Sheppard, J.: The respondents apply by way of notice of motion to set aside the ex parte orders of the Honourable Judge van der Hoop dated October 12, 1988. The orders sought to be set aside emanate from two separate proceedings numbered A882918 and A882919, Vancouver Registry. The parties agreed that both motions be heard together.
On October 12, 1988, in both proceedings, van der Hoop L.J.S.C. authorized the Deputy Minister of National Revenue, Taxation to take forthwith and from time to time any or all of the actions described in paragraphs 225.1 (1)(a) to (g) inclusive of the Income Tax Act as provided by subsection 225.2(2) of the same Act, as amended by Bill C-139 and enacted September 13, 1988.
At the conclusion of the submissions of counsel I set aside both those orders, reserved on the question of costs and, as there does not seem to be much judicial authority on these sections, promised some written reasons. These are those reasons.
Paragraphs 225.1(1)(a) to (g) and subsection 225.2(2) are set out below:
225.1 (1) Collection restrictions. —Where a taxpayer is liable for the payment of an amount assessed under this Act (in this subsection referred to as the 'unpaid amount’), other than an amount payable under Part VIII or subsection 227(9), the Minister shall not, for the purpose of collecting the unpaid amount,
(a) commence legal proceedings in a court,
(b) certify the unpaid amount under section 223,
(c) require a person to make a payment under subsection 224(1),
(d) require an institution or person to make a payment under subsection 224(1.1),
(e) require the retention of the unpaid amount by way of deduction or set-off under section 224.1,
(f) require a person to turn over moneys under subsection 224.3(1), or
(g) give a notice, issue a certificate or make a direction under subsection 225(1)
before the day that is 90 days after the day of mailing of the notice of assessment
225.2 (2) Authorization to proceed forthwith. —Notwithstanding section 225.1, where, on ex parte application by the Minister, a judge is satisfied that there are reasonable grounds to believe that the collection of all or any part of an amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection thereof, he shall, on such terms as he considers reasonable in the circumstances, authorize the Minister to take forthwith any of the actions described in paragraphs 225.1(1)(a) to (g) with respect to the amount.
Counsel for the petitioner proffered the affidavit of Daryl Blaine Byblow as support for the order he sought before van der Hoop L.J.S.C. Mr. Byblow, a Collections Investigation Officer employed at the Vancouver District Taxation office, deposed that the respondent Dick Atchison had concealed income and assets with an intent to evade payment of income tax. The grounds for his belief had their source, inter alia, in two affidavits filed by Dick Atchison's estranged wife, Wilma Atchison, sworn November 20, 1987 and December 9, 1987, and filed in the matter of her divorce from Dick Atchison. I quote from these affidavits:
From page 6 of the November 20, 1987 affidavit:
Throughout our marriage, the Petitioner frequently gave me large sums of cash for various purposes . . . and that the Petitoner did not account to the Ministry of National Revenue for that cash . . .
From page 11 of the December 9, 1987 affidavit:
. . . there was at one time registered in my maiden name a property on which there sat a house, situate at Gambier Island. The house construction was financed by monies given to me by the Petitioner. The Petitioner specifically asked me to acquire the property in my maiden name and specifically asked me to invest the cash he gave me in the construction of the house thereon in order that he might hide the monies which were expended on the property from the Income Tax Department.
Mr. Byblow was also informed by Special Investigations Officer Dell Spencer that the source of income which Dick Atchison disclosed fell far short of accounting for his cash expenditures.
Mr. Byblow further deposed that Dick Atchison had knowledge of the trade of trafficking in marijuana. His grounds for that belief derived from the reasons for judgment of McMorran C.C.J. in action X78-240, New Westminster Registry, wherein Dick Atchison was charged with possession of marijuana for the purpose of trafficking.
A further ground for that belief was based on information received from Dell Spencer that Dick Atchison kept large sums in cash, almost always paid cash for purchases, and could not credibly explain the source of the cash.
Mr. Byblow further deposed that he was informed by Dell Spencer that she had obtained information from Wilma Atchison's divorce lawyer, John C. Fiddes, that Dick Atchison might be considering a move out of the country. Mr. Byblow attempted to buttress this information with a list of Dick Atchison's travel destinations in the years 1981 to 1987, some 39 trips in total.
Mr. Byblow also deposed that Dick Atchison was in the process of divesting himself of assets and converting them into cash. He referred specifically to the court ordered sale of his personal residence on Gambier Island and a proposed sale of a parcel of land adjoining that residence. In short, Mr. Byblow deposed that collection of income tax from Dick and Wilma At- chison was in “jeopardy” for the purpose of subsection 225.2(2) of the Income Tax Act as it was his belief that Dick Atchison appeared very likely to flee the country or conceal, divest, or dissipate assets, rather than pay income tax.
On the basis of the foregoing information van der Hoop L.J.S.C. granted ex parte orders with respect to both Wilma and Dick Atchison, with the provision that Wilma Atchison was at liberty to apply to vary the order on one day's notice and Dick Atchison was to be given appropriate notice as to his statutory right pursuant to subsection 225.2(8) to apply to set aside the order.
Counsel for Wilma Atchison submits that Wilma does not owe any income tax, but has been assessed on what the Department of National Revenue characterizes as a "non-arm's length" transfer from her husband Dick, in the form of the transfer of the matrimonial home in the context of their divorce proceedings. More importantly, Wilma’s solicitor makes the point that the affidavit evidence presented to van der Hoop L.J.S.C. does not set out the grounds with respect to the Department of National Revenue's concerns in relation to the collection of tax from Wilma. The Byblow affidavit is concerned solely with allegations in respect of Dick Atchison. Counsel for the Department of National Revenue submits that Wilma was an active participant in concealing assets which belonged to her husband.
In my view, this allegation has no bearing on the test that must be met pursuant to subsection 225.2(2). That test is set out in Danielson v. M.N.R.,
[1986] 2 C.T.C. 380; 86 D.T.C. 6518, wherein the court considered the predecessor section of subsection 225.2(2):
. . . the issue is not whether the collection per se is in jeopardy, but rather whether the actual jeopardy arises from the likely delay in the collection thereof.
[Emphasis added.]
I note that although subsection 225.2(2) has been recently amended, it remains the same as its predecessor except with respect to the provision that the Minister of National Revenue must now obtain judicial approval before he may proceed with a collection pursuant to subsection 225.2(2).
The Department of National Revenue have clearly not addressed the issue of delay with respect to Wilma Atchison and on that ground alone the order of van der Hoop L.J.S.C. dated October 12, 1988 must be set aside.
Counsel for Dick Atchison makes the following submissions with respect to the contents of the Byblow affidavit vis-a-vis his client. Mr. Atchison has been involved in continuous negotiations with Revenue Canada since December of 1987 to resolve his alleged liability for taxes. He has received notices of assessment for the years 1981 to 1986 totalling approximately $400,000.
With respect to the alleged concealment of income and the grounds deposed by Daryl Byblow, Mr. Atchison submits that he has not concealed income or assets for any purpose. Specifically, he denies financing any house construction on the Gambier property and instructing his wife Wilma to acquire the property in her maiden name.
With respect to the allegation that Mr. Atchison has derived income from the drug trade, the taxpayer admits he has convictions for drug possession, but he submits that they are over ten years old and have no bearing on this application pursuant to the Income Tax Act.
Mr. Atchison further submits that he has no intention of moving out of the country and cannot explain why his wife's divorce lawyer would offer that information. In that regard, Wilma Atchison's divorce lawyer, John C. Fiddes, responded to this particular allegation in his affidavit dated November 3, 1988 wherein he states:
That I have read the said affidavit of the said Daryl Byblow who states in paragraph 8 thereof that he was advised by the said Dell Spencer and believes that on August 4, 1988 the said Dell Spencer spoke to me and I advised that 'Dick's recent travels had given rise to concern that Dick might be considering a move out of the
country.' I deny this and say that I did not have any such discussion with the said Dell Spencer on that day, in fact, I was on vacation at that time.
[Emphasis added.]
With respect to the allegation of excessive travel, the taxpayer submits that this has no relevance on his ability or willingness to pay taxes to Revenue Canada. Further, he denies making a number of the trips alleged and offers a reasonable explanation for his frequent visits to certain other locales. None of the foregoing constitutes evidence of an intention to flee the country. Moreover, counsel for Dick Atchison submits that the divestiture of certain assets was a result of court orders obtained in the context of a matrimonial action between the respondents.
The respondent's final submission centres on the test which Revenue Canada must meet in subsection 225.2(2). The key portion is as follows:
where . . . a judge is satisfied that there are reasonable grounds to believe that the collection of all or any part of an amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection thereof,
The repealed section of the Income Tax Act respecting jeopardy collection reads:
225.2(1) . . . where it may reasonably be considered that collection of an amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection thereof. . .
The respondent cites Danielson v. M.N.R., supra, for the proposition that the crux of subsection 225.2(1) is the matter of collection jeopardy by reason of a delay in collection normally attributable to the appeal process:
The wording of subsection 225.2(1) would seem to indicate that it is necessary to show that because of the passage of time involved in an appeal the taxpayer would become less able to pay the amount assessed . . . the mere suspicion or concern that delay may jeopardize collection would not be sufficient per se.
The onus lies with Revenue Canada to show that a delay in collection will jeopardize the collection process. The following passage from 1853-9049 Quebec Inc. v. The Queen, [1987] 1 C.T.C. 137; 87 D.T.C. 5093 is also instructive:
The Minister may certainly act not only in cases of fraud or situations amounting to fraud, but also in cases where the taxpayer may waste, liquidate, or otherwise transfer his property to escape the tax authorities: in short, to meet any situation in which a taxpayer's assets may vanish into thin air because of passage of time.
[Emphasis added.]
After considering all the submissions and affidavit evidence my conclusion is that the Department of National Revenue was not justified in seeking a jeopardy collection order against the respondent Dick Atchison. In coming to this conclusion I make the following observations. While delay is at the crux of this legislation, Revenue Canada has not proffered sufficient evidence with respect to delay caused by the respondent. The evidence before me indicates that any delay in this matter is delay attributable to employees of Revenue Canada. The affidavit of the respondent's tax lawyer, E.G. Kroft, deposes to a continuing series of meetings with Revenue Canada on Dick Atchison’s behalf. Throughout these discussions Dell Spencer reiterated the “interim” nature of assessments which had been served on the respondent and that further assessments would follow as their sources were investigated. In September of 1988 an employee of the Appeals Division of Revenue Canada requested that Mr. Kroft postpone further discussion concerning Dick Atchison's assessments until January of 1989, pending investigation by the Department of Justice.
With respect to evidence of delay originating with the respondent, I reject the petitioner's allegations that the respondent was planning on leaving the country or dissipating his assets. There is no evidence of either before me.
The law is clear that persons applying ex parte to the court must use the utmost good faith, and if they do not, they cannot keep the results of their application: Lazard Bros. & Co. v. Banque Industrielle de Moscou, [1933] A.C. 289 (H.L.); Kraupner v. Ruby (1957), 21 W.W.R. 145 (B.C.C.A.). In my view, the ex parte applications were not justified, as the Crown did not make full disclosure with respect to the allegations.
Accordingly, I confirm that the ex parte orders of van der Hoop L.J.S.C. dated October 12, 1988 with respect to both Dick and Wilma Atchison are set aside and order that the respondents shall have their costs against the petitioner.
Motion granted.