Her Majesty the Queen v. Tennina et al. [Indexed as: R. v. Tennina]

88 O.R. (3d) 27

Ontario Superior Court of Justice,

Corbett J.

November 29, 2007

Criminal law -- Search and seizure -- Detention of things seized -- Continued detention -- Section 490(2) of Code not precluding some substantive review by court of investigation as part of determining whether continued detention of seized material is justified but that review having to be circumspect and deferential -- Refusal of extension within first year of detention being justified only in rarest of cases where there is acting and ongoing investigation -- Criminal Code, R.S.C. 1985, c. C-46, s. 490(2).

The respondents were subjects of a criminal investigation into a suspected large-scale income tax evasion scheme. Pursuant to search warrants, approximately 50 boxes of materials were seized from the respondents. The Crown applied pursuant to s. 490(2) of the Criminal Code to detain the seized materials beyond the three-month period prescribed in the Criminal Code. The application was granted. The Crown subsequently applied under s. 490(2) for a further extension. At that point, nine and a half months had elapsed since the seizure of the material. The justice of the peace found that that period was a reasonable length of time to review the seized material, and dismissed the application. The justice of the peace subsequently ordered that the seized things be returned to the respondents. The Crown applied for certiorari quashing those two decisions.

Held, the application should be granted. [page28 ]

Section 490(2) does not preclude any kind of substantive review of the investigation as part of determining whether continued detention is justified by reason of the "nature of the investigation". It is not sufficient for the authorities to show that they are conducting an investigation, that the investigation has not concluded, and that the thing seized is "required" for that investigation. Once it is established that there is an investigation for which the seized materials are required, the justice should assess the progress of the investigation for the purpose of determining what additional period of time the materials should be held, to enable orderly completion of the investigation. In making this determination, the justice is not to embark on an inquiry into the efficiency or reasonableness of the investigation to date, but rather, is to determine the amount of additional time for which the materials may be required. The focus is not retrospective, but prospective. If there has already been an extension, and the Crown is seeking a further extension, then the court should inquire into the reasons that the investigation has not been concluded within the period of the first extension. The justice granting the first extension will have assessed the additional time required, and some justification will be required to explain why yet more time is needed. However, substantial deference should be shown to investigators, who may not know the full scope of their investigation from the outset. Where there is an active, ongoing investigation, it should only be in the rarest of cases that an extension is refused within the first year of detention. In this case, the justice did not put his mind to the correct questions, and erred in focusing retrospectively on the "reasonable period" for the authorities to review the seized documents.

APPLICATION for certiorari to quash the decisions of justice of the peace declining to continue detention of things seized and ordering their return to the respondents.

Cases referred to Moyer (Re), 1994 7551 (ON SC), [1994] O.J. No. 2997, 95 C.C.C. (3d) 174 (Gen. Div.); Ontario (Attorney General) v. Cole-Watson, [2007] O.J. No. 1742, 157 A.C.W.S. (3d) 539, 2007 CarswellOnt 2819 (S.C.J.); R. v. Eurocopter Canada Ltd., [2001] O.J. No. 1592, 2001 CarswellOnt 1405 (S.C.J.); R. v. Forsythe, 1980 15 (SCC), [1980] 2 S.C.R. 268, [1980] S.C.J. No. 66, 112 D.L.R. (3d) 385; R. v. Gamble, [1998] O.J. No. 2823 (Prov. Ct.); R. v. McNamara, [2006] O.J. No. 1194, 69 W.C.B. (2d) 575 (S.C.J.); R. v. Superior Pharmacy Ltd., [1997] O.J. No. 2270, 33 O.T.C. 244, 35 W.C.B. (2d) 84 (Gen. Div.) Statutes referred to Criminal Code, R.S.C. 1985, c. C-46, s. 490

Kevin Wilson, for applicant. Rocco Galati, for respondents.

[1] CORBETT J.: -- The applicant seeks certiorari quashing the decisions of Justice of the Peace Currie dated August 23, 2007 (the "First Decision") and September 23, 2007 (the "Second Decision").

[2] In the First Decision, the learned justice of the peace declined to continue the detention of things seized from the respondents pursuant to search warrants. In the Second Decision, the learned justice of the peace ordered that the things [page29 ]seized be returned to the respondents; he so ordered on the basis of the First Decision. Thus the decisions stand or fall together.

[3] For the reasons that follow, the Crown's application for certiorari is granted.

Background Facts

[4] The respondents are subjects of a criminal investigation respecting suspected fraudulent evasion of taxes.

[5] The Crown says that the respondents provided tax accounting services to numerous taxpayers. It says that there is good reason to believe that the respondents prepared tax returns in which fraudulent charitable tax receipts were used for the purpose of reducing tax. The Crown also says there is good reason to believe that in these same tax returns, fraudulent carrying charges were claimed, also for the purpose of reducing tax. The Crown theorizes that this scheme was systematic, and that the respondents were responsible, alone or in concert with others, for the tax evasion.

[6] The Crown obtained eight warrants to search and seize various materials from the respondents, including documents and electronic records. These warrants were executed on November 16, 2006, and materials were seized from six different locations.

[7] On February 7, 2007, the Crown applied pursuant to s. 490(2) of the Criminal Code, R.S.C. 1985, c. C-46 to detain the seized materials further. That application was heard on May 30, 2007, and an order was granted extending the detention until July 16, 2007 (five months beyond the initial three-month period prescribed in the Criminal Code).

[8] The Crown applied for a further extension of the period of detention. This second application was heard by Justice of the Peace Currie on August 8, 2007, who rendered his decision on August 23, 2007 (the First Decision). The gist of that decision is as follows:

Nothing in the Crown's evidence persuades me that further detention is required. The Court agrees with the arguments of [the] defence. The Court finds that nine and a half months is a reasonable length of time given the nature of the investigation to review the material seized.

[9] On the evidence before the justice of the peace, roughly 50 boxes of materials were seized. Investigators now suspect that tax returns of about 5,000 different taxpayers have been falsified. The suspected amount of understated tax is in the order of $15 million. On this information, this case appears to involve allegations of systematic and widespread fraud, involving thousands of people and millions of dollars. It is a "paper case", [page30 ]and one that can be expected to take considerable time and effort to investigate.

Search and Seizure Under Section 490 of the [Criminal Code](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-46/latest/rsc-1985-c-c-46.html)

[10] I summarize s. 490 of the Code as follows:

(i) Section 490 is the regime Parliament has specified for dealing with property seized by authorities pursuant to the Criminal Code.

(ii) Subsection 490(1) provides for detention of seized materials. The "lawful owner or person who is lawfully entitled to possession" is entitled to have the property returned to her, unless the property is required for an investigation or "preliminary inquiry, trial or other proceeding".

(iii) Subsection 490(2) requires that seized materials be returned after three months unless "proceedings are instituted in which the thing detained may be required" (subs. 2(a)), or unless a justice is satisfied that continued detention is warranted, given the nature of the investigation.

(iv) Subsection 490(3) sets a long-stop period of detention of one year unless proceedings are instituted or unless a judge of a superior court authorizes continued detention.

(v) Subsection 3.1 provides that things may be detained for any period with the consent of the lawful owner or the person entitled to possession.

(vi) Subsection 4 provides that when an accused has been ordered to stand trial, detained property is to be sent to the clerk of the trial court, to be "disposed of as the court directs". The court that determines the disposition of this property is the trial court.

(vii) Subsections 5 and 6 provide for the return of detained property where the prosecutor or peace officer determines that continued detention is not necessary, or where the periods for detention have expired. A judge or a judge of a superior court (as the case may be) makes an order in respect of the property under subsection 9, after giving the person from whom it was seized or the person who claims to be the lawful owner or lawfully entitled to possession, an opportunity to establish her entitlement.

(viii) Subsections 7 and 8 provide for applications at the instance of the person from whom the property was seized for orders for return of the detained property.

(ix) Subsection 9 provides that a judge or judge of a superior court (as the case may be) may order return of the detained property to the person from whom it was seized or to the lawful owner or person lawfully entitled to possession.

(x) Subsection 10 provides that a person other than the person from whom the property was seized, who claims to be the lawful owner or lawfully entitled to possession, may apply to have the property returned to her.

(xi) Subsection 11 provides that where the court is satisfied that the applicant under subs. 10 is the lawful owner, or is lawfully entitled to possession of the thing seized, and that continued detention of the property is not required, the court shall order the property returned to the applicant. [page31 ]

(xii) Subsection 12 provides that nothing shall be returned "pending any application made, or appeal taken thereunder in respect of the thing or proceeding in which the right of seizure thereof is questioned or within thirty days after an order is made under this section."

(xiii) Subsection 17 provides that a person "who feels aggrieved" by an order made under subsections 8, 9, 9.1 or 11 may appeal to the "appeal court".

This section seeks to achieve a balance between the need to preserve evidence during investigation and prosecution of crime, and the goal of returning property to rightful, lawful owners. If seized property becomes evidence in a prosecution, the trial court has jurisdiction over the disposition of that property. [See Note 1 below]

[11] The difficulty, in this case, is the interaction of subsections 490(1), (2) and (3). Property is to be returned under subsection 490(1) unless it is required for (among other things) "an investigation". The initial determination is made by a justice, and seized materials may be retained for up to three months on this basis.

[12] Subsection 490(2) provides that seized materials are to be returned after three months unless charges have been laid, or unless a justice "is satisfied that continued detention is warranted, given the nature of the investigation" (emphasis added).

[13] Detention may be continued for up to a year by a justice pursuant to s. 490(2). If authorities wish to detain the materials further, then authorization must be obtained from a judge of a superior court of criminal jurisdiction pursuant to s. 490(3). For a judge to extend the detention beyond a year, s/he must be "satisfied, having regard to the complex nature of the investigation, that the further detention of the thing seized is warranted for a specified period and subject to such other conditions as the judge considers just . . ."(emphasis added).

[14] As I stated in Cole-Watson, Parliament has sought to achieve a balance between the legitimate requirements of authorities to investigate and prosecute crime, and the private property rights of individuals. Authorities cannot seize property and keep it indefinitely in the exercise of their investigative powers. The seizure must be justified in the first instance. Then the detention must be warranted for investigative purposes. But even then, it is expected that detention will be limited to three months unless a justice is persuaded that continued detention is warranted.

[15] The question raised on this application is the nature of the review to be conducted by the justice under s. 490(2). Two decisions from judges of this court have concluded that a review [page32 ]under s. 490(2) is limited to determining whether there is a need for the seized materials in connection with a continuing investigation. The justice is not permitted to inquire into whether the pace and manner of investigation has been reasonable.

[16] A great deal turns on this small point. Decisions of a justice of the peace under s. 490(2) are not subject to appeal, but rather to judicial review. As Mr. Galati argues, the scope of judicial review is much narrower than the scope of an appeal: in this case, unless the justice of the peace was without jurisdiction, then his decision must be upheld, even if I conclude that it was wrong on the facts and wrong in law. [See Note 2 below]

[17] If there is to be a substantive retrospective review of the conduct of the investigation under s. 490(2) by the justice of the peace, then, effectively, police investigations will be subject to searching inquiries into whether they are being conducted efficiently. These inquiries would be conducted by way of summary applications in front of a tribunal from which there is no appeal. Using this case as an example, a significant investigation, involving very serious and systematic fraud, could be derailed by such a decision, without recourse by way of appeal.

[18] I expect that O'Driscoll J. was mindful of just such an eventuality in the case of Superior Pharmacy. [See Note 3 below] In that case, the defence argued that there was a "reasonableness" component to be "read into" the test under s. 490(2). That is, the defence argued that the Crown had to show that the conduct of the investigation had been reasonable to justify extending the detention of private property beyond the three months specified in s. 490(1). The justice of the peace agreed with this argument, but O'Driscoll J. did not:

Therefore . . . it is my conclusion that the justice of the peace exceeded his jurisdiction by erroneously "imposing" or "reading in" a reasonableness factor into the text under s. 490(2) of the Code.

. . . [N]owhere in the transcripts and nowhere in his reasons . . . does [the learned justice of the peace] ask himself the proper question about the s.490(2) Criminal Code applications before him -- "Has the Crown satisfied me that: having regard to the nature of the investigation, if the further detention of the thing(s) seized warranted for a further specified time?"

. . . . . [page33 ]

Instead of pursuing the proper questions about the nature of the investigation, the justice of the peace became caught up in the question of whether he thought Revenue Canada investigator(s) had proceeded with due dispatch and in a reasonable fashion. [See Note 4 below]

[19] Similar considerations came into play in McNamara, a decision of my colleague Tulloch J. [See Note 5 below] In that case, the learned justice of the peace declined the Crown's application for further detention on the basis that the investigation had gone on too long, as a result of limited resources. The investigating officer had become involved in another consuming investigation, and as a result had not advanced the investigation in the case at bar very promptly. Tulloch J. found:

In his reasons for judgment, the justice of the peace focused on what appeared to him to be an unfairness in detaining the property because the police didn't have sufficient resources to devote to the investigation . . . . These considerations were extraneous to the issue at hand. The justice of the peace was limited to a consideration of the nature of the investigation and whether further detention was warranted. After a consideration of the nature of the investigation, he may very well have concluded that further detention was not warranted, but he first had to consider the nature of the investigation before arriving at his conclusion. Furthermore, by importing a Charter analysis and s.11(b) concerns into this application, I find the justice of the peace also erred. [See Note 6 below]

[20] These holdings severely circumscribe the inquiry of a justice under s. 490(2), as captured in the following statement from Bigelow J. sitting on a s. 490(2) application:

I agree with counsel for the Respondents that the investigation seems to be proceeding at a snail's pace. However, my jurisdiction is limited to the considerations set out in s. 490(2) as they have been interpreted by the superior courts. [See Note 7 below]

[21] Taking this jurisprudence as well established, I asked Crown counsel what the purpose is of having a review of s. 490(2), if it does not encompass some substantive review of the progress of the investigation. The only answer seems to be that it is a mechanism to ensure that detention of the seized materials remains necessary for an ongoing investigation, which has yet to be concluded. In and of itself, this is not a bad answer to the question. However, it does not "fit well" with the language of s. 490. The initial detention under s. 490(1) is to be [page34 ]authorized "if the thing seized is required for the purpose of any investigation . . .". The inquiry is not on the progress of the investigation, but rather on whether there is an investigation and whether the thing seized "is required" for it.

[22] If the review under s. 490(2) was to be limited to a consideration of whether the "thing seized" was "still required" for an investigation, one would have thought that Parliament would have used the same language employed in s. 490(1). It did not do so. Rather, for an extended detention, the justice must be satisfied that "further detention for a specified period is warranted". Warranted in what sense? "Having regard to the nature of the investigation". So it is not sufficient for authorities to show that they are conducting an investigation, that the investigation has not concluded, and that the thing seized is "required" for that investigation. Instead, the authorities must show that there is something about the investigation that justifies extending the detention beyond the initial three months authorized by Parliament.

[23] It is difficult to see how a justice could conduct an analysis under s. 490(2) in the abstract. Further, the justice is required to specify the period of extended detention, something which can only be done after considering (a) what has been done to date; (b) what remains to be done in future; and (c) the length of time reasonably required to complete that work.

[24] We then consider the language used for an extension beyond one year, sought from a Superior Court justice under s. 490(3). In this review, exactly the same test is used as in reviews under s. 490(2), with the addition of one adjective -- "complex". The Superior Court justice is to assess whether a further extension should be granted "having regard to the complex nature of the investigation". Reading this language, chosen by Parliament, it is difficult to see how a substantive review of the progress of investigation is authorized under s. 490(3), but not under s. 490(2). And yet it is clear from the case law that an assessment of the progress of the investigation is mandated under s. 490(3). [See Note 8 below] Indeed, in the Moyer case, Justice Fedak denied an extension for precisely this reason: "[i]f greater expenditure of resources had been made, this investigation might have been completed well within the one year. Lack of resources or lack of manpower cannot be considered as an indication of complexity." [page35 ]

[25] What, then, is the nature of the inquiry to be made under s. 490(2)? First, the justice must determine whether there is still an investigation. If not, then there should not be an extension. In oral argument, I suggested to Mr. Wilson that, if the Crown's position is correct, the Crown could seize materials and simply do nothing for up to a year, and yet still retain the materials. With respect, that cannot be what Parliament intended in the language of s. 490: if it was, then there would be no point to a review before a justice after three months has elapsed. An investigation does not exist just because authorities say they have a file open: there must be ongoing work being done for it to be said that something is, in fact, being investigated.

[26] Second, the justice must determine whether the seized materials are still necessary for the investigation. If they are not, then there should not be an extension. The bar for this test is not high. It is not for the courts to be second- guessing the discretion and judgment of investigators. If there is a rational explanation as to why the seized materials may still be required, that will be sufficient.

[27] Third, if there is an investigation for which the seized materials are required, the justice should assess the progress of the investigation for the purpose of determining what additional period of time the materials should be held, to enable orderly completion of the investigation. In making this determination, the justice is not to embark on an inquiry into the efficiency or reasonableness of the investigation to-date, but rather, to determine the amount of additional time for which the materials will be required. The focus is not retrospective, but prospective.

[28] Fourth, if there has already been an extension, and the Crown is seeking a further extension, then the court should inquire into the reasons that the investigation has not been concluded within the period of the first extension. The justice granting the first extension will have assessed the additional time required, and some justification will be required to explain why yet more time is needed. However, substantial deference should be shown to investigators, who may not know the full scope of their investigation at the outset.

[29] As in the case at bar, the investigation may expand considerably as investigators learn more about the case. Legitimate resource issues may arise unexpectedly. The goal is to ensure that matters continue to move forward on some reasonable basis, not to terminate ongoing investigations.

[30] Finally, in hearing these applications, considerable deference should be accorded to authorities in deciding issues [page36 ]within their discretion, such as allocation of resources, the approach to the investigation, and the decision to lay charges. The review provisions do not call on the courts to usurp investigatorial and prosecutorial discretion, but rather to ensure that the property rights of individuals are fairly balanced against the legitimate needs of ongoing investigations. Under the language of s. 490(2), it can be expected that extensions will be required, even where cases are not "complex" within the meaning of s. 490(3).

[31] Once extensions have reached the one-year mark, the test changes. Parliament has made it clear that extensions should be granted beyond one year only where the "complexity" of the case justifies it. In making this assessment, the Superior Court justice will have the benefit of the previous applications for extensions under s. 490(2), and will be able to track the progress of the matter. This review will be of a more searching nature, and terms may be imposed on any extensions that are granted.

[32] In the case at bar, the learned justice of the peace did not put his mind to the correct questions, which relate, not to the quality of the investigation to date, but rather, to whether the nature of the investigation justifies detention of the seized materials for a further period. In particular, it is clear that there is an ongoing investigation, and significant resources have been expended on it. It is not a case where authorities have seized materials and then done nothing.

[33] Second, it is clear that the seized materials are necessary for the continuing investigation.

[34] Third, the learned justice erred in focusing retrospectively on the "reasonable period" for the authorities to review the seized documents. The focus of inquiry is on the nature of the entire investigation, of which the seized documents are only a part.

[35] Fourth, it is also clear that the scope of the investigation has expanded, now to encompass some 5,000 taxpayers. In a case involving thousands of documents, thousands of affected persons, and further documentation from financial institutions and registered charities, on an objective basis, one would expect that this investigation would be lengthy.

[36] Finally, although there were no findings below, I can well understand concerns about the future of this investigation. As Mr. Galati put it, colourfully, on a purely mathematical computation it will take authorities 200 years to complete interviews of affected taxpayers. Obviously that is not going to happen, but the underlying argument is that the current investigation will be interminable and should not be sanctioned by the court. Since there are no factual findings on this issue, this argument [page37 ]is speculative. But even if this was established as the underlying concern, the proper response is an appropriate set of deadlines, not denial of an extension.

[37] For the reasons I have expressed, I am not satisfied that the text of the Code provisions preclude any kind of substantive review of the investigation, as part of determining whether continued detention is justified by reason of the "nature of the investigation". However, that review must be circumspect, deferential to investigatorial and prosecutorial discretion, and have as its focus setting future deadlines. Where there is an active, ongoing investigation, it should only be in the rarest of cases that an extension is refused within the first year of detention. Thereafter, the bar is raised higher.

[38] Mr. Galati argued that the learned justice of the peace was entitled to adopt defence submissions, and that in doing so he provided a reasoned basis for his decision. In some circumstances that position would have force. However, in this case, defence submissions included multiple arguments, most of which are focused on a retrospective assessment of the quality of the investigation. I decline to parse each argument and relate it to the proper test. I am satisfied that the arguments were not focused around the requirements of s. 490(2), as I have described them.

[39] As was the case in Superior Pharmacy, this is a "paper" case. I make no finding as to whether it is "complex" within the meaning of s. 490(3); that will be for another court on another day. I conclude that the learned justice of the peace erred in failing to do that which is mandated under s. 490(2). In this error he acted without jurisdiction, and thus certiorari should be granted.

Remedy

[40] Ordinarily, I would quash the decision and remit the matter back to a justice of the peace for a fresh determination. However, the detention has now passed its one- year anniversary. It will be for the Crown to determine whether a fresh application should be brought before a justice of the peace under s. 490(2), or before a justice of this court pursuant to s. 490(3). Mr. Galati does not ask that I order return of the seized items for failure to initiate a s. 490(3) application prior to the one-year anniversary of seizure; he leaves his argument on that point for another day.

[41] In the result, the First Decision and the Second Decision are quashed.

Application granted.

[page38 ]

Notes

Note 1: Ontario (Attorney General) v. Cole-Watson, [2007] O.J. No. 1742, 2007 CarswellOnt 2819 (S.C.J.), at paras. 46 and 47.

Note 2: See, for example, R. v. Forsythe, 1980 15 (SCC), [1980] 2 S.C.R. 268, [1980] S.C.J. No. 66, at paras. 2 and 3, per Laskin C.J.C.

Note 3: R. v. Superior Pharmacy Ltd., [1997] O.J. No. 2270, 33 O.T.C. 244 (Gen. Div.).

Note 4: Superior Pharmacy at paras. 16, 22 and 24.

Note 5: R. v. McNamara, [2006] O.J. No. 1194, 64 W.C.B. (2d) 575 (S.C.J.).

Note 6: McNamara, at para. 25.

Note 7: R. v. Gamble, [1998] O.J. No. 2823 (Prov. Ct.), per Bigelow J.

Note 8: See Re Moyer, 1994 7551 (ON SC), [1994] O.J. No. 2997, 95 C.C.C. (3d) 174 (Gen. Div.), per Fedak J.; R. v. Eurocopter Canada Ltd., [2001] O.J. No. 1592, 2001 CarswellOnt 1405 (S.C.J.), per Then J., as he then was.