Great-West Life Assurance Company v. The Queen

Great-West Life Assurance Company v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-09-21
Neutral citation
2015 TCC 225
File numbers
2013-123(GST)G, 2014-1159(GST)G
Judges and Taxing Officers
John R. Owen
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Dockets: 2013-123(GST)G
2014-1159(GST)G
BETWEEN:
THE GREAT-WEST LIFE
ASSURANCE COMPANY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 26, 27 and 28, 2015, at Toronto, Ontario
Before: The Honourable Justice John R. Owen
Appearances:
Counsel for the Appellant:
Martha MacDonald
Diana Yeung
Counsel for the Respondent:
Marilyn Vardy
Annie Paré
JUDGMENT
In accordance with the attached Reasons for Judgment, the appeal under court file number 2013-123(GST)G from the assessment for the reporting periods between January 1, 2008 and November 30, 2009, made under the Excise Tax Act (the “ETA”) by notice dated November 24, 2011, is dismissed with costs to the Respondent.
In accordance with the attached Reasons for Judgment, the appeal under court file number 2014-1159(GST)G from the assessments for the reporting periods between December 1, 2009 and November 30, 2011 and between December 1, 2011 and December 31, 2012, made under the ETA by notices dated July 18, 2012 and November 12, 2013 respectively, is dismissed with costs to the Respondent.
Signed at Ottawa, Canada, this 21st day of September 2015.
“J.R. Owen”
Owen J.
Citation: 2015 TCC 225
Date: 20150921
Dockets: 2013-123(GST)G
2014-1159(GST)G
BETWEEN:
THE GREAT-WEST LIFE
ASSURANCE COMPANY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Owen J.
I. Introduction [1] These reasons address two appeals by The Great-West Life Assurance Company (“Great-West”), court file numbers 2013-123(GST)G and 2014-1159(GST)G. The appeals were heard on common evidence.
[2] The first appeal is from an assessment under the Excise Tax Act, R.S.C. 1985, c. E-15 (the “ETA”) by notice of assessment dated November 24, 2011 for the reporting periods ending between January 1, 2008 and November 30, 2009 (the “First Period”). The second appeal is from two assessments under the ETA by notices of assessment dated July 18, 2012 and November 12, 2013 for the reporting periods ending between December 1, 2009 and November 30, 2011 (the “Second Period”) and December 1, 2011 and December 31, 2012 (the “Third Period”) respectively. I will refer to these three assessments as the Assessments.
[3] Great-West seeks a rebate of goods and services tax (“GST”) in the amounts of $1,534,768.36, $1,718,575.32 and $992,839.64 that it says was paid in error during the reporting periods covered by the Assessments, less any input tax credits (“ITCs”) that have already been claimed by Great-West for the same reporting periods. Great-West filed two applications for the rebate of these amounts under section 261 of the ETA. The applications were filed within the two-year time limit specified in subsection 261(3) of the ETA. Great-West takes the position that the supply in respect of which the GST in issue was collected constituted a “financial service” as defined in subsection 123(1) of the ETA and therefore that the GST was paid to the supplier in error.
[4] Mr. Michael Stephen Schwartz testified for Great-West. Mr. Schwartz is the senior vice-president of group benefits at Great-West, a position that he has held since 2006. Mr. Schwartz oversees the group claims and call centre operations at Great-West. Mr. Schwartz obtained a chartered accountant designation in 1982 and a certified management accounting designation in 1984. He has been employed in the insurance industry for 30 years and with Great-West since it acquired his previous employer, London Life, in 1997.
[5] Mr. Michael James Roszak testified for the Respondent. Mr. Roszak has been the vice-president of business development at Telus Health Solutions (“Telus Health”) since Telus acquired Emergis Inc. (“Emergis”) in 2008. Mr. Roszak was the vice-president of strategy at Emergis from 2004 to 2007. Mr. Roszak is a chartered professional accountant and holds a master’s degree in business administration.
[6] I found both witnesses to be straightforward and credible.
II. Facts [7] The parties filed an Agreed Statement of Facts (Partial). The first paragraph states:
The Great West Life Assurance Company (“Great West”) entered into two consecutive agreements with respect to the period under appeal. The first agreement between Great West and Emergis Inc. was dated February 1, 2007. The second agreement between Great West, Telus Health Solutions and Emergis Inc. was dated February 1, 2012. Copies of the agreements and certain price lists are attached at Tabs 1, 2 and 3. The parties to the agreements acted in accordance with the agreements at all relevant times.
[8] I will refer to the two agreements together as the “Agreements” and individually as the “2007 Agreement” and the “2012 Agreement”. For ease of reference, I will refer to Emergis and Telus Health as Emergis. The parties agreed during the course of the hearing that the terms of the Agreements are essentially the same except for changes reflecting the change of ownership after the 2007 Agreement was signed. The balance of the paragraphs in the agreed statement of facts reference various documents that the parties agreed to enter into evidence.
[9] Great-West is a major Canadian insurance company that offers, among other things, group health benefits plans to employers. These plans typically include coverage for prescription drugs and dental care. An employer that enters into such a plan is called the plan sponsor and the employees who are entitled to benefits under the plan are called plan members.
[10] The plans may be insured, in which case Great-West assumes in exchange for an insurance premium the risk associated with the obligation to pay benefits under the plan, or uninsured, in which case that risk falls on the plan sponsor and Great-West charges a fee for the services provided by it under the plan. The latter are called administrative service only (ASO) plans in the insurance industry. According to Mr. Schwartz, the name is intended to distinguish the function of the insurance company under an ASO plan from its role in the risk management (i.e., insurance) side of the business.
[11] The only material distinctions between insured and ASO plans are with regard to the party bearing the risk and to the flow of funds in the background that reflects this allocation of risk. Under an insured plan, Great-West collects a premium from the plan sponsor and is required to pay the benefits under the plan to the plan members. Under an ASO plan, at the end of each day, Great-West reports to the plan sponsor the claims paid that day under the plan and the plan sponsor is required to pay Great-West the amount so paid. Great-West also charges the plan sponsor a fee for the ASO plan (an “ASO fee”). The ASO fee paid to Great-West may be a flat fee per claim or it may be a percentage of paid claims.
[12] The terms of a particular group health plan are determined by the plan sponsor. The plan sponsor may or may not consult with Great-West when establishing the terms of the plan.
[13] The terms of the prescription drug component of a plan address the benefits to be paid to plan members for prescription drugs. One key term concerns the drugs covered by the plan. An “open” plan covers all drugs that require a prescription while a “formulary” plan covers a specific list of drugs set out in a formulary. Formularies may vary from province to province. According to Mr. Schwartz, open plans are much more prevalent in the Great-West portfolio of plans.
[14] Emergis has pharmacists on staff who develop custom formularies. These formularies would be available to Great-West for use in its plans. However, it was up to the plan sponsor to decide whether to have an open plan or to use one or more formularies in its plan.
[15] The terms of the prescription drug component of a plan may also include:
1. Limits on the amount paid for a particular drug. For example, if there is a brand name and a generic version of a drug, the amount paid to the plan member may be limited to the cost of the generic version of the drug.
2. A limit on the amount paid in respect of a particular claim to what is considered “reasonable and customary”. This amount may vary from province to province because of different pricing regimes and definitions. As well, the “reasonable and customary” standard may be applied separately to the two elements of the pharmacy bill, which are the ingredient (drug) cost and the dispensing fee.
3. The fixing of deductibles, which might apply on a lifetime basis, a yearly basis or on a per-prescription basis, or some combination of these three.
4. The factoring in of co-insurance, which addresses the scenario where a plan member has prescription drug coverage under more than one plan (for example, under a Great-West plan and under a spouse’s plan).
[16] Under the 2007 Agreement, Great-West retained Emergis to perform services in relation to the determination and payment of benefits under the prescription drug and dental components of its group health benefits plans. Only the services relating to the prescription drug benefits are in issue in these appeals. The parties agreed that the services provided by Emergis to Great-West under the 2007 Agreement and under the 2012 Agreement constitute a single compound supply for the purposes of the ETA. The issue lies in how to characterize that single supply.
[17] As the Agreements are essentially the same, I will concentrate on the terms of the 2007 Agreement. However, before I recite the relevant provisions of the 2007 Agreement, it is helpful to understand the functions associated with the payment of benefits under the prescription drug component of a plan, the general conduct of Great-West and Emergis in this area and the role of the Assure Card system, all as described by the witnesses.
[18] Prior to the introduction of systems such as the Assure Card system approximately 25 years ago, a plan member would take his or her prescription to the pharmacy, pay for the prescription and then send in a paper claim form to the plan administrator to obtain the available benefit under the plan. This approach had two main downsides. First, the plan member had to fund the purchase of the drug, which could impose a material financial burden on the individual. Second, the paper-based approval process was time-consuming and costly.
[19] The Assure Card system addresses these downsides. In a typical scenario, the plan member takes his or her prescription to the pharmacy and presents the prescription and the Assure Card to the pharmacist, the pharmacist sends the claim to Emergis electronically using the pharmacy’s own hardware and software, and Emergis communicates to the pharmacist how much will be paid to the pharmacist in respect of the claim. If the claim is approved the pharmacist delivers the prescription drug to the plan member and collects any balance not covered by the plan from the plan member. If the claim is rejected then no coverage is provided and the plan member must pay the full cost of the drug. A claim that is approved may subsequently be voided at the request of the pharmacy.
[20] Mr. Roszak testified that 99% of Canadian pharmacies have signed agreements with Emergis that allow them to connect to the Emergis network so that they can submit claims electronically through the Assure Card system. The exceptions are pharmacies that do not have an Internet connection. The electronic transmission by a pharmacy of the information associated with a claim is called “switching”. Mr. Roszak testified that Emergis does provide stand-alone switching services to some customers. However, the services consisting in the assessment or vetting of the claim and the payment of the claim are always provided together by Emergis.
[21] Under the agreement between Emergis and the pharmacy, Emergis agrees to pay to the pharmacy the amount covered by the plan. This payment is made in accordance with the terms of the particular agreement. In Québec, the pharmacy is paid the next day while in other provinces it may be paid in 15 or 30 days. The payment covers all claims paid during the relevant period and the pharmacy is given reconciliation information so that the payment can be tied to the drugs dispensed by the pharmacy during the relevant period.
[22] Emergis is not an insurer and makes the payments to the pharmacies under Great-West plans on behalf of Great-West. Emergis communicates the transactions to Great-West daily and is reimbursed by Great-West for all amounts paid on behalf of Great-West during the previous day. Emergis does not use any of its own funds to satisfy claims by plan members. In other words, Emergis does not take on the financial risk associated with the payment of benefits through the Assure Card system.
[23] Emergis is paid a fee for each drug transaction completed under a Great-West plan regardless of whether the claim is approved, rejected or voided. The fee is charged per drug and not per prescription. Each drug is identified by its unique drug identification number or DIN.
[24] The Assure Card itself is simply a plastic card with a string of numbers that identifies the holder of the card and the individual’s employer group. More recently, to reduce costs, there has been a move away from the use of plastic cards to “cards” that can be printed at home. Mr. Schwartz testified that 83% of Great-West’s plans are card-based plans. As most large plans are card plans, this percentage represents more than 83% of plan members.
[25] The process of assessing or vetting a claim for prescription drug benefits under a plan is called adjudication and involves the application to each claim of the rules specified in the plan and industry standard rules. The steps involved in the adjudication process will vary according to the terms of the particular plan. Mr. Schwartz described the main steps as follows:
1. Confirmation that the plan is in force.
2. Confirmation that the individual has a valid plan membership.
3. Confirmation that the particular drug is covered under the plan.
4. Determination of the level of payment and the deductible.
5. Determination of whether the plan member has reached any limit imposed by the plan such as an annual limit.
6. Determination of whether the amount charged by the pharmacist meets the “reasonable and customary” standard given the location of the claim.
7. Coordination of plan benefits where the plan member is covered under more than one plan; for example, the application of rules addressing which plan pays first and which plan pays any residual benefit.
[26] Mr. Roszak testified that the adjudication process conducted by Emergis also includes a drug utilization review or analysis to determine if there are any concerns associated with dispensing the drug to the plan member. For example, is the plan member taking other drugs that may interact with the drug being vetted? The results of this review are communicated to the pharmacist so that they can be taken into account before the prescription is filled.
[27] For each plan, Great-West transmits electronically to Emergis the plan terms, including the list of plan members, the coverage of the plan members, the employer of the plan members and the unique identifier assigned by Great-West to each of the plan members. In adjudicating a claim, Emergis relies on the information provided by Great-West as well as general information (e.g., industry standards and legislative requirements) and information that it has collected through the Assure Card system (e.g., the prescription history of the plan members). The adjudication is performed in real time on Emergis’ dedicated computer system and the result is immediately communicated to the pharmacy computer.
[28] Emergis collects and retains information regarding each drug transaction, including whether it was approved or rejected, the amount paid and the plan member’s prescription history. This last piece of information allows Emergis to perform the drug utilization review.
[29] Emergis has no independent discretion and must accept or reject a particular claim in accordance with the terms of the plan communicated to Emergis by Great-West. Mr. Roszak testified that Emergis’ overall experience (not limited to Great-West) was that 85% of claims would be accepted and paid, 10% of claims would be rejected and 5% would be voided. A voided claim is a claim that has been approved by Emergis but that the pharmacy subsequently requests be voided. The amount of a voided claim may have been paid to the pharmacy before the claim was voided.
[30] Emergis provided reports to Great-West related to the adjudication and payment of benefits. As well, Emergis provided other reports to Great-West that would allow it to analyze transactions on a micro or macro level. The reports were made weekly, monthly or on an ad hoc basis, depending on the type of report.
[31] Emergis conducts random audits of pharmacies to confirm that the claims being submitted are valid. As well, an audit might be triggered by the types of drugs being dispensed. For example, narcotics and high-cost drugs would be monitored carefully.
[32] Mr. Roszak described Emergis as a pharmacy benefit manager. In that role, it would conduct market research and provide that information to all its customers. As well, it would create specific capabilities for customers. For example, in the case of Great-West, it created an Internet-based drug look-up capability that individuals could use to obtain information about a drug, including its cost.
[33] Emergis maintains call centres for its insurance company customers as well as for the pharmacies that connect to its network. The call centres are there to address technical issues.
A. The Agreements [34] The descriptions provided by Mr. Schwartz and Mr. Roszak of the services provided to Great-West by Emergis are consistent with the Agreements. However, as one would expect, the Agreements provide considerably more detail. Unless otherwise noted, the capitalized terms used hereunder are defined in the 2007 Agreement.
[35] The preamble to the 2007 Agreement states:
A. Great–West is engaged in the business of marketing certain extended health care benefit plans;
B. Emergis has developed and is the owner of a point-of-service network and system for health care processing, including, without limitation, drug and dental claims in association with the trade-marks ASSURE CARD and ASSURE CARTE;
C. The system enables Emergis to provide claims capture including eligibility of the claimant, transmission, adjudication, payment and other services more specifically described below; and
D. Great-West entered into an agreement dated November 1, 2002 with Emergis (formerly known as BCE Emergis Inc.), as amended, to access the system and use the services which the Parties now wish to amend and restate.
Mr. Roszak testified that he agreed with the description in each of these four paragraphs.
[36] The terms “Charges“, “Emergis Trade Marks”, “Fees”, “Provider”, “Services” and “Transaction” are defined in section 2 of the 2007 Agreement as follows:
“Charges” means all other amounts payable by Great-West to Emergis for the provision of the Services, excluding the Fees, as described in the Schedule D attached hereto.
“Emergis Trade Marks” means ASSURE CARD, ASSURE CARTE and such other trade-marks, trade names, domain names, designs and logos of Emergis which it may use in connection with the operation of the Assure System and the provision of Services hereunder.
“Fees” means the transactional price payable by Great-West to Emergis under this Agreement for provision of certain Services (processing and adjudication) in accordance with Section 7 hereof, as more specifically described in Schedule D attached hereto.
“Provider” means a licensed or otherwise accredited provider of a health benefit service, including but not limited to, a dentist, optometrist, pharmacist or medical doctor, or such other party as may be agreed upon by the Parties.
“Services” has the meaning set forth in Section 3 and Schedule A attached to this Agreement, as it may be amended from time to time.
“Transaction” means: (i) with respect to a Benefit Plan which provides drug coverage, the dispensing of one prescription item including a rejected claim and successfully voided claim; and [balance addresses dental claims].
[37] Section 3 of the 2007 Agreement, titled “Services”, states:
3.1 Emergis has agreed to perform the Services for each Benefit Plan identified by Great-West to Emergis, as applicable. Emergis shall use commercially reasonable efforts to provide and perform the Services in accordance with the Service Levels set forth in Schedule C. The description of the Services that shall apply to a Benefit Plan shall be included in the Benefit Plan Design provided by Great-West to Emergis and referred to in Section 4.2 hereof.
3.2 Great-West shall have the right, at any time and from time to time, to amend, alter, delete or enhance the application of the Services as they relate to any particular Benefit Plan, by amending the Benefit Plan Design.
3.3 Great-West may make non-fundamental changes to a Benefit Plan Design at any time during the Term of this Agreement on thirty (30) days prior written notice to Emergis. If any changes are requested by Great-West to a Benefit Plan Design which are fundamental and require changes in the logic of the Assure System, and such changes are reasonably required, Emergis will make such changes in accordance with the Change Management Procedure set out in Schedule E.
[38] Section 4 describes the responsibilities of Great-West. Sections 4.1, 4.2. 4.4, 4.6, 4.9 and 4.10 state:
4.1 Great-West has provided, and throughout the Term of this Agreement shall continue to provide on a timely basis, Emergis with such information as Emergis may reasonably require in order to fulfill its obligations under this Agreement.
4.2 Great-West shall enter and maintain a Benefit Plan Design for each Benefit Plan on the Assure System. Great-West may provide an Exception to Emergis for exceptions applicable to the Benefit Plan Design for a particular Benefit Plan on the Assure System.
. . .
4.4 Great-West acknowledges that it and its Sponsors shall be responsible for providing, at its or their expense, the telecommunications equipment and Internet access that is required for it or such Sponsors to access and utilize the Services.
. . .
4.6 Great-West shall be solely responsible for the use and compatibility of its own equipment, software and applications and shall be liable for all Great-West costs required to troubleshoot difficulties in the Services caused by Great-West's equipment, software or applications.
. . .
4.9 Great-West will not reverse compile, reverse assemble, disassemble or translate any portion of the System Software of which it may at any time come into possession, except as may be permitted elsewhere in this Agreement.
4.10 Great-West shall be solely responsible for CAIL software licenses required by Great-West to access and utilize the Services.
[39] Section 5 describes the responsibilities of Emergis. Sections 5.1 to 5.8, 5.14, 5.15, 5.22 and 5.25 state:
5.1 Emergis shall maintain a sufficient number of Providers to meet the needs of the Claimants.
5.2 Emergis shall use its commercially reasonable efforts to maintain levels of service in accordance with the Service Levels set out in Schedule C and to keep the Assure System industry leading and competitive.
5.3 Emergis shall provide Great-West with the appropriate number of Assure Cards for Claimants, as requested by Great-West.
5.4 Emergis shall perform the Services in a good and professional manner, in accordance with best practices in the market, in English and French as appropriate.
5.5 Emergis shall, in accordance with Section 20 hereof, provide Great-West with access to data associated with Great-West’s business at the end of each Business Day.
5.6 Emergis shall provide the standard reports referred to in Schedule A and the Service Performance Reports referred to in Schedule C in the frequency set forth in Schedule C, and such further reports as may reasonably be requested by Great-West from time to time (the "Special Reports"). The Charge, if any, for Special Reports shall be as agreed upon by Great-West from time to time.
5.7 Emergis shall carry out routine audit procedures no less frequently than quarterly and on a minimum of 200 pharmacy Providers annually, to ensure that the Assure System and the Services are free from errors and defects, including auditing specific pharmacy Provider sites. Emergis shall notify Great-West of such audits when performed. Emergis shall make any change to its audit process in accordance with the Change Management Procedure, and make the results of such audits available to Great-West in such detail as may be agreed upon by the Parties, acting reasonably, with respect to its Transactions with such pharmacy Providers.
5.8 Emergis shall provide such additional services for such Fees or Charges as may be agreed upon by Emergis and Great-West from time to time, at which time such services shall be deemed to be part of the Services, the whole in accordance with the Change Management Procedure set out in Schedule E.
. . .
5.14 Emergis shall be solely responsible for the use and compatibility of its own equipment, software and applications and shall be liable for all Emergis costs required to troubleshoot difficulties in the Services caused by Emergis' equipment, software or applications.
5.15 Emergis shall maintain the Assure System, the System Software and its equipment using hardware and software commonly used in the Canadian market, and its proprietary software.
. . .
5.22 Emergis shall provide Great-West with access to Emergis’ proprietary formularies that are made generally available to Emergis’ clients, as amended from time to time, and shall update such formularies no less frequently than quarterly. Emergis shall provide Great-West with no less than eighteen (18) months prior written notice of the termination of an Emergis formulary except where such termination is required by law. Emergis shall take reasonable steps to ensure that its formularies comply with law.
. . .
5.25 Emergis shall, upon request of Great-West, provide training to Great-West personnel authorized by Great-West to access the Assure System. Such training shall be conducted at a time and location to be reasonably designated by Great-West. Emergis shall supply all required documentation, aids and tools required for training on the Assure System. Any travel expenses incurred by Emergis in providing such training and invoiced as a Charge to Great-West shall comply with Great-West's Travel Policy set out in Schedule K.
[40] Section 7.1 of the 2007 Agreement, under the heading “Fees and Charges”, states:
7.1 In consideration of performing the responsibilities set out in Section 5 hereof and the Services, Great-West shall pay Emergis the Fees and Charges for the Services as set out in Schedule D or as otherwise provided in this Agreement.
[41] The Services provided by Emergis to Great-West are described in detail in Schedule A to the 2007 Agreement. For transactions using the Assure System (described in the schedule under the heading “Pay Direct Drug”), the Services are described as follows:
(i) provide real-time, electronic pharmacy Transactions capture from the Provider’s point-of-service, verification of eligibility of Claimant, adjudicate in accordance with Benefit Plan Designs provided by Great-West and confirm Transaction payment status to the Providers.
(ii) maintain the Provider network to allow electronic submission of drug Transactions.
(iii) assist in the development of standards for electronic transactions processing and keep Great-West informed of developments.
(iv) operate a support desk (English and French) for Providers to answer questions and assist in problem resolution.
(v) maintain relations with major software vendors and support regarding their provider software management packages relating to the processing of drug Transactions, changes required to support new products and validation of vendor software.
(vi) ensure the adjudication software will adhere to legislative requirements, when possible with the information provided, the whole in accordance with the Change Management Procedure in Schedule E when appropriate.
(vii) maintain DIN price and formulary files for use in the adjudication process.
(viii) maintain DUR files for use in the adjudication process.
(ix) maintain the appropriate version of the Transaction submission message.
(x) provide real-time monitoring of Transactions processing and ensure continuity of service.
(xi) maintain the Provider files for use in the adjudication process.
(xii) create end of day Transaction Log Files that includes [sic] all Transactions submitted by the Provider for Great-West, including same day voids, prior day voids, and rejected Transactions. (This information is contained within the ELOG and VLOG).
(xiii) check to ensure no other payment has been issued for the same Transaction by Emergis.
(xiv) Emergis will keep on-line drug adjudication Transactions for a period of ninety (90) days.
[42] Schedule A also describes the services provided by Emergis in respect of Deferred Payment and Paper Reimbursement transactions. As the services are similar and the vast majority of transactions in issue involve Pay Direct Drug services, I will refer only to the Pay Direct Drug services. I note that neither party sought to distinguish the various service categories.
[43] Schedule D sets out the price list in detail. Heading A of Schedule D is “PAY DIRECT DRUG (PDD)”. Paragraph A(i) indicates that in exchange for the Pay Direct Drug services described in paragraph (i) of section II-A of Schedule A, Emergis is paid a fixed amount for each Transaction, which is referred to as the Transaction Fee. The description in Schedule D of the Fee for the services described in paragraphs (ii) through (xiv) of section II-A of Schedule A states: “No additional charge – included in Transaction Fee”.
[44] If the number of Transactions in a year exceeds a specified threshold, the Transaction Fee for Transactions above that threshold is reduced. Under section 7.4 of the 2007 Agreement, the Fees are invoiced using a blended rate that is based on the projected number of Transactions for the year, and an adjustment for the actual number of Transactions is made at the end of the year.
[45] Section 8 of the 2007 Agreement describes the payment procedure. Emergis is required, under section 8.1, to provide Great-West with the daily Transaction Log Files and, under section 8.2, to e-mail to Great-West an invoice for the previous day’s Transactions. Great-West is required to pay the invoices by an electronic transfer of funds into a trust account named the “Emergis Inc. Trust Account for The Great-West Life Assurance Company”. The payment is to take place no later than the end of the business day following receipt of the Transaction Log Files. The funds so transferred are to be used by Emergis exclusively for the purpose of paying Providers in settlement of each Transaction processed by Emergis for Great-West. Any interest earned on the funds in the account belongs to Emergis.
[46] Under section 8.9, Emergis is required to provide Great-West with an itemized statement of Charges within 30 days after the end of each month. Great-West is required to pay Emergis the amount indicated on the statement within 30 days of receipt of the statement. Charges are all amounts payable for services under the agreement, other than Fees.
[47] Section 10 of the 2007 Agreement describes operations and marketing. Under section 10.1, Emergis is required to establish and maintain a users group to discuss the needs of the users and market requirements in order to keep the Assure System and the Services competitive, current and on the leading edge. Under section 10.2, in June of each year, Emergis is required to provide to Great-West a preliminary business plan setting out the activities planned in regard to the Services for the following year. The plan is to be based on the feedback obtained from the users group.
[48] Section 12 addresses Assure Cards, Identification Cards and indemnification by Great-West. Under section 12.1, Great-West is responsible for the accuracy of the Benefit Plan Design and Claimant Information it provides to Emergis, and Emergis is responsible for the accuracy of the application of the Benefit Plan Design and data to the Identification Cards[1] and the Assure Cards. Emergis is responsible for any costs incurred because of an omission or error in the application of the Benefit Plan Design and data to the Identification Cards and the Assure Cards. Under section 12.2, Great-West is to indemnify Emergis for any loss resulting from the fraudulent use of an Identification Card, or an Assure Card except where the use is by an employee or agent of Emergis or results from a negligent or willful act or omission by Emergis.
[49] Section 13 addresses intellectual property rights. Sections 13.1 to 13.3 state:
13.1 Except as expressly provided in Section 13.5 and 21.3 hereof, Great-West acknowledges that all rights in the Assure System are proprietary to Emergis and all Intellectual Property Rights developed, collected, created by or for Emergis otherwise resulting from the Services shall belong solely to Emergis.
13.2 Emergis represents and warrants that it is the owner of the Emergis Trade Marks and has the right to grant to Great-West the right to use same in a manner approved by Emergis from time to time. On this basis, Great-West acknowledges that Emergis is the exclusive owner of the Emergis Trade Marks and, except as expressly provided in this Agreement, Great-West acquires no right, title or interest in the Emergis Trade Marks. Great-West shall only use the Emergis Trade Marks in a manner approved by Emergis from time to time.
13.3 Emergis represents and warrants that it is the owner or the authorized licensee of all elements of the Assure System and any third party software that Emergis provides to access or use the Assure System and has the right to provide the Services to Great-West as provided for herein. On this basis, Great-West acknowledges that Emergis is the exclusive owner or authorized licensee of the Assure System and the Assure Card and, except as expressly provided in this Agreement, Great-West acquires no right, title or interest in the Assure Card or the Assure System. Great-West shall only use and authorize the use of the Assure Card in a manner approved by Emergis from time to time.
[50] Section 14 addresses confidentiality and confidential information.
[51] Section 16 addresses the indemnity to be provided by Emergis and the limits of Emergis’ liability. Sections 16.1 to 16.3 state:
16.1 Emergis’ liability for all damages to Great-West arising out of this Agreement for all claims, demands or causes of action whatsoever, and regardless of the form of action, whether in contract or in tort, including negligence, for any year shall be limited to one half (l/2) the estimated amount of Fees for the immediately preceding year to which a claim relates. Excluded from this limitation are claims under Section 14 [the confidentiality provisions], Section 16.2 and Section 16.3 hereof.
16.2 Emergis shall indemnify and hold Great-West harmless from any claim from a third party that any item or any part of the Services furnished hereunder constitute an infringement of any copyright, trade secret or other intellectual property right excluding patent, and Emergis shall pay all damages and costs incurred by Great-West, including without limitation all legal fees and all settlement costs.
16.3 Emergis shall indemnify and hold Great-West harmless from any claim that the license of the Assure System as set out in Section 21.3 hereof, constitutes an infringement of any copyright, trade secret or other intellectual property right excluding patent, and Emergis shall be liable to pay all damages and costs incurred by Great-West, including without limitation all legal fees and all settlement costs.
[52] Section 20 addresses information and data. Sections 20.1 and 20.3 state:
20.1 It is understood and agreed that Great-West owns the data provided by Great-West to Emergis in order to provide the Services and is entitled to all information in the records of Emergis pertaining to such data. The Provider is entitled to review and obtain a copy of all information in the records of Emergis which the Provider originally submitted and any other information required by a Benefit Plan Design, as permitted by law. Except for information which may identify an individual, Emergis owns the information generated by Emergis through the provision of the Services and will be free to use it in providing statistical data to (without limitation) drug manufacturers, pharmacies, government agencies, carriers and third party statistical information providers. In no event will Emergis identify Great-West, the Sponsor or an individual Claimant without the express written consent of Great-West, Sponsor and/or the Claimant as the case may be.
. . .
20.3 Emergis represents and warrants that the Assure System and the System Software and any component thereof (including customizations, corrections and enhancements) developed by Emergis or for Emergis, will be free of any disabling codes or instructions, any virus or other contaminant, or any passwords that may, or may be used to, access, modify, delete, damage or disable Great-West’s computer systems or any component thereof or that may result in damage thereto.
[53] Section 21 addresses the termination of Emergis’ business and the placing in escrow of the assets used in the Assure System. If there is a Release Event then Emergis grants to Great-West a non-exclusive limited licence to use the proprietary components of the Assure System. A Release Event includes such things as the cessation of Emergis’ business, the bankruptcy, insolvency, dissolution or winding up of Emergis, or the seizing of the Assure System by any legal process.
B. The Position of the Appellant [54] The position of Great-West is that the Transaction Fee paid by Great-West to Emergis was consideration for making a supply of a “financial service” (as defined in subsection 123(1) of the ETA) to Great-West. Great-West argues that this follows from the fact that the essential service for which Great-West paid the Transaction Fee to Emergis was the effecting of the payment of drug benefits in accordance with the terms of the benefit plans.
[55] Great-West submits that Emergis played an indispensable and integral role in the payment of drug benefits to plan members. Specifically, plan members who used the Assure Card enjoyed the benefit of their drug coverage at the pharmacy counter and pharmacies received actual payment of the drug benefits by means of a disbursement from the trust account. As a result of the involvement of Emergis in the process, Great-West was able to satisfy its obligations under the benefit plans by making a single payment each day into the trust account.
[56] Great-West submits that, before a drug benefit could be paid to a plan member, the claim had to be adjudicated against the applicable Benefit Plan. The process of adjudication was complex, but Emergis was capable of handling the complexity. Emergis provided the payment and adjudication services as a single package to Great-West and its competitors. Great-West’s overarching business objective in engaging the services of Emergis was the payment of drug benefits in accordance with benefit plan