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Court sets aside million dollar award

British Columbia's highest court has dismissed a $1.3 million award against the Canada Revenue Agency and found the search warrant that prompted the case valid.  

In Neumann v. Canada, 2011 BCCA 313 the principal of a company that bought and sold used mining and construction equipment used a room on the second floor of his private residence as the company's registered office. A person receiving over $400,000 in commissions from Neumann on the sale of heavy machinery became the target of a Canada Revenue Agency (CRA) investigation for tax evasion. Neither Neumann nor his business were targets of the investigation. 

A CRA criminal investigator obtained a warrant to search Neumann's house to locate and seize cheques and other business documents related to the target. CRA officials, along with two armed police officers to keep the peace, rang the doorbell at 9 am. Neumann answered, was advised of the warrant and told he wasn't the subject of the investigation. Some files were downloaded from his office computer and he was also asked to produce other documentation from files stored in his basement. One of the officers left between 10 and 10:30 am, two searchers left at 11:30 and all but two CRA employees were gone by noon. They asked Neumann for a written statement and left a half hour later.


September 6, 2011
By Mike Novakowski

British Columbia’s highest court has dismissed a $1.3 million award against the Canada Revenue Agency and found the search warrant that prompted the case valid.  

In Neumann v. Canada, 2011 BCCA 313 the principal of a company that bought and sold used mining and construction equipment used a room on the second floor of his private residence as the company’s registered office. A person receiving over $400,000 in commissions from Neumann on the sale of heavy machinery became the target of a Canada Revenue Agency (CRA) investigation for tax evasion. Neither Neumann nor his business were targets of the investigation. 

A CRA criminal investigator obtained a warrant to search Neumann’s house to locate and seize cheques and other business documents related to the target. CRA officials, along with two armed police officers to keep the peace, rang the doorbell at 9 am. Neumann answered, was advised of the warrant and told he wasn’t the subject of the investigation. Some files were downloaded from his office computer and he was also asked to produce other documentation from files stored in his basement. One of the officers left between 10 and 10:30 am, two searchers left at 11:30 and all but two CRA employees were gone by noon. They asked Neumann for a written statement and left a half hour later.

Neumann sued the CRA in the BC Supreme Court, alleging it negligently obtained the search warrant and violated his Charter rights by searching his home. The search humiliated him, he testified, and neighbours who witnessed police at his house did not accept his explanation that the CRA was investigating someone else. He also said that he could not get over the mental and physical effects the search had on him and that his business and many other aspects of his life had suffered. 

A psychiatrist testified that the unannounced search traumatized Neumann and he was experiencing depression and post traumatic stress disorder, which would not have occurred if advance notice had been given. Neumann argued that s. 8 of the Charter imposed a duty on the CRA investigator to minimize the intrusiveness of any search undertaken and that he negligently failed to do so when seeking and obtaining the warrant. 

A search warrant would give more assurance of getting all of the sought after documents, rather than simply asking for them (voluntary consent) or obtaining a production order, due to Neumann’s relationship with the investigation’s target, the investigator countered.

The judge concluded the CRA agents owed a duty of care to Neumann in their search. A jury found CRA employees infringed Neumann’s s. 8 Charter rights and negligently obtained and executed the search warrant, awarding him $1,300,000.

The Attorney General of Canada and the CRA appealed the verdict to BC’s highest court. Justice Ryan, speaking for the court of appeal, found there was no evidence of negligence, a Charter breach or that the search warrant was improperly obtained or executed. 

“The arrival of police officers at one’s home armed with a warrant to search is doubtless an upsetting and frightening event for anyone who experiences it,” she said. “That said, the search warrant is an important and accepted enforcement tool utilized by those charged with investigating crime. If a search warrant is lawfully obtained and executed, those subjected to it cannot seek compensation for its unintended repercussions.”

Negligent investigation

The law recognizes that an investigating police officer owes a duty of care to a suspect in the course of an investigation – the standard of this is a reasonable police officer in like circumstances – but Neumann was a third party, not a suspect. Assuming that the trial judge was correct in holding that the CRA owed a duty to Neumann (as a third party) in carrying out the least intrusive search in the circumstances (an issue the appeal court left for another day), the search was nonetheless reasonable. 

The investigator chose to obtain a warrant rather than relying on other investigative alternatives because of the close relationship that may have existed between the target and Neumann. He could not be sure Neumann would produce all of the records pertaining to the commissions if simply asked. It didn’t matter whether the investigator actually held this belief at the time he sought the warrant or whether he was simply justifying his actions at the time of trial. 

“The question is whether a reasonable investigator, knowing what (the investigator in this case) knew, would have concluded that a search warrant was necessary in this case,” said Ryan. “In my view, it would have been open to an investigator to reach that conclusion. In fact, one might argue that the investigator would have failed in his duties to his employer to do otherwise.”

S. 8 Charter breach

The court also found the search warrant justified so there was no Charter breach. “A search which is conducted under a valid warrant must be said to be a reasonable search unless the search itself is conducted unreasonably,” said Ryan. The fact that two uniformed and armed police officers accompanied the CRA agents did not render the manner in which it was conducted unreasonable. 

“Police are asked to accompany CRA agents in order to keep peace. In this case, as it turned out, there was no trouble that the police needed to deal with. (The plaintiff) accepted the authority of the warrant and was co-operative. Not long into the search the officers left the premises. Nothing in these events could be said to make the search unreasonable.” 

Nor did investigators unnecessarily intrude into other places within Neumann’s home. They searched in only two places where company records were kept. There was no evidence to support a claim of an unreasonable search and the issue should not have been left with the jury.

The finding of negligence and the Charter breach were set aside and the case was dismissed.