Contractor v. The Queen

Contractor v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2021-07-29
Neutral citation
2021 TCC 46
File numbers
2018-3082(IT)G, 2018-3084(IT)G, 2018-3086(IT)G
Judges and Taxing Officers
John R. Owen
Subjects
Income Tax Act
Notes
Decision Content
Docket: 2018-3082(IT)G
BETWEEN:
CHETNABEN CONTRACTOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard by videoconference on June 10, 2021 at Ottawa, Ontario
Before: The Honourable Justice John R. Owen
Participants:
Counsel for the Appellant:
Jeff D. Pniowsky
Matthew Dalloo
Counsel for the Respondent:
Elizabeth Tutiah
ORDER
WHEREAS the Respondent brought a motion to compel the Appellant to answer undertakings arising from her oral examination for discovery;
AND UPON reviewing the affidavit evidence and the oral and written submissions of counsel for the Appellant and counsel for the Respondent;
IN ACCORDANCE with the attached Reasons for Order, it is ordered that the motion is denied with costs to the Appellant in accordance with Tariff B of the Tax Court of Canada Rules (General Procedure).
Signed at Ottawa, Canada, this 29th day of July 2021.
“J.R. Owen”
Owen J.
Docket: 2018-3084(IT)G
BETWEEN:
YOGESHKUMAR CONTRACTOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard by videoconference on June 10, 2021 at Ottawa, Ontario
Before: The Honourable Justice John R. Owen
Participants:
Counsel for the Appellant:
Jeff D. Pniowsky
Matthew Dalloo
Counsel for the Respondent:
Elizabeth Tutiah
ORDER
WHEREAS the Respondent brought a motion to compel the Appellant to answer undertakings arising from his oral examination for discovery;
AND UPON reviewing the affidavit evidence and the oral and written submissions of counsel for the Appellant and counsel for the Respondent;
IN ACCORDANCE with the attached Reasons for Order, it is ordered that the motion is denied with costs to the Appellant in accordance with Tariff B of the Tax Court of Canada Rules (General Procedure).
Signed at Ottawa, Canada, this 29th day of July 2021.
“J.R. Owen”
Owen J.
Docket: 2018-3086(IT)G
BETWEEN:
1685326 ONTARIO LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard by videoconference on June 10, 2021 at Ottawa, Ontario
Before: The Honourable Justice John R. Owen
Participants:
Counsel for the Appellant:
Jeff D. Pniowsky
Matthew Dalloo
Counsel for the Respondent:
Elizabeth Tutiah
ORDER
WHEREAS the Respondent brought a motion to compel the Appellant to answer undertakings arising from its oral examination for discovery;
AND UPON reviewing the affidavit evidence and the oral and written submissions of counsel for the Appellant and counsel for the Respondent;
IN ACCORDANCE with the attached Reasons for Order, it is ordered that the motion is denied with costs to the Appellant in accordance with Tariff B of the Tax Court of Canada Rules (General Procedure).
Signed at Ottawa, Canada, this 29th day of July 2021.
“J.R. Owen”
Owen J.
Citation: 2021 TCC 46
Date: 20210729
Docket: 2018-3082(IT)G
BETWEEN:
CHETNABEN CONTRACTOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2018-3084(IT)G
AND BETWEEN:
YOGESHKUMAR CONTRACTOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2018-3086(IT)G
AND BETWEEN:
1685326 ONTARIO LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Owen J.
I. Background
A. The Reassessments Under Appeal
[1] Chetnaben Contractor (“CC”) and Yogeshkumar Contractor (“YC”) are spouses and 50-50 common shareholders of 1685326 Ontario Ltd. (the “Corporation”) (collectively, the “Appellants”). The Corporation has operated a Super 8 Motel franchise since 2006. Each of the three Appellants is appealing the reassessments of their 2013, 2014 and 2015 taxation years (the “Taxation Years”).
[2] The reassessments of the Corporation’s Taxation Years are based in part on a net worth calculation in support of the position of the Minister of National Revenue (the “Minister”) that the Corporation had undeclared revenues in each year. The Minister also denied expenses, capital cost allowance and terminal loss claimed by the Corporation in each of the Taxation Years (collectively, the “Expenditures”) and assessed the Corporation a penalty under subsection 163(2) of the Income Tax Act (the “ITA”) for each of the Taxation Years.
[3] The additional income of the Corporation and the Expenditures for each of the Taxation Years are stated in the Reply filed by the Minister for the Corporation’s three appeals (the “Corp Reply”) as follows: [1]
[4] The amount of the Expenditures denied to the Corporation in each of its 2013, 2014 and 2015 taxation years was $67,916, $65,059 and $35,541, respectively.
[5] The reassessments of CC and YC for the Taxation Years reflect the assessment of a shareholder benefit equal to the aggregate of one-half of the additional revenue attributed to the Corporation for each of the Taxation Years and a portion of the Expenditures for each of the Taxation Years that the Minister says were personal expenses of the shareholders paid by the Corporation. As well, the Minister assessed YC for a penalty in each of the Taxation Years under subsection 163(2) of the ITA.
[6] The additional income of each of CC and YC is stated in the Replies filed by the Minister for the CC appeal (the “CC Reply”) and the YC appeal (the “YC Reply”), respectively, as follows:
[7] The additional income of each of CC and YC identified as a “benefit conferred on shareholder” is 50% of the additional income of the Corporation for the same taxation year. The additional income of each of CC and YC identified as “taxable benefits from” the Corporation is 13.72%, 10.93% and 0.35% of the Expenditures.
[8] The penalties assessed against YC are as follows:
B. The Motions
[9] The Respondent has brought two motions (the “CC Motion” and the “YC Motion”) to compel CC and YC to answer undertakings arising from their respective oral examinations for discovery. The oral examination of CC was held on October 30, 2019 and the oral examination of YC was held on October 31, 2019 and for two hours on November 1, 2019.
[10] In each motion, the Respondent requests “an Order pursuant to sections 7, 12, 65, 75, 95, 96, 105, 110, 107(3), 108, 108(2), 110, and 116 of the Tax Court of Canada Rules (General Procedure)”.
[11] The request in the CC Motion is to “[p]rovide answers to the following Undertaking Nos. 1, 3-6 and 8-16 arising from the examination for discovery of Chetnaben Contractor held on October 30, 2019, and the follow up questions regarding same”.
[12] The request in the YC Motion is to “[p]rovide answers to Undertaking Nos. 1, 3, 8, 11 and 12-28 arising from the examination for discovery of Yogeshkumar Contractor held on October 31, 2019 and November 1, 2019 and the follow up questions regarding same”.
[13] I will refer to the undertakings identified in the two motions as the “Disputed Undertakings”.
[14] The Respondent submitted two affidavits of a paralegal with the Department of Justice—one in support of the CC Motion (the “CC Affidavit”) and one in support of the YC Motion (the “YC Affidavit”). The CC Affidavit states that CC was examined in her personal capacity and on behalf of the Corporation [2] and the YC Affidavit states that YC was examined in his personal capacity and on behalf of the Corporation. [3]
II. Analysis
A. The Rules
[15] The sections of the Tax Court of Canada Rules (General Procedure) (the “Rules”). [4] relevant to these motions include sections 4 and 92 and subsections 81(1), 93(1), 95(1), 105(2), 107(1) and 108(1), which state:
4 These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every proceeding on its merits.
81(1) A party shall, within thirty days following the closing of the pleadings, file and serve on every other party a list of the documents of which the party has knowledge at that time that might be used in evidence,
(a) to establish or to assist in establishing any allegation of fact in any pleading filed by that party, or
(b) to rebut or to assist in rebutting any allegation of fact in any pleading filed by any other party.
92 An examination for discovery may take the form of an oral examination or, at the option of the examining party, an examination by written questions and answers, but the examining party is not entitled to subject a person to both forms of examination except with leave of the Court.
93(1) A party to a proceeding may examine for discovery an adverse party once, and may examine that party more than once only with leave of the Court.
95(1) A person examined for discovery shall answer, to the best of that person’s knowledge, information and belief, any proper question relevant to any matter in issue in the proceeding . . . and no question may be objected to on the ground that
(a) the information sought is evidence or hearsay,
(b) the question constitutes cross-examination, unless the question is directed solely to the credibility of the witness, or
(c) the question constitutes cross-examination on the affidavit of documents of the party being examined.
105(2) Where a person admits, on an examination, that he or she has possession or control of or power over any other document that relates to a matter in issue in the proceeding and that is not privileged, the person shall produce it for inspection by the examining party forthwith, if the person has the document at the examination, and if not, within ten days thereafter, unless the Court directs otherwise.
107(1) Where a question is objected to, the objector shall state briefly the reason for the objection, and the question and the brief statement shall be recorded.
108(1) An examination may be adjourned by the person being examined or by a party present or represented at the examination, for the purpose of moving for directions with respect to the continuation of the examination or for an order terminating the examination or limiting its scope, where,
(a) the right to examine is being abused by an excess of improper questions or interfered with by an excess of improper interruptions or objections,
(b) the examination is being conducted in bad faith, or in an unreasonable manner so as to annoy, embarrass or oppress the person being examined,
(c) many of the answers to the questions are evasive, unresponsive or unduly lengthy, or
(d) there has been a neglect or improper refusal to produce a relevant document on the examination.
B. Oral Examinations for Discovery in the Tax Court of Canada
[16] Subject to section 17.3 of the Tax Court of Canada Act (the “TCCA”), section 92 provides for examinations for discovery either by oral examination or, at the option of the examining party, by written questions. Whether the format is oral or written, an examination for discovery involves the asking and answering of questions. [5]
[17] The purposes of oral discovery are recited by the Federal Court of Appeal in R. v. Lehigh Cement Ltd.: [6]
(a) to enable the examining party to know the case he has to meet;
(b) to procure admissions to enable one to dispense with formal proof;
(c) to procure admissions which may destroy an opponent’s case;
(d) to facilitate settlement; pre-trial procedure and trial;
(e) to eliminate or narrow issues; and
(f) to avoid surprise at trial.
[18] These purposes are informative but do not directly address the permissible scope of oral discovery under the Rules, which is rooted in the words of subsection 95(1) viewed in the light of the principle of proportionality. [7]
[19] To be permissible under subsection 95(1), a question must satisfy two conditions: the question must be proper and the question must be relevant to any matter in issue in the proceeding. To ensure a coherent application of these conditions elsewhere in the discovery Rules, where the term “proper question” is used [8] the term should be read as a reference to a question that is both proper and relevant. [9]
[20] In Lehigh, the Federal Court of Appeal described the scope of permissible discovery under the Rules as follows:
The scope of permissible discovery depends upon the factual and procedural context of the case, informed by an appreciation of the applicable legal principles. [10]
[21] The Court in Lehigh explains the Tax Court of Canada’s (“Tax Court”) discretion to disallow questions even though they meet the “relevant to” condition in subsection 95(1):
Where relevance is established the Court retains discretion to disallow a question. The exercise of this discretion requires a weighing of the potential value of the answer against the risk that a party is abusing the discovery process. . . . The Court might disallow a relevant question where responding to it would place undue hardship on the answering party, where there are other means of obtaining the information sought, or where “the question forms part of a ‘fishing expedition’ of vague and far-reaching scope”. [11]
[22] I would add that the Tax Court’s discretion to disallow questions that are relevant but not proper may also be exercised if the question is materially ambiguous, vague, imprecise, misleading, scandalous (e.g., defamatory) or vexatious (e.g., harassing); or seeks privileged information, seeks the work product of counsel, seeks the disclosure of evidence rather than fact or seeks an opinion (i.e., inference from facts) rather than fact.
[23] With respect to the “relevant to a matter in issue in the proceedings” requirement, in Teelucksingh v. R., [12] the Tax Court states:
Examination for discovery is an examination as to the information and belief of the other party as to facts that are relevant to the matters in issue, as defined by the pleadings. [13]
[24] When reviewing the pleadings for this purpose, the pleadings should be construed with fair latitude [14] and due regard should be had to the substantive law. [15]
[25] The questions on oral examination for discovery must be relevant to the matters in issue between the party being examined [16] and the party examining. The core issue between any appellant and the respondent in an income tax appeal under subsection 169(1) of the ITA is the correctness of the assessment or reassessment that is being appealed [17] and therefore as a general proposition it is the facts directly or indirectly [18] relevant to that core issue that may be explored in an oral examination for discovery.
[26] With respect to the degree of connection that is required by the phrase “relevant to any matter in issue in the proceeding”, [19] in Lehigh the Federal Court of Appeal states at paragraph 34:
The jurisprudence establishes that a question is relevant when there is a reasonable likelihood that it might elicit information which may directly or indirectly enable the party seeking the answer to advance its case or to damage the case of its adversary, or which fairly might lead to a train of inquiry that may either advance the questioning party’s case or damage the case of its adversary.
[27] Recently, in Madison Pacific Properties Inc. v. R., [20] the Federal Court of Appeal confirmed the approach in Lehigh:
In Lehigh, this Court held that the Tax Court had applied the correct legal test for disclosure in a case such as this, which defines relevance on discovery as requiring that the disputed question or production request give rise to a reasonable likelihood that it might lead to a train of inquiry that may advance a party’s case or damage that of its opponent. . . . [21]
[28] Discovery does not permit fishing expeditions. More precisely, questions that constitute a fishing expedition are not proper questions either because they are overly broad and/or an abuse of the discovery process or because they have no connection to the matters in issue in the proceeding, or both. [22] The facts and circumstances will determine the appropriate determination. [23]
[29] The matters in issue in a proceeding may include a law or policy. In R. v. CHR Investment Corporation, [24] the Federal Court of Appeal stated in paragraphs 25 and 31 that subsection 95(1) permitted questions to ascertain the opposing party’s legal position and that the person being examined would be obliged to answer the questions. [25]
[30] In Madison, the Federal Court of Appeal observed that documents identifying a purported policy in the ITA were of limited relevance and were likely inadmissible at the hearing of the appeal because “the question of the policy in the ITA that the taxpayer is alleged to have avoided is ultimately a question of law”. [26]
[31] Based on CHR and Madison, examination for discovery may be used to ascertain the fact of a particular legal position that is relevant to any matter in issue in the proceeding, but any statement of that position in the examination has no bearing on the question of whether the legal position is in law correct or applicable.
[32] In many cases, it will be reasonably clear whether a question meets or does not meet the conditions in subsection 95(1) (i.e., whether a question is a proper question). However, where there is doubt, consistent with the purposes of discovery recited in Lehigh, it is generally better to err on the side of allowing the question. The trial judge can then determine whether information (if any) elicited from the question is admissible at the hearing of the appeal.
[33] Several cases have provided helpful guidance regarding specific issues that arise in respect of examinations for discovery. For example, in paragraph 18 of Cherevaty v. R., [27] the Federal Court of Appeal adopts the following propositions:
In HSBC Bank Canada v. Her Majesty the Queen, 2010 TCC 228, [2010] T.C.J. No. 146, C. Miller J. summarized the principles that had been applied by that Court in relation to discovery examinations:
13 Both parties provided useful summaries of how this Court has in the past addressed the question of the scope of examinations for discovery. Justice Valerie Miller recently summarized some of the principles in the case of Kossow v. R [2008 D.T.C. 4408]:
1. The principles for relevancy were stated by Chief Justice Bowman and are reproduced at paragraph 50 [of Kossow]:
a) Relevancy on discovery must be broadly and liberally construed and wide latitude should be given;
b) A motions judge should not second guess the discretion of counsel by examining minutely each question or asking counsel for the party being examined to justify each question or explain its relevancy;
c) The motions judge should not seek to impose his or her views of relevancy on the judge who hears the case by excluding questions that he or she may consider irrelevant but which, in the context of the evidence as a whole, the trial judge may consider relevant;
d) Patently irrelevant or abusive questions or questions designed to embarrass or harass the witness or delay the case should not be permitted.
2. The threshold test for relevancy on discovery is very low but it does not allow for a “fishing expedition”: Lubrizol Corp. v. Imperial Oil Ltd., [1996] F.C.J. No. 1564.
3. It is proper to ask for the facts underlying an allegation as that is limited to fact-gathering. However, it is not proper to ask a witness the evidence that he had to support an allegation: Sandia Mountain Holdings Inc. v. The Queen, [2005] T.C.J. No. 28.
4. It is not proper to ask a question which would require counsel to segregate documents and then identify those documents which relate to a particular issue. Such a question seeks the work product of counsel: SmithKline Beecham Animal Health Inc. v. R., [2002] F.C.J. No. 837.
5. A party is not entitled to an expression of the opinion of counsel for the opposing party regarding the use to be made of documents: SmithKline Beecham Animal Health Inc. v. The Queen.
6. A party is entitled to have full disclosure of all documents relied on by the Minister in making his assessment: Amp of Canada Ltd., v. R., [1987] F.C.J. No. 149.
7. Informant privilege prevents the disclosure of information which might identify an informer who has assisted in the enforcement of the law by furnishing assessing information on a confidential basis. The rule applies to civil proceedings as well as criminal proceedings: Webster v.R., [2002] T.C.J. No. 689.
8. Under the Rules a party is not required to provide to the opposing party a list of witnesses. As a result a party is not required to provide a summary of the evidence of its witnesses or possible witnesses: Loewen v. R., [2006] T.C.J. No. 384.
9. It is proper to ask questions to ascertain the opposing party’s legal position: Six Nations of the Grand River Band v. Canada, [2000] O.J. No. 1431.
10. It is not proper to ask questions that go to the mental process of the Minister or his officials in raising the assessments: Webster v. The Queen.
14 The following additional principles can be gleaned from some other recent Tax Court of Canada case authority:
1. The examining party is entitled to “any information, and production of any documents, that may fairly lead to a train of inquiry that may directly or indirectly advance his case, or damage that of the opposing party”: Teelucksingh v. The Queen [2010 TCC 94]
2. The court should preclude only questions that are “(1) clearly abusive; (2) clearly a delaying tactic; or (3) clearly irrelevant”: John Fluevog Boots & Shoes Ltd. V. The Queen [2009 TCC 345]
15 Finally in the recent decision of 4145356 Canada Limited v. The Queen [2009 TCC 480] I concluded:
(a) Documents that lead to an assessment are relevant;
(b) Documents in CRA files on a taxpayer are prima facie relevant, and a request for those documents is itself not a broad or vague request;
(c) Files reviewed by a person to prepare for an examination for discovery are prima facie relevant; and
(d) The fact that a party has not agreed to full disclosure under section 82 of the Rules does not prevent a request for documents that may seem like a one-way full disclosure.
C. Application of the Principles Applicable to Oral Discovery to these Motions
[34] Counsel for the Appellants and for the Respondent advised the Court that oral discovery of all the Appellants was agreed to by the parties. Counsel for the Appellants explained that his experience was that an appeal was more likely to be settled if there was an oral examination for discovery of the taxpayer and that he believed the Respondent was aware that CC had little information to contribute to the process because her role in the Corporation’s business was limited to housekeeping. This also appears to be the reason why all the appeals were filed under the general procedure even though most of the appeals appear to fall below the $25,000 threshold of the informal procedure. [28] The rules governing the informal procedure do not provide for discovery. [29]
[35] The YC Reply states as assumptions of fact that YC “was responsible for the day-to-day operation of the Corporation” and that YC “maintains the Corporation’s books and records”. [30] No such assumptions are made in the CC Reply. However, the Corp Reply states as an assumption of fact that “the Shareholders maintained” the Corporation’s books and records. [31]
[36] As well, the CC Reply and the YC Reply state as assumptions of fact that the “Corporation is a family business run by” CC, YC, their two sons and YC’s daughter (referred to in all three Replies as the “Shareholders’ Family”) [32] and the Corp Reply states that the Corporation’s “business is run by” the Shareholders’ Family. [33]
[37] Since it is the pleadings that define the permissible scope of questioning in an examination for discovery, the issue is not how much knowledge CC had but rather the questions that are permitted in oral discovery to explore the extent of her knowledge.
[38] Counsel for the Appellants made extensive submissions regarding the behaviour of counsel for the Respondent during the examination for discovery of CC to support the position that the examinations were an abuse of the discovery process. If counsel for the Appellants was of the view that the examination for discovery of CC or YC was not being conducted appropriately, the proper course of action would have been to adjourn the discovery and seek directions from the Court under subsection 108(1). That did not occur and further steps in the form of responding to undertakings have occurred. [34] Consequently, I will limit my review to addressing the issues raised by the Respondent in the motions.
[39] I will note however that counsel conducting examinations for discovery do have an obligation to behave appropriately during the examinations. A document titled “Discovery Best Practices – General Guidelines for the Discovery Process in Ontario” provides the following instructive commentary:
A lawyer should never conduct oral discovery for an improper purpose, for example, to harass, intimidate or unduly burden the opposite party with unreasonable demands for information or document production. Lawyers should conduct themselves with decorum and should never verbally abuse or harass a witness or unnecessarily prolong an examination.
Counsel must keep in mind that their purpose is not to protect their client from “bad facts” that are relevant and within the scope of an examination, regardless of whether those facts hinder the client’s position. A useful guide for all counsel in conducting himself or herself at discovery is this: do nothing, which one would not do at trial, with a judge in attendance. [35]
[40] The CC Affidavit and the YC Affidavit respectively state that CC and YC were being discovered both in their personal capacity and on behalf of the Corporation. The Respondent was not entitled to examine two representatives of the Corporation. It is also up to the Corporation (not the Respondent) to put forward a suitable representative for the examination. [36] If the Respondent is not satisfied with that representative then the Respondent may apply to the Court to name some other person. [37]
[41] During the hearing of the motions I raised this issue with counsel for the Respondent, who acknowledged that only YC could be examined in his personal capacity and on behalf of the Corporation and that consequently CC was examined only in her personal capacity. Since counsel for the Appellants did not object to that proposition, I will address the Disputed Undertakings on that basis.
[42] The CC Transcript and the YC Transcript indicate that the Appellants and the Respondent agreed that the appeals of CC, YC and the Corporation would proceed on common evidence. However, no direction was obtained from the Court under section 26 that the proceedings be consolidated, be heard at the same time, or be heard one immediately after the other.
[43] An informal agreement of counsel that appeals will be heard on common evidence has no bearing on the permissible scope of oral discovery. However, the fact that assessments issued against different appellants arise from a common set of circumstances does allow for questions to each appellant (or to a corporate appellant’s representative) about those circumstances.
D. The Disputed Undertakings
[44] I will first address the Disputed Undertakings that did not arise out of questions at all but as unilateral statements by counsel for the Respondent. Three examples of these undertakings from the transcripts of CC’s examination for discovery are as follows:
Undertaking 1 of CC
And I’m going to make an undertaking, Mrs. Contractor, that you will, after your husband provides his evidence at discovery, that you review the transcript of his evidence and advise if there is anything that you disagree with with [sic] your husband Yogeshkumar’s discovery transcript and his evidence given during his discovery. [38]
Undertaking 3 of CC
All right. Mrs. Contractor, I’m going to make an undertaking for you to review these assumptions of fact that are listed in our reply and advise which facts you disagree with, the facts that you have knowledge of that contradict those facts and the basis for all of that. [39]
Undertaking 4 of CC
Mrs. Contractor, attached to this reply are schedules and there’s Schedule 1, Schedule 2, Schedule 3, Schedule 4 and Schedule 5. I’m going to make an undertaking for you to provide an undertaking to provide the specifics, when you review each of the schedules, on what you disagree with, if anything, and provide the basis for that disagreement. [40]
[45] Other such purported undertakings are CC undertaking numbers 12, 13, 14 and 15 and YC undertaking numbers 1, 14, 15, 16, 17, 18, 19, 20, 21, 22 and 23 (collectively, with undertakings 1, 3 and 4 of CC, the “Unilateral Undertakings”). In each case, the undertaking is not preceded by even a single question regarding the topic of the undertaking but rather is simply a statement of an undertaking by counsel for the Respondent.
[46] The approach of counsel for the Respondent in simply stating the Unilateral Undertakings misapprehends the purpose of oral examination for discovery, which is to ask questions of the individual being examined (the “examinee”) who is then required to answer those questions to best of his or her knowledge, information and belief. [41] In Burlington Resources Finance Company v. R., [42] the Tax Court judge explains what an examinee may do in response to a question:
According to the Rules, a nominee either answer[s] the question, refuses to answer and explains the basis for such refusal, or takes an undertaking if he or she does not know the answer. [43]
[47] If no question has been asked of the examinee then there is nothing for the examinee to refuse to answer and there is no basis for an undertaking, never mind an undertaking unilaterally stated by examining counsel.
[48] This is not a trivial matter but an issue of fundamental fairness. There are potentially severe consequences if during an oral examination for discovery the examinee refuses to answer a proper question, including, where the examinee is the appellant, dismissing the appeal. [44] It is not proper for the Respondent to seek to impose any of those consequences when no question has been asked and refused. For this reason alone, I find that no response is required to the Unilateral Undertakings.
[49] I also note however that in two cases (CC undertaking number 1 and YC undertaking number 1) the undertaking purports to require the witness to review discovery transcripts that are subject to the implied undertaking without the express consent of the examinee [45] or a court order. [46] Counsel for the Respondent justified this on the basis that the parties agreed that all the appeals would be heard on common evidence.
[50] In my view, an informal agreement of counsel that the appeals in issue will be heard on common evidence is not sufficient to override the important protection from disclosure provided by the implied undertaking. [47] Simply put, counsel for the Respondent cannot require a party being examined to review the discovery transcript of another taxpayer because it is up to the other taxpayer (or the Court) to determine whether that discovery transcript is released from the implied undertaking.
[51] The remaining undertakings in issue in these motions are CC undertaking numbers 5 to 11 and 16 and YC undertaking numbers 3, 8, 11 to 13 and 24 to 28. I will address each of these in turn.
CC Undertaking No. 5:
Provide information on all policies that are held on Mr. and Mrs. Contractor and the names of the companies who the beneficiaries are.
[52] CC undertaking number 5 is stated by counsel for the Respondent. [48] The undertaking is made immediately after the following questions and answers:
424. Q. So your husband was required to get life insurance in the name of the Motor City Credit Union as beneficiary. Were you also required to get a similar policy?
A. He knows.
425. Q. I’m sorry, who is “he”?
A. The lawyer knows.
426. Q. The lawyer knows. I’m asking you if you know.
A. She heard that they were talking about her not being able to get one insurance. [49]
[53] In response to CC undertaking number 5, counsel for the Appellants provided a copy of a letter addressed to CC from Empire Life identifying a single policy of which CC was the insured, Motor City Credit Union was the revocable beneficiary and Motor City Community Credit Union was the holder of a collateral assignment. [50]
[54] CC undertaking number 5 does not reflect the subject matter of the question that CC could not answer. However, the response does directly address that question. CC is not required to provide any further response to CC undertaking number 5.
CC Undertaking No. 6:
Advise who owned the five vehicles for the years 2013, 2014 and 2015 and to whom the vehicles were registered to [sic] during that time.
Response:
All together [sic], the Appellant and her husband owned a total of 4 vehicles at a time during the audit period. Two vehicles were used exclusively for business (the Prius and the Camry). Prior to purchasing the Prius in 2014, the PT Cruiser was the second vehicle used for the business.
[55] CC undertaking number 6 is stated by counsel for the Respondent. [51] The undertaking is made immediately after the following questions and answers:
453. Q. So in the years in question, 2013, 2014 and 2015, your evidence is there were four vehicles that you had between you and your husband and you don’t know which ones were his and which ones were yours; is that right?
A. Yes.
454. Q. And then sometime later you got a 2007 PT Cruiser and so that was the fifth vehicle that you owned between yourself and your husband; is that right?
A. Yes.
455. Q. And like the other four vehicles, it was registered either in your husband’s name or your name and you just don’t recall which?
A. True. [52]
[56] CC gave complete answers to the questions asked. The undertaking is asking about five vehicles when CC states that there were four vehicles during 2013, 2014 and 2015. The subsequent response to the undertaking also states that there were four vehicles during those taxation years.
[57] CC gave clear and unequivocal answers to the questions asked in the oral examination for discovery. The undertaking was not required and should not have been made by counsel for the Respondent as reinforced by the fact that the response simply repeats the answers given in the examination for discovery. CC is not required to provide any further response to CC undertaking number 6.
CC Undertaking No. 8:
Provide information on whether the accountant gets information, such as logs or diaries or other information which records mileage, to determine how much of the car was driven that year and expenses, for each car, per year.
Response:
No logs were kept for the vehicles. No mileage division was required since the Toyota Prius and the Toyota Camry were used exclusively for business.
[58] CC undertaking number 8 is stated by counsel for the Respondent. [53] The undertaking is made immediately after the following question and answer:
Q. Do you know, does the accountant get information that would be potentially in the logs? For example, does your husband tell him the mileage to determine how much of the car was used for corporate work and for personal use?
A. I have no idea. [54]
[59] The question asks whether CC has knowledge of a fact that is solely within her knowledge (i.e., whether CC knows something) and CC responds that she does not know. The question was answered and therefore an undertaking was not required and should not have been made by counsel for the Respondent. CC is not required to provide any further response to CC undertaking number 8. [55]
CC Undertaking No. 9:
Provide any receipts for all vehicles used in the years 2013, 2014 and 2015.
Response:
All relevant documents located to-date have been produced in the Appellant’s book of documents.
[60] CC undertaking number 9 is stated by counsel for the Respondent. [56] The undertaking is made immediately after the statement of CC undertaking number 8 and therefore is not directly preceded by a question. However, since there was a question before CC undertaking number 8, I will proceed on the basis that CC undertaking number 9 is in respect of that question.
[61] As stated in respect of CC undertaking number 8, the question asks whether CC has knowledge of a fact that is solely within her knowledge and CC responds that she does not know. The question was answered and therefore an undertaking was not required and should not have been made by counsel for the Respondent. CC is not required to provide any further response to CC undertaking number 9.
CC Undertaking No. 10:
Produce all information kept in the files with respect to the operating expenses of each vehicle for 2013, 201[4] and 2015.
Response:
All relevant documents located to-date have been produced in the Appellant’s book of documents.
[62] CC undertaking number 10 is stated by counsel for the Respondent. [57] The undertaking is made immediately after the following question and answer:
Q. And do you have any records of any operating expenses of each vehicle? Any records that are kept at all?
A. He keeps it in the file.
[63] Counsel for the Appellants suggested that such questions “may be questions that are more appropriate for Mr. Yogeshkumar Contractor” and that the undertaking would “probably be much more easily satisfied by Mr. Yogeshkumar Contractor”. Counsel for the Respondent acknowledged that that might be the case but maintained that as an Appellant CC could also be asked for this undertaking. [58]
[64] YC was to be examined the next day in his personal capacity and as the representative of the Corporation. As stated by counsel for the Appellants, the appropriate course of action would have been to ask YC about the vehicle records and obtain undertakings to the extent required. This approach is consistent with the proportionality principle as explained by the Supreme Court of Canada in Hryniak v. Mauldin (“Hryniak”): [59]
Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pretrial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.
. . .
. . . Our civil justice system is premised upon the value that the process of adjudication must be fair and just. This cannot be compromised.
However, undue process and protracted trials, with unnecessary expense and delay, can prevent the fair and just resolution of disputes. The full trial has become largely illusory because, except where government funding is available, ordinary Canadians cannot afford to access the adjudication of civil disputes. . . .
. . .
. . . A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible — proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure. [60]
[65] I also note that the reassessments of CC include in CC’s income amounts as shareholder benefits that the Minister asserts arise either from undeclared income of the Corporation or from expenses incurred or paid for by the Corporation that the Minister maintains are for the benefit of CC and YC equally. The reassessments of CC do not raise the existence of expenses incurred or paid for by the Corporation but the character of such expenses as business expenses of the Corporation or personal expenses of CC and YC. Accordingly, the undertaking is not addressing a matter in issue between CC and t