Citation: 2012 TCC 55
Date: 20120224
Docket: 2009-1561(IT)G
BETWEEN:
MORGUARD CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
The Appellant launched
an unsuccessful take‑over bid in June 2000 for Acanthus Real Estate
Corporation (“Acanthus”). Within a period of weeks, it lost the target in a
take‑over battle to an affiliate of the Caisse de dépôt et placement du
Québec, it sold its nearly 20% position in Acanthus to the successful bidder,
and it received a $7.7 million break fee from Acanthus.
[2]
The issue to be decided
in this case is whether the so‑called “break fee” received by the
corporate taxpayer in respect of its unsuccessful attempted acquisition in 2000
of a public company should be characterized as an income receipt or a capital
receipt, and, if it was capital, whether it was a capital gain or a non‑taxable
capital receipt akin to a windfall. The Appellant’s principal position is that
it was a non‑taxable capital receipt though counsel for the Appellant was
careful to avoid the term “windfall”.
I. Preliminary Evidentiary Point:
Rule 100
[3]
An issue arose in the
course of the this trial relating to the scope of Rule 100 dealing with a
party’s right to read into evidence portions of the other party’s answers on
discovery and the other party’s right to request that additional portions of
the discovery be read in to qualify or explain the portions read in. This issue
was resolved during the trial process. For ease of reading, my comments on this
issue are set out in the Appendix hereto.
II. Facts
[4]
The objective material
facts of this case are straightforward, not complicated, not particularly
unusual or at all unique in the present business world, and they are not
particularly nuanced. There is no real material dispute as to the objective material
facts although each party emphasized different aspects. There is little material
disagreement between the experts who testified about take‑over bids
including break fees. There is no need for findings of credibility.
[5]
The taxpayer is a
Canadian public corporation. Prior to the years in question, it was named
Acklands Limited (“Acklands”). Subsequent to the years in question, it was
renamed Morguard Corporation (“Morguard”), following its take‑over of
Morguard Investments Ltd. described below. In the years in question, it was
named Acktion Corporation (“Acktion”).
[6]
Acklands and its
affiliates were in the automotive parts and industrial products distribution
businesses. After many years in these businesses, Acklands decided to fully
exit its existing businesses and to sell all of its automotive and industrial
holdings for cash. It did this while Mr. Rai Sahi was its Chairman
and Chief Executive Officer as well as a significant shareholder. In
consultation with Acklands’ significant institutional shareholders, Acklands,
under Mr. Sahi’s leadership, renamed itself Acktion and set out to use the
significant cash proceeds from the sale of its existing entities to acquire
controlling ownership positions in a number of real estate companies that owned
and managed residential and commercial rental properties.
[7]
Acktion sold all of its
car parts and industrial products holdings. They were fully divested before the
start of the 2000 take‑over bid in question. Consistent with its new
business strategy, Acktion did not sell its existing real estate subsidiary
which owned the warehouses and store locations used by its then owned businesses.
These properties were only leased to the new buyers.
[8]
Acktion started to
implement its new business strategy of assembling direct or indirect ownership
of, or controlling positions in, real estate companies several years prior to
the year in question. In early 1997, Acktion acquired directly or indirectly a
40% position in Goldlist Properties Inc. (“Goldlist”) upon its initial public
offering. Acktion increased its position in Goldlist to 49% in 1998 and to 66⅔% in 1999. In 1997, Acktion acquired a
significant position in Morguard Real Estate Investment Trust (“Morguard REIT”)
and it increased that position in 1999 to over 50% of the units of Morguard
REIT. In 1997, Acktion also acquired a significant position in common shares
and convertible debentures of Revenue Properties Company Limited (“Revenue
Properties”). Revenue Properties and Morguard REIT were both publicly traded. In
1998, Acktion acquired a 19.2% common‑share position in Acanthus upon its
initial public offering. In 1998, Acktion purchased 100% of Devan Properties
Ltd. (“Devan”) from London Life Insurance Company and its senior management
shareholders. Devan owned and managed a number of shopping centres. The
following year, the Devan properties were rolled into Morguard REIT for
additional units. In late 1998, Acktion acquired 100% of Morguard Investments
Ltd. (“MIL”), Canada’s largest real estate investment advisory firm for pension
funds.
[9]
Acktion made other real
estate acquisitions. By early 2000, Acktion had assembled direct or indirect
interests in 244 properties comprising over 38 million square feet
and worth over $3 billion. This included its almost 20% position in
Acanthus. In addition, Acktion’s subsidiary MIL managed another
196 properties comprising 26.5 million square feet and worth almost $2 billion.
[10]
The break fee involved
in this appeal arose out of Acktion’s attempted acquisition of all of the
shares of Acanthus in 2000. Subsequently, in late 2000, Acktion made a hostile bid
to increase its position in Revenue Properties to in excess of 40%. This closed
in 2000; indeed, Acktion used the moneys received from Acanthus to acquire the
additional shares of Revenue Properties once that bidding turned friendly.
[11]
As mentioned,
subsequent to its acquisition of MIL, the taxpayer changed its name from Acktion
to Morguard. This change of name occurred subsequent to the years in question.
[12]
Acktion’s initial 19.2%
position in Acanthus was acquired in 1998. It was Acktion’s intention to
increase this position. Its first step was to have Goldlist approach the Board
of Directors of Acanthus to discuss a possible bid in the range of $7.50 per
share. The Board of Acanthus was not interested in supporting such a bid.
[13]
Acktion made an
unsolicited take‑over bid for all of the remaining shares of Acanthus in
June 2000 at a price of $8.00 payable in cash or Acktion shares.
[14]
On
June 23, 2000, following negotiations between Acktion and the Special
Committee of the Board of Directors of Acanthus, Acktion and Acanthus entered
into a pre‑acquisition agreement in order to give support and deal
protection to Acktion and its bid. The pre‑acquisition agreement provided
that the Board of Acanthus would support a revised Acktion bid at $8.25 per
share. In the pre‑acquisition agreement, Acanthus agreed, amongst other
things, not to solicit other bids, to recommend acceptance of Acktion’s bid unless
a more favourable bid was received, and to waive Acanthus’ shareholders rights
plan which had the effect of deterring hostile or unsolicited bids in certain
respects (and included what was described as a poison pill).
[15]
As part of the pre‑acquisition
agreement, Acktion had negotiated a break fee of $4.7 million that would be
payable to it by Acanthus if a better offer was received from a third party and
the Board of Directors of Acanthus withdrew its support of the Acktion bid and
approved or recommended the new bid.
[16]
A joint press release
by Acktion and Acanthus was made on June 23, 2000. The take‑over
bid circular was mailed by Acktion to the shareholders of Acanthus on
June 27, 2000.
[17]
On
June 27, 2000, an unsolicited third party bid for all of the shares
of Acanthus at $8.50 cash was made. The bidder was CADIM, a company owned by
the Caisse de dépôt et placement du Québec. Acanthus notified Acktion of the
CADIM bid. Acktion advised it would not support the CADIM bid with its almost
20% of Acanthus. The Acanthus Board did not decide to support the initial CADIM
bid.
[18]
On
June 29, 2000, CADIM revised its bid to $8.75 per share. Again
Acktion determined that it would not support CADIM’s revised bid and would not
sell its Acanthus shares to CADIM pursuant to the revised bid. Since its
initial bid, Acktion had acquired additional Acanthus shares increasing its
shareholdings to 19.9%.
[19]
On
June 30, 2000, Acanthus notified Acktion that it would be supporting
the revised CADIM bid as a superior proposal to that of Acktion. On that day
Acanthus withdrew its support of the Acktion bid and paid the $4.7 million
break fee to Acktion.
[20]
Acktion then advised
Acanthus that it would be prepared to further revise its bid. Acktion and
Acanthus negotiated further revisions to the pre‑acquisition agreement.
On July 2, 2000, Acktion and Acanthus entered into an amending
agreement that provided, amongst other things, that Acktion would increase its
bid to $9.00 per share, that any superior offer from a third party would have
to be for at least $9.30 per share, that Acktion would have the right to match
any superior offer, and that the break fee was increased to $7.7 million.
Upon signing the amending agreement, Acktion returned the $4.7 million break
fee to Acanthus.
[21]
On
July 7, 2000, the revised Acktion offer was made to Acanthus’ shareholders.
[22]
On
July 18, 2000, Acanthus advised Acktion that CADIM intended to make
an enhanced offer at $9.30 per Acanthus share.
[23]
Acktion determined that
it would not increase its offer price further but would seek to maximize the
price for which it would support and sell its 19.9% position in Acanthus to
CADIM. Mr. Sahi contacted CADIM’s President and negotiated a revised bid
price of $9.40 at which Acktion would support a CADIM bid and sell its Acanthus
shares to CADIM.
[24]
On
July 21, 2000, the Board of Directors of Acanthus notified Acktion
that it had determined that CADIM’s new bid at $9.40 per share was a superior
bid, terminated the amended pre‑acquisition agreement, and enclosed a $7.7 million
certified cheque in payment of the break fee.
[25]
On the same day,
Acktion entered into a lock‑up agreement with CADIM committing to sell
its shares to CADIM. Acktion realized a gain of $4.8 million on its sale
to CADIM of its Acanthus shares.
[26]
The Chairman and CEO of
the taxpayer, Mr. Sahi, was the taxpayer’s only material witness. Notably,
no one who negotiated or renegotiated the break fee was called to testify.
Mr. Sahi testified that he was not personally involved in negotiating either
the initial $4.7 million break fee or the revised $7.7 million break
fee. He was focused on price and winning the bid in order to acquire Acanthus.
While a break fee obligation may deter other bidders since it affects the value
of the target to a third party, Mr. Sahi was not involved in negotiations
at this level. However, it is clear that the break fee was negotiated by
Acktion and was renegotiated to a significantly higher amount by Acktion
following the CADIM bid. These negotiations would have been attended to by
other members of Acktion’s management team and by its outside advisors,
including its investment bankers and its lawyers. Mr. Sahi said his own
involvement would have been limited to being assured that the break fee was on
normal terms, including as to amount, for such a transaction.
[27]
The evidence of the
experts called by both parties is that the initial $4.7 million break fee
was within the commercial range of break fees normally payable in comparable
corporate take‑over bids. The revised $7.7 million fee was at the
high end of the range and perhaps exceeded somewhat that expected range.
[28]
In Acktion’s 2000 Annual
Report, the Chairman reported that Acktion was committed to enhancing
shareholder value by focusing on its core real estate business and capitalizing
on market opportunities that became available. He went on to write that Acktion
realized its objective on a number of opportunities in 2000 that resulted in
increased net income and cash flow in the year which included the $7.7 million
break fee received from Acanthus and the $4.8 million gain Acktion realized
on the sale of its Acanthus shares into the CADIM competing bid.
[29]
The taxpayer had never
before, nor has it ever since, received a break fee. All of its other public take‑over
bids appear to have been successful. The taxpayer has never sold any of the
positions it acquired in real estate companies other than its 19.9% interest in
Acanthus.
III. Analysis
[30]
It is absolutely clear
on the facts and evidence of this case, and I find expressly, that this
particular taxpayer negotiated its rights to, and received, the break fee as an
integral part of, and in the ordinary course of, its regular commercial
business operations and activities. Throughout the relevant period, this
taxpayer’s continuing and recurring business included acquiring significant
controlling positions in public real estate companies. Its acquisitions of its Acanthus
shares and its take‑over bid for Acanthus fit this same pattern even
though the take‑over was unsuccessful and resulted in the consolation
prize of a $7.7 million break fee and a $4.8 million gain on the sale
of its Acanthus shares. This taxpayer was not a white knight sought out by a
reluctant target in response to an unsolicited or hostile bid. A break fee
received by a taxpayer in the latter circumstances who was not generally an
acquirer or a bidder itself as part of its regular commercial business
activities may well require a different analysis and have different tax
consequences than this taxpayer in respect of the receipt of a break fee.
A. Non‑Taxable
Capital Receipts/Windfalls
[31]
Morguard’s primary
position in this appeal is that it received the break fee as a non‑taxable
capital receipt.
[32]
The leading decision
addressing the law applicable to the characterization of receipts as windfalls
not subject to tax is that of the Federal Court Appeal in The Queen v.
Cranswick, [1982] 1 F.C. 813, 82 DTC 6073.
Justice Bowie of this Court had occasion to review the Cranswick
factors in Lavoie v. The Queen, 2009 TCC 293,
2009 DTC 1183. Bowie J.’s decision, including his application of
the law set out in Cranswick, was upheld by the Federal Court of Appeal:
2010 FCA 266.
[33]
In Cranswick,
the Federal Court of Appeal considered seven factors that were all relevant
although none conclusive. These were:
1.
Was there an enforceable
claim to the payment?
2.
Was there an organized
effort to receive the payment?
3.
Was the receipt sought
after or solicited in any manner?
4.
Was the payment expected
to be received?
5.
Was there any foreseeable
element of recurrence?
6.
Was this a customary source
of income to the taxpayer?
7.
Was this in
consideration of, or in recognition of, property, services or anything else
provided or to be provided by the taxpayer either as a result of any activity
or pursuit of gain carried on by the taxpayer or otherwise?
[34]
In Morguard’s case, its
receipt of the break free completely fails factors 1, 2, 3, 4 and 7.
Factor 5 could be argued both ways since break fees are a normal part of
contested and friendly take‑over bids. With respect to factor 6, it
can at least be said that similar break fees were a customary potential
source of income given Morguard’s business acquisition strategy. There is no
doubt that, having considered and balanced the Cranswick factors,
Morguard did not receive a non‑taxable windfall.
[35]
The taxpayer’s argument
is somewhat more nuanced, perhaps out of necessity, than to follow a
traditional windfall analysis. Morguard argues that the break fee received
should first be characterized as being on capital account and not income
account. Next, it argues, the capital receipt did not relate to a disposition
by it of any property and thus cannot give rise to a taxable capital gain.
Finally, it argues that none of the other provisions of the Income Tax Act
brings such a capital receipt unrelated to a disposition of property into
income. It can be noted that in order for a receipt to be characterized as a
windfall applying the Cranswick factors, one would also have to meet
each of these three elements of Morguard’s argument in order not to be taxable
and to be characterized as a windfall in any event.
[36]
As described in detail
below, even this nuanced argument of the taxpayer cannot succeed as I do
not accept that the break fee should properly be characterized as a capital
receipt. In any event, I remain of the view that the traditional Cranswick
analysis is the correct one to be followed in the case of a business‑related
receipt and in this case gives rise to a clear and correct answer on this
aspect.
B. Income vs. Capital
[37]
Issues of income versus
capital characterization are often not particularly predictable. There are not always
easily applicable bright line tests. Indeed, at times the case law with respect
to income versus capital characterization can appear difficult to reconcile
based solely upon the written reasons and each side can find cases which appear
to support their positions. In cases such as these in particular, I find
it useful to heed the observation of Montesquieu about orators not trying to
make up with length what they may lack in depth. Little will be gained in this
particular case by delving into weighing the similarities and dissimilarities
in a myriad of detailed factual cases.
[38]
It is sufficient in my
mind to set out the proper legal test for identifying or distinguishing capital
and income receipts, and to have regard to those cases which have considered
essentially similar payments. Since it is now settled (at least as a general rule)
under the modern view of characterizing business income that break fees such as
those involved in this case are ordinarily deductible business expenses to the
payor, I must address if or when it is appropriate to regard such fees as
ordinary business income to the recipient.
[39]
More detailed
descriptions of the whats and whys of break fees can be found in the expert
reports filed by each party and in CW Shareholdings Inc. v. WIC Western
International Communications Ltd. (1998), 39 O.R. (3d) 755, [1998] O.J.
No. 1886, especially at page 771.
[40]
The leading modern case
on the characterization of extraordinary or unusual receipts in the business
context is acknowledged to be that of the Supreme Court of Canada in Ikea
Ltd. v. Canada, [1998] 1 S.C.R. 196, 98 DTC 6092, affirming
96 DTC 6526 (FCA) and 94 DTC 1112 (TCC). At issue was
whether a so‑called “tenant inducement payment” made to Ikea by one of the
landlords of its stores was received by Ikea on income or capital account. The
Supreme Court of Canada found it to be on income account, as had both Courts
below.
[41]
The approach, reasoning
and general legal conclusions set out in the much earlier decisions in Neonex
International Ltd. v. The Queen, 78 DTC 6339, and in Firestone
Management Limited v. M.N.R., 65 DTC 587, relating to the
characterization of amounts paid in connection with an unsuccessful acquisition
attempt must be reviewed and regarded with care in light of the approach set
out much more recently by the Supreme Court of Canada in Ikea.
[42]
In Ikea, the
trial judge, Bowman J. as he then was, found that the receipt should not
be considered to be linked to the capital purpose or expenditures of assembling
the long‑term leaseholds that were necessary to its business but were
necessary incidents of the conduct of the Appellant’s business. Similarly, in
Morguard’s case, I find it most appropriate to view the potential and
actual receipt of break fees and other amounts that become payable to it
pursuant to an agreement negotiated by it in connection with a potential
acquisition pursued in accordance with its particular commercial business
strategy to be expected incidents, however occasionally actually received, of
its business. It would be too narrow and isolated an approach or analysis that
would link such receipt solely to a particular long‑term acquisition,
even moreso in the case of unsuccessful attempted acquisitions. The break fee
was an amount received in the course of Morguard’s business and commercial
activities and its chosen business structure and strategy in much the same way
as dividends, rents or management fees might be received. The amount once paid
was Morguard’s cash to use in its business as it wished. Clearly, by the time
of the negotiation of the amendment of the pre‑acquisition agreement to
increase the break fee substantially from $4.7 million to $7.7 million,
the potential of receiving the break fee had become an integral, if perhaps
secondary, purpose of the pre‑acquisition agreement. Its increasing
likelihood of receipt would reasonably be expected to have been one of the principal
purposes of renegotiating the break fee provision in that agreement.
[43]
In the Supreme Court of
Canada, Justice Iacobucci expressly acknowledged the great assistance of
Justice Bowman’s lucid and comprehensive reasons with which he substantially
agreed. Further, he was of the view that Bowman J. was entirely correct in
finding as a fact that the payment was clearly received and inextricably linked
to Ikea’s ordinary business operations, and further that no question of linkage
to a capital purpose could even be seriously entertained. Applying the approach
endorsed by the Supreme Court of Canada in Ikea (at paragraph 33) to
the facts in this case, the receipt by Morguard of the break fee should be
regarded as an income receipt. There is no greater linkage to a capital purpose
in this case than in Ikea.
[44]
Most recently the
Federal Court of Appeal in Imperial Tobacco Canada Limited v. Canada,
2011 FCA 308, 2012 DTC 5003, reiterated the principles for
distinguishing capital and income payments. In addition to referring to several
of the older cases referred to by the courts in Ikea,
the Federal
Court of Appeal referred to Shoppers Drug Mart Limited v. The Queen, 2007 TCC 636,
2008 DTC 2043. Both Imperial Tobacco and Shoppers Drug Mart
involved extraordinary payments in the course of a capital reorganization of a
business, hence giving rise to the need to decide if the payment was more
closely linked to the capital transactions or to the business itself. The cases
raised similar issues to those raised in Ikea and in this case, and were
decided in a manner consistent with the Ikea approach.
[45]
In BJ Services
Company Canada, the successor to Nowsco Well Service Ltd. v. The Queen, 2003 TCC 900,
2004 DTC 2032, this Court characterized a break fee paid by a target
corporation in similar circumstances to be part of the regular day‑to‑day
business of a public corporation and hence deductible. See also Boulangerie
St-Augustin Inc. v. The Queen, 95 DTC 164 (TCC), affirmed
97 DTC 5012 (FCA), and International Colin Energy Corporation v.
The Queen, 2002 DTC 2185 (TCC). BJ Services, International
Colin Energy and Boulangerie St-Augustin represent a sensible, sound
and economically realistic approach to the characterization of expenses incurred
by a corporation in an unsuccessful attempted acquisition. A comparable
analysis and approach giving rise to an income characterization will not
necessarily always be appropriate for a break fee recipient. In cases such as
Morguard’s, where the recipient is essentially in the business of doing
acquisitions and take‑overs, a similar approach grounded in law and in
common sense to that of the Court in BJ Services is appropriate, provides
further context for the analysis in this case, and further confirms that, on a
proper application of the Ikea approach, the break fee received by
Morguard was income to it as its ordinary business activities included trying
to make corporate acquisitions such as its bid for Acanthus resulting in the
break fee.
[46]
For the above reasons,
the taxpayer’s appeal should be dismissed. In the circumstances there is no
need for me to decide upon the merits of the Respondent’s other arguments that
either the surrogatum principle or paragraph 12(1)(x) would
require that the break fee be included in Morguard’s income. However,
I should state at least that I am unable to conclude that the
totality of the evidence supports a finding that the entire $7.7 million break
fee was intended to be a reimbursement of Morguard’s costs and expenses of
mounting the bid or to serve as a proxy or approximation for such costs and
expenses. Further, it is not clear to me that a break fee is sufficiently akin
to a damage or compensation award for purposes of considering the surrogatum
principle.
[47]
The taxpayer’s appeal
is dismissed with costs.
Signed at Ottawa, Canada,
this 24th day of February 2012.
"Patrick Boyle"
Appendix
[1]
An issue arose in the
course of the this trial relating to the scope of Rule 100 dealing with a
party’s right to read into evidence portions of the other party’s answers on
discovery and the other party’s right to request that additional portions of
the discovery be read in to qualify or explain the portions read in. This issue
was resolved during the trial process.
[2]
The Respondent duly
gave notice of its intention to read in portions of its discovery of the
Appellant’s nominee. The Appellant duly gave notice of those further passages
that it felt qualified or explained the passages to be read in by the
Respondent. At trial the Respondent chose not to read into evidence all of the
passages of which it had given notice. When the Appellant sought to read into
evidence the further passages of which it had given notice, the Respondent
objected. All of the additional passages the Appellant wanted to read in had
been identified in its notice as qualifying passages in the Respondent’s notice
that the Respondent ultimately chose not to read into evidence at the trial.
This required a consideration of whether the Appellant’s desired additional
read‑ins qualified or explained the Respondent’s read‑ins as
required by Rule 100(3). The manner in which the issue of compliance with
Rule 100(3) arose in this case also gives rise to some considerations of
fairness between the parties.
[3]
The questions that the
Respondent read in, which gave rise to this procedural dispute, cover topics
upon which the deponent Mr. Sahi gave evidence at trial. Both parties had
the opportunity, and availed themselves of it, to ask Mr. Sahi what they
wished on the subject matter in direct examination, cross‑examination,
and re‑direct. It is the Respondent’s position that nonetheless,
Rule 100 gives it the unrestricted opportunity to read in more from
Mr. Sahi on the topic even where there was no uncertainty, ambiguity or
inconsistency in his testimony at trial. This was not challenged by the
Appellant. However, the Respondent maintains that the Appellant is only allowed
very restricted opportunity to read in additional passages relating to the same
subject matter.
[4]
The relevant paragraphs
of Rule 100 provide as follows:
[Tax Court of
Canada Rules (General Procedure)]
|
Use of Examination for
Discovery at Hearing
100. (1) At the hearing, a party may
read into evidence as part of that party’s own case, after that party has
adduced all of that party’s other evidence in chief, any part of the evidence
given on the examination for discovery of
(a) the adverse party, or
(b) a person examined for discovery on behalf of or in
place of, or in addition to the adverse party, unless the judge directs
otherwise,
if the evidence is otherwise admissible, whether the party or
person has already given evidence or not.
|
Utilisation de l’interrogatoire
préalable à l’audience
100. (1) Une partie peut, à
l’audience, consigner comme élément de sa preuve, après avoir présenté toute
sa preuve principale, un extrait de l’interrogatoire préalable :
a) de la partie opposée;
b) d’une personne interrogée au
préalable au nom, à la place ou en plus de la partie opposée, sauf directive
contraire du juge,
si la preuve
est par ailleurs admissible et indépendamment du fait que cette partie ou que
cette personne ait déjà témoigné
|
|
. . .
|
[…]
|
|
(3) Where only part of the evidence given on an examination for
discovery is read into or used in evidence, at the request of an adverse
party the judge may direct the introduction of any other part of the evidence
that qualifies or explains the part first introduced.
|
(3) Si un extrait seulement d’une déposition recueillie à
l’interrogatoire préalable est consigné ou utilisé en preuve, le juge peut, à
la demande d’une partie opposée, ordonner la présentation d’autres extraits
qui la nuancent ou l’expliquent.
|
[5]
Rule 100(3) was
very well‑described by the Chief Justice of this Court in the Appendix to
his reasons in GlaxoSmithKline Inc. v. The Queen,
2008 TCC 324, 2008 DTC 3957. The Respondent seeks to
qualify our Chief Justice’s description of the considerations applicable to
this Court’s Rule 100(3) by reference to decisions of the Federal Court
regarding that Court’s Rule 289.
[6]
The Chief Justice did
consider the Odynsky
and Fast
decisions and Federal Court Rule 289 in GlaxoSmithKline. He
acknowledges that the two rules serve the same purpose.
[7]
Our Rule 100 and
the Federal Court Rule 289 may serve the same purpose but they are worded
quite differently and appear to have differing scopes, are structurally
different in their application, and are open to differing interpretations. The
Federal Court Rule and how that Court has interpreted it informed the analysis
and decision in GlaxoSmithKline and continue to be relevant
considerations. However, courts are entitled to develop their own practices
with respect to their own rules — just as they are entitled to set their own
rules.
[8]
I fully agree with
the specific detailed approach of Rip C.J. in GlaxoSmithKline to
determine whether the desired additional read‑ins are truly connected and
qualify or explain the subject matter of the adverse party’s read‑ins. In
applying Rule 100(3), I had regard to:
1)
whether the desired additional
read‑ins share continuity of thought or subject matter addressed
by the deponent in the portions of the discovery read in by the adverse party;
2)
whether the portion
read in by the adverse party can stand on its own and fulfill the
purpose for which the adverse party read them into evidence; put another way,
would the additional read‑ins either advance or complete, or discredit or
frustrate, the adverse party’s purpose?
3)
whether the desired
additional read‑ins provide the Court with the opportunity to arrive at a
more complete understanding of what the deponent said on the particular subject
matter in question in the totality of the answers given in his or her
examination for discovery and reflect fairness to both parties.
[9]
In paraphrasing the
Chief Justice’s reasons in GlaxoSmithKline in the above manner,
I am particularly mindful that, in his third consideration, the Chief
Justice said the scope of the search for completeness should be having regard
to the deponent’s “answers” on discovery on the “subject matter” and not to the
deponent’s specific answer to the specific question being asked and which was
read in by the adverse party. This satisfies me that our Court need not
approach our Rule 100 as the Federal Court may approach its similar but
different Rule 289. Specifically, Rule 100(3) is not narrowly
restricted and limited to the completeness of the deponent’s answer to the
specific question read in but can extend to all of the deponent’s answers to
questions on the particular subject matter in appropriate circumstances. In
this regard, our Court’s Rule 100(3) may have a broader scope of
consideration than that of the Federal Court’s Rule 289 as set out in Odynsky
and Fast, and in its more recent decision in Weatherford released
subsequent to GlaxoSmithKline. This does not derogate from the fact that
both rules serve a similar purpose.
[10]
The application of the GlaxoSmithKline
considerations does not mean that all answers of a deponent on the same subject
matter will always be permitted under Rule 100(3). However, in a case such
as this, where the subject matter of the Respondent’s read‑ins was fully
addressed by the deponent in his testimony‑in‑chief and in cross‑examination
in the courtroom, the Respondent is not suggesting that the read‑ins demonstrate
any inconsistency, and the Respondent read in from the discovery for the
purpose of insuring that the Court has a clearer picture of what was said on
the topic that might not have been as clear from the courtroom testimony of the
deponent, the party reading in can expect an uphill battle when complaining
that the Appellant’s desired additional read‑ins would only serve that
same purpose.
[11]
The Respondent
maintains expressly that the crux of its position is that Rule 100(1)
gives it the right to read in portions of the discovery that repeat the
deponent’s courtroom testimony on a subject using different words but
Rule 100(3) does not allow the Appellant to do the same thing with its
additional read‑ins in response. Basic fairness tells me that, even if
that were correct as a general rule, in this case that would be a wrong result
and outcome on topics fully addressed by the deponent in his testimony in court
in a consistent and understandable fashion.
[12]
Having communicated to
the parties in response to the objection that I was not inclined to read
anything further into the Chief Justice’s reasons and considerations set out in
GlaxoSmithKline and was inclined to apply them as written without regard
to anything he did not say about the Federal Court’s decisions in Odynsky
and Fast, much less what the later Weatherford decision said, the
parties were able to resolve the issue of the Appellant’s desired additional
read‑ins themselves and we were able to proceed with the trial.
[13]
In short, the topic in
question was well‑ploughed at trial, the Respondent chose to plough that
same field again with its read‑ins from discovery, and if I am to
have a fair and complete understanding of all of the essentially similar manners
in which a field can be ploughed, I think procedural and substantive
fairness is best accomplished in such a case by hearing the Appellant’s
additional read‑ins on the same subject matter.
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