2016 QCCA 226, 2016 QCCA 226

Berger c. Agence du revenu du Québec 2016 QCCA 226 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-024626-145 (500-17-076995-136) MINUTES OF THE HEARING DATE: February 5, 2016 CORAM: THE HONOURABLE ALLAN R. HILTON , J.A. NICHOLAS KASIRER , J.A. CLAUDE C. GAGNON , J.A. APPELLANT ATTORNEYS DAVID BERGER Mtre ELISABETH ROBICHAUD ( Absent) Mtre KONSTANTINO VOGGAS (Absent) ( Sweibel Novek SENCRL ) RESPONDENT ATTORNEY AGENCE DU REVENU DU QUÉBEC Mtre ANTOINE LAMARRE (Absent) ( Revenu Québec ) (Larivière, Meunier)

On appeal from a judgment rendered on July 7, 2014 by the Honourable Madam Justice Chantal Corriveau of the Superior Court, District of Montreal DESCRIPTION : Taxation – motion to dismiss – judicial review Clerk: Shirley Thomas Courtroom: Mignault HEARING 9:30 Following the hearing of February 3, 2016. Counsel were exempted from attending the Court. 9: 31 By the Court: Judgment – see page 3. 9: 32 Conclusion of the hearing.

SHIRLEY THOMAS Clerk BY THE COURT JUDGMENT [ 1 ] David Berger has appealed a judgment of the Superior Court, District of Montreal (the Honourable Madam Justice Chantal Corriveau presiding), rendered on July 7, 2014, which granted the Agence du revenu du Québec’s motion to dismiss his action in judicial review [1] . *** [ 2 ] The appellant opened a bank account in his own name at a branch of the HSBC in Switzerland in 2000. On April 15, 2011, the ARQ advised him that it was conducting an audit of his tax returns for the 2005 to 2009 taxation years.

An exchange of letters and of information between the parties followed. On February 26, 2013, the ARQ sent the appellant a “formal demand / demande péremptoire”, within the meaning of

section 39 of the Tax Administration Act , [2] requiring him to provide certain documents and information in connection with the HSBC account. The formal demand required, inter alia , forms for the opening of the account, monthly statements, information relating to the source of the initial capital investment, transcripts of telephone conversations with the bank as well as a record of personal visits by the appellant to the branch in Switzerland.

[ 3 ] On April 29, 2013, the appellant filed a motion to institute proceedings in judicial review before the Superior Court, requesting that the formal demand be annulled and declared unfounded, illegal and ultra vires .

He alleged that the formal demand had been illegally issued as part of a penal investigation and, as such, it violated certain of his constitutional rights under the Canadian Charter of Rights and Freedoms and the Quebec Charter of Human Rights and Freedoms ; that the formal demand was unreasonable in light of the fact that the appellant had collaborated with the authorities and demonstrated in his dealings with the ARQ that he was unable to obtain certain of the information required; that the formal demand was also unreasonable because it covered some nine taxation years; and that the formal demand was unnecessary in that ARQ already had sufficient information in hand pertaining to the audit of the appellant to issue a new assessment. [ 4 ] The ARQ filed a motion to dismiss the action pursuant to articles 159 and 165(4) C.C.P. [3] arguing that even if the facts alleged were taken to be true, the suit before her was unfounded in law. *** [ 5 ] The Superior Court granted the ARQ’s motion and dismissed the appellant’s application for judicial review. [ 6 ] The judge found that nothing in the file justified the conclusion that the formal demand was part of a penal investigation relating to the appellant or that his constitutional rights had been violated.

She was of the view that, in respect of a formal demand issued for a tax audit, the appellant’s expectation to privacy was much reduced. The judge decided that the appellant’s inability to obtain the documents and information required by the tax authorities was not a ground that could substantiate an application for judicial review. While the judge recognized that the taxpayer could initiate proceedings in judicial review to contest the formal demand, she noted that the taxpayer would have the opportunity to contest the notices of assessment within the regime provided in the Tax Administration Act .

She concluded that even if the allegations in his application for judicial review were taken to be true, the action was unfounded in law. *** [ 7 ] As a general matter, the appellant argues that the judgment does not reflect the requisite degree of caution that must be exercised by a judge before granting a motion to dismiss. Recalling that the jurisprudence decided under article 165(4) C.C.P. limits

summary dismissal to only the clearest of cases, the appellant argues that the judge should have recognized that the legal issues raised in the application for judicial review deserved a full hearing, especially given that the allegations made must be taken as true at this stage. The judge should therefore have allowed judicial review to proceed to the merits. [ 8 ] In particular, the appellant submits that the judge erred in three principal respects: (

i) she misapplied the judgment of the Supreme Court in Canada v. Addison & Leyen Ltd. [4] and that of the Federal Court of Appeal in Canada v . J.P. Morgan [5] in which applications for judicial review were dismissed; (ii) she erred by either misconstruing or failing to dispose of the appellant’s non- Charter arguments; and (iii) she was mistaken in her disposition of the appellant’s arguments based on sections 7 and 8 of the Canadian Charter of Rights and Freedoms by failing to link the formal demand to an on-going penal investigation relating to a theft of HSBC documents properly alleged in the motion. [ 9 ] Each of these individual submissions will be considered in turn. *** I

Interpretation of the judgments in Addison & Leyen Ltd . and J.P. Morgan [ 10 ] The appellant argues that the judge erroneously relied on the Supreme Court of Canada judgment in Addison & Leyen as a guide for her analysis, in particular, as she wrote at paragraph [46] of her reasons, the principle set out in that case according to which “les tribunaux doivent faire preuve de réserve lorsqu’ils examinent la conduite des agents du système fiscal”.

Addison & Leyen is not at all comparable to his situation, says the appellant, in that it deals with an action for judicial review of a decision to issue a notice of assessment and not, as here, the issuance of a formal demand against which the appellant has no right of appeal. [ 11 ] The appellant has failed to show that the citation of Addison & Leyen constituted an error justifying the intervention of the Court. [ 12 ] The appellant is right to say that Addison & Leyen dealt with judicial review of a notice of assessment, not a formal demand.

He is right as well to note that, unlike the taxpayer in Addison & Leyen , a person who wishes to contest a formal demand under

section 39 of the Taxation Administration Act has no direct avenue of appeal of the decision to issue the demand. Pursuant to

section 39.2, it is the Minister of Revenue, not the taxpayer, who has the right to petition the Court of Québec in circumstances where the formal demand has not been honoured. In this sense, the appellant is correct to say that Addison & Leyen dealt with judicial review in a tax law setting quite different from that of the case at bar. [ 13 ] The judge was fully aware of this and her reference to Addison & Leyen does not amount to a reviewable error. She made special mention, at paragraph [46], that the circumstances of Addison & Leyen and of the present case are substantially different.

The whole of her reasons indicate plainly that she understood that judicial review did not bear on a notice of assessment but on the formal demand. While the judge did refer to the appellant’s eventual right to contest an eventual notice of assessment, she also signalled clearly in her reasons that the appellant was free to ask for judicial review of the formal demand at this stage of the proceedings and analyzed the application for review, in light of the motion to dismiss, on that very basis. No error has been shown. [ 14 ] Nor did she err in choosing to refer to the Federal Court of Appeal’s judgment in J.P.

Morgan . Again, she was aware that J.P. Morgan dealt with the judicial review of a notice of assessment and not a formal demand. While some of the comments of the Federal Court quoted by the judge were linked to matters related to abuse of process that are not directly germane to the motion of dismiss, the judge very clearly applied the correct criteria under article 165(4) C.C.P. and not, as the appellant seems to suggest, those relevant under

article 54.1 C.C.P. The reference to J.P. Morgan does not amount to a reviewable error.

II Allegedly incomplete consideration by the judge of non- Charter arguments [ 15 ] The appellant contends that some grounds he raised to oppose the motion to dismiss were not fully considered by the judge who, mistakenly, confined herself to an analysis of his arguments relating to the violation of his Charter rights. [ 16 ] Specifically, the appellant submits that the judge incompletely dealt with his argument that the formal demand was unreasonable. Moreover, he says, his position that

section 39 of the Tax Administration Act has no extraterritorial effect, and thus cannot be invoked to demand the production of documents in Switzerland, went completely unanswered by the judge. In the circumstances, the judge could not grant a motion to dismiss as she did not dispose completely of the question as to whether the motion for judicial review was unfounded in law. [ 17 ] The appellant is mistaken on both points. [ 18 ] First, the judge did provide an adequate answer to the appellant’s non- Charter argument that decision to issue the formal demand was unreasonable.

At paragraphs [94] to [97], she explained that the appellant’s various efforts at collaboration and assistance offered to the tax authorities did not, in themselves, constitute grounds for judicial review of the decision to issue the formal demand. She also explained why in her view the purpose of the formal demand was linked to an audit and not a penal investigation, thereby answering the appellant’s argument that the formal demand was issued for a purpose other than that contemplated by the Act. [ 19 ] As to the argument on that

section 39 of the Act has no extraterritorial application, it is true that the judge makes no mention of this point in her reasons. In fairness to her, the argument is not directly raised in the motion to institute judicial review and the appellant did not amend the motion to make this argument explicit. He did, however, raise the matter in argument before the judge and she acknowledged this at the hearing. [ 20 ] While it might have been more helpful had the judge stated specific reasons for rejecting this argument, it is clear from her judgment that she understood

section 39 to apply to all the documents sought by the ARQ in this case. It bears recalling that the formal demand is addressed to the taxpayer who is resident in Quebec and not to the HSBC branch in Switzerland. If the appellant has those documents, they are not foreign-based. If the documents are electronically stored, wherever the server may be physically located, in a manner that they are “readily and lawfully” available to the appellant in Quebec, then the documents are not foreign-based either: eBay Canada Ltd . v.

M.N.R . [6] Moreover, if the documents are physically outside of Quebec, but under his control, then the appellant can comply with the formal demand as formulated pursuant to

section 39. If the documents are unavailable because the taxpayer cannot access them, wherever they might be, that might well be a ground of defence for failing to comply with the formal demand, as the judge rightly suggested, but it is not in the circumstances of this case grounds for judicial review. [ 21 ] The Court is of the view that the judge’s consideration of the appellant’s non- Charter arguments was adequate and exempt of any basis for disturbing her judgment on appeal. III Alleged errors by the judge in respect of the Charter arguments [ 22 ] Relying on R. v. McKinlay Transport Ltd . [7] and R. v.

Jarvis , [8] the judge held that the appellant’s rights under sections 7 and 8 of the Charter were not violated by the issuance of the formal demand. According to this line of decided cases, the self-reporting and self-assessment mechanisms for the reporting of income tax justify that the Minister of Revenue be granted broad powers to audit returns and inspect records of taxpayers, whether or not there are reasonable grounds for believing that the taxpayer has violated the law.

The judge therefore decided that in connection with an audit of his tax returns, the appellant had a limited expectation to privacy with regard to documents and information to which the formal demand applied. [ 23 ] The appellant submits that in arriving at these conclusions, the judge failed to take the facts alleged in the application for judicial review to be true. Specifically, she should have accepted, as alleged, that the formal demand was issued on the basis of information that was stolen and manipulated by an ex-employee of the HSBC in Switzerland.

She should have assumed the truth of the fact, citing litigation pending before the Federal Court arising out of these events and a declaration made in the House of Commons by the then Prime Minister of Canada, that formal demands such as the one sent to the appellant have been undertaken as penal investigations.

In these circumstances, the judge could not conclude, at this preliminary stage, that the predominant purpose of the formal demand was an audit but that it had to be a penal investigation involving the appellant, like in the case before the Federal Court. [ 24 ] Because the formal demand was part of a penal investigation and not an audit, the appellant says the judge should have recognized that he is entitled to protection under sections 7 and 8 of the Charter pursuant to Jarvis and like cases. [ 9] [ 25 ] The Court disagrees. [ 26 ] The appellant has failed to show an error in respect of the Charter issues raised that justifies disturbing the judgment of the Superior Court. [ 27 ] It is true that the judge had a duty to assume the facts alleged to be true.

Moreover, the respondent concedes in its factum at paragraph 66 that the HSBC list is indeed at the origin of the audit of the appellant.

But even if one accepts as true that information stolen from the HSBC was connected to the formal demand made of the appellant, that fact did not require that the judge assume the truth of the allegation that the ARQ was undertaking a penal investigation of the appellant, or that the announced audit was a cover for a penal investigation. [ 28 ] The question as to whether the predominant purpose of the tax authorities in issuing the formal demand was made as part of an audit or as part of a penal investigation is one of “legal characterization” (in French a qualification juridique ).

In deciding the motion to dismiss, the judge had to assume the facts alleged to be true but, as she herself rightly recognized, the Superior Court was not bound by the legal characterization of those facts. [10] The appellant’s characterization of the investigation as a penal one was not a factual allegation that the judge was bound to assume to be true. As the Supreme Court noted in Jarvis , this question is a mixed one of fact and law:

100 Whether or not a given inquiry is auditorial or investigatory in nature is a question of mixed fact and law. It involves subjectingthe facts of a case to a multi-factored legal standard (Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748, at para. 35) and, accordingly, Judge Fradsham’s finding is not immune from appellate review. [29] In order to decide the motion to dismiss, the judge was required to undertake this determination on the basis of the criteria setout Jarvis, with all the caution that befits analysis at this preliminary stage.

After citing that case at length, the judge undertook that veryanalysis proposed by the Supreme Court, observing, in particular, that the formal demand was issued by the Direction du contrôle fiscalof the ARQ; that the correspondence reflects the purpose of conducting an audit investigation and not a penal one; and that the materialsbefore her contain no information suggesting that the investigation was penal in character (paras [62] to [65]).

She concluded as follows:“Dans le dossier, rien ne permet de conclure qu’il fasse actuellement l’objet d’une enquête pénale. […]” (para. [83]). [30] The appellant has shown no reviewable error in this exercise of characterization. The parallel drawn by the appellant with thecase before the Federal Court and the reference to the Prime Minister’s declaration regarding citizens using Swiss bank accounts to evadetaxation are insufficient to justify the conclusion that the investigation of the appellant was a penal one.

The situation is unlike Kligman,for example, where there was no doubt that the matter had been placed in the hands of authorities to commence a criminalinvestigation.[11] Moreover, while this was not shown to be the case here, the Supreme Court in Jarvis explained that the predominantpurpose test does not prevent the tax authorities from conducting parallel criminal investigations and administrative audits, with thepredominant purpose being the audit.[12] [31] As a result, the judge was entitled to conclude that, according to McKinlay Transport and Jarvis, the issuance of the formaldemand brought about no Charter violation. [32] The third ground of appeal is thus rejected. *** [33] By way of conclusion, it bears recalling, as Justices LeBel and Wagner did for the Supreme Court recently in Canada v.Confédération des syndicats nationaux,[13] that dismissing a civil action at a preliminary stage can have “very serious consequences”and the powers afforded a judge under art. 165(4) C.C.P. should be exercised with caution.

It is likely that, in a taxation context, ajudgment granting a motion to dismiss in a relatively complex application for judicial review will be relatively rare. That said, as ourCourt stated in Giroux v. Hydro-Québec, “[l]e juge saisi d’une demande d’irrecevabilité doit trancher quelle que soit la difficulté”.[14]Here, the judge concluded that this is one of those cases in which, taking the facts alleged as true, it was plain and obvious that themotion to institute proceedings was unfounded in law.

The burden fell to the appellant to show that the judge committed a reviewableerror in that determination and that burden was not met. FOR THE FOREGOING REASONS, the Court: [34] DISMISSES the appeal, with legal costs. ALLAN R. HILTON, J.A. NICHOLAS KASIRER, J.A. CLAUDE C. GAGNON, J.A.