Business Quebec Quebec Court of Appeal Rulings Tax

Appeal court orders seized material to be sealed in Uber case

Nearly six months after 20 Revenue Quebec officials raided the Montreal offices of Uber Canada Inc. as part of a tax investigation, the popular ride-sharing service won a legal battle against the provincial taxman after the Quebec Court of Appeal overturned a lower court ruling and held that the seized evidence must be sealed.

The succinct 12-page ruling will likely pave the way for more applications for impoundment as the courts and tax authorities grapple with the challenges posed by e-commerce, disruptive business models, and technology, according to tax lawyers.

“The ruling demonstrates that the courts and tax authorities have no choice but to adapt to today’s technology,” noted Alexandre Dufresne, managing partner of Spiegel Sohmer in Montreal. With laptops, smartphones, tablets likely to contain business — and personal — information, “the courts are coming to grips over how to deal with the issue of search warrants and privacy, which is a constitutionally protected right.”

The San Francisco-based firm first launched in Montreal in 2013 as a mobile application that allowed users to hail a cab using their smartphones. In late 2014 the firm drew the ire of tax drivers – and the attention of authorities — after it introduced its UberX service, which allows people to use their own cars in order to offer lifts to customers for money. Montreal taxi drivers, like elsewhere around the world, have argued that Uber enjoys an unfair advantage, compromises their ability to make a living, and is illegal. Montreal’s taxi bureau has ramped up its efforts to crack down on UberX drivers and seized more than 400 vehicles last year.

In May 2015, six months after the launch of UberX, Uber faced more legal headaches. Revenue Quebec obtained two search warrants under the Tax Administration Act to seize computers, cellphones, tablets and documents from Uber’s Montreal offices, based on a sworn statement that alleged that information contained in the high tech devices would prove that it breached tax laws. Following the execution of the warrants, Uber brought a certiorari application before Superior Court seeking to quash the warrants, based on provisions of the Code of Penal Procedure, the Quebec Code of Civil Procedure as well as the Canadian and Quebec charters. While awaiting the outcome of the certiorari application, Uber also applied for a safeguard order, requesting that the seized be impounded based on articles 8 and 24 (1) of the Canadian Charter.

The trial judge, heeding guidance from an Quebec appeal court decision in Constructions Louisbourg Ltée c. Agence du revenu du Québec 2011 QCCA 1636, refused to grant the application for impoundment. The judge held that allowing Revenue Quebec to examine the seized material would not cause Uber irreparable harm, that Uber’s expectation of privacy with respect to regulated activities was low, and that the balance of convenience weighed in favour of the taxpayers’ right to have tax laws respected and investigations seen through to the end.

The Quebec Court of Appeal overturned the ruling. In a unanimous decision in Uber Canada Inc. c. Agence du revenu du Québec 2016 QCCA 1, the three-judge panel held that the lower court judge “erred in his assessment” of the harm Uber would suffer if the impoundment was denied. The appeal court noted that the seized documents in the Louisbourg case were “exclusively” commercial, and were seized by Revenue Quebec from Revenue Canada offices, under no objection from Louisbourg.

That was not the case in the Uber case, pointed out the appeal court. The property seized at Uber’s Montreal offices contained information that was not “strictly commercial.” Rather, there is a “significant risk” that the information found on the laptops and smartphones belonging to Uber employees was private in nature, and beyond the scope of the search warrants. In a catchy phrase that will likely be repeatedly cited, the appeal court noted that “information cannot be unlearned and documents cannot be unread.” The scope of the seizure, the premises where the searches were performed, and “the allegations by Revenue Quebec read in conjunction with the minutes of the seizure sufficiently demonstrate” the existence of irreparable harm, held the appeal court.

“Following the Louisbourg decision, there were doubts within the legal community whether applications for impoundment had a chance of succeeding,” said Montreal tax lawyer Paul Ryan. “The appeal court reiterates in the Uber case that the expectation of privacy is relatively low when it comes to commercial documents.  But it also points out that devices such as smartphones and laptops contain both commercial and private information — and the expectation of privacy in that case is much higher.”

The ruling also underscores the need for the courts to develop a body of guidance that will provide a clear framework for authorities when executing search warrants and seizing materials such as high tech devices, said Ryan. Often times judges do not provide detailed instructions in search warrants to authorities, creating “legally ambiguous and uncertain” situations, added Ryan. Until well-defined boundaries are spelled out by the courts, Ryan believes that the Uber decision will likely make it easier to obtain motions for impoundment.

Granting an order to impound until final judgment is rendered over the challenges to the search warrants  would not cause prejudice to the provincial tax authority, said Louis-Frédérick Côté, a Montreal tax litigator who used to work for Revenue Quebec. It is an interim measure that protects the taxpayer.

“The seized material has been in Revenue Quebec’s hands for several months, and we don’t know what they have done with it,” said Côté. “Are civil servants analysing it, perhaps. Have civil servants downloaded material from the devices, perhaps. It is difficult to unread what you have read. That’s why orders to impound are important. In the meantime, the tax authority suffers no harm.”

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