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

90 O.R. (3d) 575

Court of Appeal for Ontario,

MacPherson, Juriansz and LaForme JJ.A.

April 23, 2008

Charter of Rights and Freedoms -- Costs -- Trial judge quashing search warrants after finding that use of inspection and requirement powers by Revenue Canada auditor violated s. 8 of Charter -- Trial judge finding that auditor and Revenue Canada investigator had engaged in serious misconduct -- Trial judge ordering Crown to pay costs to accused as remedy under s. 24(1) of Charter -- Crown's appeal allowed -- Trial judge erring in awarding costs against Crown as Charter remedy in absence of misconduct on part of Crown and in absence of rare or unique circumstances -- Canadian Charter of Rights and Freedoms, ss. 8, 24(1).

Charter of Rights and Freedoms -- Unreasonable search and seizure -- R.C.M.P. referring complaint that accused were involved in fraudulent investment scheme to Special Enforcement Program of Canada Revenue Agency -- Auditor using inspection and requirement powers under Income Tax Act to obtain information about accused without contacting accused directly -- Auditor ultimately referring matter to Criminal Investigations unit -- Trial judge erring in finding that auditor was engaged in criminal investigation rather than audit -- Predominant purpose of inquiry not being to further criminal investigation -- Auditor's actions not violating s. 8 of Charter -- Canadian Charter of Rights and Freedoms, s. 8.

The accused were the subject of a complaint to the RCMP alleging that they were engaged in a complex fraud scheme. Instead of pursuing a criminal investigation, the RCMP referred the matter to the Special Enforcement Program of the Canada Revenue Agency ("CRA"). L, the auditor assigned to the file, did not contact the accused directly, and used his inspection and requirement powers under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), to obtain documents. L concluded that the accused had not reported income and referred the matter to the CRA's Criminal Investigations unit. The investigation was assigned to F. F obtained search warrants based on his and L's findings. The accused were ultimately charged with tax evasion, making false or deceptive statements in their tax returns, and fraud. They brought an application at trial to quash the search warrants and exclude evidence under s. 24(2) of the Canadian Charter of Rights and Freedoms. The trial judge granted the application, finding that L had conducted a criminal investigation from the outset and that his use of the inspection and requirement powers violated s. 8 of the Charter. He also found that the CRA officials had engaged in serious misconduct and ordered the Crown to pay costs to one of the accused. The Crown appealed.

Held, the appeal should be allowed in part.

Per LaForme J.A.: The trial judge's reasons for judgment allowed for meaningful appellate review. In determining whether L was conducting an investigation rather than an audit, the trial judge referred to and correctly applied the factors set out in R. v. Jarvis. While the trial judge's finding that L suspected from the start that the accused were engaged in fraud may not have been sufficient, standing on its own, to support a conclusion that he was conducting an investigation, [page576] the trial judge was entitled to use this finding, combined with other evidence, in deciding whether the inquiry was an investigation. The trial judge took into account the fact that L acted covertly, without meeting the accused, while the hallmark of an audit is that the auditor and the subject get together. While working on the file, L referred to himself as an "auditor/investigator" or an "investigator", and never as an "auditor". There was evidence to support the trial judge's conclusion that the evidence sought was relevant only to penal liability. The trial judge did not err in finding that there was a criminal investigation from the outset and that the use of the inspection and requirement powers violated s. 8 of the Charter, and did not err in quashing the search warrants.

The trial judge's reasons for excluding the evidence under s. 24(2) of the Charter were brief, but were sufficient to allow for meaningful appellate review. He referred to serious misconduct on the part of officials of the Crown. He found that the conduct of L and F included dishonesty, deliberate fabrication and a negligent understanding of their statutory authority. Given those findings, he was entitled to find that the s. 8 Charter violation was serious, and that admitting the evidence would bring the administration of justice into disrepute.

The trial judge erred in awarding costs against the Crown as a remedy under s. 24(1) of the Charter. As a general rule, in the absence of Crown misconduct, a costs award will not be an appropriate and just Charter remedy. The jurisdiction to award costs against the Crown as a s. 24(1) remedy in cases not involving Crown misconduct requires something that is "rare" or "unique" that "must at least result in something akin to an extreme hardship to the defendant". There was nothing unusual in the circumstances of this case; nor did it result in anything akin to an extreme hardship to the accused.

Per Juriansz J.A.: The trial judge erred in law by failing to properly apply the test set out in R. v. Jarvis. The trial judge understood his task as deciding whether L was "investigating" or "auditing". The test, however, does not depend on what word best describes the inquiry, but rather on the purpose of the inquiry. What matters is whether the predominant purpose of the inquiry is to further criminal prosecution. The fact that the CRA inquiry seeks information that is technically relevant to a criminal charge is not enough to conclude that the predominant purpose of the inquiry, at the time it is made, is the investigation of criminal liability. The record provided no support for the findings that the predominant purpose of the inquiries L made was the investigation of penal liability. The goal was to collect tax from suspected criminals. When L concluded that criminal charges under the Income Tax Act were appropriate, he referred the file to the Criminal Investigations branch. L's conduct did not violate s. 8 of the Charter. If that conclusion was wrong, L's evidence should not be excluded under s. 24(2) of the Charter. The evidence was not conscriptive and there was no issue of trial fairness. The accused had little or no expectation of privacy in the documents given the broad inspection and requirement powers possessed by the CRA. The reliability of the evidence was undoubted, and it was indispensable to the prosecution. The trial judge erred in finding that L engaged in serious misconduct. There should be a new trial, at which the information obtained by L would be admissible, but the information obtained by F using the requirement powers and pursuant to the search warrants would be excluded.

Per MacPherson J.A.: The trial judge's reasons were sufficient for appellate review. F's use of the inspection and requirement powers violated s. 8 of the Charter and the warrants that flowed from the exercise of those powers should not be upheld. The information obtained by L did not violate s. 8 of the Charter. If that conclusion was wrong, then the trial judge did not err in excluding the evidence [page577] under s. 24(2) of the Charter. The trial judge erred by awarding costs as a remedy under s. 24(1) of the Charter.

APPEAL by the Crown from an acquittal and from a costs order.

Cases referred to R. v. Jarvis, [2002] 3 S.C.R. 757, [2002] S.C.J. No. 76, 2002 SCC 73, 219 D.L.R. (4th) 233, 295 N.R. 201, [2003] 3 W.W.R. 197, J.E. 2002-2111, 8 Alta. L.R. (4th) 1, 317 A.R. 1, 169 C.C.C. (3d) 1, 6 C.R. (6th) 23, 101 C.R.R. (2d) 35, [2003] 1 C.T.C. 135, 2002 D.T.C. 7547, 55 W.C.B. (2d) 118; R. v. Sheppard, [2002] 1 S.C.R. 869, [2002] S.C.J. No. 30, 2002 SCC 26, 210 D.L.R. (4th) 608, 284 N.R. 342, J.E. 2002-582, 211 Nfld. & P.E.I.R. 50, 162 C.C.C. (3d) 298, 50 C.R. (5th) 68, 52 W.C.B. (2d) 360, apld R. v. Ciarniello (2006), 2006 CanLII 29633 (ON CA), 81 O.R. (3d) 561, [2006] O.J. No. 3444, 270 D.L.R. (4th) 365, 215 O.A.C. 29, 211 C.C.C. (3d) 540, 41 C.R. (6th) 310, 144 C.R.R. (2d) 81, 70 W.C.B. (2d) 653 (C.A.), distd Other cases referred to Canada (Attorney General) v. Foster, 2006 CanLII 38732 (ON CA), [2006] O.J. No. 4608, 274 D.L.R. (4th) 253, 217 O.A.C. 173, 215 C.C.C. (3d) 59, 71 W.C.B. (2d) 903 (C.A.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, J.E. 2002-617, 219 Sask. R. 1, 10 C.C.L.T. (3d) 157, 30 M.P.L.R. (3d) 1, 112 A.C.W.S. (3d) 991; R. v. 974649 Ontario Inc., [2001] 3 S.C.R. 575, [2001] S.C.J. No. 79, 2001 SCC 81, 206 D.L.R. (4th) 444, 279 N.R. 345, J.E. 2002-9, 154 O.A.C. 345, 159 C.C.C. (3d) 321, 47 C.R. (5th) 316, 88 C.R.R. (2d) 189, 51 W.C.B. (2d) 452; R. v. Buhay, [2003] 1 S.C.R. 631, [2003] S.C.J. No. 30, 2003 SCC 30, 225 D.L.R. (4th) 624, 305 N.R. 158, [2004] 4 W.W.R. 1, J.E. 2003-1124, 177 Man. R. (2d) 72, 174 C.C.C. (3d) 97, 10 C.R. (6th) 205, 122 A.C.W.S. (3d) 863, 57 W.C.B. (2d) 206; R. v. Chen, [2007] O.J. No. 1572, 2007 ONCJ 177, 155 C.R.R. (2d) 163, [2007] G.S.T.C. 49, 2007 G.T.C. 1503, 73 W.C.B. (2d) 596; R. v. Collins, 1987 CanLII 84 (SCC), [1987] 1 S.C.R. 265, [1987] S.C.J. No. 15, 38 D.L.R. (4th) 508, 74 N.R. 276, [1987] 3 W.W.R. 699, J.E. 87-516, 13 B.C.L.R. (2d) 1, 33 C.C.C. (3d) 1, 56 C.R. (3d) 193, 28 C.R.R. 122, 15 W.C.B. (2d) 387; R. v. Garcia, 2005 CanLII 4831 (ON CA), [2005] O.J. No. 732, 195 O.A.C. 64, 194 C.C.C. (3d) 361, 29 C.R. (6th) 127, 12 M.V.R. (5th) 169, 64 W.C.B. (2d) 103 (C.A.); R. v. Hallstone Products Ltd., [2000] O.J. No. 1051, [2000] O.T.C. 22, 46 W.C.B. (2d) 5 (S.C.J.); R. v. Harris (2007), 87 O.R. (3d) 214, [2007] O.J. No. 3185, 2007 ONCA 574, 228 O.A.C. 241, 225 C.C.C. (3d) 193, 49 C.R. (6th) 220, 51 M.V.R. (5th) 172, 75 W.C.B. (2d) 492, 163 C.R.R. (2d) 176; R. v. Harrison (2008), 89 O.R. (3d) 161, [2008] O.J. No. 427, 2008 ONCA 85, 55 C.R. (6th) 39, 231 C.C.C. (3d) 118, 77 W.C.B. (2d) 528; R. v. LeBlanc, 1999 NSCA 170, [1999] N.S.J. No. 179 (C.A.); R. v. Ling, [2002] 3 S.C.R. 814, [2002] S.C.J. No. 75, 2002 SCC 74, 219 D.L.R. (4th) 279, 295 N.R. 273, [2003] 2 W.W.R. 403, J.E. 2002-2110, 173 B.C.A.C. 161, 8 B.C.L.R. (4th) 1, 169 C.C.C. (3d) 46, 6 C.R. (6th) 64, 99 C.R.R. (2d) 313, 2002 D.T.C. 7566, 55 W.C.B. (2d) 117; R. v. McKinlay Transport Ltd., 1990 CanLII 137 (SCC), [1990] 1 S.C.R. 627, [1990] S.C.J. No. 25, 68 D.L.R. (4th) 568, 106 N.R. 385, 39 O.A.C. 385, 55 C.C.C. (3d) 530, 76 C.R. (3d) 283, 47 C.R.R. 151, [1990] 2 C.T.C. 103, 90 D.T.C. 6243, 10 W.C.B. (2d) 16; R. v. Palmer, 1979 CanLII 8 (SCC), [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C. (2d) 193, 14 C.R. (3d) 22, 17 C.R. (3d) 34, 4 W.C.B. 171; R. v. Stillman, 1997 CanLII 384 (SCC), [1997] 1 S.C.R. 607, [1997] S.C.J. No. 34, 144 D.L.R. (4th) 193, 209 N.R. 81, J.E. 97-704, 185 N.B.R. (2d) 1, 113 C.C.C. (3d) 321, 5 C.R. (5th) 1, 42 C.R.R. (2d) 189, 33 W.C.B. (2d) 490; R. v. Taylor, [2008] N.S.J. No. 14, 2008 NSCA 5, 50 C.P.C. (6th) 23, 261 N.S.R. (2d) 247, 77 W.C.B. (2d) 296, 230 C.C.C. (3d) 504; R. v. Therens, 1985 CanLII 29 (SCC), [1985] 1 S.C.R. 613, [1985] S.C.J. No. 30, 18 D.L.R. (4th) 655, 59 N.R. 122, [1985] 4 W.W.R. 286, 38 Alta. L.R. (2d) 99, 40 Sask. R. 122, 18 C.C.C. (3d) 481, 45 C.R. (3d) 97, 13 C.R.R. 193, 32 M.V.R. 153, 14 W.C.B. 190; Waxman v. Waxman, 2004 CanLII 39040 (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201, 44 B.L.R. (3d) 165, 132 A.C.W.S. (3d) 1046 (C.A.) [page578] Statutes referred to Canadian Charter of Rights and Freedoms, ss. 8, 24(1), (2) Criminal Code, R.S.C. 1985, c. C-46, s. 380(1)(a) [as am.] Income Tax Act, R.S.C. 1985, c. 1, (5th Supp.), ss. 162(1), 163(2), 231, 231.1, 231.2, 239(1)(a), (d), 163(2) Authorities referred to Hogg, P., J. Magee and J. Li, Principles of Canadian Income Tax Law, 6th ed. (Toronto: Carswell, 2007)

Croft Michaelson, for appellant. Dean D. Paquette and Paola Konge, for respondent Thomas Steven Tiffin. F. Marc Holterman, in person.

The judgment was delivered by

LAFORME J.A.: -- Overview

[1] The respondents, Thomas Tiffin and F. Marc Holterman were the subjects of a complaint to the Royal Canadian Mounted Police ("RCMP"), which alleged that they had been involved in a complex scheme to defraud an American citizen of the sum of US$100,000 through a "high yield investment" scam. The RCMP decided not to pursue a criminal investigation and referred the matter to the Special Enforcement Program ("SEP"), a branch of the Canada Revenue Agency (the "CRA").

[2] After the evidence was gathered by the CRA, the respondents were charged with the offences of making false or deceptive statements in their tax returns, tax evasion and fraud. The Supreme Court of Canada, in the meantime, released its decision in R. v. Jarvis, 2002 SCC 73, [2002] 3 S.C.R. 757, [2002] S.C.J. No. 76, 169 C.C.C. (3d) 1, which holds that CRA officials must cease using their inspection and requirement powers once the predominant purpose of their inquiry shifts from the determination of tax liability to the determination of penal liability.

[3] At the outset of their trial, the respondents brought an application under s. 24(2) of the Canadian Charter of Rights and Freedoms to exclude all of the evidence gathered by the CRA. Relying on Jarvis, the respondents argued that the audit of Holterman had actually been a criminal investigation from the outset. In addition, they argued that the search warrants should be quashed on the basis that many of the statements contained in [page579] the Information to Obtain were derived from the improper use of the inspection and requirement powers, or were misleading.

[4] The trial judge held that the use of the inspection and requirement powers by the auditor violated s. 8 of the Charter. He also quashed the search warrants. And finally, he ordered the Crown to pay costs to Tiffin.

[5] The Crown appeals each aspect of the trial judge's decision. Background

[6] Tiffin and Holterman were business partners. Together, they ran a company called Nissi Financial Corporation ("Nissi") which was incorporated in Panama. Nissi's primary purpose appears to have been to engage various companies and individuals around the world in "high-yield investment" programs in which large-scale investments would be made through Nissi on the expectation of considerable financial gains down the road.

[7] In early 2000, the RCMP received a complaint about Tiffin and Holterman. Jeremy Sprague Sr., an American citizen, reported that Tiffin and Holterman had defrauded his deceased son of $100,000 as part of one of these high-yield investment programs. After concluding that there were insufficient grounds for a criminal investigation, the RCMP referred the case to the CRA because they thought the case might have tax implications.

[8] During the previous five years, Tiffin had been a non- filer and Holterman had reported only nominal amounts of income, ranging from a $6,000 loss to a gain of approximately $4,000. The file was directed to SEP. As of March 2000, Jorge Liviero was the auditor assigned to the file.

[9] Liviero worked covertly, inquiring into Tiffin and Holterman's financial affairs without contacting them directly. He drove by Holterman's house and inquired into the lease for a vehicle he saw parked there. He also used his inspection powers under s. 231 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "ITA") to request the production of numerous documents, including many documents from two banks regarding Holterman's financial transactions.

[10] Liviero issued five requests for information seeking the identity of the persons holding various accounts that were referred to on the bank documents. Liviero also contacted several parties with whom Tiffin and Holterman had done business. Several of those parties reported having paid significant sums to Holterman without having received any returns. One party told Liviero that he had sent US$348,000 to Holterman as part of a Nissi investment program and that he had been given numerous reasons for non-payment. [page580]

[11] After reviewing his findings, Liviero concluded that large sums of money had been deposited into Holterman's trust account and that this constituted unreported income. After consulting with his supervisor he terminated the audit, and in late-November 2001, referred the file to the CRA's Criminal Investigations unit, given the magnitude of the unreported sums, the possibility of additional unreported income and the possibility of fraud.

[12] The investigation was assigned to S. Andrew Fish. Over eight months, Fish contacted and spoke with numerous parties who were involved in business transactions with Tiffin, Holterman and Nissi. Notably, he found the following: -- Over the previous three years $150,000 had been deposited in Holterman's account from the trust account of David Hynes, another lawyer. As a result of this finding, Fish obtained records for Hynes' account. -- Tiffin proposed a high-yield investment program to a company called Family Enrichment Resources ("FER"). FER was to provide $2.4 million. When it was unable to provide those funds, it agreed to pay Tiffin $324,500 to reimburse him for financial penalties Tiffin claimed to have suffered as a result of the non-payment. -- An individual named Joan Lister had advanced $250,000 to Holterman and Tiffin eight years earlier on the promise that she would receive $30 million after a 40-week period. She said that $50,000 was immediately returned to her but that the remaining $200,000 was still outstanding.

[13] Fish concluded from his investigation that Holterman had unreported income from 1995-1999 of approximately $340,000 and that he had evaded taxes in the amount of approximately $80,000. Fish determined that Tiffin had unreported income of approximately $1.1 million for that period and that he had evaded taxes in the amount of approximately $310,000.

[14] Fish then swore an Information to Obtain, in which he summarized the results of his and Liviero's work. At trial, Fish agreed that the Information to Obtain contained some misstatements and omissions, including: -- Mentioning that Sprague had given Holterman $100,000 without mentioning other information suggesting that the $100,000 had been forfeited as a result of another participant's failure to keep his end of the bargain; [page581] -- Repeating a complaint by a third party that said that Holterman had $10 million in his trust account when Fish knew from reviewing Holterman's accounts that they never contained that much money; -- Stating that Lister had attempted to have the $250,000 she paid to Holterman and Tiffin returned to her without saying that $50,000 had been returned to her immediately; -- Failing to mention loans that Holterman had claimed on his tax return (which increased by approximately $95,000 from 1995-1999) and that, if legitimate, could have been a source of funds that reduced the amount of Holterman's unreported income.

[15] Tiffin and Holterman were charged with the offences of making false or deceptive statements in their tax returns and tax evasion, contrary to ss. 239(1)(a) and 239(1)(d) of the ITA, as well as the offence of fraud under s. 380(1)(a) of the Criminal Code, R.S.C. 1985, c. C-46. They were tried on an indictment before a judge of the Superior Court of Justice.

[16] After a lengthy hearing spanning some 20 days over a period of two and a half months, the trial judge found that the SEP auditor had commenced an investigation of Holterman "from the outset", and held that the use of the inspection and requirement powers by the SEP auditor violated s. 8 of the Charter. He quashed the search warrants, after excising from the Information to Obtain all information derived from the use of the inspection and requirement powers, and statements that he considered intentionally misleading.

[17] The trial judge then, in a somewhat brief ruling, stated that he had found that the CRA officials had engaged in "serious misconduct" and excluded the evidence. Finally, he ordered that the Crown pay costs to Tiffin in the amount of $160,000 plus GST. Issues

[18] The Crown raises three issues on this appeal. First, it argues that the trial judge erred in law in determining that the audit was a criminal investigation, and in concluding that the use of the inspection and requirement powers by Liviero violated s. 8 of the Charter. The Crown argues that his reasons for judgment fail to adequately explain how he reached his conclusion that the audit was actually an investigation, in the face of contradictory evidence and other findings of fact made by him. In sum, [page582] the Crown argues that his reasons do not allow for appellate review and are marred by significant legal errors.

[19] Second, the Crown concedes that, in light of Jarvis, the use of the s. 231 inspection and requirement powers by Fish violated s. 8 of the Charter. All information obtained by Fish through the Charter violation must, therefore, be excised from his Information to Obtain. The Crown also concedes that, once that information is excised, the grounds remaining are insufficient to justify issuance of the warrants. Accordingly, the Crown does not seek to uphold the warrants.

[20] Nevertheless, although the Crown does not seek to uphold the warrants, it submits that the trial judge erred in excluding evidence obtained as a result of those warrants. Indeed, the Crown contends that the trial judge erred in excluding the evidence gathered by both Liviero and Fish through the inspection and requirement powers under the ITA.

[21] Third, the Crown submits that the trial judge erred in awarding Tiffin his costs. It argues that costs are typically not awarded in criminal matters and are reserved for cases of serious abuse by the Crown. The trial judge here expressly stated that he found no fault with the prosecution.

[22] For the reasons that follow, I would dismiss the Crown's appeal in respect of issues one and two, but I would allow the appeal on issue three. Regarding issues one and two, I am satisfied that the reasons for decision of the trial judge do allow for meaningful appellate review. Moreover, the trial judge has not committed any error of law, and the Crown has not met its burden of demonstrating that he committed palpable and overriding error in his findings of fact.

[23] As for issue three, the trial judge erred in ordering the Crown to pay Tiffin's costs. As I will demonstrate, this was not an appropriate case for this extraordinary remedy. Analysis

[24] The Crown does not contend that the judgment was prejudicial, unreasonable, unsupported by the evidence, or that a substantial wrong or miscarriage of justice has occurred. Rather, it submits that the trial judge's reasons are inadequate and do not allow for proper appellate review, especially on whether or not he misdirected himself on the applicable law.

First issue -- The predominant purpose

[25] The Crown's arguments in respect of this issue can be broken down into two parts: first, that the reasons for judgment are [page583] insufficient and do not allow for appellate review; and second, that the trial judge's decision is marred by significant legal errors insofar as he misapplied the Jarvis factors. I will address each of these arguments in order.

(1) Sufficiency of reasons

[26] The Crown submits that the reasons of the trial judge are insufficient to permit an appellate court to exercise appellate review in a meaningful way. It argues that the reasons fail to provide an intelligible pathway through the evidence and explain how the trial judge reached a conclusion. I disagree.

[27] The test for sufficiency of reasons is now well established and is found in the reasons set out in R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, [2002] S.C.J. No. 30, 162 C.C.C. (3d) 298, where the Supreme Court of Canada found that the reasons of the trial judge were insufficient because they were so generic they could apply to any criminal law case. Simply put, that is not this case.

[28] The trial judge's reasons in this case do more than provide a "boiler plate" decision. Here the trial judge summarized the facts, set out the relevant law and applied the law to the facts. While his discussion applying the law to the facts is admittedly somewhat brief, it does not insulate the decision from appellate review. Indeed, the reasons here were considerably more thorough than those in Sheppard.

[29] To the extent the reasons are lacking, in my view, when those reasons are combined with the record they do allow for meaningful appellate review. The evidence here was straightforward and was neither confusing nor contradictory.

[30] Further regarding this issue, the Crown argues that the trial judge failed to adequately explain his conclusion that Liviero had conducted an investigation, which was outside of his mandate as an auditor. It refers to passages from the hearing to demonstrate the trial judge's confusion between the role of auditor and investigator, which the Crown alleges led him to reach an incorrect conclusion.

[31] Using a trial judge's utterances made during the hearing to interpret statements made in the decision is only helpful where there is ambiguity in the reasons for decision. The statements made and questions asked by a trial judge during the hearing should not, as a general rule, supplement the content of the trial judge's decision.

[32] In this case, the reasons for decision are clear and are capable of review without any need to refer to the trial judge's statements made during the hearing. They explain and apply the relevant factors set out in Jarvis. Moreover, the trial judge's 15 [page584] findings of fact show fairly clearly the basis of his determination that Liviero was not conducting an audit. I would dismiss this ground of appeal.

[33] The more troublesome issue for me in this appeal is the alleged misapplication by the trial judge of the legal principles from Jarvis.

(2) The Jarvis test

[34] The trial judge held that Liviero acted outside of his mandate as an auditor by conducting an investigation into the penal liability of Holterman. In doing so, the Crown asserts that the trial judge committed three errors: (i) he found that Liviero was acting as an agent for investigations; (ii) he suggested that the evidence Liviero gathered was relevant only to penal liability; and (iii) he determined that Liviero had conducted an investigation from the outset because he had reasonable grounds to believe that Holterman had not reported income. Once again I disagree.

[35] As I have already noted, in arriving at his conclusion the trial judge specifically referenced and then applied the factors set out in Jarvis to determine whether Liviero was conducting an investigation. In other words, the trial judge applied the law to the facts as he found them; consequently, his analysis was one of mixed fact and law. As the Supreme Court observed, at para. 100 of Jarvis:

Whether or not a given inquiry is auditorial or investigatory in nature is a question of mixed fact and law. It involves subjecting the facts of a case to a multi- factored legal standard and, accordingly, [the trial judge's] finding is not immune from appellate review. (Citations omitted)

[36] Thus, on appeal, as a matter of mixed fact and law, the Crown is required to demonstrate that the trial judge made a distinct legal error, or erred in his assessment of the evidence. A legal error, such as the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle is subject to a standard of correctness. Where the legal question cannot be separated from the facts, a trial judge's decision is subject to a more stringent standard; that is, the trial judge's interpretation of the evidence overall will not be overturned absent palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31.

[37] The Crown submits that the legal error in the trial judge's application of Jarvis is that he conflated the standard used to assess civil tax liability with the standard used to assess penal liability. The Crown argues that the trial judge believed that any kind of inquiry into a taxpayer's unreported income counts as an [page585] investigation; however, only inquiries into the taxpayer's mens rea for the purposes of establishing criminal guilt count as investigation. There are two difficulties with the Crown's submission.

[38] First, the Crown's reliance on the trial judge's statements made during the hearing is problematic and unpersuasive. Such statements do not -- as I have alluded to above -- supplement the content of the decision and they are not necessarily indicative of the trial judge's reasons. The reasons in the decision in this case are clear and speak for themselves.

[39] Second, there is nothing in the trial decision to suggest that he confused the distinct concepts of audit versus investigation and their respective counterparts of civil liability and criminal liability. The trial judge distinguished between these concepts throughout the judgment and never articulated the standard for assessing an investigation as any kind of inquiry into unreported income.

[40] The trial judge's treatment of these legal standards was correct and there is no reason to interfere with his conclusion on this basis.

[41] Having established that the trial judge did not make a legal error, I move on to consider whether he made an error of mixed fact and law. As this court specified in Waxman v. Waxman, 2004 CanLII 39040 (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201 (C.A.), at paras. 292, 296:

The "palpable and overriding" standard demands strong appellate deference . . . . . . . .

Examples of "palpable" factual errors include findings made in the complete absence of evidence, findings made in conflict with accepted evidence, findings based on a misapprehension of evidence and findings of fact drawn from primary facts that are the result of speculation rather than inference.

[42] In ascertaining whether the predominant purpose of a given inquiry is the determination of penal liability, Jarvis establishes that the trial judge in this case was required to assess the totality of circumstances and examine a number of factors, none of which are necessarily determinative on their own: Jarvis, supra, at paras. 93-94. The trial judge identified the issue before him as determining "whether or not an audit becomes an investigation". In deciding this question he described the approach he was taking [at para. 12]:

. . . it is necessary to make findings of fact based upon [Liviero's] testimony and all the other evidence in that regard. After having established the facts, I must consider the factors set out in Jarvis . . .

[43] The Crown, in my view, has failed to show any such error in the trial judge's interpretation of the evidence as a whole. [page586] While the Crown identifies its concerns with the trial judge's treatment of the factors in Jarvis, it has failed to meet its burden of proving a palpable and overriding error in the analysis.

[44] His approach, in my view, was correct. To demonstrate, I propose to briefly review the critical factors below as well as the Crown's objections to the trial judge's analysis.

(a) Was the general conduct consistent with a criminal investigation?

[45] The trial judge found that Liviero's belief that Holterman was involved in fraudulently obtaining moneys indicated that he was in pursuit of a criminal investigation. The Crown, relying on Jarvis, argues that just because an auditor may suspect that an offence has been committed does not convert an audit into an investigation.

[46] While the trial judge's finding of suspicion by Liviero on its own may not be sufficient to allow for the conclusion that he was conducting an investigation, combined with other evidence, the trial judge was entitled to use this finding in deciding whether the inquiry was an investigation. A brief review of some of the evidence upon which the trial judge could have relied will illustrate this.

[47] Based on the evidence at trial, the trial judge found subject get together". And, as a CRA witness testified, audits need to be "open and transparent". In this case, Liviero, over a period of almost two years, conducted his activities without once meeting with the subject, Holterman. Moreover, the evidence was that Liviero chose a covert approach, which was more characteristic of an investigation.

[48] Liviero's approach included driving by Holterman's residence, credit bureau checks, share searches, CPIC and PIRS [See Note 1 below] searches, court house attendances and third party interviews about fraud. Liviero himself admitted that what he was conducting was "considerably different" from the type of audit described to the public by CRA.

[49] Throughout the period that Liviero had the file, he referred to himself as a member of the Investigations Division. At times he referred to himself as a "SEP Auditor/Investigator" and at times as a "SEP Investigator". He never referred to himself as a "SEP Auditor" or as an "Auditor". [page587]

[50] Coupled with the evidence, the trial judge also considered the dishonesty of Liviero and 14 other findings and conclusions, which he relied on to decide this factor. In the end, the trial judge's reliance on Liviero's belief is not in conflict with the evidence, or made in the complete absence of evidence and so does not reveal a palpable and overriding error.

(b) Was the auditor acting as an agent with the investigator?

[51] The trial judge found that in the circumstances of this case, such as Liviero's close proximity to investigations, there was evidence that Liviero was acting as an agent of investigations. The Crown argues that the mere fact that Liviero's desk was near to Fish's desk does not mean that the former was acting as an agent of the latter.

[52] Once again, taken in isolation the Crown's argument might have more force. However, the trial judge clearly did not simply rely on proximity alone in reaching his decision. Indeed, the trial judge was careful to characterize their close proximity as just one example of why Liviero was collaborating with investigations.

[53] There was sufficient evidence upon which the trial judge could make this finding. It is not a palpable and overriding error to rely on their proximity as some evidence, when considered with other evidence, for finding one as the agent of the other.

(c) Is the evidence relevant to the taxpayer's civil liability or criminal guilt?

[54] The trial judge concluded that the evidence sought was relevant only to the taxpayer's penal liability. The Crown argues that this conclusion is inconsistent with the fact that Liviero initially sought to obtain, through the use of requirements, banking records relating to Holterman's accounts, which were relevant to the determination of Holterman's tax liability as evidence of unreported income. These banking records, the Crown says, were relevant in assessing both civil and penal liability, and so it cannot be said that Liviero only used them to inquire into the latter.

[55] It may be true that it is possible to view these banking records as relevant to the determination of both kinds of liability; however, the trial judge's experience with the evidence led him to believe that these records were sought strictly for the determination of criminal liability. He found "on the basis of the information contained in the Red Book that there was no information before Liviero to commence an audit of Holterman as a taxpayer". [page588]

[56] In my view, the trial judge, therefore, had some evidence to form the belief that the inquiry into the banking records was not for the purposes of conducting an audit. That is, he did not commit a palpable and overriding error in finding the evidence Liviero collected was intended for a determination of criminal guilt. The trial judge was entitled to make the finding he did.

(d) Are there other factors to suggest the audit was an investigation?

[57] The trial judge explained that the covert nature of Liviero's inquiry suggested that he was acting as an investigator and not an auditor. His conclusion is based on one of the exhibits, which describes an audit as a process of cooperation, openness and transparency between the auditor and the audited person. Given that Liviero's actions were anathema to the transparent process of the audit, the trial judge found that his actions did not reflect an audit.

[58] The Crown argues that the trial judge based his conclusion on neutral circumstances that could support either the conclusion that Liviero had conducted an audit or an investigation. More specifically, the Crown suggests that the covert nature of the operation does not necessarily render it an investigation because covert operations are wholly consistent with the character of an audit. Respectfully, this submission has no merit. It is not enough to show that the evidence relied upon is equivocal; rather, the Crown has the heavy burden of showing a palpable and overriding error in the trial judge's assessment, and in this case failed to show why it was a plain and obvious error to regard the conduct as an investigation.

[59] The trial judge, during 20 days of hearing, heard from a number of witnesses who specifically testified at length as to the difference between an audit and an investigation. Moreover, the core issue of the hearing was to decide this very fact. To submit that the trial judge, after having listened to this evidence, then conflated these concepts is unmerited. In my view, this is a case where the trial judge's interpretation and conclusions of the evidence -- all of which he was entitled to make -- are at complete odds with those of the Crown. This appeal appears to me to simply amount to an attempt to retry this case.

[60] In the end, the trial judge concluded that Liviero conducted an investigation instead of an audit. In doing so, he relied heavily on the covert nature of Liviero's operations, the fact that there was no information before Liviero to commence an audit of Holterman as a taxpayer, and Liviero's belief from the outset that Holterman was involved in fraudulent activity. [page589]

[61] Significantly, the trial judge also discredited Liviero as a witness: he found that Liviero told a "deliberate lie" to the court when he testified that he had conducted an audit. All of these pieces of evidence taken together support the trial judge's conclusion that Liviero had wrongfully conducted an investigation. In interpreting the evidence overall, the Crown has failed to show how the trial judge made a palpable and overriding error. I would not, therefore, interfere with his ruling.

Second issue -- Exclusion of the evidence

[62] Given my conclusion that it was open to the trial judge to find that Liviero's primary purpose was to investigate criminal behaviour, it becomes necessary to decide whether he erred in excluding the evidence under s. 24(2) of the Charter. In my view he did not.

[63] Section 24(2) of the Charter requires that in deciding whether or not evidence obtained through a breach of the Charter should be excluded at trial, a court is to determine whether, "having regard to all the circumstances, the admission of it in the proceedings would bring the administration of justice into disrepute". To determine disrepute a court weighs three factors: (i) the admission of the evidence on the fairness of the trial; (ii) the seriousness of the Charter violation; and (iii) the effect of excluding the evidence on the administration of justice (R. v. Collins, 1987 CanLII 84 (SCC), [1987] 1 S.C.R. 265, [1987] S.C.J. No. 15, 33 C.C.C. (3d) 1).

[64] This court will defer to a trial judge's ruling under s. 24(2) unless there is an identifiable error in principle, a material misapprehension of the evidence relevant to the ruling, or a clearly unreasonable conclusion. It is in these circumstances that this court may perform the s. 24(2) calculation afresh and determine the admissibility of the evidence: R. v. Harris (2007), 87 O.R. (3d) 214, [2007] O.J. No. 3185, 2007 ONCA 574, at para. 50.

[65] As I understand the Crown's submissions, it argues again that the trial judge's reasons fail to allow for meaningful appellate review of this issue because of their brevity. That is, because of the inadequacy of reasons, there is an inability to determine whether the trial judge properly applied the three Collins factors.

[66] In addition, while it is agreed that trial fairness is not at issue in this case since the evidence was non- conscriptive, the Crown argues that when the second and third branches of the Collins test are properly considered, the trial judge should have admitted all the evidence gathered by both Liviero and Fish. The Crown asserts that the trial judge erred in his analysis of the seriousness of the breach and in finding that Liviero and Fish did not act in good faith. [page590]

[67] Finally, the Crown argues that in all the circumstances of this case, it would not bring the administration of justice into disrepute to admit the evidence.

[68] I will examine each of these arguments in order.

(1) Sufficiency of reasons

[69] Once again, the trial judge's reasons for excluding the evidence under s. 24(2) are indeed very brief. And, it is true that he does not specifically allude to the Collins factors, nor does he specifically reference them in his reasons. Nevertheless, when his reasons are read in their entirety, it becomes abundantly clear why he ruled to exclude the evidence. And, in my view, he does not run afoul of the law in doing so and is, in this case, consistent with the Collins analysis.

[70] The essence of why he excluded the evidence can be found in the following passage from his reasons [at para. 42]:

In the circumstances of this case, I have found serious misconduct on the part of the [officials of the Crown]; to admit the evidence obtained by way of such conduct would bring the administration of justice into disrepute.

[71] After making his s. 24(2) decision, the trial judge added that there were "many more incidents of misconduct which I have not included in my reasons". In other words, the trial judge found the breaches of the Charter to be serious, and for that reason excluded the evidence. He was entitled to do so and his decision is not unreasonable.

[72] A strict mechanical application of the Collins analysis is not, in itself, fatal to a trial judge's decision on the exclusion or admission of evidence under s. 24(2). In fact, the jurisprudence and the wording of s. 24(2) support a flexible multi-factored approach, rather than strict adherence to any formula that may result in automatic exclusion of evidence: see R. v. Stillman, 1997 CanLII 384 (SCC), [1997] 1 S.C.R. 607, [1997] S.C.J. No. 34, 113 C.C.C. (3d) 321, at para. 234. Thus, the argument that a trial judge has not specifically followed the analysis or expressly considered the three enumerated Collins factors is not dispositive of the application of s. 24(2) by a trial judge.

[73] This takes me then to the trial judge's reason for excluding the evidence, namely, the seriousness of the breach. Because trial fairness is not an issue, I propose to examine his reasons and the record as they relate to factors two and three of the Collins analysis.

(2) Seriousness of the breach

[74] Under an analysis of the seriousness of the breach of state officials, a number of factors are engaged including whether the [page591] breach was committed in good or bad faith. As the Supreme Court of Canada observed in R. v. Therens, 1985 CanLII 29 (SCC), [1985] 1 S.C.R. 613, [1985] S.C.J. No. 30, 18 C.C.C. (3d) 481, at p. 652 S.C.R., p. 512 C.C.C., the seriousness of the conduct of state officials depends on "whether it was committed in good faith, or was inadvertent or of a merely technical nature, or whether it was deliberate, wilful or flagrant". Other factors include whether there was any urgency for the state officials to act in the manner that they did and the individual's expectation of privacy in the area searched: see R. v. Buhay, 2003 SCC 30, [2003] 1 S.C.R. 631, [2003] S.C.J. No. 30, 174 C.C.C. (3d) 97, at para. 52.

[75] After considering these three factors -- (i) whether Liviero and Fish acted in good faith; (ii) whether they acted under urgent circumstances; and (iii) whether Tiffin and Holterman had an expectation of privacy in the information obtained by Liviero -- I agree with the trial judge that the conduct of Liviero and Fish amounted to a serious breach.

[76] The Crown argues that Liviero and Fish were acting in good faith. It submits that since the policy of the CRA at the time was that requirements could be used to gather information up to the point that charges were laid, Liviero and Fish should not be deemed to have been acting in bad faith. It adds that the evidence at issue was gathered at a time when Jarvis had yet to be decided and the law concerning the ambit of the inspection and requirement powers under the ITA was uncertain.

[77] I disagree. I will refer to the findings of the trial judge that support his conclusion that both Liviero and Fish were not acting in good faith.

[78] First, the trial judge demonstrates Liviero's bad faith by pointing to his false testimony. The trial judge found that he knew he was conducting an investigation from the outset and "told a deliberate lie to the court" when he testified that he was conducting an audit. He found that Fish knew Liviero was conducting an audit from the outset and in this regard deliberately misled the justice who issued the search warrant. Indeed, the trial judge found that Fish's Information to Obtain regarding the search warrants contained "fraudulent, false and grossly misleading" information.

[79] I can find no basis upon which to interfere with the findings of the trial judge either as they relate to the level of conduct or the seriousness of the breach. They are supported by both the evidence and the record, and are findings which he was wholly entitled to make and to which he is owed deference. As this court recently reminded in R. v. Harrison (2008), 89 O.R. (3d) 161, [2008] O.J. No. 427, 2008 ONCA 85, trial judges are owed considerable deference in their decisions to include or exclude evidence [page592] under s. 24(2) of the Charter. As the majority decision explained in para. 33:

Trial judges are in this preferred position because they have more direct contact with the public and with the people involved in the criminal justice process than appellate judges. On a regular basis, trial judges sitting in criminal courts hear from victims, accused persons, witnesses, police officers, defence counsel and frontline prosecutors. They have an opportunity to observe firsthand the way the criminal justice system is functioning and are well positioned to make assessments about the broad range of issues on which appellate courts are required to show deference.

[80] Second, the Crown's reliance on the fact that Jarvis had yet to be decided at the time of the impugned conduct is of little assistance to any assertion of good faith. The Supreme Court of Canada granted leave to appeal Jarvis on May 17, 2001 and the companion case of R. v. Ling, 2002 SCC 74, [2002] 3 S.C.R. 814, [2002] S.C.J. No. 75 on June 14, 2001. Once leave to appeal was granted in both these cases, it had to have been known to CRA officials and the Department of Justice that serious constitutional issues concerning the propriety of using ss. 231.1 and 231.2 of the ITA in aid of a criminal investigation were under consideration by the Supreme Court of Canada. As Trotter J. noted on this same submission in R. v. Chen, [2007] O.J. No. 1572, 2007 ONCJ 177, at paras. 50, 58, "this warranted some caution in the use of Requirements in the interim, especially . . . when there appeared to have been no urgency".

[81] However, in this case, rather than exercise some caution the CRA continued to use requirements in aid of investigations into penal liability knowing that the constitutionality of s. 231.2 of the ITA was under consideration in the Supreme Court of Canada. There was no urgency that militated against an exercise of caution in these circumstances.

[82] As noted, the individual's expectation of privacy in the area searched affects the seriousness of the breach. In this case, while the privacy interest of Tiffin and Holterman is low, it is not non-existent and does not undermine the seriousness of the breach. Their privacy interest, even if reduced, was, as the trial judge found, unlawfully and intentionally violated by very serious misconduct.

[83] In the end, the trial judge found that both Liviero and Fish deliberately conducted an investigation into penal liability under the guise of conducting an audit. Their conduct in doing so included dishonesty, deliberate fabrication and a negligent understanding of their statutory authority. Given these findings, the trial judge was entitled to find that the s. 8 Charter breaches were serious. [page593]

(3) Effect on the administration of justice

[84] The trial judge in this case did not undertake a specific weighing of this factor, namely, the effect of excluding the evidence on the administration of justice. That being said, his reasons clearly demonstrate that he believed the conduct of Liviero and Fish was so egregious that it simply could not be condoned in any fashion. By way of illustration, as he was concluding his reasons, the trial judge observed:

There are many more incidents of misconduct which I have not included in my reasons. . . . If I was to add other instances of improper conduct, there would have been many pages in my ruling.

[85] Under this factor the issue for the court is whether the repute of the criminal justice system would be better served by admission or by exclusion of the evidence. In determining what is better for the reputation of the system of justice, courts take the perspective of a reasonable member of the community: Harrison, supra, at para. 49.

[86] At the third stage of the Collins test, courts consider: (i) the seriousness of the offence; (ii) the reliability of the evidence; and (iii) the importance of the evidence to the case (Harrison, supra, at para. 49). The trial judge in this case found that the seriousness of the breach required excluding the evidence. He did not mention the reliability or importance of the evidence being excluded; accordingly, it is open to this court to do so.

[87] In this case, the trial judge found continuous, repeated and deliberate Charter breaches by Liviero and Fish that demonstrate an unacceptably serious disregard for Tiffin and Holterman's Charter rights. In addition, the trial judge found that they compounded the Charter breaches by deliberately lying to the court. These are important considerations in deciding whether or not excluding evidence will tarnish the reputation of the administration of justice.

[88] In sum, both Liviero and Fish were found by the trial judge to have deliberately engaged in the conduct they did. He found they did so dishonestly and deceitfully, and in circumstances that were not urgent. And finally, they compounded all of this by being dishonest with the court. In light of this, the trial judge, in my view, was completely entitled to exclude the evidence because the repute of the criminal justice system would suffer more by admitting it.

[89] In all the circumstances of this case, I would defer to the trial judge's ruling under s. 24(2) of the Charter. The Crown has not identified any error in principle committed by the trial judge, nor has it satisfied me that the trial judge materially [page594] misapprehended the evidence relevant to his ruling. Finally, the Crown has failed to establish to my satisfaction that the trial judge's decision is clearly unreasonable.

Third issue -- Costs

[90] After the trial judge's ruling on the respondents' Charter breach application, they sought an order for costs pursuant to s. 24(1) of the Charter. The trial judge awarded no costs to Holterman, but awarded Tiffin the amount of $160,000 plus GST. His reasons, in their entirety, are:

And I am going to adopt the pragmatic approach on material filed, because if has become clear to me that is fair and just under the circumstances. If the bill is to be taxed that will take a considerable length of time before a hearing will take place.

Secondly, that will incur unnecessary costs, not only to the Crown which will have to pay them, but to the parties, as well.

Using that pragmatic approach, I award costs to you, Mr. Tiffin, in the amount of $160,000 plus G.S.T.

[91] The Crown argues that the trial judge erred in ordering it to pay costs in the absence of any oppressive or abusive misconduct attributable to the prosecution. I agree with the Crown.

[92] Tiffin and Holterman argue that an award of costs under s. 24(1), where an individual claims costs because of a breach of his or her Charter rights, goes beyond the traditional rule that requires Crown misconduct. They rely on the comments of this court in R. v. Ciarniello (2006), 2006 CanLII 29633 (ON CA), 81 O.R. (3d) 561, [2006] O.J. No. 3444, 211 C.C.C. (3d) 540 (C.A.), at para. 36:

[T]he expanded jurisdiction to award costs against the Crown as a s. 24(1) remedy for a Charter breach in cases not involving Crown misconduct requires something that is "rare" or "unique" that "must at least result in something akin to an extreme hardship on the defendant". (Citations omitted)

[93] They submit that the rare or unique circumstances of this case result in something akin to an extreme hardship on the respondent.

[94] In circumstances of a criminal prosecution there are essentially two instances when costs may be awarded: (i) in cases of misconduct by the Crown; and (ii) in other exceptional circumstances where "fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation": R. v. Garcia, 2005 CanLII 4831 (ON CA), [2005] O.J. No. 732, 194 C.C.C. (3d) 361 (C.A.), at para. 13; R. v. Taylor, [2008] N.S.J. No. 14, 2008 NSCA 5, at para. 54. [page595]

[95] While the term "exceptional circumstances" has not been specifically defined, it requires more than a case of general importance, or that a person has suffered losses for which he or she is not responsible: Canada (Attorney General) v. Foster, 2006 CanLII 38732 (ON CA), [2006] O.J. No. 4608, 215 C.C.C. (3d) 59 (C.A.), at para. 63. As this court noted at para. 69 in Foster, it is the court's inherent power to protect against abuse of process that underlies the definition of exceptional circumstances.

[96] And finally, costs orders will not be made against the Crown for the misconduct of other parties, such as witnesses or investigative agencies, unless the Crown has participated in the misconduct. Where some other party has engaged in misconduct, the appropriate remedy is a civil claim for damages: see R. v. LeBlanc, 1999 NSCA 170, [1999] N.S.J. No. 179 (C.A.).

[97] However, "[b]ecause of their constitutional status, Charter rights have a higher claim to judicial protection than non-Charter rights and s. 24(1) entitles the victim of a Charter breach to an appropriate remedy": Ciarniello, supra, at para. 35. There is no question that, in the correct circumstances, costs may be an appropriate remedy under s. 24(1). Even then, "such awards, at a minimum, [are restricted] to circumstances of a marked and unacceptable departure from the reasonable standards expected of the prosecution": see R. v. 974649 Ontario Inc., 2001 SCC 81, [2001] 3 S.C.R. 575, [2001] S.C.J. No. 79, 159 C.C.C. (3d) 321, at para. 87.

[98] Costs, however, will not be routinely ordered in favour of accused persons whose Charter rights have been violated. In my view, the jurisdiction to award costs against the Crown as a s. 24(1) remedy for a Charter breach in cases not involving Crown misconduct requires something that is "rare" or "unique" that "must at least result in something akin to an extreme hardship on the defendant". As a general rule, costs claimed by an accused, absent Crown misconduct, will not be an "appropriate and just" Charter remedy: see Ciarniello, supra, at para. 36; R. v. Hallstone Products Ltd., [2000] O.J. No. 1051, [2000] O.T.C. 22 (S.C.J.), at para. 33.

[99] The respondents rely on Ciarniello to say that their case is rare, or that it consists of unique circumstances that result in something akin to an extreme hardship on them. Respectfully, Ciarniello does not assist the respondents. While their case does involve a serious Charter breach, it does not involve the unusual set of circumstances that occurred in Ciarniello.

[100] In Ciarniello the appellant was not the target of the police investigation nor was he charged with any offence. This court found a number of features in Ciarniello "that distinguished it from the usual situation where costs are not available absent [page596] Crown misconduct". All the unique features found distinguished between the situation of a bystander -- which the appellant was in that case -- and an accused person. Here, of course, the respondents were each accused of criminal offences.

[101] Criminal proceedings in this case were brought in the usual course and in the public interest. There was nothing unusual about the criminal proceedings, including the respondents' successful Charter challenge. There was no misconduct, as the trial judge recognized, that was attributable to the Crown, nor did it contribute to any misconduct. This is not a case that is "rare" or "unique", nor does it result in anything akin to an extreme hardship on the respondents.

[102] I would grant leave to appeal the issue of costs and allow this ground of appeal.

Fourth issue -- Holterman's motions

[103] Before concluding, I will address the matter of three motions filed by Holterman on this appeal. Essentially, these motions were: (i) to quash the appeal for non-perfection; (ii) to adduce fresh evidence; and (iii) to allege fraud and prejudice on the part of the Crown. For the following brief reasons I would deny the relief sought in each of them.

[104] First, on April 10, 2007, Moldaver J.A. dismissed the motion to quash the appeal as abandoned by Holterman. Thus, this issue has already been dealt with. Second, most, if not all, the evidence Holterman advances could have been entered into evidence by him during the trial. The "new" evidence, in my view, fails to meet the Palmer criteria: R. v. Palmer, 1979 CanLII 8 (SCC), [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 50 C.C.C. (2d) 193. And finally, Holterman's allegations of fraud and prejudice were effectively addressed in Moldaver J.A.'s ruling on April 10, 2007. Disposition

[105] It is my conclusion that the trial judge did not err when he decided that the audit was a criminal investigation, the use of the inspection and requirement powers by Liviero violated s. 8 of the Charter, and the evidence gathered by both Liviero and Fish through the inspection and requirement powers under the ITA was inadmissible. I am, however, of the opinion that the trial judge was in error in ordering the Crown to pay Tiffin's costs.

[106] Accordingly, I would dismiss the Crown's appeal in respect of issues one and two, but I would grant leave to appeal, allow the appeal on issue three and set aside the order of costs against the Crown. [page597]

JURIANSZ J.A.:

[107] I have read the reasons of my colleague LaForme J.A. but would reach a different result. My disagreement relates to the trial judge's findings respecting the information gathered by the Canada Revenue Agency (the "CRA") official Jorge Liviero.

[108] I agree that the reasons of the trial judge are sufficient to permit appellate review in a meaningful way. I agree this court should defer to the trial judge's decision to exclude the information gathered by CRA official S. Andy Fish. I agree that the motions filed by F. Marc Holterman should be dismissed. Finally, I agree that the trial judge erred by awarding costs to the respondent Thomas Tiffin.

[109] LaForme J.A. would defer to the trial judge's conclusion that the auditor Liviero had "from the outset" conducted an investigation into the penal liability of Holterman. Determining when an inquiry made by the CRA has evolved from a regulatory audit to a penal investigation is largely fact driven and is based on an assessment of the totality of all the circumstances and context. The trial judge is obviously best positioned to make the assessment, and, in the absence of legal error, his conclusion is deserving of deference. My colleague has persuasively set out this view.

[110] I regard the case differently. In my view, the trial judge failed to properly apply the test set out in R. v. Jarvis, 2002 SCC 73, [2002] 3 S.C.R. 757, [2002] S.C.J. No. 76. By applying the wrong test, he erred in law.

[111] I also take a different view of the degree of deference required. The Supreme Court stated that finding whether the purpose of a given inquiry is the investigation of penal liability is not immune from appellate review because it involves subjecting the facts of the case to a multi-factored legal standard. In Jarvis, the Supreme Court departed from the to the scope of audit inquiries.

[112] Adopting and applying the correct test and the Supreme Court's broad approach to the scope of audit inquiries, I would hold the record provides no support for the finding that the predominant purpose of the inquiries Liviero made was the investigation of penal liability. Therefore, I would find that the information obtained by Liviero was admissible at trial.

[113] If I am incorrect and Liviero's inquiries did breach the respondents' Canadian Charter of Rights and Freedoms rights, I would find that the trial judge erred by excluding the information that Liviero obtained under s. 24(2) of the Charter.

[114] I find it unnecessary to review the facts as they are succinctly set out in the reasons of LaForme J.A. [page598]

The Rationale for Broad Requirement Powers in the Income Tax Act

[115] In Jarvis, the Supreme Court considered at what point information collected under the inspection powers under ss. 231.1(1) and 231.2(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "ITA") could no longer be used for a criminal prosecution. It is unnecessary to set out these lengthy provisions. They provide the CRA with extensive powers to audit taxpayers' returns and inspect all relevant records. They also impose on taxpayers the reciprocal obligation to maintain and produce books and records. I refer to these powers as "the inspection and requirement powers".

[116] It is settled law that the CRA's use of the inspection and requirement powers to compel taxpayers to provide evidence for the purpose of enforcing regulatory compliance of the ITA does not violate the Charter's guarantee against self- incrimination. As well, to enforce regulatory compliance, the CRA may use those powers to collect information from third- party sources without warrant without offending the taxpayer's right to a fair trial. Information collected under the inspection and requirement powers for regulatory purposes may be used in a subsequent criminal prosecution if one eventually takes place.

[117] Before Jarvis, the Supreme Court recognized that the broad inspection and requirement powers are indispensable to Canada's tax system, which is based on self-assessment and self-reporting. Governments need tax revenues to operate and to provide facilities, services and programs to the public. The ITA is "essentially a regulatory statute", "essentially of an administrative nature": R. v. McKinlay Transport Ltd., 1990 CanLII 137 (SCC), [1990] 1 S.C.R. 627, [1990] S.C.J. No. 25, at pp. 641 and 650 S.C.R.

[118] The Supreme Court did not retreat from its classification of the ITA as essentially a regulatory statute in Jarvis. The court rejected the submission that the ITA was a "dual-purpose statute". The court stated, at para. 62, "In sum, the ITA is a regulatory statute, but non-compliance with its mandatory provisions can in some cases lead to criminal charges being laid." The Supreme Court also reiterated its view that the broad inspection and requirement powers are necessary to achieve the important statutory objective of raising tax revenues for public purposes.

The Predominant Purpose Test in Jarvis

[119] In Jarvis, the Supreme Court provided the test for determining when a taxpayer can claim Charter protection during scrutiny by CRA officials. Taxpayers are protected by the Charter [page599] when the predominant purpose of an official's inquiry is the determination of penal liability. There are two significant aspects of this test that the trial judge failed to appreciate.

[120] First, the words "predominant purpose" are key to the proper application of the test. The trial judge understood his task as deciding whether Liviero was "investigating" or "auditing". The test, however, does not depend on what word best describes the inquiry, but rather on the purpose of the inquiry. What matters is whether the predominant purpose of the inquiry is to further criminal prosecution.

[121] In Jarvis, the Supreme Court did talk about the distinction between an audit and an investigation. However, it used these words as labels to differentiate between an inquiry related to taxpayer civil liability and an inquiry to determine penal liability. As the trial judge noted, auditors and investigators do many of the same things. At para. 87 of Jarvis, the Supreme Court itself speaks of an "investigation" into tax liability. Nevertheless, focusing on the labels "audit" and "investigation" without keeping in mind the "predominant purpose" of the inquiry confuses the proper

[122] The trial judge did use the words "predominant purpose" once in his conclusions. He found that the predominant purpose of a particular inquiry that Liviero made was criminal investigation. I will explain later why that single finding cannot stand.

[123] The second significant aspect of the test is that it is not a matter of choosing between two evenly balanced alternatives: whether the predominant purpose of the inquiry is penal investigation or whether the predominant purpose of the inquiry is regulatory enforcement. The test is one-sided. The task is to determine whether the predominant purpose of the inquiry is the determination of penal liability of the taxpayer. The Supreme Court articulated the test in this way repeatedly (paras. 2, 88, 93, 96, 98):

While taxpayers are statutorily bound to co-operate with CCRA auditors for tax assessment purposes (which may result in the application of regulatory penalties), there is an adversarial relationship that crystallizes between the taxpayer and the tax officials when the predominant purpose of an official's inquiry is the determination of penal liability. . . . . .

[W]here the predominant purpose of a particular inquiry is the determination of penal liability, CCRA officials must relinquish the authority to use the inspection and requirement powers . . . . . . . .

In our opinion, the following list of factors will assist in ascertaining whether the predominant purpose of an inquiry is the determination of penal liability. [page600] . . . . .

[W]hen the predominant purpose of a question or inquiry is the determination of penal liability, the "full panoply" of Charter rights are engaged for the taxpayer's protection. . . . CCRA officials conducting inquiries, the predominant purpose of which is the determination of penal liability, do not have the benefit of the ss. 231.1(1) and 231.2(1) requirement powers. . . . . .

In summary, wherever the predominant purpose of an inquiry or question is the determination of penal liability, criminal investigatory techniques must be used. As a corollary, all Charter protections that are relevant in the criminal context must apply.

[124] The result of structuring the test in this way is that the CRA is entitled to use the inspection and requirement powers of the ITA until the finding is made that the predominant purpose of the inquiry is to establish the criminal guilt of the taxpayer.

[125] Moreover, a trial judge should resolve any uncertainty in favour of CRA's continued recourse to the inspection and requirement powers. It must be apparent that the predominant purpose is criminal investigation before the Charter is engaged. The Supreme Court said, at para. 99 of Jarvis:

When, in light of all relevant circumstances, it is apparent that CCRA officials are not engaged in the verification of tax liability, but are engaged in the determination of penal liability under s. 239, the adversarial relationship between the state and the individual exists. As a result, Charter protections are engaged.

[126] I understand from this comment that if the matter is at all uncertain, one cannot conclude the CRA's statutory right to use the powers has been displaced. Put another way, taxpayers are protected by the Charter when it is apparent the investigation of criminal tax offences is underway.

[127] In my view, the Supreme Court has carefully structured the test to give effect to its observation at para. 90 that "The state interest in prosecuting those who wilfully evade their taxes is of great importance, and we should be careful to avoid rendering nugatory the state's ability to investigate and obtain evidence of these offences."

[128] I would conclude that the trial judge erred by not applying the correct test. The trial judge completed his analysis with the conclusion: "In the end, I am satisfied, on a balance of probabilities that Liviero commenced an investigation from the outset and that his use of requirements to obtain information on the bank records constitute a breach of Holterman's rights under Sec. 8 of the Charter." When read in the context of his reasons, this passage indicates that the trial judge was satisfied the test was met [page601] merely by characterizing Liviero's behaviour as "investigating" without maintaining a steady focus on the "predominant purpose" of his inquiries.

Overlapping Content of Regulatory and Criminal Tax Offences

[129] Determining whether the predominant purpose of an inquiry is the investigation of penal liability is not an easy task because much of the information sought for audit inquiries and for criminal investigations under the ITA is the same. A comparison of the civil and penal offences created by the ITA illustrates this. Subsection 163(2) creates the civil offence of filing a false statement in a tax return. Subsection 239(1) (a) creates an equivalent penal offence.

[130] As can be seen, these two provisions of the ITA are close cousins. The proscribed conduct is defined by the same language. Both apply to the act of making a false statement in a tax return. The use of the word "knowingly" in s. 163(2) makes relevant the mental state of the regulatory offence, just as the implicit mens rea in s. 239(1) (a) is relevant to the penal offence.

[QL:GRAPHIC NAME="90OR3d575-1.jpg"/]

[131] By contrast, the criminal offence created by s. 238(1) of the ITA for failing to file a return is a strict liability offence that has no element of intention (see Peter Hogg, Joanne Magee and Jinyan Li, Principles of Canadian Income Tax Law, 6th ed. (Toronto: Carswell, 2007), at 567-68). As such, it is equivalent to the civil provision for failing to file a return provided by s. 162(1) of the ITA. I compare these two sections below.

[QL:GRAPHIC NAME="90OR3d575-2.jpg"/]

[page602]

[132] Examination of these four provisions demonstrates the considerable overlap in the elements of the civil and criminal offences created by the ITA. It follows that inquiries into whether the elements of the regulatory offences are established would be relevant to criminal culpability as well. The evidence to sustain the criminal charges of tax evasion and fraud would encompass the evidence required for the regulatory offence of filing a false return under s. 163(2).

[133] Given the overlapping content of the regulatory and penal tax offences and the common evidence necessary to both, CRA has discretion to decide whether to proceed against the taxpayer civilly or criminally. The Supreme Court addressed the existence of this discretion when it said, at para. 89:

In this regard, courts must guard against creating procedural shackles on regulatory officials; it would be undesirable to "force the regulatory hand" by removing the possibility of seeking the lesser administrative penalties on every occasion in which reasonable grounds existed of more culpable conduct.

[134] The existence of discretion adds a layer of complexity to the task of applying the Jarvis test. The discretion may be exercised on the basis of the amount of unpaid tax involved, rather than on whether the information being collected bears on the elements of the criminal tax offences. The purpose of an inquiry depends in some measure on the subjective intent of the CRA official making it.

[135] The fact that the CRA inquiry seeks information that is technically relevant to a criminal charge is not enough to conclude that the predominant purpose of the inquiry, at the time it is made, is the investigation of criminal liability.

The Jarvis Factors

[136] The court provided a list of factors for the trial judge to consider in applying the test (para. 94). These factors are not the test itself. They are merely intended to assist the trial judge with the analysis. The test remains determining if the predominant purpose of the inquiry is to establish the criminal guilt of the taxpayer. Unless that is so, the Charter will not be engaged and the inspection and requirement powers may be used to collect information.

[137] The factors are [at para. 94]: (a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made? (b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation? [page603] (c) Had the auditor transferred his or her files and materials to the investigators? (d) Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators? (e) Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence? (f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea, is the evidence relevant only to the taxpayer's penal liability? (g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation? [Emphasis in original]

[138] The last factor, factor (g), is open-ended and allows the trial judge to consider any special circumstances that might be relevant. This case has a special circumstance that seems to have permeated the trial judge's analysis -- the RCMP referral of its criminal investigation file to the CRA. For this reason, I start with factor (g) to determine whether the predominant purpose of Liviero's inquiries was to establish Holterman's criminal guilt of a tax offence.

Factor (g) -- Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

[139] The RCMP investigated the respondents for suspected criminal fraud of a commercial nature involving investors. After deciding not to proceed with a prosecution, the RCMP referred the matter to the CRA. The referral was made pursuant to an arrangement between the RCMP and the CRA regarding illicit wealth amassed by suspected criminals.

[140] The RCMP and the CRA formalized this arrangement in a document entitled "Working Arrangements Between the Department of National Revenue and the RCMP". The Working Arrangements provide that where the RCMP has identified and investigated persons involved in suspected illegal activity, but has determined specific criminal charges cannot be laid, it may refer information to the CRA. The referral includes details of the suspected criminal activity and information and documents regarding the criminal suspects' lifestyles, assets and liabilities, and business associates.

[141] The Working Arrangements contemplate carrying out audits towards assessment and reassessment as well as investigating and developing cases for prosecution for tax evasion. On the civil side, it speaks of "getting non filers to file tax returns, [page604] statements of assets and liabilities, and carrying through with prosecutions for non- filing and/or noncompliance where warranted". One goal is maximization of "the actual collection of taxes, penalties and interest".

[142] As the trial judge found, there is nothing improper in the RCMP referring information to the CRA. The undermining of suspected criminal activity by taxing it may well be regarded as a modern enforcement technique not to be discouraged.

[143] The CRA set up a special unit to receive the referrals from the RCMP That unit is the Special Enforcement Program ("SEP"). Liviero worked in the SEP. He received the referral from the RCMP and acted on it. After gathering information using the inspection and requirement powers, he referred the file to the Criminal Investigations Program ("Criminal Investigations") where it was assigned to Fish.

[144] The trial judge evidently considered the contextual setting of the case important as he commented on it repeatedly. He set out Liviero's testimony that "every file that's assigned to me within SEP, that's the reason why it's there, because there is either proven or believed possible involvement in criminal activity". He stated that Liviero was motivated to act, in part, because of the allegations of fraud in the RCMP referral, which he accepted as true. He also said that "Liviero believed from the outset that Holterman was involved in fraudulently obtaining monies and that he commenced investigating Holterman as the person who fraudulently deprived Jerome Sprague's son of the $100,000." He remarked that "Liviero was aware at the outset that a 'scam' was alleged and when he referred the file to investigations, his referral was in respect of an allegation of fraud." The trial judge found as a fact "that Liviero commenced an investigation because Liviero believed that Holterman was involved in fraud transactions wherein he received monies that he failed to report as income".

[145] These observations all relate to Liviero's suspicion that the respondents were engaged in criminal activity other than criminal tax offences. The RCMP abandoned its investigation of the suspected commercial fraud. That investigation was never resurrected. Liviero was not concerned with and never occupied himself with the suspicions the RCMP had relating to Tiffin and Holterman's involvement in defrauding investors. Rather, his assignment was to audit Holterman for unreported income and, in so doing, he sought further information about Tiffin given his business connection to Holterman.

[146] This file, like every file referred under the Working Arrangements, involved either proven or believed possible [page605] involvement in some sort of criminal activity. Quite naturally, Liviero was aware that Holterman was alleged to be involved in a scam. Specifically, he knew the RCMP suspected Holterman of defrauding Jerome Sprague's son of $100,000. Yes, Liviero was motivated to act because of the RCMP's allegations of commercial fraud. After gathering information, Liviero did indeed refer the file to Criminal Investigations in respect of an allegation of fraud, but that was a fraud on the Canadian public by the evasion of taxes and not the commercial fraud against private investors that the RCMP initially suspected.

[147] The trial judge's observations about Liviero's suspicions of Holterman's criminal activity, while true, do not assist the analysis. The question is whether the predominant purpose of Liviero's use of the inspection and requirement powers was the gathering of information for a criminal prosecution of the respondents for tax related offences. The RCMP referral, with its allegations of other criminal activity, is not germane to that question.

[148] In any event, the Supreme Court has made clear that the suspicion of criminal activity is not enough to support the conclusion that the predominant purpose of inquiries is criminal investigation. The court said, at para. 90 of Jarvis:

Auditors may, during the course of their inspections, suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case that, from the moment such suspicion is formed, an investigation has begun. On what evidence could investigators ever obtain a search warrant if the whiff of suspicion were enough to freeze auditorial fact-finding?

[149] The context makes clear that the Supreme Court is addressing suspicion of "taxpayer wrongdoing". Suspicion of commercial fraud, in this context, is even more remote.

[150] As I see it, the RCMP referral of its criminal investigation file to Liviero provides no reason to infer the predominant purpose of Liviero's inquiries was the investigation of Holterman's penal liability.

Factor (a) -- Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

[151] The trial judge in this case found that "the authorities did not have reasonable grounds to lay charges and it did not appear from the record that a decision to proceed with a criminal investigation could have been made" (para. 14 (16(a))).

[152] I agree. [page606]

Factor (b) -- Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

[153] The trial judge found that Liviero pursued a criminal investigation from the moment he received the file from the RCMP. In applying factor (b), the trial judge placed pivotal weight on the fact that Liviero commenced collecting information from third-party sources without contacting the appellants. He concluded that "the hallmark of an audit is that the auditor and the subject get together".

[154] The trial judge based his finding on a Web page from the CRA website that the appellants had relied upon in argument, and on a dictionary definition of "audit". The CRA Web page stated "[o]ur audit process involves establishing a relationship based on co-operation, openness, and transparency -- key factors in ensuring an efficient audit". The appellants' counsel used this document to submit that unless the auditor contacted the taxpayer at the outset and worked openly and cooperatively with the taxpayer, the process was not an audit but an investigation. The dictionary defined audit as "an official inspection of an organization's accounts typically by an independent body".

[155] As explained above in the discussion of the Jarvis test, the question is not whether the manner in which the CRA official's conduct is best described by the word "audit" or by the word "investigation". An examination of the Supreme Court's characterization of the auditor's conduct in Jarvis demonstrates that covertness, surreptition and subterfuge designed to inculpate the taxpayer are acceptable conduct in the regulatory enforcement of the ITA. Despite what was said on the CRA webpage, which was not adopted by any witness, CRA officials do not have to establish a cooperative, transparent and open relationship with taxpayers in the regulatory enforcement of the ITA. This is especially true for CRA officials working in the SEP who are inquiring into the unreported income of suspected criminals. The test for all CRA officials is whether the predominant purpose of their inquiry is the determination of the penal liability of the taxpayer. An examination of the facts in Jarvis makes this clear.

[156] In Jarvis, early in 1994 the tax department received an anonymous letter suggesting that Mr. Jarvis had failed to report substantial income in the 1990 and 1991 taxation years by selling his deceased wife's art. An auditor began to look into the matter on February 16, 1994. While she immediately sent him a letter notifying him that an audit was in progress, she began to make inquiries before hearing from him. In fact, she deliberately did [page607] not return his telephone calls when he tried to reach her. She began to use the inspection and requirement powers to obtain information from third-party sources without "getting together" with the taxpayer. Unbeknownst to Mr. Jarvis, she obtained purchase invoices and cancelled cheques from nine art galleries that showed he had significant revenues in 1990 and 1991. By comparing that information with his tax returns she had already concluded that the anonymous complaint had some validity before she spoke to him directly.

[157] When the auditor reached this conclusion, one could say she had a reasoned suspicion that Mr. Jarvis had committed the criminal offence of making a false statement on his tax return contrary to s. 239(1)(a) of the ITA. The auditor, however, continued making inquiries relating to the regulatory offence of knowingly making a false statement on a tax return under s. 163(2).

[158] The auditor telephoned Mr. Jarvis to arrange to meet him. During the call, she did not disclose the information she had already obtained, and asked him questions. Mr. Jarvis provided inculpating answers.

[159] On April 11, the auditor met with Mr. Jarvis at his home accompanied by her supervisor. She misled him about the supervisor's identity. She did not caution Mr. Jarvis as to his rights. She made extensive inquiries about his art sales, again without disclosing that she had already confirmed his actual revenues with information obtained from the art galleries. Mr. Jarvis did not initially disclose the existence of a bank account the auditor knew about. He acknowledged it when she asked about it. She had him sign a bank authorization for the account and had him produce other documentation that would help show he had unreported income.

[160] It is difficult to conceive how the auditor would have pursued a criminal investigation any differently. Nevertheless, the Supreme Court found the purpose of the auditor's inquiries leading up to and at the April 11 meeting was to establish civil tax liability. The Supreme Court noted the auditor's conduct appeared deceptive and that she did mislead Mr. Jarvis and his accountant on several occasions. Nevertheless, "she did not use misleading tactics in order to obtain information under ss. 231.1(1) and 231.2(1) for the purpose of advancing an investigation into penal liability" (para. 101, emphasis in original). The Supreme Court even noted that, at the April 11 meeting, the auditor was seeking to confirm her suspicion that tax evasion may have occurred, but found her goal in making her inquiries was to determine whether to refer the file to Special Investigations. The court said "[t]here is no suggestion that she was seeking information to be used in an eventual prosecution" (para. 103). [page608]

[161] Indisputably, the Jarvis auditor did not establish a relationship with the taxpayer based on cooperation, openness and transparency. Moreover, she collected a great deal of information from third-party sources before she "got together" with the taxpayer.

[162] In my view, the trial judge in this case addressed the wrong question. The trial judge considered whether Liviero comported himself as an "auditor", rather than focusing on whether the predominant purpose of his inquiries was the determination of penal liability.

[163] Nothing that Liviero did approached the level of surreptitious inquiry of third-party sources made by the auditor in the Jarvis case, the incriminating interview style she used, or her active deception of Mr. Jarvis as to whether he was being investigated. Liviero simply went about collecting information that helped show the respondent's income was considerably higher than reported. There is no evidence that he was seeking information to be used in an eventual prosecution of penal tax offences.

[164] Factor (b), as I understand it in the context of the Jarvis judgment as a whole, addresses whether the general conduct of the authorities is consistent with the pursuit of a criminal investigation and inconsistent with an audit relating to regulatory enforcement. I would find there was no evidence to support a finding that factor (b) was satisfied.

Factor (c) -- Had the auditor transferred his or her files and materials to the investigators?

[165] After assessing the information he had obtained using the inspection and requirement powers, Liviero, in consultation with his supervisor, decided that the audit should be terminated and the matter referred to Criminal Investigations. Liviero transferred his file to Criminal Investigations on November 27, 2001.

[166] In my view, Jarvis indicates that when the file is formally transferred for criminal investigation is crucial in determining whether the predominant purpose of the inquiry is penal liability. The transfer clearly indicates a subjective intent that a criminal investigation begin. Nevertheless, the Supreme Court explained that even the formal transfer to Criminal Investigations may not be enough. After all, the file could be sent back, and if so, the court must consider whether the investigators genuinely declined to take up the case, or if they sent the file back for the auditor to obtain further evidence for the prosecution of criminal offences.

[167] In Jarvis, the auditor did not transfer her files to Criminal Investigations until after she had received much information [page609] from third-party sources and from Mr. Jarvis himself. She continued making inquiries long after suspecting tax evasion, and as noted above, she made inquiries seeking to confirm that suspicion. It was only after she had calculated there was a discrepancy of some $700,000 between his earned and reported income over the two taxation years that she decided not to complete the audit and instead, on May 4, 1994, referred her entire file to the Special Investigations Section of Revenue Canada. I infer it was the amount of the unreported income that explains the CRA's decision to criminally prosecute Mr. Jarvis, rather than the evidence available to establish the elements of the criminal offences. This is a matter of discretion.

[168] The Supreme Court decided that the penal investigation did not begin until May 4, 1994, when the file was so referred. In Jarvis, of all the factors, factor (c) was given controlling weight.

[169] In this case, there is no evidence that Liviero delayed transferring the files for criminal investigation of penal tax liability in order to further use the audit powers to obtain information for criminal prosecution. I would attach great weight to the date on which Liviero transferred his file in determining when the investigation of penal liability began.

Factor (d) -- Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

[170] In this case the trial judge found that "the proximity to each other of all the employees in SEP and investigations" established that Liviero was acting as an agent for the investigators. The Supreme Court's reasoning in Jarvis makes evident that the mere proximity of the auditor to the investigator in the CRA office space is insufficient reason to find the auditor acted as an agent for the investigators.

[171] In Jarvis, the auditor met with the investigator for one or two hours after referring the file, and a few times after that to clarify information. When the auditor concealed from Mr. Jarvis that she had referred his file for criminal investigation, she acted in part on the advice of the criminal investigator "to stall". The investigator did not want Mr. Jarvis to discover his file had been referred. The auditor reported her communications with Mr. Jarvis to the investigator.

[172] The Supreme Court found the auditor did not effectively act as the investigator's agent. The Supreme Court said that there was no evidence that the investigator "ever instructed or requested [the auditor], under the guise of an audit, to obtain further information from or about the appellant" (para. 24). [page610]

[173] Jarvis demonstrates that even if the auditor communicates with the investigator about the content of the audit file and goes so far as to consult with the investigator about CRA's relationship with the taxpayer, there is still not enough to constitute the auditor an agent of the investigator. An auditor will only be deemed an agent of the investigator if the auditor uses the inspection and requirement powers to obtain information for the investigation of criminal tax offences.

[174] The proximity of SEP's office space to that of Criminal Investigations cannot establish that Liviero acted as an agent for the criminal investigator, Fish. The trial judge alluded to, but did not identify, other circumstances that indicated Liviero acted as an agent for the investigators. The record, however, does not show anything in Liviero's contact and relationship with the investigators that was remotely similar to what existed in the Jarvis case. I would find that Liviero did not act as an agent of the investigators.

Factor (e) -- Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

[175] The trial judge found the investigators did not intend to use the auditor as the agent of the collection of evidence.

[176] This is the correct finding on the evidence.

Factor (f) -- Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea, is the evidence relevant only to the taxpayer's penal liability?

[177] In my reasons above, I found that the trial judge erred by deciding whether Liviero's inquiries were an "audit" or an "investigation". The trial judge made only a single finding relating to the "predominant purpose" of Liviero's inquiries. He said at para. 14(14) of his reasons:

I find, as a fact, that when the first requirements were issued by Liviero on March 23, 2000 to the Toronto-Dominion and the Royal Bank of Canada, that the purpose of the issuances as his covering letter indicates, was "to pursue the determination of the existence, and, as applicable, the source, application and reporting of alleged unreported income," i.e. that the predominant purpose of the requirements was the determination of penal liability.

[178] There is no support in the record for this finding.

[179] Undeniably, the inquiries were relevant to the prosecution of the criminal tax offences with which the respondents were eventually charged. However, at the time the requirements were issued, the inquiries "to pursue the determination of the existence, and, as applicable, the source, application and reporting of alleged [page611] unreported income" were also indispensable to the determination of the elements of the civil offence under s. 163(2). Whether Holterman had received moneys that he failed to report as income was the apt subject of a regulatory inquiry. The trial judge did not explain why he saw the predominant purpose of the requirements issued at this time to be the determination of penal liability rather than civil liability.

[180] The trial judge's error is that he did not pay heed to the word "only" in factor (f). Factor (f) addresses whether the evidence sought is relevant "only to the taxpayer's penal liability". It is not enough that the inquiry seeks evidence that could be seen as relevant to penal liability when it is clearly relevant to civil liability as well.

[181] It would gut the broad inspection and requirement powers to reason that an inquiry is predominantly penal as soon as an inquiry seeks information that could be in a penal prosecution. Such reasoning would prevent any use of the inspection and requirement powers without warrant because the elements of the criminal tax offences always encompass the elements of the regulatory tax offences. One must keep in mind that the ITA is essentially a regulatory statute and the broad inspection and requirement powers are valuable regulatory tools.

[182] There was no evidence in the record on which it could be found that Liviero's use of the inspection and requirement powers related "only" to the determination of penal liability.

[183] Before concluding, I am frankly perplexed by the trial judge's finding there was no information before Liviero to commence an audit of Holterman as a taxpayer. The finding seems at odds with his finding that Liviero commenced a criminal investigation because he believed that Holterman was involved in fraud transactions wherein he received moneys that he failed to report as income. While not standardless, much less is needed to commence a tax audit than a criminal investigation. In any event, whether Liviero had a sufficient basis to conduct a tax audit was not before the trial judge. The fact is that Liviero used the broad inspection and requirement powers to determine whether Holterman failed to report income. The question the trial judge had to decide was whether Liviero did so for the predominant purpose of investigating penal liability as opposed to regulatory tax liability.

Conclusion

[184] I would conclude that none of the Jarvis factors support the inference that the predominant purpose of Liviero's inquiries was the investigation of Holterman's penal liability. Rather, those inquiries were of a regulatory nature directed to "the determination [page612] of the existence, and, as applicable, the source, application and reporting of alleged unreported income". The goal was to collect tax from suspected criminals. When Liviero concluded that criminal charges under the ITA were appropriate, he referred the file to the Criminal Investigations branch of the CRA. At that point, the predominant purpose of the further inquiries made by the CRA was directed to penal prosecution.

[185] I would set aside the trial judge's finding that the information Liviero obtained using the inspection and requirement powers of the ITA constituted a breach of Holterman's rights under s. 8 of the Charter. That information should not have been excluded.

Section 24(2)

[186] If I am wrong and Liviero's inquiries did infringe Holterman's rights under s. 8 of the Charter, I would not defer to the trial judge's finding that the evidence he obtained should be excluded under s. 24(2).

[187] The evidence is not conscriptive and there is no issue of trial fairness. The respondents had little or no expectation of privacy in the documents given the broad inspection and requirements the CRA possessed under the ITA. The reliability of the evidence is undoubted, and it was indispensable to the prosecution.

[188] The serious misconduct of Liviero consisted principally of deliberately lying to the court. What the trial judge described as a deliberate lie by Liviero, I would characterize as a difference of opinion on a question of mixed fact and law. Liviero had testified he had conducted an audit, whereas the court found he had conducted an investigation. It was the court's different determination on that complex question that provided the basis for concluding Liviero's testimony was false. I consider that the trial judge erred in principle by viewing Liviero's testimony as serious misconduct. I would find that the information obtained by Liviero should not be excluded under s. 24(2).

[189] The trial judge found that Fish also misled the issuing justice by testifying that Liviero conducted an audit and not an investigation. Again, I would not view this as serious misconduct. However, the trial judge also indicated that Fish had failed to make full and frank disclosure in the Information to Obtain that he swore. The Crown concedes this. I would defer to the trial judge's decision to exclude the information obtained by Fish.

Conclusion

[190] In my view, the trial judge's analysis and conclusion was driven by the fact that Liviero suspected Holterman was engaged [page613] in criminal activity from the very outset. There is nothing that sets this case apart from any RCMP referral to the CRA under the Working Arrangements. Upholding the trial judge's decision would enfeeble the Working Arrangements between the RCMP and the CRA. Upon receiving the information of the taxpayer's suspected criminal activity from the RCMP, CRA officials would not be permitted to use the broad inspection and requirement powers to make inquiries into such taxpayers' unreported income. Taxpayers who the RCMP had investigated for criminal activity would in a better position than taxpayers not suspected of any criminal activity. The trial judge failed to appreciate that the CRA may pursue regulatory enforcement of the ITA against suspected criminals just as it can against ordinary taxpayers. There is no reason why the CRA cannot tailor the way it proceeds with regulatory enforcement depending on the taxpayer involved and the nature and source of suspected unreported income. Only when it is apparent that the predominant purpose of the CRA's inquiries is criminal investigation that the Charter is engaged.

[191] I would allow the appeal, set aside the trial judge's findings related to Liviero's inquiries, dismiss the application to exclude the information Liviero obtained from being introduced at trial, and remit the matter to the Superior Court for a new trial before a different judge. At the new trial the information obtained by Liviero will be admissible, but the information obtained by Fish using the requirement powers and pursuant to the search warrants will be excluded.

MAC[C1]PHERSON J.A.:

[192] I have had the opportunity to consider the draft reasons of my colleagues, Juriansz J.A. and LaForme J.A. I would dispose of the issues in the appeal in the following fashion.

Issue 1 -- Charter, Section 8

[193] I agree with LaForme J.A. that the trial judge's reasons meet the sufficiency standard enunciated in R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, [2002] S.C.J. No. 30, 162 C.C.C. (3d) 298.

[194] I agree with LaForme J.A., and with the Crown's concession, that Fish's use of the inspection and requirement powers in s. 231 of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), violated s. 8 of the Canadian Charter of Rights and Freedoms, and that the warrants that flowed from the exercise of these powers should not be upheld.

[195] I agree with Juriansz J.A. that the information obtained by Liviero did not violate s. 8 of the Charter. [page614]

Issue 2 -- Charter, Section 24(2)

[196] I agree with LaForme J.A. that the trial judge's reasons meet the sufficiency standard enunciated in Sheppard.

[197] If, contrary to my conclusion above, Liviero's conduct violated s. 8 of the Charter, I would agree with LaForme J.A.'s conclusion to uphold the trial judge's decision to exclude the evidence obtained by Liviero. I would do so principally for reasons of deference: see LaForme J.A., at para. 79, and R. v. Harrison (2008), 89 O.R. (3d) 161, [2008] O.J. No. 427, 2008 ONCA 85.

Issue 3 -- Costs to Tiffin

[198] I agree with LaForme J.A. that the trial judge erred by awarding costs to Tiffin.

Issue 4

[199] I agree with LaForme J.A. that Holterman's motions should be dismissed.

Disposition

[200] I would allow the appeal, set aside the acquittals, and order a new trial at which the information obtained by Fish and Liviero would be treated in accordance with these reasons.

Appeal allowed in part; new trial ordered.

Notes

Note 1: For reference, CPIC is the Canadian Police Information Centre and PIRS is the Police Information Retrieval System.