) et d) [Abrogés, 1996, ch. 21, art. 58(1)]
(4) to (6) [Repealed, 2013, c. 33, s. 21]
(4) à (6) [Abrogés, 2013, ch. 33, art. 21]
As the text of section 289 of the Excise Tax Act is identical, it is reproduced in Appendix I to these reasons. Unless stated otherwise, the analysis applies to section 289 of the ETA.
I. Requirement
[2] If the requirement is authorized, it will be addressed to Hydro-Québec. Hydro-Québec is a legal person created under a law of Quebec, the Hydro-Québec Act (1983 c. 15 a. 1. (c. H-5)) [HQA]. It is an agent of the State. Its authorized capital is divided into 50 million shares allotted to the Quebec Minister of Finance. Hydro-Québec enjoys broad powers conferred by the HQA in order to fulfil its mandate, the parameters of which are themselves broad. I reproduce sections 22, 22.1, 23 and 24:
22. The objects of the Corporation are to supply power and to pursue endeavours in energy-related research and promotion, energy conversion and conservation, and any field connected with or related to power or energy.
22. La Société a pour objets de fournir de l’énergie et d’œuvrer dans le domaine de la recherche et de la promotion relatives à l’énergie, de la transformation et de l’économie de l’énergie, de même que dans tout domaine connexe ou relié à l’énergie.
[…]
[…]
22.1 To attain its objects, the Corporation shall estimate, in particular, the needs of Québec in energy and the means of meeting them within the scope of the energy policies that the Government may otherwise establish.
22.1Pour la réalisation de ses objets, la Société prévoit notamment les besoins du Québec en énergie et les moyens de les satisfaire dans le cadre des politiques énergétiques que le gouvernement peut, par ailleurs, établir.
The Corporation may implement energy conservation programs; to that end, it may grant technical or financial assistance.
La Société peut mettre en œuvre des programmes d’économie d’énergie; à cette fin elle peut accorder une aide technique ou financière.
23. The Corporation shall supply electric power to every municipality in whose territory it does not distribute such power, that wishes to distribute such power itself, and that complies with the Act respecting municipal and private electric power systems (chapter S-41), unless the Corporation is not at that time in a position to serve the territory economically.
23. La Société est tenue de fournir de l’électricité à toute municipalité dans le territoire de laquelle elle n’en distribue pas, qui est désireuse d’en faire elle-même la distribution et qui se conforme à la Loi sur les systèmes municipaux et les systèmes privés d’électricité (chapitre S‐41), à moins que la Société ne soit pas alors en mesure de desservir économiquement ce territoire.
It shall likewise, subject to the same proviso, in any territory wherein it does not distribute electric power, supply such power to any electricity cooperative applying to it therefor.
Elle doit également, sous la même réserve, dans un territoire où elle ne distribue pas d’électricité, en fournir à toute coopérative d’électricité qui lui en fait la demande.
The Corporation shall supply all information required for consideration of the project to any municipality wishing to avail itself of the provisions of the first paragraph of this section.
La Société doit fournir à toute municipalité qui désire se prévaloir des dispositions du premier alinéa du présent article tous les renseignements requis pour l’étude du projet.
24. The Corporation shall maintain its power rates at a sufficient level to defray, at least,
24. La Société doit maintenir ses tarifs d’énergie à un niveau suffisant pour défrayer au moins:
(1) all operating expenditures;
1° tous les frais d’exploitation;
(2) the interest on its debt;
2° l’intérêt sur sa dette;
(3) the amortization of its fixed assets over a maximum period of fifty years.
3° l’amortissement de ses immobilisations sur une période maximum de cinquante ans.
[3] Despite the style of cause, Hydro-Québec is not the target of the requirement. It is not a taxpayer from whom information pertaining to the ITA is being sought. It is a third party in that the persons with respect to whom the Minister wants to receive information held by Hydro-Québec are unnamed persons. In other words, the targets are those persons. Hydro-Québec has information that the applicant deems useful and is requesting.
[4] Hydro-Québec offered no objection and reiterated its intention to comply after the Court expressed reluctance to issue the authorization requested on February 23, 2018, obtaining new written submissions in April 2018 and a supplementary denunciation. It stated not just once but twice that it [TRANSLATION] "agrees to comply with the requirement for information formulated by the applicant" (letter of May 1, 2018; a letter to the same effect had been sent to the Judicial Administrator of the Federal Court on January 18, 2018).
[5] Despite this cooperation, judicial intervention is required owing to subsection 231.2(2). In the end, no weight can be assigned to the lack of objection from the respondent as to the conditions required for obtaining judicial authorization. Thus, in its second denunciation, the deponent sought to find support on the absence of a challenge by Hydro-Québec that the class of persons in respect of whom Hydro-Québec information is being requested is an ascertainable group (denunciation #2, paragraph 6). The supplementary memorandum of fact and law seeks to make the same argument (paragraph 32). I give this no weight. The persons targeted by the requirement are in no way represented. It is therefore up to the Court to consider their interests. Considering that the application in their regard is ex parte and that no subsequent revision to the ITA has been foreseen since 2007, the application for leave will be reviewed with the necessary vigilance in respect of the ex parte applications. This is presumably the purpose of the judicial intervention decreed by Parliament where one or more persons are unnamed.
[6] But then, what is being sought from Hydro-Québec? The applicant wants information. It wants information on Hydro-Québec’s customers. As a matter of fact, it wants information on a large number of customers.
[7] The understanding from the two denunciations is that the applicant is seeking information on business customers, with some exceptions. Therefore, "large-power" customers (e.g., ore mining companies or processing plants) will be excluded, as will federal, provincial and municipal government agencies. The second denunciation specifies in that regard that these entities are exempt from tax. It is not apparent how entities exempt from tax are subject to a requirement seeking, by definition, the administration of the ITA.
[8] If the target is business customers, then customers who pay a residential rate, that is, the rate that “generally applies to domestic, or household use . . ." [emphasis added] (denunciation #2, paragraph 12) will also be excluded. But this may not be that simple. This excerpt is taken from Exhibit 2 of the second denunciation, a Hydro-Québec web page that provides information on Rate D (Rate for residential and farm customers). Yet, under the heading "Other cases in which Rate D applies," the web page states "[p]ortion of electricity used for purposes other than habitation (installed capacity 10 kW or less)." This suggests that someone running a business from their home, but who has an installed capacity greater than 10 kW, would be asked to pay a rate other than Rate D. In other words, a home is not automatically included in Rate D, which of course implies that another rate will apply.
[9] No information is provided on other rates. Neither the initial nor the supplementary denunciation indicates how someone qualifies for any of the rates referred to in the denunciation. The denunciation provides a few pages from a website attributed to Hydro-Québec in exhibits 1 and 2 of the supplementary denunciation as the only evidence. Exhibit 1 reveals that Hydro-Québec has 4.3 million customers. No indication is provided as to who operates a business or works from home. In fact, we know nothing about Hydro-Québec’s business customers other than that they may be natural or legal persons.
[10] Nowhere in the record does it explain what comprises the "business customers" category other than perhaps the fact that they are not "large-power" customers or customers who pay the residential rate. It might be suspected that anyone running a business from their home may be charged the business rate. Not only are the characteristics used to define who is a business customer unknown, but there is also no mention of the number of such customers, among the 4.3 million, on the territory served by Hydro-Québec.
[11] The applicant therefore claims that this is an ascertainable group, presumably because not all of the province’s electricity consumers are targeted. Without further explanation in the denunciation, it is stated that by targeting [TRANSLATION] "only certain Hydro-Québec customers carrying on a trade or business," we have an ascertainable group within the meaning of the ITA (supplementary denunciation, paragraphs 14 and 15). How some customers carrying on a trade or business become an ascertainable group is not explained.
[12] The type of information sought is presented in paragraph 12 of the first denunciation. The said paragraph is reproduced in its entirety below:
[TRANSLATION]
To determine whether the legal or natural persons who are part of the targeted Group complied with the provisions of the ITA and the ETA, it is necessary and relevant for Hydro-Québec to supply to the Minister of National Revenue:
· The given name of the natural person;
· The surname of the natural person;
· The name of the legal person;
· The Québec Enterprise Number (NEQ), if available;
· The full billing address;
· The full address of each place of consumption;
· The telephone number(s);
· The billing start date for each contract;
· The billing end date for the contract, if applicable;
· An indication as to whether the customer received a late payment notice in the 24 months preceding the data extraction date, if applicable;
· An appended explanation and/or definition of any abbreviation or symbol that may appear in the information supplied by Hydro-Québec.
The whole in an electronic file (for example, Access), to be submitted to the CRA in accordance with the security standards of both parties.
[13] Nowhere in the two denunciations with their exhibits, the only evidence before the Court, is there any reference to the applicant having suspicions about Hydro-Québec’s group of business customers. No financial information or information pertaining to the situation of Hydro-Québec’s customers is requested.
[14] The denunciations do not provide extensive details as to what the applicant might do with the information thus collected from Hydro-Québec. Use of the information sought is presented succinctly in paragraphs 13 to 15 of the first denunciation as a review of [TRANSLATION] ". . . the tax status of the legal or natural persons whose identity and contact information will have enabled the enterprise number or social insurance number to be tracked down . . ." (paragraph 13). They are therefore looking to identify those who seem to be carrying on a business but failed to file all the required income tax returns. But there is more. The denunciations state that the information obtained is shared with other groups within the Canada Revenue Agency [CRA], which will in turn examine [TRANSLATION] "whether the individuals and companies complied with their obligations under the ITA and the ETA" (paragraph 15).
[15] The second affidavit does not shed a clearer light on the use. Thus, there is no mention of the scope of the collection of the information, since the number of persons targeted, which could be considerable, is unknown, or of the use, analysis or permitted retention of the information. However, I note that at the end of paragraph 12 of the first denunciation, reproduced in paragraph 12 of these reasons, the CRA requires that the data be in an electronic file. The same is required in the draft requirement. One might think that the applicant’s and the respondent’s respective databases will be used and cross-referenced.
[16] I add that the draft requirement submitted in support of the first denunciation includes a very broad-brush, practically bare-bones description of the ascertainable group. Its text reads as follows:
[TRANSLATION]
To Whom It May Concern:
The Canada Revenue Agency (CRA) wishes to obtain from Hydro-Québec a list of all the legal or natural persons identified as business customers who are charged a general rate, excluding legal or natural persons subject to residential rates and (federal, provincial and municipal) government agencies (hereinafter the customer list).
II. Position of the applicant
[17] The applicant clearly sees a virtually unlimited authority in subsection 231.2(3) of the ITA to obtain information from third parties for use for its own purposes. Attempts are made to justify the scope of the application due to the principles of self-reporting and self-assessment, which require broad verification, inquiry and inspection powers.
[18] The applicant is therefore trying to read subsections 231.2(1) and (3) to their full extent; it only states that it wants the respondent to supply information or produce documents. The information and documents themselves do not have to be related to the ITA, it seems, since the nature of the information sought pertains to the consumption of electricity at a business rate, whether this consumption occurs in a home or on typical business premises. The same can be read from the authorization issuance conditions. The group is ascertainable insofar as large hydro users and domestic rate users are eliminated. There is no further definition of the group which, by all accounts, could comprise several tens of thousands of hydro users in Quebec. The second condition, meanwhile, is met because hydro use at the business rate is required to verify compliance with the duties and obligations set out in the ITA. In that respect, the evidence is quite sparse, as we have seen.
[19] In its initial memorandum, the applicant claimed that once the conditions of subsection 231.2(3) are met, the Court must grant the authorization sought. Based on what the applicant stated, these two conditions are easily met. Thus, an ascertainable group is, quite simply, a group that can be identified or limited. Because the group consists of legal or natural persons not subject to the large-power or domestic rate, [TRANSLATION] "the definition of this group is sufficiently limited to be consistent with the scheme of the ITA and the ETA" (paragraph 37). No other explanation is provided; it is hard to understand why a list of 4.3 million Hydro-Québec customers could not be requested. This would be an even better defined group, since the applicant did not establish who the group consists of other than through reference to other groups whose parameters are unknown.
[20] The supplementary memorandum of fact and law offers little clarification. Added to that is the fact that the number of business customers is limited and that they form a sub-group of all Hydro-Québec customers. While the Court had requested clarifications on the nature of the "ascertainable group" concept during the initial hearing, the supplementary memorandum provides none. We are left with an ascertainable group being one that can be identified or limited, nothing more. Its composition remains unknown. There is a sort of circularity.
[21] The same circularity is perhaps present in respect of the second criterion, according to which information is provided to verify compliance with the duties and obligations set out in the ITA in the case of unnamed persons. The applicant states that it wants to check whether business customers are complying with their duties and obligations and, to do this, it must have a list of these business customers from Hydro-Québec. The applicant is of the opinion that it can request any information [TRANSLATION] "because the information targeted by the [requirement] is part of a tax audit conducted in good faith in order to verify a duty or an obligation imposed by these two acts" (paragraph 41, first memorandum of fact and law). This could hardly be more general.
[22] In other words, the applicant is claiming that for essentially an entire group that it labels in one manner or another, with no limit as to its size, composition or characteristics, it can request information from a third party only insofar as it decides to potentially begin an unspecified tax audit. It will then be able to use the information requested as it sees fit, passing it along to various sections of the CRA. The applicant can therefore obtain judicial authorization on the sole basis that it may request information, of any kind as it were, whenever it might decide to conduct a large-scale tax audit. This, to me, seems to be the very definition of a fishing expedition.
[23] Since the Court expressed doubts about the applicant’s claim that once both conditions are met, authorization should be granted, the applicant was asked to share its representations concerning judicial discretion to refuse to grant judicial authorization. If the conditions for granting judicial authorization are as sweeping as the applicant claims and if, what is more, there is no judicial discretion, then what good is judicial authorization? What is the purpose of such a measure?
[24] Surprisingly, the applicant had little to say about judicial discretion other than to note it. If I understand correctly, discretion is limited to cases where a tax audit would merely be contrived in order to achieve another goal, such as intimidate a given industry or use it to initiate potential criminal proceedings. But then, the audit would no longer be in good faith, invalidating the second condition which would no longer be present, thus preventing the granting of authorization not through the exercise of discretion, but rather because the conditions for granting authorization are not present. The applicant seems to see little room for the exercise of judicial discretion.
III. Analysis
[25] The issue before the Court is to determine whether a judicial authorization should be granted even though the requirement for information could be virtually limitless based on the applicant’s use of subsections 231.2(2) and (3). Three sub-issues arise:
Is there an ascertainable group within the meaning of the ITA?
Is the information to be provided and the documents to be produced required to verify whether this ascertainable group complied with the duties and obligations set out in the ITA?
Even if the conditions could be met by interpreting them in the broadest sense, should the Court exercise its discretion to refuse to grant the judicial authorization?
[26] In my opinion, the applicant wants to do too much with the otherwise vague text of section 231.2. Not only is the group not ascertainable, but the information sought does not in itself make it possible to verify compliance with the Act. This information comes before any obligation or duty. It precedes a tax audit when we examine the genuine factual basis. It allows for nothing more than establishing a correlation between the databases of two government and quasi-government agencies. The use of subsections 231.2(2) and (3) would strip it of its meaning.
[27] To begin, I agree that the government needs to have powerful means by which to enforce the law when a taxpayer self-reports and self-assess own income (R v. McKinlay Transport Ltd., [1990] 1 SCR 627 [McKinlay], p. 648). But, I cannot bring myself to find that the aggressive use now being advocated by the applicant is consistent with Parliament’s intent. My review of the case law on the subject for more than 50 years does not convince me that this is the correct interpretation of section 231.2.
[28] Undoubtedly, given the exorbitant nature of the common right of this measure, that is, the right of everyone to be left alone by the State, the interpretation of such provisions must be strict (Canada (National Revenue) v. The Greater Montréal Real Estate Board, 2007 FCA 346; [2008] 3 FCR 366 [GMREB-FCA], paragraphs 35 and 38, McKinlay, page 642) without trying to introduce additional extraneous conditions into the text of the Act.
[29] Here, Parliament provided for judicial intervention when the request is made to someone, a third party, in respect of unnamed persons (subsection 231.2(2) of the ITA). The judicial intervention sought by Parliament is, at the very least, to play the traditional role held by the courts of deciding between competing rights: to reiterate the analysis in Hunter et al v. Southam Inc., [1984] 2 SCR 145 [Hunter], the Court is ultimately aiming to determine whether the State’s right is more important than that of individuals to not be bothered by the government.
[30] Clearly, Parliament chose the judicial arbiter who, virtually by definition, acts in a judicial manner where a judge acts in a fair, neutral and impartial manner, without prejudice and without the influence of considerations extraneous to the issue to be decided. Since the targets of the information gathering are unnamed, and therefore unknown, persons, judicial authorization may be conferred only after careful examination. In addition, Parliament introduced judicial intervention by indicating that the judge must be convinced, which carries with it the need to have unsterilized criteria and a standard of proof greater than the usual standard of reasonable grounds to believe.
A. Jurisprudential developments
[31] A review of the earlier case law could shed some light on the scope of subsection 231.2(3), a fairly recent creation.
[32] The obligation to supply tax information dates back to the Income Tax War Act, 1917 (S.C. 1917, c. 28) (R v. Jarvis, 2002 SCC 73; [2002] 3 SCR 757 [Jarvis], paragraph 54). The first decision worthy of attention is Canadian Bank of Commerce v. Attorney General (Canada), [1962] SCR 729 [Canadian Bank of Commerce]. A requirement had been issued to the Canadian Bank of Commerce regarding the activities of a customer, The Union Bank of Switzerland, with which it did business. The Canadian Bank of Commerce was not suspected of misappropriation. The text of the Act enabling a requirement for information was worded as follows:
126(2) The Minister may, for any purpose related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person
126(2) Pour toute fin connexe à l’application ou à l’exécution de la présente loi, le Ministre peut, par lettre recommandée ou par demande formelle signifiée personnellement, exiger de toute personne
(a) any information or additional information, including a return of income or a supplementary return, or
a) tout renseignement ou tout renseignement supplémentaire, y compris la déclaration supplémentaire, ou
(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents, within such reasonable time as may be stipulated therein.
b) la production ou la production sous serment de livres, lettres, comptes, factures, états (financiers ou autres) ou d’autres documents, dans le délai raisonnable qui peut y être fixé.
The requirement pertained to transactions for a given period, among other things, and would have revealed information about the activities of other persons, some of them residents and others not.
[33] The Court refused to consider a requirement as having to be limited to the tax liability of the Canadian Bank of Commerce. In terms of both the diversity of the five judges and that of the four others, the need for the requirement to be made for a purpose related to the administration or enforcement of the ITA was met because it was agreed that the requirement is a function of the "genuine and serious inquiry into the tax liability of some specified person or persons." In other words, notwithstanding subsection 126(2), which had a very broad scope, the parties agreed that, at the very least, the requirement should relate to a genuine and serious inquiry in respect of some specific persons for the administration or enforcement of the Act.
[34] Perhaps it is more the decision in James Richardson & Sons, Ltd. v. Minister of National Revenue et al., [1984] 1 SCR 614 [Richardson] that is the modern source of the analysis of the power to issue a requirement. James Richardson & Sons was a commodities futures market broker, and the Minister wanted to check on traders in the commodities futures market. In that matter, the Minister therefore asked Richardson for the "magnetic tape file of their clients’ commodity monthly statements for 1977" (page 617). Since this was on a test basis, Richardson supplied the information without identifying the clients other than by account number. It is thus that the subsequent requirement "that this information . . . be delivered on magnetic tape" (i.e. a complete listing of office locations and a complete listing of clients with addresses and account numbers) "together with details of all monthly transactions in 1977 as used in the preparation of clients’ commodity statements" (page 617) was addressed to James Richardson & Sons Ltd. Similar demands were made with respect to 1978 and 1979. In 1971, subsection 126(2) became subsection 231(3) (the word "connexe" was replaced by the word "relative" in the French version; the English version remained unchanged).
[35] The Federal Courts (Trial Division and Court of Appeal) found that the requirements were appropriate. At trial, in examining whether the request for information related to the administration or enforcement of the ITA, the judge found that this represented a serious inquiry into a specific tax liability because it was sufficient if they were so described as to be readily ascertainable. Customers or clients in the "commodities securities market" during the three years in question represented an appropriately ascertainable group. The Court of Appeal, meanwhile, rejected the judgment in Canadian Bank of Commerce, so to speak. I reproduce here the passage from the Court of Appeal decision found in Richardson at pages 619 and 620:
The judgment rendered in Canadian Bank of Commerce was based on the fact, recognized by the parties, that the requirement in this case related to a genuine and serious inquiry into the tax liability of some specific person or persons, but I do not interpret this judgment as meaning that this was the only valid purpose pursuant to what is now subsection 231(3). In any case, I am far from certain that the facts in the matter at hand are truly different from those on which the majority of the Supreme Court based its finding. In the majority view of Justice Cartwright (that was his title at the time), the expression "some specific person or persons" clearly meant not the persons named, but simply existing persons that could be identified. The listing of all of the appellant’s clients who are traders in commodities futures falls within the meaning of this expression.
[36] The six judges involved in the Supreme Court judgment do not accept such a broad interpretation of power and align with Canadian Bank of Commerce to overturn the lower courts. It appears clear to me that the Court found that a genuine and serious inquiry was required. As the Minister claims, it is not enough to want "to verify the accuracy of income tax returns made by the appellant’s customers who were traders in commodities futures" (page 623). The Minister also stated that it was sufficient to target a specific class of taxpayers; in that case, the class consisted of customers "who trade on the commodities futures market" (page 625). It is the opinion of the Court that the requirement cannot be used to this end; it is a "fishing expedition", in other words, a general survey seeking to determine whether these traders are complying with the Act. If such information gathering can be done, the Minister must obtain a regulation under paragraph 221(1)(d) of the ITA. This provision, which is still in effect, requires any class of prescribed persons to make information returns required in connection with assessments under the ITA. It appears that the Court makes a genuine inquiry a prerequisite for valid use of the requirement. The end of the only full paragraph on page 625 reads as follows:
. . . Having obtained such a regulation, he is then in a position to demand such returns at large without regard to whether or not any specific person or persons are currently under investigation. The very presence of those provisions in the Act serves, in my view, to support the approach taken in the Canadian Bank of Commercecase that s. 231(3) is only available to the Minister to obtain information relevant to the tax liability of some specific person or persons if the tax liability of such person or persons is the subject of a genuine and serious inquiry.
[Emphasis added]
[37] In my opinion, the Court demonstrates its reluctance to accept the fishing expedition by making the existence of a genuine inquiry into specific persons an essential condition for the valid issuance of a requirement to a third party. The need for a genuine and serious inquiry may not have proved its worth in Canadian Bank of Commerce because it stemmed from a concession of the parties, but it did in Richardson. The concession of the parties in Canadian Bank of Commerce became the chosen condition in Richardson. While the decision in Canadian Bank of Commerce was not clear, the Court made it very clear in Richardson:
The respondent acknowledges that neither the appellant nor any of its customers is a person whose tax liability is under investigation within the meaning of the Canadian Bank of Commerce case. It submits however, that that is only one of the purposes contemplated by s. 231(3). The purpose in this case is to verify the accuracy of income tax returns made by the appellant’s customers who were traders in commodities futures. This also, it submits, is a purpose related to the administration or enforcement of the Act.
I have some difficulty with the respondent’s submission in relation to the Canadian Bank of Commerce case. If, indeed, the ratio of that case is that a demand for information which meets the test of being related to a genuine and serious inquiry into the tax liability of some specific person or persons is a demand made for purposes of the administration or enforcement of the Act, how can it be said, consistent with that decision, that a demand which does not meet such a test is also for a purpose related to the administration or enforcement of the Act? If this is so, it was pointless for the Court in the Canadian Bank of Commerce case to make a genuine and serious inquiry into the tax liability of some specific person or persons a prerequisite of the validity of the requirement in that case. Yet Mr. Justice Cartwright makes it clear that his judgment is premised on that prerequisite being there. After referring to certain paragraphs in the stated case he states at p. 738, that it is common ground "that the requirement addressed to the appellant relates to a genuine and serious inquiry into the tax liabilitity [sic] of some specific person or persons." He then makes the point that the fact that the answer to the requirement may disclose private transactions involving a number of persons who are not under investigation and may not be liable to tax will not invalidate the requirement. He reiterates the purpose of the requirement at p. 739:
The purpose of the requirement, then, is to obtain information relevant to the tax liability of some specific person or persons whose liability to tax is under investigation; this is a purpose related to the administration or enforcement of the Act.
Accordingly, while I agree with Le Dain J. that the Court in the Canadian Bank of Commerce case did not say that the purpose in that case, namely the obtaining of information relevant to someone’s tax liability, was the only purpose for which a requirement could validly be made under s. 231(3), it did nevertheless insist on a prerequisite to that particular purpose, namely that the someone’s tax liability be the subject of investigation, and it is that prerequisite which the appellant submits is missing in this case.
[Emphasis added]
(Richardson, pages 623–624)
[38] The case should not end there. It is the authority’s constitutional right to issue a requirement, which was considered in 1990 in McKinlay. The issue in that case was the tax audit of two companies; having refused to comply with requirements that had been addressed to them by name, they were charged under subsection 238(2) of the ITA. The constitutionality of subsection 231(3) was challenged. In Provincial Court, the subsection was found to be unreasonable. Both the High Court and the Court of Appeal of Ontario found that the requirement can be issued to conduct a "fishing expedition" without conducting a genuine inquiry into the liability for tax. These courts also found that subsection 231(3) does not authorize a seizure within the meaning of section 8 of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, Schedule B to the Canada Act 1982 (UK), 1982, c. 11 [Charter].
[39] Justice Wilson, who wrote the reasons in Richardson, provides the most detailed reasons in McKinlay. At the outset, she establishes that the authority conferred by subsection 231(3) does not have the vast scope that one might read into it. She confirms Canadian Bank of Commerce and Richardson and, on this basis, seeks to determine whether, with a limited scope, subsection 231(3) constitutes an unreasonable seizure. Justice Wilson reiterates the findings in Richardson (page 639) and finds that the application of subsection 231(3) constitutes a seizure because the expectations in terms of privacy protection are violated. In doing so, Justice Wilson relies on two reasons:
. . . First, subsection 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. Second, the legislation contemplates that parties who are not the subject of an investigation or audit can be compelled to produce documents relating to another taxpayer who is the subject of such investigation or audit. Thus, compelled production reaches beyond the strict filing and maintenance requirements of the Act and may well extend to information and documents in which the taxpayer has a privacy interest in need of protection under s. 8 of the Charter, although it may not be as vital an interest as that obtaining in a criminal or quasi-criminal context.
[Emphasis added]
(McKinlay, page 642)
Not only does the decision confirm that a strong connection to the ITA is necessary to satisfy the requirement that the request be for either the administration or enforcement of the ITA, but the ITA’s strict inter