Canada (National Revenue) v. Zeifmans LLP

Canada (National Revenue) v. Zeifmans LLP
Court (s) Database
Federal Court Decisions
Date
2023-07-21
Neutral citation
2023 FC 1000
File numbers
T-2250-22
Decision Content
Date: 20230721
Docket: T-2250-22
Citation: 2023 FC 1000
Ottawa, Ontario, July 21, 2023
PRESENT: Madam Justice Pallotta
BETWEEN:
THE MINISTER OF NATIONAL REVENUE
Applicant
and
ZEIFMANS LLP
Respondent
JUDGMENT AND REASONS
I. Overview [1] The Minister of National Revenue (Minister) brings this summary application under section 231.7 of the Income Tax Act, RSC 1985, c 1 (5th Supp) as amended [ITA]. The Minister seeks a compliance order that would compel Zeifmans LLP (Zeifmans), a tax and accounting partnership, to provide documents and information that were requested in a January 30, 2019 letter issued pursuant to section 231.2 of the ITA, and titled “Requirement to Provide Documents or Information” (Requirement).
[2] The Requirement is connected to Canada Revenue Agency (CRA) tax audits, under the Related Party Audit Program (RPAP), of individuals and entities related to or economically connected to members of the Ghermezian family (Ghermezian Group). In 2014, the CRA informed Nader Ghermezian that it had commenced audits of his personal tax returns and the tax returns of entities controlled by him or persons related to him. In 2015, the CRA advised Mr. Ghermezian’s daughter, Diana Vaturi, and his son-in-law Marc Vaturi that it had commenced audits of their personal tax returns.
[3] Zeifmans is not under audit. The Minister sent the Requirement to Zeifmans because it is the authorized representative for the Vaturis. The Requirement required Zeifmans to provide certain categories of documents and information related to Mr. Ghermezian, Ms. and Mr. Vaturi, and entities owned, operated, controlled or otherwise connected to them, for the period January 1, 2012 to December 31, 2017. Zeifmans has not provided any of the requested documents or information.
[4] Zeifmans’ position in response to the Minister’s compliance application is that this Court should not issue an order that would compel it to produce the documents and information in the Requirement, for two reasons. First, the statutory conditions for issuing a compliance order under section 231.7 of the ITA have not been met, including because the Minister was required to obtain judicial authorization under subsection 231.2(3) of the ITA before issuing the Requirement and she did not do so. Second, even if the statutory conditions have been met, the judicial discretion afforded by section 231.7 should be exercised against ordering Zeifmans to comply with the Requirement, or any part of it. Accordingly, Zeifmans asks the Court to dismiss the Minister’s application.
[5] The Minister submits that the Court should not entertain Zeifmans’ arguments. The Minister contends Zeifmans’ arguments against granting a compliance order strike at the core of the Requirement’s validity, and Zeifmans already had an opportunity to challenge the Requirement’s validity. Zeifmans brought an application for judicial review to set aside the Requirement, and the application was dismissed: Zeifmans LLP v Canada (National Revenue), 2021 FC 363 [Zeifmans FC]. Zeifmans’ appeal of Zeifmans FC was also dismissed: Zeifmans LLP v Canada, 2022 FCA 160 [Zeifmans FCA]. To the extent Zeifmans raises arguments on this application that were or should have been raised on judicial review, the arguments constitute an impermissible collateral attack on the Requirement. Also, the Minister states Zeifmans’ arguments are an abuse of the Court’s process. Zeifmans attempts to relitigate issues that were decided in Zeifmans FC and Zeifmans FCA, including by relying on case law that was expressly overturned in Zeifmans FCA.
[6] Alternatively, and in any event, the Minister submits Zeifmans’ arguments lack merit. The Minister states she has satisfied the section 231.7 conditions for issuing a compliance order, and an exercise of judicial discretion against ordering Zeifmans to comply with the Requirement is not warranted in this case.
[7] I am not persuaded that Zeifmans’ position on this application constitutes a collateral attack on the Requirement. Section 231.7 of the ITA expressly obliges the Court to examine the underlying section 231.2 request, and Zeifmans’ arguments address that question. The judicial review application addressed a different question of whether the Minister’s decision to proceed without judicial authorization was reasonable. Zeifmans’ arguments that the section 231.7 conditions for a compliance order have not been met are made in the appropriate forum, and not collaterally.
[8] Furthermore, in each proceeding the judge’s decision must be based on the record that is before them. The record in this proceeding is materially different from the record that was before the Court in Zeifmans FC. The Court held in Zeifmans FC that the reasonableness of the Minister’s decision to proceed without judicial authorization in each case depends on whether the evidence in the record establishes that unnamed persons are under investigation or audit by the CRA, and there was “no evidence in the record that the Unnamed Persons are a current investigation target”: Zeifmans FC at paras 49, 64. The evidence on this application establishes that Unnamed Persons, as defined in Zeifmans FC, were and are an investigation target. In fact, Unnamed Persons were already under audit when the Requirement was issued, and the audits are not yet complete.
[9] It is not an abuse of the Court’s process to permit Zeifmans to raise substantive arguments addressing the very issues the Court is obliged to decide on this application. Deciding on this record whether a compliance order should be granted does not revisit the decisions in Zeifmans FC or Zeifmans FCA or call those decisions into question. The nature of the proceedings, the legal tests, and the evidentiary records are different.
[10] In my view, Zeifmans’ arguments have merit. Based on the record that is before me, I am not satisfied that the subsection 231.7 conditions for issuing a compliance order have been met. In addition, I am not satisfied I should grant a compliance order in the exercise of judicial discretion.
[11] Accordingly, for the reasons below, this application is dismissed.
II. Issues [12] The issues are:
Are Zeifmans’ arguments barred by the doctrines of collateral attack or abuse of process?
Should the Court grant a compliance order under section 231.7 of the ITA, compelling Zeifmans to provide the documents and information in the Requirement?
[13] I will also address a preliminary issue regarding Zeifmans’ objection to the Minister’s reply memorandum.
III. Analysis A. The parties’ records [14] As differences between this record and the record on judicial review are relevant to the issues, I will begin by summarizing the record that is before me.
[15] The Minister commenced this proceeding by filing a notice of summary application on October 26, 2022. The Minister’s application record, filed on November 2, 2022, consists of the notice of summary application, written submissions, a draft order, and the following affidavit evidence:
Affidavit of Andrew Bowe, affirmed November 1, 2022: Mr. Bowe is a strategic advisor in the High Net Worth Compliance Directorate within the CRA’s Compliance Programs Branch.Prior to January 18, 2021, he was an International and Large Business Case Manager in the CRA’s former Edmonton Tax Services Office.Mr. Bowe was the case manager for the Ghermezian Group audits under the RPAP from May 2015 until January 18, 2021.He supervised the audits of Mr. Ghermezian and the Vaturis at the material times.Mr. Bowe’s affidavit provides information about the history of the audits and the events that led to the issuance of the Requirement.
Affidavit of Ismail Choulli, affirmed November 1, 2022:Mr. Choulli is an International and Large Business Case Manager in the CRA’s High Complexity Audit Tax Services Office (formerly the Edmonton Tax Services Office).In August 2021, Mr. Choulli was assigned as Case Manager for the audits of Mr. Ghermezian and the Vaturis.Mr. Choulli’s affidavit provides some of the same information as Mr. Bowe’s affidavit, but it is more limited because Mr. Choulli became involved in the audits after the Requirement had issued.
Affidavit of Brendan Tait, affirmed November 2, 2022:Mr. Tait is a paralegal with the Department of Justice’s (DOJ) Ontario Regional Office, Tax Law Services Section.Mr. Tait helped to prepare the Minister’s compliance application.Mr. Tait’s affidavit attaches a letter and email from the DOJ informing Zeifmans of the Minister’s intention to commence a compliance application, and responding correspondence from Zeifmans’ counsel.Mr. Tait attests that the DOJ has not received any of the documents or information specified in the Requirement from Zeifmans.
[16] Zeifmans served an affidavit of Tomer Shenhav, sworn November 7, 2022. Mr. Shenhav is an associate lawyer at the law firm representing Zeifmans in this application. His affidavit attaches excerpts from the ITA, and excerpts from CRA Income Tax Audit Manuals that were published in April 2015 and July 2020. It also attaches a copy of the certified tribunal record (CTR) the Minister produced in Zeifmans’ judicial review proceeding, which certifies and attaches copies of the two documents that were considered by the Minister’s delegate in issuing the Requirement—namely, a draft copy of the Requirement, and a 9-page “Information Sheet for a Requirement to Provide Information” (Information Sheet). The Information Sheet reproduced as part of the CTR is heavily redacted. A less redacted Information Sheet, produced later in the judicial review proceeding, is also an exhibit to Mr. Shenhav’s affidavit.
[17] Mr. Bowe, Mr. Choulli and Mr. Shenhav were cross-examined on their affidavits.
[18] Zeifmans’ responding record, filed December 1, 2022, consists of Mr. Shenhav’s affidavit, transcripts from the three cross-examinations, and Zeifmans’ written submissions.
[19] The evidence that is germane to the issues on this application is mostly from Mr. Bowe’s affidavit and cross-examination, and the Information Sheet.
[20] On December 2, 2022, the Minister served a 50-page reply memorandum of argument, referencing more than 30 additional authorities.
B. Preliminary Issue – Minister’s reply memorandum [21] At the hearing, the Minister sought leave to “regularize” the filing of written reply submissions. Zeifmans objected on the basis that the Federal Courts Rules do not contemplate written reply, and Zeifmans would be prejudiced. The Minister served the reply on the Friday before a Tuesday hearing, without any attempt to notify Zeifmans or seek consent.
[22] The Minister states the reply submissions were intended to provide Zeifmans with as much notice as possible regarding submissions she is entitled to make orally. The Minister acknowledges that the written reply was submitted after 5 pm on the Friday before the hearing, and she did not seek Zeifmans’ consent or provide a covering letter to explain her reasons for preparing it—a mistake she contends was due to haste. The Minister states she did not know what Zeifmans would argue until she received the responding record, and she prepared a written reply so that the two hours allotted for the hearing of this application could be used efficiently.
[23] Zeifmans counters that the Minister always bears the burden in a compliance application and is not entitled to advanced notice of a respondent’s position. Zeifmans states the volume of the Minister’s written submissions on this application overwhelm Zeifmans’ written submissions, and there was insufficient time to fully consider the reply arguments and additional authorities. If the Court were to accept the Minister’s written reply memorandum, Zeifmans requested a greater proportion of the hearing time in order to respond.
[24] At the hearing, I stated that I would accept the Minister’s reply memorandum for filing under reserve of objection, which I would consider following the hearing, and that I would give Zeifmans additional time to respond to the Minister’s submissions.
[25] The Minister should have requested a special sitting. The Minister set this matter down for a two-hour hearing at general sittings and did not revise the time estimate despite the Court’s direction asking whether the estimate remained accurate. Since the Minister read in most of the reply memorandum as oral submissions, the efficiencies the Minister expected would be realized by preparing a written reply did not materialize. The application was the last matter on the general sittings list, the Court sat late to accommodate a three-hour hearing, and even with the extra hour, the hearing was rushed. Although I stated that I would give Zeifmans additional time to respond to the Minister’s submissions, in the end, the time for each side’s submissions was roughly equal.
[26] In hindsight, I recognize that Zeifmans’ ability to properly address the issues first raised by way of the Minister’s reply may have been compromised. The Minister’s written submissions exceeded the page limit provided under the Rules and were more than double Zeifmans’ 30 pages of written submissions. The extra hour of hearing time did not address the imbalance, and although neither party requested an adjournment, it probably would have been preferable to adjourn the matter to a special sitting.
[27] That said, and as noted above, the Minister read in much of the reply as oral submissions, and while Zeifmans’ submissions may have been less organized and thorough than it would have preferred, Zeifmans capably addressed the new issues raised in the reply. I informed the parties that I would take extra time to render my decision and I have carefully considered all the written and oral submissions, and the cited authorities. Since I have decided that the Minister’s application must be dismissed, any prejudice to Zeifmans was not so significant as to affect the result. For these reasons, I have decided to admit the Minister’s reply memorandum.
C. The statutory conditions under section 231.7 of the ITA [28] Before turning to the issues I must decide, in this section I will outline Zeifmans’ arguments that are alleged to constitute an impermissible collateral attack or an abuse of the Court’s process. For context, I will provide some high-level observations about the statutory regime and reproduce the relevant statutory provisions.
[29] In order to maintain the integrity of the tax system and to ensure compliance with Canada’s self-assessing and self-reporting system of taxation, the ITA includes provisions giving the Minister broad powers to investigate and audit taxpayers: R v McKinlay Transport Ltd, [1990] 1 SCR 627 at 648. The statutory provisions that are at issue in this proceeding are part of the ITA’s administration and enforcement provisions that allow the Minister, or persons authorized to act on her behalf, to audit taxpayers, request documents and information from taxpayers or third parties, and take prescribed actions if taxpayers or third parties do not comply.
[30] The Minister issued the Requirement to Zeifmans pursuant to section 231.2 of the ITA. Subsection 231.2(1) confers broad and general powers to require any person to produce any information or any document for any purpose related to the administration or enforcement of the ITA: Canada (National Revenue) v Lee, 2016 FCA 53 at para 5 [Lee]. However, the Minister’s powers are constrained by subsection 231.2(2). In certain circumstances, the Minister must obtain a judge’s authorization to issue a section 231.2 requirement: ITA, ss 231.2(2) and 231.2(3). The Minister did not obtain judicial authorization before issuing the Requirement to Zeifmans.
[31] The Requirement is dated January 30, 2019 and addressed to “Zeifmans LLP”. The key parts of the Requirement are the following (emphasis in original):
Subject: Requirement to provide information regarding Marc Vaturi, Diana Vaturi (also known as Diana Ghermezian), and Nader Ghermezian
For purposes related to the administration or enforcement of the Income Tax Act (the “Act”), Zeifmans LLP (“Zeifmans”) is required to provide within thirty (30) days from the date of this notice of requirement, pursuant to the provisions of subsection 231.2(1) of the Act, the following information and documents pertaining to the period of January 1, 2012 to December 31, 2017.
For the above-named individuals, whether solely or jointly, and entities owned, operated, controlled or otherwise connected to the above-mentioned individuals, please provide:
1. All correspondence including emails and records in a chain of communications including attachments, between Zeifmans and the above-mentioned individuals and connected entities;
2. All records of communications made with other domestic and/or international accounting firms, registry offices, provincial bodies, and other government bodies (not including audit queries and responses issued between Zeifmans and Canada Revenue Agency) on behalf of the above individuals and connected entities;
3. All correspondence items mentioning or identifying Dalia Ghermezian, James Ghermezian, and Michael Ghermezian in any manner, jointly or severally, whatsoever;
4. All accounting records, director and shareholder resolutions, share certificates, registry documents, property assessments and bank statements provided to Zeifmans by the above individuals or connected entities (or provided to Zeifmans by third parties on behalf of the above individuals or connected entities);
5. Accounting records including working papers, adjusting journal entries, and trial balances;
6. Step memorandums, tax planning letters, letters of engagement;
7. Memo to files, client profiles;
8. Loan documents, including signed agreements, and grid loan records;
9. Emails including draft versions of loan agreements and grid loan working papers/calculations;
10. Records authorizing decisions relating to tax planning and/or accounting services; and
11. All other correspondence, letters, instructions, opinion letters or reports, minutes of meetings, records of discussions and telephone conservations, notes, jottings, or other written/recorded communication discussing, planning, or otherwise relevant to the information requested.
The above list is not exhaustive and we may request additional information required for our audit at a later time. For any one or more individuals that the request applies to, please provide the information either jointly, if it applies to multiple individuals, or individually, if it only applies to a single person.
[…]
[32] As previously stated, Zeifmans has not provided any documents or information sought by the Requirement, and its application for judicial review challenging the Requirement was dismissed. The Minister now seeks a compliance order pursuant to section 231.7 of the ITA.
[33] Section 231.7 of the ITA allows this Court to issue an order that would compel Zeifmans to provide any information or document sought by the Requirement “if the judge is satisfied” that Zeifmans was required under section 231.2 to provide such documents or information and did not do so:
Compliance order
231.7 (1) On summary application by the Minister, a judge may, notwithstanding subsection 238(2), order a person to provide any access, assistance, information or document sought by the Minister under section 231.1 or 231.2 if the judge is satisfied that
Ordonnance
231.7 (1) Sur demande sommaire du ministre, un juge peut, malgré le paragraphe 238(2), ordonner à une personne de fournir l’accès, l’aide, les renseignements ou les documents que le ministre cherche à obtenir en vertu des articles 231.1 ou 231.2 s’il est convaincu de ce qui suit :
(a) the person was required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so; and
a) la personne n’a pas fourni l’accès, l’aide, les renseignements ou les documents bien qu’elle en soit tenue par les articles 231.1 ou 231.2;
(b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 232(1)).
b) s’agissant de renseignements ou de documents, le privilège des communications entre client et avocat, au sens du paragraphe 232(1), ne peut être invoqué à leur égard.
[34] Because of the serious consequences that can flow from non-compliance, Zeifmans contends this Court should not order the production of information or documents sought by the Minister unless the statutory conditions of section 231.7 have been clearly met: Minister of National Revenue v Chamandy, 2014 FC 354 at para 41 [Chamandy]; Minister of National Revenue v SML Operations (Canada) Ltd, 2003 FC 868 at para 15 [SML]. Zeifmans submits the statutory conditions for a compliance order have not been met in this case. The partnership was not required under section 231.2 of the ITA to provide the requested documents and information, and the Requirement is not valid.
[35] Zeifmans’ principal argument in this regard is that the Minister was required to obtain prior judicial authorization under subsection 231.2(3) of the ITA, and she issued the Requirement without doing so. The Minister was required to obtain judicial authorization because the Requirement requested documents and information relating to one or more “unnamed persons” who were under audit by the CRA at the time.
[36] Section 231.2 of the ITA reads as follows:
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)]
[37] Zeifmans presents two additional reasons why the conditions of section 231.7 have not been met: (i) parts of the Requirement are vague and ambiguous such that they are incapable of meaningful reply without speculation, and (ii) the Requirement was issued to a limited liability partnership, which is not a “person” for the purposes of the ITA, and the evidence does not establish that the persons who were obligated to respond to the Requirement are the same persons who would be sanctioned under a compliance order.
[38] Even if the statutory conditions have been met, Zeifmans submits that the judicial discretion afforded by section 231.7(1)—which states a judge “may” order a person to provide information or documents sought by the Minister under section 231.2—should be exercised against ordering Zeifmans to comply with the Requirement or any part thereof. Zeifmans’ reasons include: the conditions of section 231.7 have not been clearly met; Zeifmans is not itself under audit; Zeifmans must navigate obligations to the Minister as well as concurrent professional obligations to its clients and to the regulatory bodies that govern accountants’ conduct, and it would be unfair to impose an obligation on Zeifmans to decide, based on the vague and ambiguous wording of the Requirement, which of the Minister’s requests for documents and information are valid and which requests are not valid.
D. Issue 1: Are Zeifmans’ arguments barred by the doctrines of collateral attack or abuse of process? [39] The Minister contends that this Court should not entertain Zeifmans’ “substantive” arguments that the statutory conditions for a section 231.7 compliance order have not been met. The Minister distinguishes Zeifmans’ substantive arguments from its “discretionary” arguments, which are premised on the exercise of judicial discretion.
[40] The Minister states Zeifmans made the following arguments challenging the validity of the Requirement in Zeifmans FC: (i) the Minister was required to seek judicial authorization to issue the Requirement under subsection 231.2(2) of the ITA because the Requirement sought information about unnamed persons; (ii) the Requirement is ambiguous because “entities owned, operated, controlled or otherwise connected to” Mr. Ghermezian, Ms. Vaturi and Mr. Vaturi are not defined terms, and it is unclear what is meant by the references to such entities; (iii) the Requirement was not issued to a person as required by section 231.2, because a partnership is not recognized as a person under the ITA. Zeifmans’ arguments were dismissed by this Court in Zeifmans FC, and by the Federal Court of Appeal (FCA) in Zeifmans FCA. According to the Minister, Zeifmans’ substantive arguments in this proceeding are not merely close to, or related to, the arguments it made in Zeifmans FC—they are identical.
[41] Thus, the Minister submits Zeifmans had an opportunity to challenge the Requirement, the challenge was unsuccessful, and Zeifmans is now attempting to mount an impermissible collateral attack on the Requirement in these proceedings. For similar reasons, the Minister submits Zeifmans is attempting to relitigate the same issues that were decided in Zeifmans FC and Zeifmans FCA, which constitutes an abuse of the Court’s process.
(1) Collateral Attack [42] The doctrine of collateral attack prevents a party from undermining previous orders issued by a court or administrative tribunal: Garland v Consumers’ Gas Co, 2004 SCC 25 at para 71. The doctrine is generally invoked where a party attempts to challenge the validity of a binding order in the wrong forum, in the sense that the validity of the order comes into question in separate proceedings when the party has not used the direct attack procedures that were open to it, such as an appeal or judicial review: Ibid.
[43] The Minister submits that Zeifmans’ substantive arguments strike at the core of the Requirement’s validity, and constitute a collateral attack on the Requirement. According to the Minister, the attack is collateral because the object of a section 231.7 application is to provide a means to enforce compliance. While the text of subsection 231.7(1) puts the question of whether Zeifmans was “required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so” before the Court, it is not a specific object of the proceeding to reverse, vary or nullify the Requirement: R v Bird, 2019 SCC 7 at para 21 [Bird]. The proceeding with the specific object of reversing, varying or nullifying the Requirement was Zeifmans’ application for judicial review.
[44] Relying on the Supreme Court of Canada’s (SCC) decision in R v Consolidated Maybrun Mines Ltd, [1998] 1 SCR 706 [Maybrun], the Minister submits that Zeifmans’ collateral attack on the Requirement is an impermissible one. Maybrun identifies five factors that may be considered in order to determine whether Parliament intended to permit collateral attacks on an administrative order in the context of proceedings to enforce the order:
the wording of the statute from which the power to issue the order derives;
the purpose of the legislation;
the availability of an appeal;
the nature of the collateral attack in light of the appeal tribunal’s expertise or raison d’être; and
the penalty on a conviction for failing to comply with the order.
(Maybrun at paragraphs 41-52)
[45] In Bird, the SCC recognized that the third Maybrun factor permits a court to consider not only a right of appeal to an administrative appeal tribunal, but also whether there are other effective mechanisms or forums for challenging the order at issue, including judicial review: Bird at paras 44, 49. Similarly, the fourth factor permits a court to consider the nature of the collateral attack in light of the expertise or raison d’être of other mechanisms or forums for challenging the order: Bird at para 75.
[46] The Minister argues that all five Maybrun factors, as refined in Bird, support a conclusion that it was not Parliament’s intention to permit a respondent to collaterally attack a section 231.2 requirement in the context of a section 231.7 compliance application. The Minister states that the third and fourth Maybrun factors are the most salient factors in this case, because judicial review provided an effective, alternative mechanism for Zeifmans to challenge the validity of the Requirement.
[47] The Minister submits Zeifmans’ position in this proceeding mirrors the position that was advanced by the respondent and rejected by the Saskatchewan Court of Appeal (SKCA) in Mitchell v Candle Lake (Resort Village), 2021 SKCA 44 [Mitchell]. Mr. Mitchell, who had commenced construction without a building permit, failed to comply with a stop work order issued by the village pursuant to section 17 of the Uniform Building and Accessibility Standards Act, SS 1983-84, c U-1.2 [UBASA]. The village applied to the court for a compliance order under section 23 of the UBASA, and in the context of that proceeding, Mr. Mitchell argued that the court was not empowered to grant a compliance order because the underlying section 17 stop work order was invalid. The chambers judge disagreed, finding that, absent any appeal of the stop work order, it remained in effect. The chambers judge issued an order under section 23 of the UBASA that required Mr. Mitchell to comply with the section 17 stop work order. The SKCA dismissed Mr. Mitchell’s appeal, finding that the chambers judge did not err by refusing to allow him to collaterally attack the stop work order in the compliance proceeding.
[48] The Minister states it was implicit in the SKCA’s decision that a compliance application under section 23 of the UBASA is not a proceeding “with the specific object of reversing, varying or nullifying the underlying order”. The Minister argues the same can be said for a compliance application under section 231.7 of the ITA. The object of this compliance proceeding is not to reverse, vary or nullify the Requirement, and therefore, Zeifmans’ attack on the Requirement is a collateral attack.
[49] Zeifmans submits the Minister’s position is contrary to the language of section 231.7 and established jurisprudence, including SML and Chamandy, that the sanctions of section 231.7 may only be imposed if the statutory conditions of that section have been clearly met. Zeifmans notes that the effect of the Minister’s position would be to bar any respondent to a section 231.7 application from raising so-called substantive defences, whether or not they had previously challenged the underlying section 231.1 or 231.2 request on judicial review.
[50] In my view, Zeifmans’ position on this application is not a collateral attack on the Requirement. While I accept that it is not a specific object of this proceeding to reverse, vary or nullify the Requirement (and Zeifmans does not ask for such relief), it is a specific object of compliance proceedings to determine whether the section 231.7 conditions are met. It is the judge hearing the compliance application who must be satisfied that the section 231.7 conditions are met, and consequently, there is no alternative forum to decide the issue.
[51] Zeifmans asks the Court to dismiss the Minister’s application because the section 231.7 conditions have not been met. Zeifmans’ arguments are made in the proper forum. They are not “collateral”.
[52] I disagree with the Minister that Zeifmans’ position mirrors Mr. Mitchell’s position in Mitchell.
[53] The SKCA explained Mr. Mitchell’s argument on appeal in this way (Mitchell at paragraph 28):
Placed in an appellate context, I understand Mr. Mitchell to argue that in considering whether to grant a s. 23 order, the Chambers judge was obliged to examine the statutory prerequisites for its issuance, which, he submits, included an examination of the validity of the underlying order. As the argument goes, had the Chambers judge approached the Village’s application in this manner, he would have found himself without authority to make an order under s. 23. For this reason, Mr. Mitchell says the Chambers Decision cannot stand and must be set aside.
[54] The SKCA reviewed the leading cases on collateral attack, including Maybrun, noting that Mr. Mitchell was seeking to challenge the underlying administrative order in a compliance proceeding, rather than a penal proceeding: Mitchell at para 41. The SKCA outlined reasons why the doctrine of collateral attack should extend to circumstances where a party ignores a regulatory appeal process and then seeks to challenge an administrative order in subsequent compliance proceedings: Mitchell at para 48.
[55] With that, the SKCA went on to consider the Maybrun framework of analysis in order to determine what the Legislature intended to be the appropriate forum for Mr. Mitchell to challenge the stop work order issued under section 17 the UBASA: Mitchell at paras 46-79. The SKCA found that most Maybrun factors weighed in favour of a conclusion that the Legislature did not intend for a person to be able to collaterally attack the validity of a section 17 stop work order in the context of subsequent section 23 proceedings.
[56] While the SKCA in Mitchell applied the doctrine of collateral attack to a compliance proceeding, I agree with Zeifmans that there are material differences between the UBASA provisions that were at issue in Mitchell and section 231.7 of the ITA. A key difference is that section 231.7 of the ITA expressly obliges the hearing judge to examine the underlying section 231.1 or 231.2 request. The fact that, in the Minister’s words, “the text of ss. 231.7(1) puts the question of whether Zeifmans was ‘required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so’ before the Court”, demonstrates that Zeifmans’ arguments are made in the appropriate forum, and not collaterally.
[57] As the FCA stated in Miller v Canada (Minister of National Revenue), 2022 FCA 183 [Miller], the Minister must satisfy the Court of three “conditions precedent” before the Court may issue a section 231.7 compliance order: (i) the person against whom the order is made must have been required under section 231.1 or 231.2 of the ITA to provide the access, assistance, information or document that is the subject of the order; (ii) that person must have failed to provide the access, assistance, information or document in question; and (iii) in the case of information or a document, it must not be subject to solicitor-client privilege: Miller at paras 19, 25-27; ITA, ss 231.7(1)(a)-(b); also see Lee at para 6.
[58] Thus, the statutory conditions of section 231.7 require the Court to determine whether the Minister had the authority to issue the underlying Requirement (for example, see Miller at paragraph 60), and they constrain the Court’s authority to issue a compliance order (for example, see Miller at paragraph 79). The collateral attack cases the Minister relies on did not invoke the doctrine in similar circumstances, to bar arguments about whether statutory conditions for issuing an enforcement order have been met.
[59] Zeifmans adds that the Minister has not put forward a section 231.7 case where the doctrine of collateral attack was invoked. The Minister counters that the question is whether the doctrine applies, not whether it has been argued before. While that may be true, Zeifmans’ point remains noteworthy. The doctrine of collateral attack operates regardless of whether a party used the direct attack procedures that were open to it, yet the authorities the parties have put before me demonstrate that this Court regularly entertains responding arguments that the statutory requirements of section 231.7 were not met. The FCA has also entertained such responding arguments in compliance application appeals.
[60] Even in compliance proceedings where it was apparent that the responding parties had filed applications for judicial review to challenge the Minister’s section 231.1 or 231.2 requests, the doctrine of collateral attack was not raised. Zeifmans notes that in Friedman v Canada (Minister of National Revenue), 2021 FCA 101 [Friedman], the appeals from judicial review and compliance applications were heard and considered together, and described as “discrete legal proceedings”: Friedman at para 26. I would add that in Canada (Minister of National Revenue) v Ghermezian, 2022 FC 236 [Ghermezian Compliance] the Court acknowledged that some of the respondents to the compliance proceeding had challenged the Minister’s requirements issued under section 231.2 in judicial review proceedings, and yet the Court considered the arguments that the statutory conditions were not met.
[61] While I have found that Zeifmans’ position on this application is not a collateral attack on the Requirement, the parties addressed the Maybrun factors at some length