R. v. McCartie Date:, 2015 BCPC 254

Citation: R. v. McCartie Date: 20150908 2015 BCPC 0254 File No: 74283-1 Registry: Nanaimo IN THE PROVINCIAL COURT OF BRITISH COLUMBIA REGINA v. COLIN McCARTIE and ANNE McCARTIE REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE GOUGE Counsel for the Crown: B.D. Jones and T.I. McFadgen Appearing on their own behalf: Colin McCartie and Anne McCartie Place of Hearing: Nanaimo , B.C. Dates of Hearing: August 5, 6, 17, 18, 2015 Date of Judgment: September 8, 2015

The Issue [1] Mr. & Ms. McCartie seek an order to exclude from evidence certain documents seized from their home, under the authority of asearch warrant, on August 11, 2010. [2] It is important to note that the issue arises during the trial of a criminal prosecution. Whatever the outcome of this trial, CanadaRevenue Agency (“CRA”) may elect to pursue civil remedies for the collection of tax and civil penalties from Mr. & Ms. McCartie. Asnoted below, the legal principles governing the exclusion of evidence in criminal proceedings differ in some respects from thoseapplicable in civil proceedings.

I express no opinion in relation to the admissibility of evidence in any civil proceeding. Background [3] Mr. & Ms. McCartie are charged with tax evasion. [4] On a previous application, Mr. & Ms. McCartie sought a judicial stay of this prosecution, on the ground that CRA hadinfringed their rights under the Canadian Charter of Rights & Freedoms by exercising CRA’s statutory audit powers to compel Mr. &Ms. McCartie to disclose information to CRA at a time when CRA’s predominant purpose was to gather evidence for a criminalprosecution: R vs Jarvis 2002 SCC 73 , [2002] 3 SCR 757.

In order to decide that application, it would be necessary todetermine the date on which CRA’s predominant objective changed from a civil audit to a criminal prosecution. I was unable todetermine that date because: (

i) some of CRA’s internal documents have been lost; (ii) some CRA employees omitted to create otherdocuments, which they would normally have prepared and which would have provided insight into CRA’s motives and objectives fromtime to time. As a result, the Charter breach alleged by Mr. & Ms. McCartie was not proven. However, I concluded that, unless anappropriate remedy were granted, the loss of some CRA documents, and the omission to create others, would result in a breach of Mr. &Ms. McCartie’s right (under

section 11(

d) of the Charter) to a fair trial. In order to prevent that Charter breach, I ordered that thedocuments procured by CRA during its audit be excluded from evidence: R vs McCartie 2015 BCPC 69; [2015] BCJ No.636. [5] It should be noted that I did not conclude that the loss of some CRA documents, or the omission to create other CRAdocuments, was a breach of the Charter. Rather, I concluded that: (

i) those events would result in an unfair trial unless the evidenceprocured during the audit were excluded from the trial; and (ii) an accused person has a right to a fair trial whether or not the impedimentto a fair trial arises from Crown misconduct. The order which I made was a prophylactic against an imminent Charter breach, ratherthan a remedy for a Charter breach which had previously occurred. [6] Mr. & Ms. McCartie then applied to quash the search warrant, on the ground that much of the evidence described in theinformation to obtain (“the ITO”) had been procured by CRA during the civil audit.

On the hearing of that application, Mr. McFadgen,for the Crown, very properly conceded that all of the evidence procured during the civil audit should be redacted from the ITO, and thatthe question on the application was whether a search warrant could properly have been issued on the basis of the redacted ITO. Mr.McFadgen and Mr. & Ms. McCarty were able to agree on the appropriate redactions, and presented me with a redacted ITO forconsideration. It was immediately apparent that no search warrant could properly have been issued on the basis of the redacted ITO, andI quashed the warrant for that reason. [7] Ms.

McCartie then applied for a declaration that CRA had infringed her Charter rights because, when CRA investigatorsattended at the McCartie home to execute the warrant, they refused her request for production of the warrant before they entered herhome. I concluded that Ms. McCartie’s complaint was well-founded, and granted the declaration which she sought: R vs McCartie 2015BCPC 233. Mr. Jones, for the Crown, concedes that Mr.

McCartie is entitled to the same declaration because, although he was not athome at the time of the search, his Charter-protected privacy rights in his home were infringed by the refusal of Ms. McCartie’s request. [8] Two breaches of

section 8 of the Canadian Charter of Rights & Freedoms have been established: a. The consequence of my decision to quash the search warrant is that the search of the McCartie home was not authorized by law. A search which is not authorized by law is an unreasonable search: R vs Klimchuk (BC CA), [1991] BCJ No. 2872;67 CCC (3d) 385. b. The refusal of Ms. McCartie’s request for production of the search warrant before the investigators entered the house was,itself, a breach of

section 8: R vs Bohn [2000] BCJ No. 867; 2000 BCCA 239; 145 CCC (3d) 320. The question on the present application is whether the appropriate remedy for those breaches is to exclude from evidence the documentsseized by CRA during the search. Governing Principles [9] The pertinent provision of the Charter is

section 24 (underlining added):

(1) Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competentjurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.

(2) Where, in proceedings under subsection (1), a court concludes that evidence was obtained in a manner that infringed or denied anyrights or freedoms guaranteed by this Charter, the evidence shall be excluded if it is established that, having regard to all thecircumstances, the admission of it in the proceedings would bring the administration of justice into disrepute. [10] The governing principles were summarized in R vs Grant 2009 SCC 32 , [2009] 2 SCR 353 @ paragraphs 67 – 71

(underlining added): The words of s. 24(2) capture its purpose: to maintain the good repute of the administration of justice. The term "administration of justice" is often used to indicate the processes by which those who break the law are investigated, charged and tried. More broadly, however, the term embraces maintaining the rule of law and upholding Charter rights in the justice system as a whole. The phrase "bring the administration of justice into disrepute" must be understood in the long-term sense of maintaining the integrity of, and public confidence in, the justice system.

Exclusion of evidence resulting in an acquittal may provoke immediate criticism. But s. 24(2) does not focus on immediate reaction to the individual case. Rather, it looks to whether the overall repute of the justice system, viewed in the long term, will be adversely affected by admission of the evidence. The inquiry is objective. It asks whether a reasonable person, informed of all relevant circumstances and the values underlying the Charter , would conclude that the admission of the evidence would bring the administration of justice into disrepute. Section 24(2)'s focus is not only long-term, but prospective.

The fact of the Charter breach means damage has already been done to the administration of justice. Section 24(2) starts from that proposition and seeks to ensure that evidence obtained through that breach does not do further damage to the repute of the justice system. Finally, s. 24(2)'s focus is societal. Section 24(2) is not aimed at punishing the police or providing compensation to the accused, but rather at systemic concerns. The s. 24(2) focus is on the broad impact of admission of the evidence on the long-term repute of the justice system.

A review of the authorities suggests that whether the admission of evidence obtained in breach of the Charter would bring the administration of justice into disrepute engages three avenues of inquiry, each rooted in the public interests engaged by s. 24(2), viewed in a long-term, forward-looking and societal perspective.

When faced with an application for exclusion under s. 24(2), a court must assess and balance the effect of admitting the evidence on society's confidence in the justice system having regard to: (1) the seriousness of the Charter -infringing state conduct (admission may send the message the justice system condones serious state misconduct), (2) the impact of the breach on the Charter -protected interests of the accused (admission may send the message that individual rights count for little), and (3) society's interest in the adjudication of the case on its merits.

The court's role on a s. 24(2) application is to balance the assessments under each of these lines of inquiry to determine whether, considering all the circumstances, admission of the evidence would bring the administration of justice into disrepute.

The Three Lines of Enquiry The Seriousness of CRA’s Conduct [ 11 ] In Grant at paragraphs 72 - 75 , Chief Justice McLachlin and Justice Charron said: The first line of inquiry relevant to the s. 24(2) analysis requires a court to assess whether the admission of the evidence would bring the administration of justice into disrepute by sending a message to the public that the courts, as institutions responsible for the administration of justice, effectively condone state deviation from the rule of law by failing to dissociate themselves from the fruits of that unlawful conduct.

The more severe or deliberate the state conduct that led to the Charter violation, the greater the need for the courts to dissociate themselves from that conduct, by excluding evidence linked to that conduct, in order to preserve public confidence in and ensure state adherence to the rule of law. * * * State conduct resulting in Charter violations varies in seriousness. At one end of the spectrum, admission of evidence obtained through inadvertent or minor violations of the Charter may minimally undermine public confidence in the rule of law.

At the other end of the spectrum, admitting evidence obtained through a wilful or reckless disregard of Charter rights will inevitably have a negative effect on the public confidence in the rule of law, and risk bringing the administration of justice into disrepute. * * * "Good faith" on the part of the police will also reduce the need for the court to disassociate itself from the police conduct. However, ignorance of Charter standards must not be rewarded or encouraged and negligence or wilful blindness cannot be equated with good faith …. [ 12 ] Mr. Jones and Mr.

McFadgen urge me to conclude that the CRA investigators proceeded in good faith; i.e. in the belief that they had a valid warrant and that they were not obliged to produce the warrant until they had executed it by crossing the threshold of the McCartie home. “Good faith” and “bad faith” are polar ends of a spectrum. In placing particular police conduct in that spectrum, it is necessary to consider whether a police officer’s belief that she was acting lawfully was reasonable: R vs Caron 2011 BCCA 56 ; [2011] BCJ No. 200; 269 CCC (3d) 15 @ paragraphs 38 - 42.

[13] I accept that this was not a case in which the CRA investigators who executed the search warrant deliberately disregarded Mr.& Ms. McCartie’s Charter rights. The investigators honestly believed that they were entitled to proceed as they did. [14] I think that the individual CRA investigators’ belief that the warrant was valid was a reasonable belief.

The individualinvestigators had no reason to doubt the validity of the warrant. [15] However, that factor is somewhat attenuated by the Jarvis issue. [16] In this case, there is evidence capable of supporting the inference that CRA used its audit powers to gather evidence for acriminal prosecution.

I discussed the evidence which supports that inference in two previous decisions in this case: R vs McCartie 2014BCPC 128; [2014] BCJ No. 1227; R vs McCartie 2015 BCPC 69; [2015] BCJ No. 636. [17] The question whether, in this case, CRA deliberately used its audit powers to gather evidence for a criminal prosecutioncannot be answered because relevant documents have been lost and others which would have been created in the ordinary course ofCRA’s business were not created in this case. CRA has not explained the loss of the documents or the omission to create others.

For amore detailed exposition of that point, see R vs McCartie 2015 BCPC 69; [2015] BCJ No. 636 @ paragraphs 4 - 32. When I asked Mr.McFadgen for an explanation during the course of that hearing, he replied that “… the explanation is that the notes were lost”. I havebeen provided with no information about the efforts, if any, which CRA has made to investigate how records came to be lost or whyothers, which would normally have been prepared, were not prepared in this case. CRA’s reticence on the issue of the missingdocuments renders it difficult to assess its corporate good (or bad) faith.

I find that regrettable, because a candid explanation from CRAmight have done much to encourage public confidence in the fairness and integrity of the system. [18] I do not think that the individual investigators’ refusal of Ms. McCartie’s demand for production of the warrant was reasonable. The investigators’ position was “let us in and we will show you the warrant”. That position was plainly unreasonable.

The obviouspurpose of section 29(1) of the Criminal Code is to empower the homeowner to demand to see the legal authority for the search beforeallowing anyone to enter her home. [19] I would not describe either of the two Charter breaches in issue as “inadvertent or minor”. Overall, I would assess the state ofmind of the individual investigators who executed the search warrant in this case as being toward the “good faith” end of the spectrum,but not far from the centre. The Impact of the Breach on the Charter-Protected Interests of the Accused [20] CRA conducted a search of Mr. & Ms.

McCartie’s home which was not authorized by law. During the search of the home,CRA seized, and subsequently searched, Mr. & Ms. McCartie’s computers. In R vs Morelli 2010 SCC 8 , [2010] 1 SCR 253 @paragraph 105, Justice Fish said that “… it is difficult to imagine a more intrusive invasion of privacy than the search of one's home andpersonal computer …”. I think it necessary to acknowledge that there are a number of types of bodily searches, commonly conducted bypolice officers, which are more intrusive than a search of a home or personal computer.

With that acknowledged, a search of a person’shome or personal computer is a very serious matter. [21] Mr. McFadgen urged me to take into account the following observation of Justice Reilly in R vs Dial Drug Stores Limited (ON SC), [2003] OJ No. 754; 63 OR (2d) 529: With respect to the consequences related to s. 8 of the Charter, McKinlay Transport, supra, makes it clear that taxpayers have very littleprivacy interest in the materials and records that they are obliged to keep under the [Income Tax Act] and that they are obliged toproduce during an audit. However, it is important to note that the judgment in R.

McKinlay Transport (SCC), [1990] 1 SCR 627, to whichJustice Reilly referred, was not concerned with a criminal investigation, but rather with CRA’s powers to compel production ofdocuments in the exercise of its civil audit powers. At paragraphs 32 - 34 of McKinlay Transport, Justice Wilson said (underliningadded): At the beginning of my analysis I noted that the Income Tax Act was based on the principle of self-reporting and self-assessment.

TheAct could have provided that each taxpayer submit all his or her records to the Minister and his officials so that they might make thecalculations necessary for determining each person's taxable income. The legislation does not so provide, no doubt because it would beextremely expensive and cumbersome to operate such a system. However, a self-reporting system has its drawbacks. Chief among theseis that it depends for its success upon the taxpayers' honesty and integrity in preparing their returns.

While most taxpayers undoubtedlyrespect and comply with the system, the facts of life are that certain persons will attempt to take advantage of the system and avoid theirfull tax liability. Accordingly, the Minister of National Revenue must be given broad powers in supervising this regulatory scheme to audit taxpayers'returns and inspect all records which may be relevant to the preparation of these returns. The Minister must be capable of exercisingthese powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act.

Often it will beimpossible to determine from the face of the return whether any impropriety has occurred in its preparation. A spot check or a system ofrandom monitoring may be the only way in which the integrity of the tax system can be maintained. If this is the case, and I believe thatit is, then it is evident that the Hunter criteria are ill-suited to determine whether a seizure under s. 231(3) of the Income Tax Act isreasonable. The regulatory nature of the legislation and the scheme enacted require otherwise.

The need for random monitoring isincompatible with the requirement in Hunter that the person seeking authorization for a search or seizure have reasonable and probablegrounds, established under oath, to believe that an offence has been committed. If this Hunter criterion is inapplicable, then so too mustthe remaining Hunter criteria since they all depend for their vitality upon the need to establish reasonable and probable grounds.

Forexample, there is no need for an impartial arbiter capable of acting judicially since his central role under Hunter is to ensure that theperson seeking the authorization has reasonable and probable grounds to believe that a particular offence has been committed, that thereare reasonable and probable grounds to believe that the authorization will turn up something relating to that particular offence, and thatthe authorization only goes so far as to allow the seizure of documents relevant to that particular offence.

This is not to say that any and all forms of search and seizure under the Income Tax Act are valid. The state interest in monitoring compliance with the legislation must be weighed against an individual's privacy interest. The greater the intrusion into the privacy interests of an individual, the more likely it will be that safeguards akin to those in Hunter will be required. Thus, when the tax officials seek entry onto the private property of an individual to conduct a search or seizure, the intrusion is much greater than a mere demand for production of documents.

The reason for this is that, while a taxpayer may have little expectation of privacy in relation to his business records relevant to the determination of his tax liability, he has a significant privacy interest in the inviolability of his home . Two conclusions flow from this passage: a. Different legal principles apply, and different public-policy issues arise, when CRA is pursuing a criminal investigation than when it is conducting a civil audit. b.

Even when CRA is conducting a civil audit, different legal principles apply, and different public-policy issues arise, when CRA seeks to enter a private dwelling without the consent of the occupier. I conclude that Justice Reilly’s comments in Dial Drug Stores are of limited, if any, application where CRA is conducting a criminal investigation, or where it seeks to enter a private dwelling without the consent of the occupier. [ 22 ] Mr. McFadgen points out that the CRA investigators had received information to the effect that Mr. McCartie carried on business from his home.

He relies on R vs Roy 2010 BCCA 448 ; [2010] BCJ No. 1999; 261 CCC (3d) 62 in support of the proposition that a person who carries on business from his home has a lesser expectation of privacy in his home than a person who uses his home solely as a residence. I accept that proposition in relation to home businesses which invite the public to attend at the home for the purpose of transacting business: R vs Contant 2008 QCCA 2514 ; 253 CCC (3d) 259. However, there is no indication in the evidence that Mr. or Ms. McCartie did so.

There are many home businesses which do not invite their customers, or other members of the public, to attend at the residence. Mr. McCartie’s business may have been one of those. In such circumstances, I do not think that the home/business owner is entitled to any lesser expectation of privacy than anyone else. [ 23 ] The refusal of Ms. McCartie’s request for production of the warrant had a less serious impact on the privacy rights of Mr. & Ms. McCartie. However, a Charter breach of that kind was described as “significant” in Bohn @ paragraph 34 . I observe that it has had a material impact on Mr. & Ms.

McCartie’s sense of personal security. Simply put, they feel less safe in their home than they did before the search. That is an interest which the Charter seeks to protect. [ 24 ] Overall, I would assess the impact of the two Charter breaches in question as, cumulatively, very serious. Society’s Interest in the Adjudication of the Case on Its Merits [ 25 ] This issue is particularly difficult where the offence alleged is tax evasion. Most Canadians accurately report their income and expenses, and voluntarily pay the tax which they owe.

They do that because they believe that the overwhelming majority of their fellow citizens do the same. Canadians have observed the very grave consequences which have ensued in some other countries, in which the citizens have lost confidence in the fairness of the tax system and its administration. Once that confidence is lost, tax evasion becomes commonplace (because individual citizens’ willingness to pay their fair share depends largely on their belief that others do the same), government revenues fall dramatically and a fiscal crisis ensues.

Canada has avoided such consequences, at least in part, because most Canadians are confident that both the tax system and its enforcement are fair and reasonable. The maintenance of that public confidence depends on two factors: a. CRA must diligently and vigorously pursue tax evaders. Public confidence in the fairness of the system depends, in part, on public confidence that those who do not pay their fair share will be identified, relentlessly pursued and appropriately sanctioned. b. CRA must proceed fairly and lawfully in its dealings with taxpayers, including those suspected of tax evasion.

One cannot maintain public confidence in the fairness of a system if those charged with enforcement of the system conduct themselves unlawfully or unfairly. The question is whether, in this case, a greater risk to public confidence in the fairness of the tax system and its administration would arise from: (

i) excluding the evidence, with the attendant risk that the public will perceive that an evader escaped appropriate sanctions; or (ii) admitting the evidence, with the attendant risk that the public will perceive that the court is unwilling to require CRA to comply with applicable laws, designed to protect individual rights from government intrusion. [ 26 ] At paragraph 83 of Grant , Chief Justice McLachlin and Justice Charron said that the “… importance of the evidence to the prosecution’s case is another factor that may be considered in this line of enquiry” (underlining added). Mr. McFadgen and Mr.

Jones inform me that the evidence seized from the McCartie home is of critical importance to the Crown’s case, and that an order for the exclusion of that evidence will probably put an end to this prosecution. Mr. & Ms. McCartie agree that the evidence is very important. It seems to me that this is a knife which cuts two ways. I have in mind that the objective of the enquiry is to reach a result which fosters public confidence in the process. On the one hand, the fact that the evidence is strongly incriminating would cause public concern that its exclusion might allow tax evaders to escape punishment.

On the other hand, the significance of Mr. & Ms. McCartie’s privacy interest is directly proportional to the importance of the documents seized from them. Conclusion on the Three Lines of Enquiry [ 27 ] After careful reflection, I think that receipt of the evidence seized under the search warrant would pose a greater risk of injury to public confidence in the administration of justice and the fairness of the tax system than its exclusion. Applying Grant , I must therefore exclude the evidence.

[28] Ms. Sundberg, CRA’s lead investigator in this case, acknowledged that, without the documents procured during the auditprocess, she would have had no reasonable grounds upon which to apply for a search warrant, and would not have done so. If it wereproven that CRA procured the audit documents in breach of the constraint imposed by Jarvis, it would be necessary to consider whetherthe principle of derivative use immunity would support exclusion of the documents seized under the search warrant: R vs RJS (SCC), [1995] 1 SCR 451 @ paragraphs 160 - 204. Unless Mr. & Ms.

McCartie can prove that CRA misused its auditpowers, the question of derivative use immunity does not arise. The loss of CRA’s internal documents, and the omission to create others,is a material impediment to the presentation of Mr. & Ms. McCartie’s case on the issue of derivative use immunity [29] By its unexplained and unjustified conduct in relation to its internal documents, CRA has materially impaired Mr. & Ms.McCartie’s ability to defend the charges made against them. The right to a fair trial is both guaranteed by

section 11(

d) the Charter andfundamental to the preservation of public confidence in the fairness of the justice system: R vs Collins (SCC), [1987] 1SCR 265 @ paragraph 36. A fair trial of tax evasion cases is also fundamental to the preservation of public confidence in the fairness ofthe tax system and its administration. [30] Neither a judicial stay of the prosecution nor an order to exclude evidence should be granted if a lesser remedy would suffice toensure a fair trial: R vs O’Connor [1995] 4 SCR 651 @ pages 465-466; R vs Bjelland 2009 SCC 38 , [2009] 2 SCR 651 @paragraph 19.

In this case, a judicial stay of the prosecution is not necessary for that purpose, but an order for exclusion of the evidenceseized under the authority of the search warrant is. Disposition [31] The documents seized under the authority of the search warrant will be excluded from evidence at this trial. September 8, 2015 __________________________________ T. Gouge, PCJ