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R. v. Dial Drug Stores Ltd. Between Her Majesty the Queen, and Dial Drug Stores Limited and Ronald Cowell [2001] O.J. No. 159 Brantford Court File No. 95-3100 Ontario Court of Justice Lenz J. January 18, 2001. (186 paras.)
Counsel:
¶ 1 LENZ J.:— The accused before the court, Dial Drug Stores Limited and Ronald Cowell as an officer, director or agent of Dial Drug Stores Limited, and the defendant Ronald Cowell personally, stand charged with a number of offences under the Income Tax Act by intentionally failing to report income totally $215,918.49 and thereby evading income tax in the amount of $56,197.18 for the years 1990, 1991, 1992 and 1993. Additionally, Dial Drug Stores Limited and Ronald Cowell as an officer, director or agent are charged with making false or deceptive Income Tax Returns for the years 1990, 1991, 1992 and 1993. ¶ 2 Mr. Cowell personally is charged with failing to report income totalling $228,104.61 and thereby evading Federal income taxes in the amount of $72,028.87 throughout the years 1990, 1991, 1992 and 1993, and then is also charged personally with making a false or deceptive statement in his T-1 Return for the taxation years 1990, 1991, 1992 and 1993. ¶ 3 All of these charges relate largely to an alleged failure on the part of Mr. Cowell or his corporations to report rebate income being paid by two large generic drug manufacturers, Novapharm and Apotex/Medichem. The Trial ¶ 4 The information in respect of these alleged offences was sworn November 3rd, 1995 and a first appearance was made November 21st, 1995. From November 21st, 1995 up to and including January 21st, 1997, the defendant through his counsel made continuing demands for disclosure. Not satisfied with the nature of disclosure he was receiving, a formal application was brought before the court January 21st, 1997 for disclosure before the intended trial judge and disclosure was ordered, despite the protestations of Revenue Canada over third party taxpayer privacy issues. I have subsequently determined that that objection was spurious and an excuse for nondisclosure. ¶ 5 By way of example, I recollect the occasion when exhibit "GG", a memo from Mr. Freeman to Mr. Payne directing an audit, came to be produced and Revenue Canada objected on the basis that the letter contained the names of other taxpayers. It took me approximately 5 minutes to razor those names of the other taxpayers in respect of a document which was indeed vital to certain defence positions in respect of special investigations directing compliance audits. ¶ 6 After dates which were scheduled to monitor ongoing disclosure by Revenue Canada, this matter was eventually set for trial for a scheduled three days on September 22nd, 23rd and 24th of 1997. ¶ 7 The trial commenced on September 22nd with an 11(b) application for a stay based on the issue of trial within a reasonable time. I dealt with that matter at the commencement of the hearing and have re-read my reasons. What transpired in the trial afterwards demonstrates the wisdom of waiting until the end of a trial before making a ruling in respect of 11(b). My reasons indicate in respect of denying the stay that I viewed this matter as largely a "paper case" in which deteriorating memories would not be a concern and, should a memory require prompting, that the documents could be used to prompt a memory of a witness. ¶ 8 I found throughout the trial that that was not the case. The recollection of one John Mark Freeman, the special investigation agent with Revenue Canada, as it related to a meeting with Mr. Payne, a compliance auditor, turned out to be of substantial importance. Unfortunately, Mr. Freeman had no recollection of the meeting and, although Mr. Payne could recollect a meeting or meetings, could not recollect the content thereof. ¶ 9 The belief that memories could be refreshed by documents became unlikely, bearing in mind the practice of Mr. Freeman and many others within Revenue Canada, not to take notes or, alternatively, to destroy notes following other related investigations. ¶ 10 By the end of the trial I had also come to the unfortunate conclusion that disclosure by Revenue Canada was, at times non existent, and always grudging and delayed. On some occasions it was downright fraudulent, as in the "Sanitized Tax Operation Manual Disclosure". In respect of my reasons I attributed a great deal of the delay to neutral time requirements for disclosure which now appear to be not so neutral. ¶ 11 In any event, the trial ultimately commenced on the 23rd and 24th of September, 1997; it was continued December 1st, 2nd, 3rd and 4th of 1997 and again on June 16th, 17th, 18th and 19th of 1998. ¶ 12 Following that it was continued again on March 4th and 5th, 1999 and September 9th and 10th, 1999 when the calling of evidence ceased. Because of the length of the trial written submissions were ordered and the matter set over to the 10th and 11th of February, 2000 for oral submissions. Oral submissions could not be completed on those days and were completed June 9th, 2000 with judgment being rendered the 18th of January, 2001. ¶ 13 That is a period of 21 days over 4 years for a trial that was scheduled for 3 days. As a result, there has been a seriously bifurcated trial which is definitely not in the interest of the defendant or the administration of justice. ¶ 14 If I had known that the course of the trial would have been such that I would end up giving judgment 5 years and more after the information was sworn, in retrospect, I would probably have permitted a stay on the basis of 11(b). ¶ 15 The trial was conducted upon arrangement between counsel for the Crown and counsel for the defence so that the Crown would call its case in total during which the defence would cross-examine both in regards to constitutional issues and at large. ¶ 16 Documents were to be filed in the ordinary course consistent with the witness who was testifying, but defence was given the opportunity of objecting to those he would exclude on constitutional basis with the "court so noting". ¶ 17 Following the close of the Crown's case, defence was then given an opportunity to call evidence in support of its constitutional issues and it was agreed that thereafter the constitutional arguments would be heard, determined and, if necessary, the trial would proceed from that point with the hearing of defence evidence as it related to the substantive offences. The Background of the Fraud ¶ 18 The personal defendant is a pharmacist in the City of Brantford. He owns all the shares of and is the director of Cowell Pharmacy Limited which in turn holds all of the shares of Dial Drugs Limited. Dial Drugs Limited at the time of the offences operated 7 pharmacies in the City of Brantford. Cowell Pharmacy Limited employed the personal defendant, Ronald Cowell, paying him a substantial yearly management fee. ¶ 19 Novapharm and Apotex/Medichem are large generic drug manufacturers in the Province of Ontario. They are in direct competition with one another in respect of the sale of generic drugs to pharmacies. There would also appear to be some personal animosity as between the owners. ¶ 20 In order to maintain their client base both Novapharm and Apotex/Medichem pay volume rebates to certain good customers. The rebates are a percentage of the volume of drugs purchased and the percentage can change up and down depending upon competition. ¶ 21 Prior to 1985 the amounts of the rebates were clearly indicated upon the invoices rendered to the pharmacist. However, in 1985 or thereabouts the Province of Ontario, who administer and pay for drug plans in respect of those who are social assistance, introduced a policy known as the Best Available Price. Pharmacists who were dispensing to those on government plans were obliged to dispense a drug with the best available price. ¶ 22 It became, therefore, disadvantageous to the generic drug manufacturers to continue to show the rebates on the invoices as that would in effect decrease the best available price, thereby decreasing the generic drug manufacturers margin of profit. The generic drug manufacturers wished to continue the rebate practice to maintain their share of the market, but wished not to attract the attention of the government of the Province of Ontario as it related to the actual cost after rebate of their drugs. ¶ 23 The management of Novapharm and Apotex/Medichem made conscious decision in the late 1980's to pass rebates to pharmacists in a more secretive manner. ¶ 24 It was admitted that whether the monies were referred to as education allowances, distribution allowances or advertisement allowances, the monies being returned to pharmacists were all based on the volume of sale, being a percentage thereof. ¶ 25 Apotex went so far as to incorporate a corporation known as Medichem for the purpose of paying rebates. Fortunately, or unfortunately, both generic drug manufacturers kept track of the payments and for tax purposes showed the payments as an expense of sale. ¶ 26 Volume rebates were also paid by way of travel vouchers or were distributed in kind by way of expensive stereo systems and other benefits. ¶ 27 Mr. Cowell, in his personal capacity and in his capacity as a director and shareholder of the limited companies, decided to take advantage of the secrecy in respect of the rebates. He directed the generic drug manufacturers to continue to distribute the rebates in the manner which he directed so that they remained undisclosed to Revenue Canada. ¶ 28 More precisely, he arranged primarily with Apotex and Medichem to have his rebates paid in American dollars, never in excess of $5,000.00, directly into his personal account in banks in the State of Florida in a community where he owned a number of condominiums. ¶ 29 Additionally, he directed some payments to merchants in the State of Florida (a body garage and a jewellers) in payment for services rendered or articles purchased. He continued to receive such funds in 1990, 1991, 1992, 1993 and 1994. ¶ 30 There was some pretence that these payments were for standby rent of Mr. Cowell's condominiums, something apparently suggested by Mr. Cowell to a Mr. Winegarden of Apotex. ¶ 31 It is fair to say that I have not yet had the opportunity of hearing from Mr. Cowell by way of testimony in the trial proper, but based on all of the evidence produced by the Crown, including the documents whose admission is in dispute, there is in my mind little or no question that the rebates being paid in American dollars into an American account belonging to Mr. Cowell, were not being reported as part of his personal income or as part of the corporate income of Cowell Pharmacy Limited or Dial Drugs Limited. The Issues ¶ 32 Counsel for the Crown and counsel for the defence made it clear from the beginning of the trial that the major issues involved were constitutional in nature, involving breaches of 11(b) rights (trial within a reasonable time); s. 8 rights (the right to be free of unlawful search and seizure); s. 7 rights (including the right to remain silent); and 10(b) rights (the right upon detention to be able to consult with counsel). ¶ 33 This led to the manner in which the trial was conducted, as previously described, and ultimately on an omnibus application for stay based on all of the alleged Charter breaches. It is upon that application which the court will rule today. The Facts and Chronology of the Investigation ¶ 34 As always in matters of constitutional argument, the onus rests upon the applicant to establish Charter breaches on a balance of probabilities. The bulk of the finding of facts following hereupon, however, I am convinced of beyond a reasonable doubt. When I am not so convinced I will indicate that I am only convinced on a balance of probabilities. ¶ 35 This investigation actually had its beginnings in June of 1991 when John Mark Freeman, a special investigator in Kitchener, was doing pharmacy investigations in Kitchener. Those investigations involved primarily the failure on the part of pharmacists to report prescriptions filled when paid in cash. It was during the audit for that investigation and the prosecution that Freeman began to find unusual cheques from generic drug manufacturers payable to the pharmacist's children, as well as trips and stereo equipment given to pharmacists, but paid for by generic drug manufacturers. ¶ 36 June 29th, 1993 a memo drafted by Mr. Freeman on behalf of Mr. Eberleigh, head of special investigations in Kitchener, was sent to "Head Office" in Ottawa recommending a national program in regards to pharmacist rebates. Throughout June and August of 1993 memos went back and forth from Mr. Freeman to Ottawa in regards to such a national project, one of the memos referring to the national project by number. ¶ 37 In or about September or October of 1993, Mr. Freeman went as far as attempting to obtain income tax documents and filings for the two major generic drug manufacturers, only to find that coincidentally a compliance audit was ongoing in respect of both generic drug manufacturers. ¶ 38 Upon this realization Mr. Freeman simply requested that the compliance auditors who were presently auditing the generic drug manufacturers search for, recover and send to him documentation in regards to volume rebate. It is also apparent that Freeman himself attended at the offices of the generic drug manufacturers in an attempt to obtain, himself, documentation in respect of rebates and in addition thereto contacted directly one of the salespersons who serviced the Cowell account for Novapharm. ¶ 39 In October or November 1993, Mr. Freeman met with Novapharm executives in order to secure their "cooperation" and ultimately there was a request from the executive management of the generic drug manufacturer that Mr. Freeman cease his attendance at the company. ¶ 40 In October of 1993 Mr. Freeman, of special investigations, sent memos to the compliance auditors who were doing compliance audits with the generic drug manufacturers that all documentation they discovered in respect of rebates should be sent to the head offices in Kitchener, St. Catharines and Hamilton (Hamilton being in charge of the Brantford area). ¶ 41 It is apparent on all of the evidence that a substantial number of documents in respect of rebates as they relate to Mr. Cowell were in the hands of Mr. Freeman by October of 1993 and from October of 1993 to June of 1994, pursuant to the direction of Mr. Freeman and the widening of the scope of the investigation in respect of rebates, documents continued to be directed by compliance auditors involved in a compliance audit of generic drug manufacturers to Mr. Freeman at his Kitchener office and thence to other investigators. ¶ 42 It is my frank opinion that had these rebate documents been discovered coincidentally by compliance auditors and directed to special investigations, that no constitutional arguments could arise. ¶ 43 It is equally clear, however, that from the very start of this investigation the issue of volume rebates to pharmacists was being investigated by special investigations (who ultimately thought it must have been a form of evasion) and that the tool of a regulatory compliance audit was being used to further a special investigations project. In fact it is obvious that Mr. Freeman of special investigations was in fact directing auditors engaged in a compliance audit to seek out and deliver documents which were to be used in tax evasion prosecution, specifically a tax evasion prosecution in respect of pharmacists and, specifically, Mr. Cowell and the limited companies which he controlled. ¶ 44 One need only review exhibit "J", an external Revenue Canada memorandum dated June 14th, 1993 and Tax Operating Manual paragraph 1142.2(3) and Tax Operating Manual paragraph 11(10)1.1(1)(d) to realize that the procedure being followed by Mr. Freeman was contrary to Revenue Canada policy. ¶ 45 Revenue Canada was aware and had communicated to its special investigators that the criminal aspect of the administration of the Income Tax Act must conform with the Charter of Rights and Freedoms; that special investigation staff should not put themselves in a position of directing a compliance audit for the purpose of gathering information for a search warrant; that an investigator is a person in authority whose primary function is to pursue criminal prosecutions of individuals involved in income tax offences and that an auditor, acting as an agent of an investigator, will inherit the same responsibilities as the investigators and that in interviewing either the taxpayer or his agent and specifically accountants, that an investigator should identify himself as such. ¶ 46 The memorandum of June 14th, 1993 was followed up with a separate memorandum dated January 11th, 1994 and entered as exhibit "K" to this proceeding, reiterating the need to give a criminal warning when seeking evidence as part of the investigative process. ¶ 47 It is equally obvious that Investigator Freeman knew the nature of this problem as he had received a commendation for the preparation of a check list for compliance auditors when fraud was suspected. ¶ 48 Despite the clear and obvious policy and warnings of Revenue Canada and his own knowledge of the impropriety of directing a compliance audit for investigative purposes, Mr. Freeman continued to do so. More than that, it is obvious from exhibits "OO" and "PP" filed that his immediate superior in special investigations in Kitchener, Mr. Eberleigh, encouraged the practice. These exhibits are internal notes of meetings held December 3rd and December 7th, 1993, in regards to the manner in which pharmacy rebate investigations should be carried on. ¶ 49 It is apparent that those present, including Mr. Freeman, considered the possibility of judicial preauthorization by way of a John Doe Warrant as it relates to third parties holding information and that they chose not to do so, but rather to go on relying upon the generic drug manufacturers who, of course, themselves were under a compliance audit. The "Compliance Audit" of Ron Cowell and Cowell Pharmacies ¶ 50 November 25th, 1993, Mr. Freeman of special investigations met with Art Payne. At that time Mr. Payne was a compliance auditor in respect of underground economy, but for 15 of his prior 21 years with Revenue Canada had been a special investigator. There are no minutes or notes of this meeting and in fact Mr. Freeman has no recollection of such meeting. Mr. Payne has a recollection of meeting with Mr. Freeman, but no recollection of the subject of the meeting. I am convinced on a balance of probabilities that this meeting was conducted by Mr. Freeman to brief Mr. Payne in respect of the rebate investigation as it relates to Ron Cowell and Cowell Pharmacies. I do not think it coincidental that Mr. Payne, usually a special investigator, was used for the upcoming "Compliance Audit". ¶ 51 On November 26th, 1993, Mr. Payne spent the day reviewing documents he had received from Mr. Freeman including requisitions for cheques and cheques obtained from generic drug manufacturers as it relates to rebates to Cowell and Cowell Pharmacies Limited. ¶ 52 On December 1st, 1993, Mr. Payne met with the RCMP in regards to other parallel pharmacy investigations. ¶ 53 On December 9th, 1993, Mr. Payne received further pharmacy rebate material from Mr. Freeman including cheques or copies thereof which had been obtained from generic drug manufacturers and matched to the volume rebate requisitions. ¶ 54 On December 29th, 1993, Mr. Payne met with a Mr. Grundy who had previously been the compliance auditor in regards to Mr. Cowell and Cowell Pharmacy. ¶ 55 On January 4th, 1994, Mr. Payne received material as it related to pharmacies which were being targeted by Mr. Freeman. ¶ 56 On January 12th, 1994, Mr. Payne met again with Freeman in a meeting, the contents of which neither can recollect nor, unfortunately, made note. ¶ 57 I am convinced on the balance of probabilities, bearing in mind the chronology, that the meeting on January 12th, 1994 between Special Investigator Freeman and Mr. Payne involved the upcoming attendance of Mr. Payne on the accountants of Mr. Cowell and the corporate defendants. ¶ 58 January 19th and 20th, 1994, Mr. Payne spent the bulk of his time with Mr. Szaks, an employee of Collins, Barrows who were the accountants for Mr. Cowell and the corporate defendant. Mr. Payne was given a desk and a photocopier in the office of Collins, Barrows and access to all the records of Ron Cowell and the corporate defendants. ¶ 59 The explanation for his attendance provided by Mr. Payne was that he had noticed an article in the newspaper in regards to the sale of the 7 pharmacies operated by Mr. Cowell and the corporate defendant and that he wished to continue the compliance audit in regards to the corporate shareholders loan accounts. ¶ 60 Based on that information and the fact that Revenue Canada could compel the disclosure in regards to a compliance audit, Ronald White, Mr. Cowell's accountant and the accountant of the corporate defendant, directed their employee, Mr. Szaks, to continue to provide documents and answer questions. ¶ 61 Mr. Payne spent January 21st, 1994 with Mr. Szaks obtaining information and on January 26th, 1994 left a query for Mr. Szaks, a common practice of compliance auditors in obtaining additional information required for the audit. In addition thereto Mr. Payne spoke with Mr. Cowell who provided information. ¶ 62 More importantly, it is conceded by Mr. Payne that he was not in the least bit interested in the shareholders loan account. Mr. Payne attended upon Mr. Cowell and his accountants for the purposes of determining whether or not the volume rebates from the generic drug manufacturers were being included as income by Mr. Cowell by Mr. Cowell or the corporate defendants, which they were not. In addition Mr. Payne acknowledges that he received information in regards to the computer system at Cowell Pharmacy, the volumes of sale, bank information, including the numbers of bank accounts and the location where records were kept, all of which subsequently turned out to be extremely useful in regards to a search. ¶ 63 Mr. Payne, in addition thereto, located and made observations of the Cowell residence which was also subsequently the object of a search. ¶ 64 At no time did Mr. Payne disclose to Mr. Cowell, his accountant or his accountant's employees the true nature of his audit; that he was acting as an agent for special investigations (which he most assuredly was); that he was investigating a tax evasion as opposed to a non compliance; nor did he at any time identify himself as an agent of special investigations nor warn the accused of the right to remain silent nor the right to consult with counsel. ¶ 65 In short, I am convinced that Mr. Payne misidentified himself, misidentified his mission and lied to the taxpayer in regards to his purpose for attendance. ¶ 66 In late January of 1994, Mr. Payne made a referral to Mr. MacFarlane, the head of Hamilton office, as it related to a likely tax fraud by Mr. Cowell and the corporate defendants. The referral was complete with photocopies of cheques payable by Medichem and calculations of tax evaded as a result of materials obtained January 19th, 20th and 21st, 1994. ¶ 67 On January 27th, 1994, in a memo from Payne to MacFarlane, Mr. Payne went so far as to advise of the nature of required future investigation including foreign banking and, in fact, inquired of Mr. MacFarlane as to how far he (Mr. Payne) should go with this matter. ¶ 68 Despite the fact that Mr. Payne had fulfilled his obligations as a compliance auditor and made a reference to special investigations and despite the fact that by the end of March it is deemed that the matter referred has been taken up by special investigations as an investigation, Mr. Payne, as auditor, continued to obtain and forward information. ¶ 69 On January 31st, 1994, he met and discussed the file with Mr. MacFarlane. ¶ 70 On February 24th, 1994, he requested further documentation from the compliance auditors responsible for the Novapharm audit in respect of Mr. Cowell. ¶ 71 On March 2nd, 1994, he contacted the compliance auditor in respect of Apotex seeking more documents from the generic drug manufacturer as it related to Mr. Cowell. ¶ 72 On April 6th, 1994, he in fact sent a memo to Mr. MacFarlane changing his calculated figure on tax evaded as a result of further information that he had obtained from other sources. ¶ 73 I have come to the regrettable conclusion that from November 25th, 1993 to January 26th, 1994, Mr. Payne was acting under the direction of Mr. Freeman, assisting Mr. Freeman in obtaining needed information to continue with the investigation of Mr. Cowell and the corporate defendant for tax evasion; that he lied to the taxpayer in order to gain access to documentation and, following referral to Mr. MacFarlane, continued to gather information as an agent for special investigations to bolster what was clearly an upcoming prosecution for tax evasion. DeLeon Investigation ¶ 74 In the early spring of 1994, Mr. MacFarlane assigned the Cowell file to Mr. DeLeon as lead investigator. Mr. DeLeon was a special investigator responsible for issues of income tax evasion and fraud. Mr. DeLeon's recollection is that the file was turned over to him sometime in June of 1994. ¶ 75 Mr. DeLeon, who I found to be an honest witness and one who was used to give the impression that this matter arose from a compliance audit of Ron Cowell and Cowell Pharmacies, admitted that the bulk of the investigation was complete when he was assigned this matter; that the bulk of the information had come from Mr. Freeman via Mr. Payne; from Mr. Payne as a result of his audit of January 19th, 20th and 21st, 1994 and from the compliance audits of the generic drug manufacturers. ¶ 76 Following the assignment of the investigation, but prior to the ultimate search, Mr. DeLeon had occasion to speak to Mr. Freeman in regards to the issue of volume rebates; to Mr. Payne in regards to his audits and the statements he had received from generic drug manufacturers and to the compliance auditors in respect of the generic drug company audits, all of which interviews arose from information contained in Mr. Payne's lead file and was largely simply confirmatory of information already on hand. ¶ 77 By October 14th, 1994, Mr. DeLeon had come to the conclusion that the Cowell matter was deserving of prosecution. ¶ 78 On October 28th, 1994, he received from Collins, Barrow a voluntary disclosure in respect of unpaid taxes and undisclosed income in respect of Mr. Cowell and the corporate defendant. ¶ 79 On November 7th, 1994, with the assistance of a precedent prepared by Mr. Freeman, Mr. DeLeon prepared the information in support of a search warrant. It is clear, from reviewing this information, that the bulk of the information in support of a request for a search warrant came from Mr. Freeman and Mr. Payne and without their information no search warrant was likely to be granted. ¶ 80 On November 9th, 1994, search warrants were obtained and searches conducted. In addition to the offices and premises of Dial Drugs Limited and Cowell Pharmacy Limited, the search included a search of the personal residence of Ron Cowell. ¶ 81 The search also included the premises of Collins, Barrow, the accountant to Mr. Cowell and the corporate defendants, which search was conducted under the auspices of Mr. Art Payne who had now been transferred again to special investigations. ¶ 82 What was found was not surprisingly what was expected to be found since it had already been discovered by Mr. Payne on January 19th, 20th and 21st, 1994. ¶ 83 It is also interesting to note that prior to the search Mr. DeLeon had made a request on October 6th, 1994, for information pursuant to the Canada/USA Income Tax Convention Agreement, although the request was not forwarded until December 16th, 1994, after the search. ¶ 84 Following the search, in 1995 Mr. DeLeon obtained information from the banks being used by Mr. Cowell in the State of Florida pursuant to an internal revenue demand and interviewed (again with the assistance of the IRS) persons in the State of Florida who had been direct beneficiaries of cheques by way of volume rebates from Medichem. ¶ 85 It was determined, not surprisingly, that these individuals (Ms. Thalheimer and David Woodcock of Bonita Collision Centre) were individuals or companies to whom Mr. Cowell personally owed money for purchases and/or services made or rendered in the State of Florida. ¶ 86 It is fair to say, however, that all of that information and specifically the cancelled cheques which would direct an investigator to these interviews was contained in the material which had already been turned over to Mr. DeLeon in June of 1994. ¶ 87 Of special note, however, are certain steps taken by Mr. DeLeon in March of 1995. The search conducted on November 9th , 1994 had turned up most of the material necessary for the prosecution of Mr. Cowell and the corporate defendants for tax evasion, save and except corporate information in respect of one of the years in which the fraud was being perpetrated. In order to obtain that information, despite the fact that Mr. DeLeon recognized the need for judicial preapproval before searching in November of 1994, Mr. DeLeon used a third party demand (a compliance tool) to obtain from the Bank of Nova Scotia the banking records for Mr. Cowell and the corporate defendant for the year in which they could not be located in the search. ¶ 88 It is difficult to understand how Mr. DeLeon could honestly believe that he was entitled to use a third party demand which involves no judicial preapproval to breach the privacy rights of the defendants so far into the investigation. Following the search of November 9th, 1994 and the third party demand of March 1995, investigation thereafter was both derivative and minimal. ¶ 89 November 3rd, 1995, the informations charging Mr. Cowell and the corporate defendants were sworn and the matter proceeded as previously indicated. ¶ 90 Those are the substantially condensed and pertinent facts in respect of this investigation. As previously indicated, should this matter not be stayed and should all of the disputed documents come into evidence, there is little doubt that Mr. Cowell and the corporate defendants evaded a substantial amount of Federal income tax by the simple expedience of non reporting volume rebates which were being paid to Mr. Cowell in the United States of America. Position of Applicant (Defendant)/Position of Respondent (Crown) ¶ 91 Following the hearing of evidence the court directed the applicant and respondent to provide written submissions. Written submissions were indeed supplied. They were complete and somewhat overwhelming, however, were of great assistance in focusing the court on the issues at hand. Oral submissions were heard on two days in February 2000 and a day in June of 2000. Position of Applicant (Defendant) ¶ 92 The position of the applicant was that prosecutions under s. 239 of the Income Tax Act, especially 239(1)(d) are criminal or quasi criminal in nature and therefore investigations thereof attract the protection of the Charter of Rights and Freedoms. ¶ 93 The applicant submits that this investigation was in the hands of special investigations from the beginning and, therefore, always attracted the application of the Charter; that throughout the investigation there was a continued course of conduct by Revenue Canada demonstrating a wilful disregard for the taxpayers Charter rights, including s. 8 - search and seizure, s. 7 - the right to remain silent and disclosure rights, and s. 10(b) - the right to counsel and that the behaviour of Revenue Canada through special investigations is so egregious that a stay is the only appropriate remedy in this matter. Position of Respondent (Crown) ¶ 94 The position of the respondent is that the Income Tax Act is a strictly regulatory statute which does not attract Charter scrutiny or at least not to the extent that criminal matters attract Charter scrutiny. The respondent submits that penalties for evasion of taxes are simply a mode of enforcement of a regulatory statute and that a conviction for tax evasion or the filing of false returns does not attract the stigma of a criminal conviction. In this regard the respondent relies upon Del Zotto v. The Queen, 116 CCC (3d) and states that cases like Norway Insulation are "old time religion". ¶ 95 In the alternative, if the court is unconvinced of the non application of the Charter, the respondent submits that the investigation did not reach the stage where suspicion was replaced by reasonable and probable grounds at the time of the breach or breaches. ¶ 96 They suggest that the actions of Arthur Payne be characterized as an oversight and that the court should characterize the disclosure efforts of Revenue Canada as appropriate. ¶ 97 Finally, the respondent submits that the remedy of a stay is too drastic and that s. 7 rights are not enjoyed by corporations and the behaviour of Revenue Canada certainly does not reach the stage of abuse of process. The Application of the Charter of Rights and Freedoms to Investigation for Tax Evasion ¶ 98 In respect of this issue, it seems most appropriate to quote from Knox Contracting Ltd v. Canada, 58 CCC (3d) 65, at page 77, a decision of the Supreme Court of Canada, wherein Cory, J. states as follows:
¶ 99 It should be noted that the decision in Knox Contracting Ltd. v. Canada dealt directly with s. 239 of the Income Tax Act, the same sections under which the defendants are charged, and was decided specifically on the question of whether or not offences under those sections could be viewed as criminal. ¶ 100 The quote in Knox Contracting Ltd. v. Canada echoes my sentiments in their entirety. ¶ 101 The substance of the alleged offences before the court is hiding and not reporting substantial income thereby evading taxes. ¶ 102 By summary procedure the conviction carries with it a fine of not less than 50 percent of the tax evaded and not more than 200 percent of the tax evaded and/or a term not exceeding two years. By indictment the minimum fine is even greater, 100 percent of the tax evaded and imprisonment for up to five years. ¶ 103 The manner of proceeding is within the absolute jurisdiction of the prosecution. It would be cold comfort to those whose rights were infringed on the way to a conviction that the time they spent in a penitentiary was only "a mode of enforcement" of a regulatory statute. It looks like jail and punishment to me and I am sure to anyone convicted. ¶ 104 In this matter, in fact, if Revenue Canada had chosen they could have charged and prosecuted Mr. Cowell and the corporate defendants for fraud pursuant to the Criminal Code. There has clearly been a dishonest act worthy of punishment resulting in a loss or a risk of loss to the victim. If the matter could have proceeded as a criminal prosecution, why would one view the prosecution under s. 239 of the Income Tax Act as other than criminal. ¶ 105 Following from that, it is my view that a conviction for tax evasion (being the equivalent of a conviction for fraud) must result in the same stigma within society. One need only look to see what happened to the defendant when a third party demand was made on his bank, the Bank of Nova Scotia, for his records. His long time bank ceased immediately to be his long time bank and Mr. Cowell and the corporate defendants had to search elsewhere for banking and line of credit. ¶ 106 Additionally, the involvement of Special Investigations from the very beginning also leads me to the conclusion that this was a criminal matter. One need only look at the operating manual of the Special Investigations department, TOM 11 (10), which states:
¶ 107 If Revenue Canada believes these investigations to be criminal in nature, it is hard to understand how they can submit that they are not so in this matter. ¶ 108 Additionally, the wording of s. 239(1)(d) and the use of the word "wilfully" reinforces my conclusion that these proceedings are criminal in nature. The term "wilfully" imports intent or mens rea obvious features of criminal offences; in fact, you only need to look to see where these matters are prosecuted (criminal court) to come to the conclusion that they must be criminal in nature. ¶ 109 The respondent relies on R. v. Del Zotto to support the contention that matters under the Income Tax Act are regulatory in nature not, therefore, attracting Charter scrutiny and that the penalties in the Income Tax Act are only "a means of enforcement of a regulatory statute". I have reviewed R. v. Del Zotto and, in my opinion, it does not and cannot stand for the proposition that prosecutions under s. 239 are not criminal in nature. ¶ 110 Factually, R. v. Del Zotto is completely different than the matter at bar. Although R. v. Del Zotto dealt with suspected tax evasion, its primary focus was the constitutionality of s. 231.4. Section 231.4 of the Income Tax Act permits of a hearing to be conducted at the request of Minister of Revenue by a hearing officer who has the power of subpoena for the hearing. ¶ 111 As Justice Strayer in his dissent in Del Zotto v. The Queen, 116 C.C.C. (3d) p. 149 and p. 150, points out, the hearing provisions in and of themselves have inherent within their process certain constitutional and other protections. For instance:
¶ 112 Unlike the investigation carried out by Freeman and Payne, Mr. Cowell and the corporate defendants were given no notice of intended charges while the investigation was ongoing; they had no opportunity to object to the manner of the investigation; they had no opportunity to seek legal counsel and were in fact lied to in regards to the purpose of the attendance of Mr. Payne. ¶ 113 Such behaviour is a far cry from the hearing described in R. v. Del Zotto. More importantly, R. v. Del Zotto was decided by the Supreme Court of Canada on appeal from the Federal Court of Appeal with the following endorsement:
¶ 114 Justice Strayer's dissent in Del Zotto v. Canada concluded as follows:
¶ 115 The rationale of Justice Strayer's decision in dissent, approved by the Supreme Court of Canada, was to the effect that the objections to the exercise of the power under s. 231.4 were premature - made before there was any recognizable Charter breach. It is this position which the Supreme Court of Canada agreed with, not, in my opinion, the position that any prosecution under the Income Tax Act could not be criminal. ¶ 116 For that reason, I do not see where R. v. Del Zotto is of any assistance to the position of Revenue Canada. ¶ 117 Ultimately, on the basis of all that I have read, I conclude at law that the regulatory compliance aspects of the Income Tax Act do not attract application of the Charter and that in respect thereto there is a very limited expectation of privacy. Offences contained, however, in s. 239 are by their very nature criminal and attract the application of the Charter of Rights and Freedoms as there are far greater expectations of privacy in regards to a criminal prosecution. ¶ 118 Many cases I received dealt with when Charter of Rights crystallized or attached especially in terms of investigation. In this matter this issue does not present a difficulty. This investigation was managed and directed from its inception by Special Investigations in the person of John Mark Freeman and his supervisor. Mr. Freeman directed the recovery of third party documents (without a John Doe warrant) from the generic drug manufacturers and, in my opinion, instructed Arthur Payne to continue the investigation with a false compliance audit. By the time the documents had been recovered from the generic drug manufacturers, in my opinion, Freeman must have had more than a suspicion of the nature of the evasion. Even at that stage he had leads he could have followed which would not have infringed the Charter rights of the defendants. He could have spoken to Mr. Winegarden; to the travel bureaus and electronic distribution stores who were providing free gifts; the recipients of cheques in Florida and other employees and salespersons of the generic drug manufacturers. Instead, Revenue Canada chose to use, in my opinion, unconstitutional means to further their investigation. ¶ 119 Bearing in mind that this investigation was always conducted by Special Investigations, it was always criminal in nature and the Charter rights of the defendants attached from its initiation. The Course of Conduct The Compliance Audit of Generic Drug Manufacturers ¶ 120 There is no question in my mind that Mr. Freeman of Special Investigations directed compliance auditors to seek and obtain the "cooperation" of generic drug manufacturers Novapharm and Apotex in providing evidence by way of documents in respect of volume rebates to pharmacists, including the defendants in this matter, both personal and corporate. Not only did Mr. Freeman direct a compliance/civil audit, he participated in the audit himself until objections from the management of the generic drug manufacturers. All of this occurred in September/October 1993 and onwards through 1994. Initially the documents generated thereby went to Mr. Freeman himself, but they were later directed to the head offices of the region's responsible for the pharmacists under investigation. ¶ 121 Such a direction of a compliance audit was contrary to Revenue Canada policy (See TOM 1142.2[3]) and discussions thereof contained in exhibit "J" dated June 14th, 1993. I find as a fact that Mr. Freeman knew this was contrary to policy - he was, after all, commended for the preparation of check lists for compliance auditors when fraud was suspected so that Special Investigations did not appear to be directing audits when compliance auditors were obliged to return for further documents. ¶ 122 In addition, exhibits "OO" and "PP" demonstrate that at the time (December 3rd/7th, 1993) Mr. Freeman and his immediate superior, Mr. Eberleigh, of Special Investigations in Kitchener, were aware of a proper procedure for obtaining documents from third parties in respect of other taxpayers. ¶ 123 Pursuant to s. 231.2(3) the Minister of National Revenue must obtain a "John Doe" warrant to obtain evidence from third parties in regards to other taxpayers. This is confirmed in M.N.R. v. Sand Exploration Limited, Federal Court Trial Division, May 19th, 1995. A simple reading of s. 231.2(2) of the Income Tax Act makes it clear that the obtaining of such a warrant is mandatory prior to a third party demand. Unfortunately, obtaining such a warrant requires judicial pre-approval and has safe guards which allow the third party to object to the demand or warrant. ¶ 124 Even knowing of this obligation, Mr. Freeman, with the encouragement of his seniors in Special Investigations, decided to forego such a warrant and rely on the "cooperation" of generic drug manufacturers. ¶ 125 To characterize the request for documents from generic drug manufacturers as "cooperation" is absurd. The generic drug manufacturers at the time of the request were undergoing their own compliance audit lasting over a year and encompassing the time frame during which Mr. Cowell was being investigated (October 1993 to December 1994). Mr. Fahner, a representative of Apotex/Medichem, at page 525 Volume Three of the transcripts from the hearing of June 15th, 16th, 17th and 18th, stated it most simply. Because of the ongoing audit of Apotex they felt compelled to cooperate with Revenue Canada as it was just a "real good idea not to rock the boat". ¶ 126 Some of the requests for information, in fact, gave as their reason for the request to avoid administrative costs or complications. ¶ 127 The fact of the matter was that Mr. Freeman and Special Investigations were using compliance auditors to recover documents in regards to pharmacy rebates to avoid the necessity of judicial pre-approval. They were relying on the powers of compliance auditors (which are substantial and not subject to Charter scrutiny) to obtain the cooperation of a taxpayer. That attitude is typical of the attitude of Revenue Canada special investigators who seem to see themselves as a power unto themselves with no desire to be constrained by outside authority, even the Charter of Rights and Freedoms. ¶ 128 Ultimately, however, that is about all that the interference of Special Investigations and the compliance audit is worth - the evidence of an ongoing attitude. Despite the ungovernable approaches of Revenue Canada, ultimately I would not have excluded these documents obtained from the generic drug manufacturers from admission as evidence. The documents provided were the internal documents of the generic drug manufacturer; they were created by the generic drug manufacturers without input from the defendant; they are business records for which there is a lesser expectation of privacy and, frankly, the defendants have no reasonable expectation of privacy in these documents and no standing to object to the manner in which they were obtained. The same, however, cannot be said of what transpired next in this investigation. The Visit of Arthur Payne to Cowell Drugs ¶ 129 Arthur Payne, a long time employee of Revenue Canada, usually in Special Investigations, was chosen, in my opinion, by Mr. Freeman to receive tips and leads in respect of the defendant. These tips and documents were not from compliance auditors discovered coincidentally during a compliance audit. These documents had been sought out by Mr. Freeman in Special Investigations with the complicity of compliance auditors. ¶ 130 I am convinced to a balance of probabilities that Mr. Freeman attended upon Mr. Payne in Hamilton on two occasions in November and December of 1993 to instruct Mr. Payne in regards to the nature of the investigation to be made of Mr. Cowell and the corporate defendants. I am, therefore, also convinced on a balance of probabilities that when Mr. Payne attended upon the defendant and the corporate defendant and the corporate defendant's accountants on January 19th, 20th, 21st and 26th, 1994, he did so as an agent of Special Investigations. When he did so he failed, as per policy of the TOM, to identify himself as a special investigator and failed to state the purpose of his attendance as a special investigator doing an investigation in respect to tax evasion. In fact he lied to the defendant and to the defendant's agents (his accountants) as to the reason for his visit. ¶ 131 My Payne then used his broad power of compliance audit (including the obligation of the defendants and the defendants' agents to cooperate or face prosecution) to obtain documents and information and to question the defendant and the defendants' employees or agents in respect of rebates. The search was clearly for a criminal purpose and should have been subject to judicial pre-approval as the defendant had a clear expectation of privacy. By using the rouse of a compliance audit to circumvent judicial pre-authorization, Mr. Payne and his principal, Mr. Freeman, breached the defendants' s. 8 rights in such a manner that the defendants and their agents were conscripted against themselves. The evidence obtained is clearly conscriptive, be it real or otherwise, and conscripted evidence (unless the Crown can show eventual discovery by ultimate lawful means - which it cannot) obtained in breach of Charter rights results in an unfair trial and is bound to be excluded (R. v. Stillman, 113 CCC (3rd) Supreme Court of Canada). ¶ 132 The matter only worsens when this tainted evidence is then used in support of a search warrant. The evidence obtained in breach of Charter rights would, by law, have to be excluded from consideration by a justice of the peace issuing the warrant. In my opinion as a result of the exclusion of the evidence obtained by Charter breach, the resulting information would not have supported the issuance of a warrant on November 7th, 1994. Thus, the searches of November 9th, 1994 were warrantless, therefore, prima facie unreasonable - a search which I would point out included not only the defendant's place of business, but his accountant's place of business and the defendant's home. ¶ 133 When there is a warrantless search the onus is upon the Crown to establish that the search was authorized by law, that the law is a reasonable one and that the manner of search was also reasonable. The Crown cannot do so and, even on a Collins test, the evidence obtained in the searches of November 9th, 1994 would be excluded as the breaches, in my opinion, were a demonstration of bad faith. ¶ 134 The evidence of the searches of November 9th, therefore, being bound to be excluded, the Crown would be left without a case against the defendant or the corporate defendant. ¶ 135 What transpired in this situation, for those of us more used to criminal prosecution under the Criminal Code, is what is known as an unlawful walk around, walk through or perimeter search and the use of the evidence obtained thereby to support a search warrant. This is clearly a breach of the constitutional rights of the defendants and has been since R. v. Kokesch, 61 C.C.C. (3d) Supreme Court of Canada. The Attendance of Arthur Payne and Other Breaches of the Defendants' Charter Rights ¶ 136 Additionally, the steps taken by Mr. Payne and the falsehood he used to gain entrance to the premises and confidence of the defendant and the defendant's employees/agents results in breaches of the defendant's s. 7 right to remain silent and 10(b) right to retain and instruct counsel. ¶ 137 The attendance of Arthur Payne on the basis of compliance audit is clearly a detention within the traditional definition contained in R. v. Therens. In R. v. Therens, 1985 1 S.C.R. 613, LeDain J. discussed the meaning of "detention" as that term is used in s. 10(b) of the Charter. He explained that "detention" refers to the restraint of a persons liberty short of arrest which may result in a need for legal counsel a need which may be prevented or impeded save for the constitutional guarantee. Psychological restraint which follows the state taking control of the movement of a person by demand or direction which may have legal consequences is included in the meaning of "detention". ¶ 138 As is stated in R. v. Siemens, 30 C.R. (4th) 216, paragraph 21:
¶ 139 When an auditor of Revenue Canada attends upon a taxpayer and his agents for the purposes of a compliance audit, those persons are by law obliged to cooperate in the production of documentary evidence and replying to questions of the auditor or they will be prosecuted for not doing so. They are akin to a driver obliged to answer questions in respect of an accident pursuant to provincial legislation or a driver, indeed, required to provide a sample of his breath into an approved screening device on demand. There is a restraint of liberty in these circumstances which result in a need for legal counsel for indeed the state is taking control over the liberty of the subject (in regards to whether to answer or not or to cooperate or not) by a direction to provide information which is bound to have legal consequences. ¶ 140 If this truly had been a compliance audit the exercise of those powers would not attract Charter scrutiny due to their regulatory nature. When in fact the compliance audit is a criminal investigation for tax fraud or evasion, it does indeed, in my opinion, attract Charter scrutiny. ¶ 141 By failing to advise, in fact lying about, the true purpose for his visit, Mr. Payne deprived the defendants and their agents of the right to even consider remaining silent (s. 7 right) and most assuredly denied the defendants the information upon which to consider the exercise of their right to counsel. In fact Revenue Canada, through Mr. Payne, did not even comply with the informational component of the right to counsel nor give a reasonable time for the defendants to exercise the same. ¶ 142 As indicated, I am convinced on a balance of probabilities that Mr. Payne, as agent for the Special Investigations branch of Revenue Canada, when attending upon the defendants and their agents on January 19th, 20th, 21st and 26th, 1994, breached the defendant's s. 7 rights to remain silent and the s. 10(b) rights to retain and instruct counsel. ¶ 143 As a result of the lie of Mr. Payne, the defendants and the defendants' agents happily engaged in providing evidence against themselves which was conscriptive and, as in the s. 8 analysis as previously discussed, would come to be excluded as would derivative evidence discovered by a search warrant based on conscriptive evidence found following Charter breaches. After the Search Was Over ¶ 144 What happened following the attendance of Mr. Payne is largely a non issue. By the time Mr. Payne had completed his investigation on January 19th, 20th, 21st and 26th, 1994, the investigation in respect of tax evasion was all but complete. ¶ 145 The referral by Mr. Payne to Special Investigation Agent MacFarlane was a charade intended to build a demarcation between the civil regulatory function and the criminal investigatory function. In fact the referral was not a referral from a compliance auditor to Special Investigations, it was a referral from Special Investigations to Special Investigation. ¶ 146 Following the referral Payne continued to use ongoing compliance audits to obtain and funnel information to Special Investigations when clearly he ought not to have done so following the referral. ¶ 147 The referral by MacFarlane to Mr. DeLeon was equally a charade. The investigation, according to Mr. DeLeon when received by him was pretty much complete. Any investigation which took place thereafter arose from information in the lead file and either was simply confirmatory or redundant. ¶ 148 The affidavit in support of the search warrant was, unbeknownst to Mr. DeLeon, largely supported by information obtained improperly from the generic drug manufacturers or obtained in breach of the defendant's Charter rights by Mr. Payne, and as indicated before, results in what is in effect a warrantless and prima facie unreasonable search even though judicial pre-authorization was sought. ¶ 149 However, following the search of November 9th, 1994, an action took place which typifies Revenue Canada's inability or unwillingness to accommodate the Charter rights of the suspect in tax evasion cases. ¶ 150 Not locating all of the necessary financial documents for all the years in their search of November 1994, in March of 1995 Mr. DeLeon issued a third party demand on the defendants' bank for the defendants' banking and accounting documents. ¶ 151 Third party demands are permissible tools within a regulatory compliance function of the Income Tax Act attracting limited Charter protection. However, once Revenue Canada and the Special Investigation Unit had obliged themselves to obtain judicial pre-approval (by way of a search warrant), the matter is blatantly criminal in nature. To continue to attempt thereafter to obtain the defendants' banking records (to which attach considerable privacy expectations) without judicial pre-approval is, again, a breach of the defendant's s. 8 Charter rights. Conclusion ¶ 152 The course of conduct of the Special Investigation Unit in this criminal or quasi criminal investigation, in my opinion, shows a complete lack of regard for taxpayers Charter rights. I have become convinced that the course of conduct was contrary to known Ministry policies and was wilful and typifies a prevalent and entrenched attitude in Revenue Canada in respect of citizens Charter rights. ¶ 153 Frankly, the course of conduct of Special Investigations by this stage warranted the granting of the stay requested by the applicant. The applicant, however, had one further consideration in regards to the question of stay which related to the attitude of Revenue Canada in respect of disclosure. The Defendant's Section 7 Disclosure Rights ¶ 154 It is trite law that a defendant is entitled to full and frank disclosure from the Crown in order to make full answer and defence. A failure to provide disclosure in a timely fashion is a breach of the defendant's Charter rights and a stay is a remedy available when such a breach has been established, although it is not the usual remedy (see R. v. O'Connor, 44 C.R. (4th)). ¶ 155 I find as a fact on a balance of probabilities that Revenue Canada in this matter has obstructed at almost every turn the defendant's attempt, through counsel, to obtain disclosure. I note in the circumstances the blame does not rest with counsel for Revenue Canada, but in my opinion Revenue Canada itself. ¶ 156 The following are just some examples of the manner in which Revenue Canada chooses to treat their obligations to disclosure and to subpoenas. ¶ 157 From the time of first appearance, November 21st, 1995, Mr. Stern made repeated requests for specific disclosure. From December 20th, 1995 until June 25th, 1996, through counsel, Revenue Canada provided some but not all of the material being requested. Eventually on the 21st of January, 1997, a motion for disclosure by the defendants was heard by the court. The position of Revenue Canada in respect of the request for disclosure was that they could not make such disclosure as it impacted on the expectation of privacy of other citizens and taxpayers. ¶ 158 Bearing in mind what I have seen in regards to Revenue Canada's sensitivity to expectations of privacy, I have come to the conclusion long after that initial application that that position was nothing short of a ruse to prevent further disclosure. ¶ 159 I had occasion to see one of the documents which was subject to the issue of other taxpayers privacy. It took only minutes to excise the names from the document, leaving the balance of the document in tact. ¶ 160 A number of the disclosures made by Revenue Canada were modified prior to disclosure and not for the purposes of protection of the privacy of taxpayers. ¶ 161 Mr. Freeman advised that on the instructions of his superiors when disclosure was requested of the tax operating manual that he provided a "sanitized" version of the tax operating manual for Mr. Stern. It is hard to understand where Revenue Canada believes it obtains the authority to modify documents being provided by way of disclosure. The censoring of documents is done by the court at the request of the Crown, not by the investigating body on its own initiative. ¶ 162 Throughout the proceedings the defence, in an attempt to obtain more disclosure, had occasion to subpoena a number of upper echelon individuals in the special investigation. One of those was Mr. MacFarlane who received a subpoena himself and was responsible for responding to subpoenas received by others. ¶ 163 Subpoenas were subpoenas which required the production of documents and attached to each subpoena was an appendix describing the nature of the documents. ¶ 164 On June 15th, 1998, 10 months into the trial, Mr. MacFarlane appeared before the court at the request of the defence in response to his subpoena. It became obvious that Mr. MacFarlane had done absolutely nothing in respect of searching for or discovering any documents which he was obliged to produce in respect of his own subpoena or other subpoenas in relation to which he was to obtain documents. The subpoenas had been served November 26th, 1997 and the witness had had 8 months in which to make at least an attempt. ¶ 165 I was startled by the lack of compliance and the attitude of Mr. MacFarlane (a member of the Special Investigations Branch). Subpoenas are court orders and must be complied with unless of course, apparently, you are part of the income tax Special Investigations Branch. ¶ 166 Mr. Freeman, also served with the same subpoena, also appeared on June 15th, 1998. He had done more than Mr. MacFarlane, but appeared with about half of the documents he ought to have. ¶ 167 A primary example of the failure to disclose relates to exhibits "OO" and "PP". These documents were internal documents of Revenue Canada Special Investigations which had substantial importance in respect of compliance audits to obtain documents in respect of rebates for pharmacists. My recollection is that Mr. Stern specifically requested this type of document, however, Mr. Freeman was unable to produce the same until October of 1998, more than half-way through the trial. Mr. Freeman, I believe, wished the court to believe that he had forgotten both the meetings and the documents produced therein. That is difficult to believe. These documents had been the subject of requests for disclosure in the past and Mr. Freeman had made disclosure in a case involving a pharmacist in Owen Sound which was being prosecuted by Mr. Grace. ¶ 168 Defence established, in the circumstances, that Mr. Freeman was not pleased with the outcome of that prosecution. Mr. Grace had withdrawn against the defendants in their personal capacities and had permitted corporations to enter pleas, largely on the basis of a misuse of compliance powers, the same issue which was arising in the case at bar. ¶ 169 Having previously produced the documents in a losing cause, it is hard to understand how Mr. Freeman could have, in the circumstances, forgotten about them and forgotten to produce them. ¶ 170 Mr. Freeman continued to produce documents sought by way of disclosure up to and including March of 1999, specifically a memo of June 29th, 1993. ¶ 171 These are examples only of the attitude of Revenue Canada to their obligation of disclosure. That attitude to prevent, deny or delay disclosure has made the defence of this matter exceptionally difficult. Without the persistence of Mr. Stern a great deal of the information sought would never have come to light. ¶ 172 The attitude has also resulted in a protracted and bifurcated trial which is never in the interest of justice nor in the interest of the appearance of justice. ¶ 173 Though in and of itself it would probably not be sufficient to result in a stay, it adds to the strength of the defendants' overall application. The Remedy for the Personal Defendant - A Stay ¶ 174 I have reviewed R. v. O'Connor, 44 C.R. (4th) as it relates to a stay. I am aware of the criteria for a stay. A stay is reserved for the clearest of cases - a last resort to be taken only when all other acceptable avenues to protect the defendant's right to a full answer and defence are exhausted. A great number of the breaches of the defendants' Charter rights, especially as they relate to the visit of Compliance Auditor Payne would indeed result in an unfair trial and, as such, would ultimately lead to the exclusion of vital evidence that the Crown seeks to submit. ¶ 175 At the risk of repeating myself, the investigation conducted in this matter is evidence of a complete disregard for taxpayers rights and in fact for Revenue Canada's own policies. ¶ 176 Bearing in mind how deeply entrenched these attitudes seem to be, I am convinced that anything short of a stay would encourage a repetition of the behaviour within Revenue Canada and that only a stay would suffice to deter or prevent ongoing abuses. ¶ 177 In coming to the conclusion that a stay is an appropriate remedy for the personal defendant, I am aware and have taken into account the strength of the Crown's case - if they did not have to deal with their Charter issues - and I am aware of the blatant fraud perpetrated by the defendant, Ronald Cowell, in evading taxes. I have also taken into account that there is a regulatory compliance procedure which is bound to result in a substantial downside to Mr. Cowell including payment of the taxes evaded; a penalty of 50 % of the tax evaded plus interest on the tax evaded and interest on the penalty. ¶ 178 I have come to the conclusion that bearing in mind the disregard for taxpayers Charter rights demonstrated by this investigation, that the regulatory compliance forum is a more appropriate forum within which this breach of taxpayer's obligation can be resolved. ¶ 179 The application for stay as it relates to the defendant, Ronald Cowell, in his personal capacity and as director of the corporate defendant, is granted. The Remedy for Corporate Defendant ¶ 180 There is no question that infringement of s. 7 rights may not be relied upon by a corporation in an application for Charter remedies. Additionally, R. v. Merstar Trading Inc. reported 27 C.R. (5th), a decision of the Supreme Court of Canada, makes it clear that a corporation must establish irreparable harm or prejudice to a fair trial to extract a stay as a remedy. I note, however, that many of the breaches giving rise to the possibility of a stay have nothing to do with s. 7 rights, but rather s. 8 and s. 10(b) rights which led to conscripted evidence which ultimately will be excluded in any event. ¶ 181 In my opinion the need for impact on Revenue Canada remains the same whether one deals with a corporate defendant or a personal defendant. ¶ 182 I am also aware there is a residual jurisdiction to stay in respect of corporations for abuse of process once s. 7 considerations are exhausted (R. v. O'Connor, 44 C.R. (4th). Section 7 considerations have no application to corporations, but it is open to a corporation to argue the residual common law remedy of a stay for abuse of process. In that regard I have reviewed R. v. Miles of Music Limited, Ontario Court of Appeal 48 C.C.C. (3rd) page 96 which, in Ontario, is the leading decision in respect of stays for abuse of process. ¶ 183 R. v. Miles of Music Limited makes it clear that a trial court has the jurisdiction to stay proceedings where compelling an accused to stand trial would violate those fundamental principles of justice which underlie the community sense of fair play and decency and to prevent the abuse of the court's process through oppressive or vexatious proceedings. I am also aware that a stay for abuse of process, as in a stay for Charter breaches, is the remedy of last option reserved for the clearest of cases. ¶ 184 The fact of the matter is that this is a closely held corporate entity. Cowell Drugs Limited and Dial Drugs Limited are in fact Ronald Cowell. ¶ 185 Bearing that in mind and the nature of the breaches of the constitutional rights of the corporation and my findings in respect of the bad faith of Revenue Canada, I believe a stay is appropriate either pursuant to the Charter of Rights and Freedoms or the residual abuse of process power. ¶ 186 In the circumstances, the application for stay as it relates to the corporate defendants is granted. qp/e/ln/nc/qlfwb |
