Citation: 2005TCC417
Date: 20051025
Dockets: 2004-206(IT)I
2004-2803(IT)I
BETWEEN:
JEAN-FRANÇOIS BLAIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 2004-208(IT)I
2004-2804(IT)I
CHRISTIANE AURAY-BLAIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 2004-42(IT)I
2004-2805(IT)I
INNOVATIONS ET INTÉGRATIONS BRASSICOLES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard, J.T.C.C.
[1] The appeals of Jean-François Blais, Christiane Auray-Blais
and Innovations et intégrations brassicoles inc. (IIB inc.) in dockets 2004-206(IT)I, 2004-2803(IT)I,
2004-208(IT)I, 2004-2804(IT)I, 2004‑42(IT)I and 2004-2805(IT)I were heard
in joint evidence, with the parties’ consent, from February 28 to March 3, 2005
at Sherbrooke, Quebec, and on May 11, 2005, at Montréal, Quebec. The Appellants
Jean-François Blais and Christiane Auray-Blais acted on their own behalf and as
majority shareholders of IIB inc. (the two other shareholders being the Appellants’
children).
[2] In brief, the matter before this Court involves
the activities of two companies, one a corporation, IIB inc., which, according
to the Appellants, conducts research on beer, and a general partnership, La
Société Christiane Auray‑Blais et Jean-François Blais (the General
Partnership) which, again according to the Appellants, conducts research on
seedlings.
[3] Specifically, through their General Partnership, the Appellants
seek to develop a formula for a nutraceutical beer by adding rutin to [translation] "lower blood pressure
by fortifying capillary and blood vessel tissue, preventing hemorrhaging... also
a major role as antioxidant;"
in other words, health beer. The Appellants compare this future product to the
addition of vitamin D to milk, one of the great achievements of the century
given that few people consume enough of this vitamin. In parallel with this
main objective of the General Partnership, the Appellants are also striving, with
IIB inc., to develop a method to enable hops, one of the ingredients of beer, to
grow in Quebec’s soil without pesticides and to eliminate the need for labour
to secure these plants to stakes.
[4] The debate in all
these cases comes down to five questions in dispute (in the order in which they
were submitted to the Court).
a) What is the leasing cost of property for purposes of calculating
the investment tax credit?
b) Can a partner in a General Partnership also be an employee of that
same General Partnership for purposes of the Income Tax Act (the Act)?
c) Did the Appellants fail to declare agricultural losses under the
terms of section 31 of the Act?
d) Do the Appellants’ activities constitute experimental research and
development activities under the terms of the Act?
e) Other points raised on May 11, 2005.
[5] It should be noted that the parties reached
agreement a few days before the start of the hearings on admission of interest
charges of $3,107, $3,605 and $3,665 as expenses for scientific
research and experimental development (SR&ED) under subparagraph 37(1)(a)(i)
of the Act, instead of agricultural expenses, for the 1998, 1999 and
2000 tax years. Application of subsections 127(8) and (9) of the Act, as
well as division 2902(a)(i)(C) of the Income Tax Regulations, would
follow, according to counsel for the Respondent, who drafted the agreement in a
letter to the Appellants dated February 24, 2005. Since the parties raised no
objection to this agreement at the hearing, I therefore take for granted that
neither the facts underlying this agreement nor the law are in dispute.
[6] Now, before addressing each of the questions in
dispute in the order in which they were raised at the hearing, it must be noted
that although I reversed the order in which evidence was produced at the
hearing by asking counsel for the Respondent if he could start, this does not
mean that the burden of proof has shifted to the Respondent. I simply allowed
this procedure to give the Appellants, who were acting on their own behalf
under the informal procedure, a better opportunity to respond to the Respondent’s
allegations. However, it is still incumbent on the Appellants to defeat the
Minister’s factual allegations to win their case.
a) What is the leasing cost of property
for purposes of calculating the investment tax credit?
[7] The Appellants submit that this question covers
two series of leases.
[8] Under the first
series, IIB inc. leases the
laboratory equipment listed in Exhibit I-2, tab 6, to the General Partnership under
leasing contracts.
This equipment apparently comes from various organizations. In his testimony, Mr.
Blais admitted that all this equipment was off the balance sheet and that
the amount of $404.88 appearing as the only capital expenditures on the property
was actually related to the cost of incorporating the company, not to the
laboratory equipment as the Minister presumed.
[9] Under the second
series, the General
Partnership in turn leased to IIB inc. most of the agricultural equipment
listed in Exhibit I-4, tab 53 (as well as other equipment, according to the
Appellants) under another lease.
This equipment was previously used by the Appellants in beekeeping activities,
also known as apiculture, but due to the diseases affecting their bees, the Appellants
refocused their efforts on brewing activities (and specifically for purposes of
this equipment, the study of barley, hops and rutin). According to the Appellants,
most of this agricultural equipment was acquired in 1981; however, no document can
confirm the purchase dates much less the cost of each of the properties in
question.
[10] The Minister
maintains that the Appellants should
have been denied the investment tax credits (ITC) set out in section 127 of the
Act because the purchase cost and date for each of these leased properties
were unavailable, except for a tractor purchased in 1996 for $36,000. This
tractor was accepted in an earlier decision of this Court involving the same Appellants. In allowing
fiscal depreciation of this same tractor, the Minister allowed the Appellants to
deduct an eligible expenditure of $3,068 as an ITC for the 2000 tax year,
in docket 2004-42(IT)I.
[11] In particular, the Respondent submits, since item A in the
formula appearing in the definition of "the cost to the supplier of rendering the particular service" in subsection 127(11.7) of the Act
is no more than $3,068, the amount of the eligible expenditure is also $3,068.
[12] In reaching this
conclusion, the Minister first
cited subsection 127(5) of the Act which makes provision for the
investment tax credit. This subsection then refers to the definition of "investment
tax credit" in subsection 127(9), which in turn refers in its paragraph (a.1)
to "eligible expenditures." These expenditures are subject to the assumptions
in subsection 127(5.1), including paragraph (a), which refers to
subsection 127(11.6) and the concept of "adjusted service cost." The expression
"adjusted service cost" in turn is defined in subsection 127(11.7),
especially in its item A which represents "the cost to the supplier of rendering the particular service." This item A applies in this case
since we are dealing with the leasing of property and since, according to
paragraph 127(11.8)(c), the "leasing of a property is considered to be the
rendering of service." Subsection
127(8) was also cited by the Minister for the calculation of the General
Partnership’s investment tax credit. Unfortunately for the concept of simplicity
of statutes as fiscal policy, this type of cascade of legislative provisions is
common in tax law. There are even worse examples. At least
for purposes of these appeals, we need suffer no further intellectual dizziness
since the parties are not challenging the application of all these provisions.
[13] Two of the arguments raised by the Appellants merit
special attention.
[14] The first holds that
the property had a cost after it was purchased by the two companies, contrary
to what the Minister claims.
[15] In respect of the
laboratory equipment, the Appellants
first testified that they had received it in the form of a donation from a few
organizations. They then added that they and their children had provided
certain services in exchange for this equipment. The Appellants produced in
Court three letters signed by three different persons representing three
organizations, stating that the laboratory equipment (without specifying what
this included) was in fact "donated" (this word is used in each of
the letters with no mention of services by the Appellants or their children). Yet at
the hearing, Mr. Blais testified that he and the other members of his family
had conducted research using radiation spectroscopy, performed equipment maintenance
and allegedly dismantled and transported laboratory equipment. In all, the Appellants
claim that they received equipment with a value of $100,000 (but, according to
the appraisal of this property performed by Labequip Ltd for the Canada Revenue
Agency (CRA), dated August 19, 2003, the value of the equipment is $85,764).
[16] On the matter of the
agricultural equipment, the Appellants
believed that the cost was consistent with the fair market value (FMV) in 1997,
when the General Partnership changed activities. The FMV of the agricultural
equipment at the time, according to the Appellants, was slightly more than
$122,000. In tax law, however, the concept of FMV is not the same as that of
cost.
[17] The second argument was submitted in
writing and orally. At the third unnumbered page of the document produced at
the hearing on arguments, the Appellants raised the following.
[translation] The interpretation of the CRA agents applying subsection 127(11.7) of
the Act essentially is that the value of the adjusted service cost is
almost identical to the adjusted selling cost. They also used an accounting
form of the base service cost without considering the intrinsic and extrinsic
cost (maintenance cost, replacement cost, economic obsolescence cost, etc.). The
attitude of CRA staff is to grant the fewest economic benefits and interpret
the ITA as restrictively as possible.
[18] Despite the Appellants’ insistence, I concur with the
Respondent on the cost. First, in respect of the laboratory equipment:
a) little
property is identified in the three letters entered into evidence;
b) according
to these same letters, these were always donations, not an exchange of anything;
c) in his testimony,
Mr. Blais was unable to provide sufficient details about the said services, including
the number of hours and the value of these services. It is also hard to
conceive that, under the circumstances, the Appellants and their children actually
provided services with a value of $100,000. Had this been the case, Mr. Blais
surely would have provided more information in his testimony;
d) even if
the maintenance, replacement and obsolescence costs could be factored into the
total cost of the property in this case, the Appellants produced no evidence on
this aspect; and
e) since the
Respondent accepted part of the credit based on a cost of $405, I cannot rule
that the cost was nil because the Minister could then appeal its own assessment.
(Petro-Canada v. Canada)
[19] In respect of the "agricultural"
equipment, the Appellants simply failed to establish evidence of the cost,
except for the tractor, the cost of which has already been allowed by the
Respondent.
b) Can a partner in a General
Partnership also be an employee of that same General Partnership for purposes
of the Act?
[20] The Appellants are seeking a deduction for
the General Partnership of salary or wages of $27,060 paid to Mr. Blais despite
the fact he is also a partner in this same General Partnership. In other
words, they maintain that a partner in a General Partnership can also be an employee
of this same company.
[21] In support of their position, the Appellants raised several arguments,
including these five: (1) the reasons given by this Court in Crestglen Inv.
Ltd. v. Canada;
(2) the reasons given by this Court in Archbold v. Canada;
(3) the former interpretation bulletin IT-138R which appeared to allow
deduction of salary expenses for a partner; (4) an excerpt from the book by Lord
et al., Les principes de l'imposition au Canada
(in which the authors imply that the matter appears to be unresolved, despite
the fact that bulletin IT-138R has been rescinded by the CRA); and (5) the
reasons in Drolet v. Charron,
a decision by the Superior Court of Quebec permitting the employee/partner
duality.
[22] In turn, counsel for the Respondent instead cited
the mechanism of section 96 of the Act and the fictions this provision
creates. He submits that the amount paid is instead a capital attribution set
out in subparagraph 53(2)(c)(v) of the Act. In support of this position,
counsel for the Respondent cites Lachance, Metro-Can
Construction Ltd.,
and Madsen.
And even if bulletin IT‑138R were still in force (bulletin rescinded on
December 31, 2000),
it is obvious that such an administrative policy cannot set aside application of
a clear provision of the Act.
[23] Based on my reading
of the law on this question, I
unfortunately cannot find for the Appellants, for the following reasons.
[24] Although the Appellants agreed that Mr.
Blais would receive a "salary," it remains that such [translation] "agreements made
between two partners, even if binding on the partners, does not necessarily
bind the Minister of National Revenue if the said agreements run counter to the
Act."
[25] In the Archbold decision [supra], Justice Lamarre Proulx did in
fact refer to an act, the Ontario Partnerships Act, to conclude that a
partner may also be an employee of his General Partnership given that nothing
in that Act prohibits this. I cannot concur with this conclusion. First, as Justice
Noël repeated in Canada (Attorney General) v. National Bank of Canada,
provincial law can only be cited when federal law on the matter is silent. Here
is how he summarized the rule after citing sections 8.1 and 8.2 of the Interpretation
Act.
[33] Thus, if, in interpreting the
application of a federal enactment in a province, one is to refer to the
province's law of property and civil rights as suppletive law, reference to
that law must be necessary and there must be no provision to the contrary in
federal law.
[26] In this case, I
conclude there is no need to refer to Quebec law to answer this question in dispute, since the Act provides
the answer. In any event, even if this were not the case, I believe that the provincial
law concurs.
[27] In the case before us, the Act sets out several rules for
general partnerships in section 96. In that provision, the legislator codified
the principle by which a General Partnership is not a separate person from its
partners (paragraphs 96(1)(a) and (c)). This principle
is by no means new and has existed in common law for a very long time. It is
now accepted in Quebec following the decision by the Court of Appeal of Quebec
in (Québec) Ville v. Cie d'immeubles Allard Ltée. In
fact, several judges and authors now appear to accept the absence of legal
personality in general partnerships in Quebec, with only a few exceptions, including
Justice Lamarre Proulx in a subsequent decision, Latourelle v. Canada (M.N.R.).
[28] Here is how she bypassed the decision of
the Court of Appeal of Quebec:
¶ 31 In support of the
statements in subparagraph 4(f) of Reply No. 1, and subparagraph 6(g) of Reply
No. 2 [...] referred to the judgment of the Quebec Court of Appeal in Ville
de Québec v. La Cie d'immeubles Allard Ltée et le Régistrateur de la division
d'enregistrement de Québec [1996], R.J.Q. 1566, which held that although a
partnership might appear to possess certain attributes of legal personality it
does not have such personality and so cannot enjoy ownership of a separate
patrimony. Relying on this judgment, the appellant’s agent maintained that a
partnership is not a person and so has no power to contract.
¶ 32 As the judgment does
not say that a partnership has no power to contract in Quebec law, I shall not
rely on that aspect in making my decision, especially as it seems to me that
this statement runs directly counter to the actual wording of art. 2221 of the Civil
Code of Quebec, which reads as follows:
In
respect of third persons, the partners are jointly liable for the
obligations contracted by the partnership but they are solidarily liable if the
obligations have been contracted for the service or operation of an enterprise
of the partnership.
Before
instituting proceedings for payment against a partner, the creditors shall
first discuss the property of the partnership; if proceedings are instituted,
the property of a partner is not applied to the payment of creditors of the
partnership until after his own creditors are paid.
¶ 33 The respondent’s
agent also referred to two decisions of this Court, of which one, Alain
Carpentier c. M.R.N., dated May 14, 1996, takes the approach that there
cannot be a contract of employment between a partnership and a member of that
partnership, and the other, Louise Brady-Charette c. M.R.N., dated
December 6, 1990, takes the opposite view.
¶ 34 As to the impossibility
of a contract of employment between a partner and a partnership of which he is
a member, the respondent’s agent did not refer the Court to any Quebec
precedent or commentary in support of his argument. I shall therefore also
not base my decision on this legal argument.
[emphasis added]
[29] First, a partner is
not a third party in the eyes of the General Partnership. Second, there is now a Quebec precedent
supporting the Minister’s position. The Quebec judgment cited by the Appellants
has in fact been overturned very recently (April 28, 2005) by the Court of
Appeal of Quebec in Charron v. Drolet for the following reasons, at paragraphs14‑21.
[translation] [14] The Appellants claim that the Superior Court judge erred in
fact and law in finding that the Respondent was both a partner and a salaried
employee and granting him a period of leave. They maintain that a single given
person cannot have the status of both partner and employee. Furthermore, there
has never been a bond of subordination between the Respondent and the
Appellants;
[15] The
Respondent instead argues that the statuses of partner and employee can be held
simultaneously. She maintains that she became an employee in 1999 when Charron made
several unilateral decisions, including that to pay, in the form of salary with
source deductions, for the withdrawals made by both partners;
[16] In
support of her claims, she cites the following excerpt from authors Aust and
Charrette:
Quite
often, a relationship is determined by a variety of legal relationships. A
single given employee may be both shareholder, employee, manager and director,
each of these positions involving various legal obligations that must be met simultaneously.
(emphasis added)
as
well as this passage from Robert P. Gagnon’s book:
[translation] Finally, it will be noted incidentally that the status of employee can
coexist, in the same person, with others, such as shareholder or
director of the company, or even that of independent contractor.
(emphasis added)
[17] However,
these two excerpts deal only with the possible confusion between the status of
employee and that of shareholder, not that of employee and partner. Admittedly,
confusion prevailed during the hearing. In her statement of August 9, 2000, the
Respondent claimed to own 40 percent of the shares of the Appellant Conseillers
Corporatifs Focus inc. Only after several days of hearings and discussion was
this statement amended, on February 28, 2002, to make a distinction between the
joint-stock company and the undeclared partnership;
[18] In
reality, the Respondent was never a shareholder of the Appellant Conseillers
Corporatifs Focus inc., a joint-stock company owned by the Appellant Charron. She
joined the latter as partner to operate an undeclared partnership under the
name "Conseillers Corporatifs Focus." The similarity of names
explains the error made by the Superior Court judge, who deemed the Respondent a
shareholder;
[19] One
of the key innovations of the Civil Code of Quebec on the issue of
companies is the distinction between a general, limited or undeclared
partnership and a joint-stock company. Only the last one is an artificial
person (2188 C.C.Q.). Yet in all forms of companies, we find the same
constituent elements of the partnership agreement: pooling of contributions, sharing
of monetary profits, and a spirit of collaboration (2186 C.C.Q.);
[20] The
Respondent and the Appellant chose to adopt a legal structure incompatible with
the contract of employment defined in article 2085 C.C.Q. as that "by which a person, the employee, undertakes for a limited period to
do work for remuneration, according to the instructions and under the direction
or control of another person, the employer." A partnership agreement, in turn, is
described in article 2186 C.C.Q. as that "by
which the parties, in a spirit of cooperation, agree to carry on an activity,
including the operation of an enterprise, to contribute thereto by combining
property, knowledge or activities and to share among themselves any resulting
pecuniary profits";
[21] It
is not our place here to determine what roles partners may play within a
joint-stock company, only to recognize that the parties’ intent was to operate
a joint business in a spirit of collaboration and to share the company’s losses
and profits;
[infrapaginal notes omitted]
[30] Thus, with no legal
personality separate from its partners, a general partnership cannot hire one of its partners as an employee,
given that a person may not employ himself. This is especially true when the general partnership
consists of only two partners, as in the present case. I therefore would not
grant the Appellants the requested deduction, despite former bulletin IT-138R. The
Appellants have admitted in arguments that they had been notified on July 8,
2003,
if not before that date, of the fact that this bulletin was no longer in force.
In any event, this Court is not bound by the CRA position, whether stated
orally or in writing, but by the Act.
c) Did the Appellants fail to declare
agricultural losses under the terms of section 31 of the Act?
[31] For the tax years
from 1998 to 2001, the
Minister believes that the Appellants did [translation]
"not declare any amount as gross income and net income (net loss) from agriculture
related to the General Partnership." According to the Minister, all these
amounts are linked to "farming" [agriculture in French] under
the meaning of subsection 248(1) of the Act, and particularly to "tillage
of the soil" [culture du sol in French], one of the activities listed in the Act for the
term "farming" [agriculture in French]. In the English version
of subsection 248(1), the legislator uses the term "farming" pour "agriculture," and the expression "tillage
of the soil" pour "culture du sol."
[32] The Appellants have argued that the activities
linked to these amounts were more scientific than agricultural. In light of the
evidence on this point, I agree with the Appellants this time, for the
following reasons.
[33] First, the very
contract by which the General
Partnership was created stipulates the following as the purpose of this
company.
[translation] This company henceforth includes a single distinct undertaking,
conducting scientific research and development for the purpose of developing
and marketing a healthy or nutraceptic [sic] beer...
[34] We discover more when we
read another document produced by
the Appellants, entitled "Historique de l'entreprise – Société Christiane
et Jean‑François Blais (la Société)." I believe it is useful at this point to reprint a good
part of this document, given that it extensively matches what I understand from
the Appellants’ testimony on this aspect.
[translation] Purpose of the Company
The purpose of the said Company is the characterization and
technological development of a value-added brewing business to be established
in Quebec. We intend to produce a nutraceutical and ecological beer without the
use of pesticides. This stated goal involves various phases of study, research
and production of strategic ingredients to align the various desired compounds
for a nutraceutical beer. These will be the focus of projects involving various
research activities to resolve a number of technological and scientific
uncertainties encountered, to attain the technological progress initially
targeted for marketing nutraceutical beer.
Strategic phases of the Company
We have developed four strategic implementation phases for a brewing
business, presented in sequence.
The first phase addresses the uncertainties raised by the
cultivation method to establish brewer’s barley in our region, while meeting
the production criteria of no pesticides or fertilizers and targeting links
with mycorrhizae. This experimentation will also help determine whether small
barley seeds can be used for sowing, to specify the barley growing technique for
our suppliers so we can obtain the required compounds to produce nutraceutical beer.
The research conducted on hops first includes assessment of the cold resistance
of different varieties of hops seedlings. Cold resistance is in fact a major
technological uncertainty that must be resolved, given Quebec’s winters, and
may be intimately linked to the individual genetics of each variety. We must
pose the following question: Must the ultimate selection of varieties be
strictly based on this cold resistance factor? The answer will provide
potential local producers with guidance and even certainty, to produce certain
cold-resistant varieties rather than others without this characteristic. This
explains the importance of studying this factor so we can determine which
varieties are cold-resistant. We will also study the assessment of pest control
for hops grown in Quebec, and finally, assessment of growing methods in various
soil types using mycorrhizae. This first phase also involves studying and
refining a production, extraction and dosing method for rutin obtained from
Rhinanthus.
The second phase focuses on the rutin obtained to maximize the compounds
for a nutraceutical beer, determining the growth stages at which Rhinanthus
develops the highest levels of rutin in the plant and the conditions under
which it must be added to the beer to preserve its properties.
[35] I believe that the
following documents, produced
by a representative of the Respondent, Mr. Éric Beauséjour, also support the Appellants’
position: the project summaries accompanying the T661 forms for the 1998 and
1999 tax years, as well as a document entitled "Caractérisation et développement
technologique et scientifique d'une ferme brassicole de 1995 à 2005." The
only significant criticism of one of these documents by counsel for the
Respondent is use of the word "farm" in one occurrence. However, not
only is this term taken out of context from the paragraph in which it occurs,
but it does not reflect the reality as I perceive it based on the evidence as a
whole.
The relevant part in question is found on the first page of the T661 form for 1998
and reads as follows.
[translation] This characterization and technological development project for a
value-added brewery farm has the following main objectives.
1. Make available a growing method and production variety
(2 tonnes/acre) of barley with ecological and brewing qualities (warehousing,
malting and brewing) adapted to southern Quebec and recover small seeds
rejected in calibration for use in producing seedlings.
2. Make available productive varieties of hops and an
ecological growing technology for extracting lupuline, and formulate various
constituents in Quebec.
3. Make available, as a beer additive, extractable flavins
of agricultural origin by experimenting with Rhinanthus and/or buckwheat cultivars.
[emphasis added]
[36] The Appellants
testified in turn that once these techniques were developed, they would probably have others actually
produce the desired ingredients for their brewing business. Here is what Ms. Auray‑Blais
first said.
[translation] A. But one of the things for us, is that once the technique has
been developed, we will not invest in production of this product. We’re going
to contract it out have others produce it, or we’re going to obtain a supply
with our technique, which will happen in the same way as for the barley...
Mr. Blais then
followed.
[translation] A. Well, we would be asking other producers to produce it for
us, as they produce at a lower cost than we can ourselves because we’re not
growers, we’re not farmers.
[37] Faced with this
evidence, can it be said that the
Appellants were engaged in agricultural activities? I believe not.
[38] Since the Minister did not advance other possible
meanings of the term "farming" [agriculture in French], I therefore will only determine
whether the Appellants were engaged in "tillage of the soil." In any
event, as several judges have already remarked in the past, most of the definitions
appearing in subsection 248(1) are simply expansions on the common meaning of
the term "farming" [agriculture in French].
[39] Furthermore, of all
the terms found in the Act,
the case law and the dictionaries, the expression "tillage of the soil"
[culture du sol] is that which best reflects the Appellants’ activities,
yet without defining them. Given that this expression is not defined in the Act,
here is what the dictionaries say.
Le Petit Robert 1 (1991) by Paul Robert
Cultiver Travailler (la terre) pour lui faire produire des végétaux utiles
aux besoins de l'homme. [...] Soumettre (une plante) à divers soins en vue de
favoriser sa venue; faire pousser, venir.
Culture Action de cultiver la terre; ensemble des opérations propres à tirer
du sol les végétaux utiles à l'homme et aux animaux domestiques. V.
Agriculture. [...] Culture hâtée, forcée : usage de méthodes
artificielles pour obtenir des récoltes en dehors des saisons normales.
Oxford English Dictionary Online (2005) published by Oxford University Press
Tillage The
act, operation, or art of tilling or cultivating land so as to fit it for
raising crops; cultivating, agriculture, husbandry.
Tilling ...
work done upon land for raising crops; cultivation, tillage.
Cultivation The bestowing of labour and care upon a plant, so as to develop and
improve its qualities: the raising of (a crop) by tillage.
Crop The
annual produce of plants cultivated or preserved for food, esp. that of
the cereals; the produce of the land, either while growing or when gathered;
harvest... The annual or season's yield of any natural product.
[40] The Appellants’ research activities are not
very consistent with these definitions. First, the production is only
indirectly useful for humans or domestic animals, and not meant to feed them in
a not-too-distant future. Second, the Appellants are doing much more than
providing a range of care for their plants to enhance their growth, as most
farmers would do; they are developing these methods through much more advanced
research than that conducted by a non-scientist. Third, the Appellants have no intention
of harvesting a crop each year or season as a genuine farmer would (although
this last indicator is far from decisive in itself), and although the Appellants
have sold seedlings to a greenhouse in Abbotsford, British Columbia, these activities
are too accessory to change the nature of the Appellants’ work. This is all the
truer when we analyse the issue in terms of the legislator’s intent. In this regard,
I concur with Justice Bowie, of this Court, in the following passage from Corker
v. Canada.
[8] The
Appellant does no breeding of horses, and her attendance at equestrian events
is not a source of revenue for her. No doubt there is some promotional value in
her attendance at these events, because people who see her compete there may
later become paying students, but it cannot be said to be her business. Nor is
it principally the horse that is being exhibited on these occasions, but
herself and her riding skill. It is noteworthy that Parliament, in enacting
this extended definition, chose to include "maintaining of horses for
racing," which is, of course,
a popular pastime of well-to-do city people which would not necessarily fall
within the ordinary meaning of the word farming, although it has long been an
avocation of many farmers, particularly in England. Instruction in riding
is, I think, farther removed than racing from the normal activities of a
farmer. Had Parliament intended that it should be included in the
activities which are the subject of section 31 of the Act, it would no doubt
have said so.
[41] Finally, it is
interesting to note that in its report on the activities of the General Partnership, the Respondent’s
own expert described these activities as scientific, at page 1 of his report. In
effect, when questioned about the subject of the number 060399 entered on this
page as [translation] "SCIENTIFIC
FIELD(S) – (# CA)," the expert
replied that this was an Australian code, but did not specify which. In response
to this memory lapse by the expert, Mr. Blais suggested that it would have been
interesting to know this detail. To avoid leaving the Appellants in suspense
too long, I take the liberty of noting that a search on the website of the Australian
Research Council (www.arc.gov.au) revealed the following field: Industrial
Biotechnology and Food Sciences. For my part, the simple fact that the expert
placed a number after the mention of the "scientific" field only adds
an additional indication of the scientific nature of these activities.
[42] I therefore will find
for the Appellants on this question.
None of the cases raised by the Respondent support a different conclusion.
d) Do the Appellants’ activities
constitute experimental research and development activities under the terms of
the Act?
[43] For the following
reasons, I believe, contrary
to the Respondent, that for all the projects in question, the Appellants maintained
[translation] "a detailed
record of the assumptions, tests and results... as the work proceeded" consistent
with the fifth criterion adopted by Justice Bowman (his title at the time) in Northwest
Hydraulic Consultants Ltd. v. Canada. These criteria were subsequently approved
by the Federal Court of Appeal in C.W. Agencies Inc. v. Canada.
[44] I also believe that
the Appellants’ activities are
quite consistent with the following passage from R I S – Christie Ltd. v.
Canada.
[14]
In addition to developing new
products or processes, scientific research connotes the existence of controlled
experiments involving the testing of models or prototypes. Thus, evidence of
scientific research must be adduced by the taxpayer in order to demonstrate
that such research (including testing) was undertaken and that it is eligible
for favourable tax treatment: see, for example, Progressive Solutions Inc.
v. R., 96 DTC 1232 (T.C.C.). Not only must
taxpayers establish that tests were performed, they must also demonstrate that
they were conducted in a systematic fashion. In my view, the requirement that
research efforts be "systematic" is a higher threshold than simply
requiring that research, including testing, be conducted. Although both
documentary and viva voce evidence are admissible, the only sure-fire
way of establishing that scientific research was undertaken in a systematic
fashion is to adduce documentary evidence which reveals the logical progression
between each test and preceding or subsequent tests.
[15]
Thus, it is reasonable to expect a taxpayer to adduce
documentary evidence of systematic research, including testing. If, however, a
taxpayer has a plausible explanation for the failure to adduce such evidence,
it is still open to the court to hold that, on a balance of probabilities,
systematic research was undertaken. For example, where research notes are
accidentally destroyed, it should be permissible for the trial judge to infer
that systematic research was conducted, having regard to the totality of the
evidence. During oral argument, counsel for the Minister accepted this
proposition, if only because that scenario was inapplicable in the present
case. However, in my view, it should also be permissible to infer that a
taxpayer had conducted systematic research where it is established that such
research led to a technological advancement. I say this because the whole
foundation of the scientific research provisions of the Act and Regulations
should not rest solely on the repeatability criterion. Otherwise, repeatability
would negate the validity of all other evidence pertaining to scientific
research.
[45] Let us now examine
the evidence on this question in
dispute.
[46] Each party led
testimony from its respective expert,
who was questioned about his report on the activities of the General
Partnership and IIB inc. These persons’ training and experience in their
respective field were not questioned before me. Both experts completed doctoral
studies in specialized fields of science (the Appellants’ expert also pursued
post-doctoral studies), and both were accustomed to assessing projects or
studies (the Respondent’s expert, for the CRA, the Appellants’ expert, for scientific
journals).
[47] In general, if we compare the two series of
reports, that by the Respondent’s expert is more complete and very damaging to
the Appellants’ case, whereas that by the Appellants’ expert is fairly general
and provides very few details. In brief, before the start of the trial, the Appellants
had a challenge to overcome if they wanted to discharge the burden of proof.
[48] After hearing the testimony of each,
however, I believe that the Appellants have discharged their burden by
discrediting all the conclusions of the Respondent’s report in the brilliant cross-examination
they conducted (Ms. Auray-Blais’ cross-examination was by far the best
structured). They obtained solid admissions from the Respondent’s expert for
each of the projects in question, they led him to contradict himself and they
even obtained apologies for one passage in his report insinuating that the Appellants
were liars. The complete, convincing answers given by the Appellants’ expert,
which I believe placed the Appellants’ activities in perspective, were also
decisive. Their expert gave convincing, satisfactory answers to the questions asked
by counsel for the Respondent.
[49] It is highly likely that if the Respondent’s
expert had followed his own administrative policy requiring that questions be
sent to taxpayers before conducting a visit as CRA representative (policy dated
January 14, 2000),
the Appellants would have had the opportunity to prepare more for the visit and
I might not have been seized of this matter in the instant appeals. It also
would have been preferable for Ms. Auray-Blais to attend this visit by the
expert since, by his own admission, Mr. Blais is not the best communicator in a
stressful situation.
[50] Before reviewing the projects in the order followed by the
Respondent’s expert, I believe it is useful to cite the following passage contained
in his report for each of the projects.
[translation] No laboratory log or other type of evidence, dated and recording
the test details for the various behavioural models, and no analysis and
interpretation of the scope of the results were submitted for consultation by
the RTA [research and technology advisor].
[51] Let us first review
the evidence related to the two IIB
inc. projects.
1) Develop an in vitro hops
seedling production technique with rhizobium and/or mycorrhizae symbiosis
through physiological manipulation.
[52] For the Respondent, the problem in this project
is limited primarily to the following passage at pages 4 and 5 of the report.
[translation] ... How can one claim to conduct a so-called "controlled"
introduction of microorganisms or to promote bacillus "development"
on roots if the population concentrations and growth in question are not
measured? How can one claim to conduct a systematic activity for
resolving uncertainty when the primary study subjects are not being monitored?
[emphasis added]
[53] As noted by the
(underlined) words in this passage,
the expert is fairly categorical in his conclusion on the General Partnership’s
first project.
[54] Yet the bacillus
count does not seem so
important if we rely on the testimony of Mr. Blais and his expert, since the
cost incurred for this method is very high and the benefit relatively minor. In
the Appellants' camp, the very presence of fungus is a sufficiently reliable indicator
to conclude that a given method is not working. The Appellants could not
financially afford to determine the specific causes of the failures but could
simply continue moving forward by trial and error, which the Appellants’ expert
said is quite acceptable. I concur with him and find overall that the Appellants
have discharged the burden of proof for the General Partnership’s first project.
2) Study various behavioural
models for hops varieties based on plant geotropism.
[55] The primary purpose of this project is to
develop a method for growing higher-yield hops under Quebec’s climatic
conditions. In his report, the Respondent’s expert criticized this project on
three different points.
[56] First, the expert challenges the use of subjective
over objective measurements.
[translation] The RTA notes the lack of scientific validity, and thus of
systematic experimental activity for the data gathered during presumed testing
of behavioural models. In fact, aside from the stem length, recorded in cm (objective
observation), all the other measurements are subjective (expressed by -, ± or
+). Furthermore, there are no data on the history of the site (recorded on site
or extrapolated from a local weather station) in terms of wind speed and direction,
amount of rainfall, relative ambient humidity, soil humidity, evaporation rate,
hours of sunlight and temperature. These objective observations are the very
basis of interpretation for any study of in situ plant growth. How
can one claim to measure the impact of wind, rain or drought on hops
seedling geotropism when there are no historical data on these phenomena? How
can one interpret, discuss and reach conclusions on seedling dry-out results
if there are no data on variations in soil humidity, precipitation and temperature?
[emphasis added]
[57] The Respondent’s
expert was again very categorical and, once again, the Appellants succeeded in reversing the burden of
proof on this point, but this time, not solely through the credible and plausible
testimony of Mr. Blais and his expert, but also through an admission by the
Respondent’s expert. For the Appellants’ camp, there was no need to obtain more
quantitative data, for the following reasons.
a) Subjective
data support the development of more assumptions and testing the validity of an
assumption already formulated, while limiting time and cost. The goal in this
case was simply to verify whether there had been considerable climatic changes
during the month of July 2001, not to trace and study a certain stem resistance
curve based on temperature, for example.
b) By
this very fact, these data have a much greater scientific validity than the
Respondent’s expert noted in his report.
c) As
so aptly pointed out by the Appellants’ expert in cross-examination, why would the
Appellants have fabricated data on weather conditions in July 2001 if these
data could have been objectively verified by anyone? Why risk their scientific
credibility on this type of data that are even easier to verify? If the Appellants
had truly invented these data, it would have been possible for the Respondent’s
expert or counsel to follow the example of former United States president Abraham
Lincoln, when he was an attorney.
... His most celebrated circuit case was his defense of Duff Armstrong,
the son of his New Salem friend Jack Armstrong, on a murder charge. When a
witness testified that bright moonlight had enabled him to see Duff commit the
murder, Lincoln produced an almanac and proved that the moon had not
been shining brightly at the time. In summing up the case, Lincoln
described with great emotion his friendship with the boy's father. The jury
voted for acquittal.
[emphasis added]
[58] Faced with this evidence and certain explanations
by the Appellants, it must be noted that the Respondent’s expert at least
admitted the following.
[translation] Q. Within the protocol, when we wanted... when the protocol
was developed, did it occur to you that observation might simply be something
very secondary? The goal in respect of geotropism was curling. Moreover, did it
probably not occur to you that observation of climatic conditions was secondary
for us? Noted but not studied in detail because this was not the purpose of the
project. Did this idea happen to cross your mind?
A. It has now crossed my mind, yes.
...
Q. So, quite simply, it has just now occurred to you that
this was not the basis of our protocol. Moreover, if we have one month of rainy
weather, would you agree with me that this might affect plant geotropism and
curling?
A. Yes.
...
Q. Mr. Shooner, does this explain to you a little the reason
why we did not use, and did not engage in development using, rain and wind
meters, and does this help you understand better?
R. Yes, that helps me understand better.
Q. Thank you. I have finished.
[59] The next issue is the
importance the report places
on clearing rocks from the field.
[translation] On the issue of installation of the hop field, the RTA saw 132 posts
covering an area of approximately 16,500 m2. The land had been
cleared but there had not been significant removal of rocks. In fact, the field
in question was covered in rocks of every size and the RTA saw only a small
heap of rocks of about 10 m3. The RTA believes that, given the area
of the hop field and the width of the teeth on the rock ripper (approximately 5 cm),
a single pass with this machine would have produced a rock pile of at least
several hundred m3. Yet by Mr. Blais’ account, rock clearing had
been proceeding each summer since 2001.
[60] The first problem with this statement is that the
Respondent’s expert was not recognized by the Court as an expert in rock
clearance from fields. He is a scientist specialized in areas rather too far
removed from rocks. It is incumbent on this Court to judge whether or not there
was sufficient rock clearance, and to weigh the issues of credibility.
[61] The second problem is
the link the expert tried to draw between annual rock clearance and the total
quantity of cleared rocks. However,
it may be possible that Mr. Blais was unable to give the expert a complete
answer to this question for the reason cited earlier. I accept Ms. Auray-Blais’
explanations provided in Court, that rocks were in fact cleared each year but
were simply discarded anywhere outside the area in question. It is quite likely
that the Appellants, with their limited means, proceeded in this manner rather
than assembling a series of rock piles for subsequent collection by a truck.
[62] In any event, even if
I accepted the finding of the
Respondent’s expert that there had not ben enough rock clearance, I fail to see
how this would have significantly affected the Appellants’ credibility given
the evidence that produced on all the projects.
[63] Finally, as the last point in his report, the expert criticizes
the fact that the Appellants’ work on this project was advancing too slowly.
[translation] As part of an experimental development project, the assembly of
such a facility could be deemed a support activity, although the need for the
entire area would be subject to a scientific study. Based on the documentation
consulted, however, the hop field was not used for SR&ED activities in 2001.
Moreover, on June 17, 2003, the hop field was still not being used for any
activity and was fallow. As well, also on June 17, 2003, the hop field still
had not been completed (no steel cable installed, rock clearance not completed)
two years after it was started. Based on the documentation and the condition of
the site, the RTA found that the hop field, or at least what might be one, has
never been used for SR&ED activities.
[64] The Appellants' response to this conclusion: they
were waiting to have the necessary financial resources to continue development
and ultimate use of the hop field, which is reasonable to my mind. In addition,
after viewing the photograph of the hop field (Exhibit A-9, page 1) and if we
accept that 132 posts were in fact placed over an area the size of a few
football fields, it is quite conceivable that after making all these efforts, the
Appellants intended to continue in this direction.
[65] Let’s continue with
the six IIB inc. projects, some
of which have been grouped together by the parties.
1) Refine a qualitative and
quantitative technique for quercetin-3-rutinoside.
2) Develop a commercial
high-extract value rutin extraction method.
3) Assess the optimal production
stage for quercetin-3-rutinoside in the cultivation and long-term preservation
of Rhinanthus.
[66] After reviewing these three projects, the
Respondent’s expert reached three unfavourable conclusions for the Appellants.
[67] The first involves the
lack of a standard curve.
[translation] ... The RTA asked for an example of a standard curve used during
dosing with the spectrophotometer method. Mr. Blais replied that this information
was unavailable. Yet the documentation initially submitted with the T661 states
that a standard curve was established for rutin. The RTA wishes to note that standard
curves are the very basis of the principle of dosing in spectrophotometry.
No result can be obtained or justified without them.
[emphasis added]
[68] I once again emphasize the expert’s words
given that he again reached a categorical conclusion that can no longer stand,
following a review of the evidence as a whole and another admission by this
expert.
[69] I can understand the confusion of the Respondent’s expert, as I
too was initially confused by Mr. Blais’ cross-examination on this question.
However, the difference between me and an expert is that before making a
categorical statement in a report or during testimony on a scientific matter, this
expert must demonstrate competence in the specific field in question. Failing
that, he must refrain, as the Appellants’ expert did the day before the
hearing, from voicing an opinion on or responding to the question of whether
spectrophotometry is possible with digital images. This will be discussed in projects
5 and 6 below.
[70] Furthermore, how can a scientific assumption be
dismissed out of hand when it comes from a person with more knowledge in the
field than oneself? (Mr. Blais has more than 20 years’ experience in using spectrophotometry.)
In cases such as these, a scientific appellant is caught in a situation where
he must defend his competence in his field.
[translation] MR. JEAN-FRANÇOIS BLAIS: In the end, it’s because the report undermines
my personal credibility and casts doubt on the scientific research. To me, this
is quite a stretch, because I have twenty (20) years’ experience in
spectrophotometry and this is the first time I have heard this type of
reasoning from a scientific point of view.
...
JUDGE: Now, are you trying to tell me at this point that
this person is incompetent? Is that it?
MR. JEAN-FRANÇOIS BLAIS: Just about, because by the way he has
spoken about the spectrophotometry, you are going to understand very clearly
what is happening.
[71] It was not until the
following day, however, with a
spectrophotometer in hand, that Mr. Blais managed to extract the following
admission from the expert.
JUDGE: This is calibrated at four hundred
sixteen (416)?
MR. JEAN-FRANÇOIS BLAIS: Yes.
A. Regardless of the machine, the optical density you are going
to obtain, with the same machine of course, because it can vary, you will be
able to say, well, I had obtained, let’s say, an optical density of point five
(0.5), so point five (0.5) corresponds to two point five (2.5) because it’s
half (inaudible) all the proportions.
Q. I am told this directly [...], I do not need this to
make an assumption.
A. Have I understood clearly?
Q. Yes, that is right, but it’s the assumption of that. In
other words, unless...
R. What I have understood, what I understand, now this
makes sense, with what Mr. Blais has explained to me...
...
A. But what I understand is that based on a density, based on
one, given that the Beer-Lambert law is proportional, knowing that it is
proportional, there is a proportion, that is what Mr. Blais means to say.
Q. Yes, yes, yes.
A. Given that it’s proportional, because it can be linear in
that way, if it’s linear, but it’s not proportional. So it’s linear,
proportional, so therefore, the goal is to have a known concentration and from
that we can know the optical density, from that we can determine the other concentrations.
Q. Yes.
A. I find that this makes sense, it corresponds, I think, to...
Q. Then if you get, I don’t know, you will have a
concentration like I was saying a moment ago.
A. That makes sense, sir.
...
A. I agree with that, with what has just been explained to me,
the demonstration, it is eloquent.
[72] I agree with the Respondent’s expert that the demonstration
and cross-examination are eloquent. It was even our impression that the expert was
Mr. Blais’ student, which is deplorable, given the fact that the Minister relied
in large part on the expert’s report, which was the reason why the Appellants had
to appear in Court.
[73] The reaction to the second conclusion in the report
on this project is also eloquent, in my opinion. First I will quote from the report
in question.
[translation] Moreover, the RTA saw a rutin adsorption spectrum. Since the
ordinate is not named and has no units, the RTA asked Mr. Blais to explain what
had been measured based on the wave lengths (abscissa). He was unable to
answer, noting that this information was unimportant. How can one
produce a standard curve by spectrophotometry (see previous paragraph) and yet
be unable to interpret an adsorption spectrum?
[emphasis added]
[74] On this point, the following reply by the
Appellants’ expert in cross-examination convinced me.
Q. But would a disciplined scientist have marked these units?
A. A disciplined scientist who doesn’t forget, who never
forgets anything, any detail, would have included the...
Q. O.K.
A. ... would indeed have included them. A scientist, there are
a lot of... There are writing mistakes in the documents and reports. And this
is unavoidable. I do not believe this shows that what is written is false. I accept
what is written.
[75] The third conclusion involves tables that the Respondent’s
expert claims are difficult to interpret.
[translation] To support the discovery and study activities for the production of
rutin based on growth stages (objective b), Mr. Blais submitted three tables
showing the humidity percentages, rutin extraction results and rutin dosing
results, respectively, using spectrophotometry. Each table shows the analytical
results for 40 samples taken from various parts of the plant (leaf, stem, seed
and bud), based on the timing (from mid-June to mid-September). Since the
tables cannot be interpreted with an explanation, the RTA asked Mr. Blais to
explain the significance of each. Mr. Blais was unable to interpret the said
tables.
[76] These three tables
are found between pages 28 and
40 of Exhibit A-8, and the cross-examination of the Respondent’s expert regarding
these pages is found at pages 121 to 164.
[77] In light of these
many pages, it emerges that the
Respondent’s expert was criticizing the lack of raw data. Several times, he
stated that most of the protocols made sense and could have produced the
results presented in the tables in Exhibit A‑8. The following excerpt very
clearly illustrates the crux of the problem for the Respondent’s expert.
[translation] Q. You came on June seventeenth (17th), 2003, three years
after that. Is it also your understanding that it was probably hard to keep all
the crushed samples three years later? Does that cast doubt on statements that
this was or was not done? What can raise the question in your mind of whether
this was done? The balance between the two.
A. It’s the lack of documentation, lack of laboratory log, lack
of raw data. Obviously it would be unreasonable of us to ask you three years
later whether you still have the samples in a bag or basins. But the
accompanying documentary work, that’s what we want to see and that is what I
have not seen.
Q. If these data had also been automatically entered in a
computer, you know how sometimes, some scientists write things down, keep them,
write a sheet, don’t write anything more, after that they take it and input it.
They input it on a computer to produce... Can we, beyond any reasonable doubt, ask
the question and say that this was never done or whether it may be laxity by
people who wrote it down, but was never kept to produce documents such as that?
A. Given the warnings issued to Mr. Blais in prior reports, he
was asked to keep documentation and we read an example. Fairly eloquent
examples were given of what constitutes documentation. In view of this, I am
very surprised to arrive on site and find that there is no documentation. So I
can’t invent something I have not seen.
[...]
Q. But at the same time, you also cannot contradict that
this was not done?
A. That is true.
[78] Here is one of the warnings in question,
cited in part in the foreword to the report of the Respondent’s expert for the General
Partnership.
[translation] He was also informed that up-to-date documents must be kept
indicating the activities conducted and progress achieved in SR&ED for each
project submitted to the CRA. Emphasis was placed on the need to have
information and evidence (laboratory manuals, progress reports, etc.) to
support the work. This is indispensable for the review of each case and
granting of the tax credit. These are the technical logs created when the work
was performed, not the documents created to submit the application. The logs or
documents therefore must be produced as the project proceeds to show that it
entails systematic investigation through experimentation (SR&ED). As an
indication, here are a few examples of the types of supporting documents the company
should have available on its premises.
•
Documentation on a project plan
•
Copy of the initial research and development
plan
•
Experiment protocols
•
Field test records
•
Compendiums of notes
•
Comments on experiment procedures
•
Project files or quantitative data measured, or both
•
Statistical analysis results and findings
•
Any other relevant document (photos, etc.)
corroborating the SR&ED work
•
Staff time sheets and activity reports
•
Physical evidence, etc.
[79] Contrary to the Respondent’s expert, I see
little or no reference in these warnings to draft sheets the taxpayer must keep.
And the Appellants have submitted several items from the list of examples to the
CRA and, more importantly, to the Court. These documents are kept, among other
reasons, so other scientists can repeat the experiments to check the validity
of the initial findings. As long as there are enough reliable data to repeat
all the experiments in question, that should be sufficient for both the CRA and
this Court. I fail to see how keeping handwritten documents, for example, would
automatically support a conclusion of greater reliability. Using a pencil
instead of a keyboard provides no guarantee of veracity.
4) Improve the cold resistance
of hops seedlings through genetic modification.
[80] The first major point related to this project, and not the
least, is the insinuation that Mr. Blais lied to the Respondent’s expert and
another employee of the Respondent about the fact that a certain document was contemporary.
Here is the finding of the Respondent’s expert on this subject.
[translation] ... The RTA asked Mr. Blais whether there were results associated
with these two protocols. Mr. Blais replied that the documentation was
unavailable because the results were in draft form and had not yet been compiled.
The RTA therefore asked to see the draft documents. Since lunchtime was
approaching, he agreed that Mr. Blais could show him the said documents after
lunch.
When he returned, Mr. Blais had recalled that his wife had compiled
the draft documents several months earlier. Mr. Blais therefore showed him an
Excel document consisting of three tabs containing the data for 1999, 2000 and
2001 respectively.
The 2001 tab contained the cold-resistance results for 14 varieties
of hops (including the four varieties under study) over a period from December 2000
to February 2001. The RTA asked Mr. Blais to explain the meaning of the table. Mr.
Blais was unable to provide a precise explanation. When the RTA checked the
date the Excel document was created (using the "Properties" function),
he noticed that the said document had been created on June 17 at 12:27, thus
during the lunch hour on the very day of the review. When the RTA pointed this
out to Mr. Blais, the latter could not explain the reason for this. In the presence
of the CRA’s financial examiner, Mr. Bertrand Nadeau, the RTA informed Mr.
Blais that the documentation had to be contemporary with the alleged tests.
[81] Based on all the evidence on this question,
I am convinced that the document in question was not created during the lunch
hour but was in fact copied from another, larger document to create another,
less bulky document. I cite part of the cross-examination of the Respondent, which
is decisive in itself.
[translation] Q. Yes. Is it possible that this was extracted from another site,
and thus that this document was not actually created during the lunch hour?
A. It is possible that it may have...
Q. Fine. So it is very important to reply to this.
[...]
A. Yes, it is possible this information was extracted from an
earlier document and copied/pasted to create a new document; the answer is yes,
this is possible.
Ms. CHRISTIANE AURAY-BLAIS:
Q. The intended purpose was to give you the results for 2001. If,
for a reason such as... you are a scientist, I have seen, you have many publications;
sometimes we search for our papers and oops! We forget to print them out. Lord
knows it is not necessarily deliberate, but it can happen. I am sure this has
previously happened to you, I mean, it happens to everyone, in any profession. Ultimately,
these were fairly elaborate tables with data that, in my opinion, in the space
of perhaps an hour, it would be impossible to end up with something
scientifically acceptable. Impossible. In any event... So to retrieve the information
in a new file to give it to you because you had requested it, do you find that
the paragraph you wrote is revealing with regard to the integrity of my
husband, Mr. Blais?
A. This paragraph can be interpreted to imply that Mr. Blais created
a document over the lunch hour. Can this impugn his integrity? The answer is
yes. And if that is the case, I apologize. That was not the intent of my words...
[82] The second major point is the following.
[translation] The project description also mentioned that there was a study of a
new hops genotype. No documentation or any other type of evidence on the topic
was submitted for consultation by the RTA. Yet this type of study always
generates a large quantity of documentation. The RTA points out that a genotype
study automatically involves very specific consumable products (restriction
enzymes, nucleotides, primers, etc.). The list of materials consumed does not
include such products.
[83] Here is another point
that was discredited by the
Appellants. After accepting the scientifically recognized premise that the presence
of two different phenotypes indicates two different genotypes, the expert
finally admitted the following.
[translation] WITNESS: What determines the colour of a leaf is its genotype, that
is true. And the climate as well. Is it dry or not, did it rain the day before?
Ms. CHRISTIANE AURAY-BLAIS:
Q. If you are told that control seedlings were placed in the
same conditions, in the same conditions, and that the seedlings treated with colchicine
produced this result?
A. If there are control seedlings, that makes sense.
5) Study and test controlled
cultivation of polyporus melanopus squamosus in a synthetic medium.
6) Refine a spectrophotometry
assessment method for digitalized images of the growth of polyporus melanopus
squamosus.
[84] The only real point in dispute for these two projects arises
from the following comments by the Respondent’s expert.
[translation] On refinement of a spectrophotometry method for digitalized images
(project 6), the RTA asked Mr. Blais to explain to him the principle on which
this method is based. Mr. Blais' explanation was confusing, mentioning in part
the need to use a digital camera, an image processing software (Photoshop) and
black and white photographic paper (with silver emulsion). To support the development
of the method, photographs of polyporus in a forest environment growing on
trees, as well as fungus measurement photographs were produced. The RTA found
that this method had no scientific basis. To perform a spectrophotometry
analysis, the light source must pass through a solution containing the
substance (molecules, bacteria, etc.) to be characterized or dosed. There is no
link with the use of image processing software, a digital camera or photographic
paper. The photos entered as supporting evidence have no link with the field of
spectrophotometry.
[85] First, it will be remembered
that Mr. Blais has more than 20 years’
experience in spectrophotometry while the Respondent’s expert has far less.
[86] Second, even the Respondent’s expert was open to
the Appellants’ assumption on this question and showed honesty in direct
examination regarding his limited qualifications in this field.
[translation] Q. And to your knowledge, is there literature or publications
on the possibility of conducting spectrophotometry with digitalized images? Is
that a technique you know about, that you see regularly, or even that you have
seen before?
A. Without making promises, I could find you examples of
something where plant growth is observed through analysis of digital images.
Q. Do you know if this is possible or not? Are you able to make
a judgment on this?
A. I can say it is a good idea, that the assumption is sound.
Based on the fact that it would be useful to know precisely the growth level of
a particular fungus. Did I know, do I know whether or not this will work? No, I
cannot say, I do not know. In that context, no, I cannot state an opinion.
[87] Third, I believe that the following part of
the cross-examination of the Respondent’s expert by Ms. Auray-Blais is highly
relevant.
[translation] A. Given that I have answered several questions with "I
don’t know," I am unable to draw a link with what Mr. Blais has just
explained to us. Excuse me, but I... it's my area of incompetence, digital
cameras. I know nothing about digital cameras. I’m sorry.
Q. Then, if you know nothing about them, how were you able to
reach the extremely clear and specific conclusion [that all the devices in question
cannot be considered a spectrophotometer]?
[88] The Appellants
therefore cast doubt on the conclusion
reached by the Respondent’s expert in his report.
[89] Finally, on the point
of the materials said to be consumed, I find that the Appellants consumed them all for their relevant projects.
Between the Appellants’ credibility and that of the Respondent’s expert, I lean
more toward the Appellants. Not only was the Respondent’s expert more flexible
on this point at the hearing, but I also believe that his credibility on all
the projects has been greatly diminished. In passing, I also note that this
question regarding materials consumed was not raised in the Minister’s
assumptions. However, this did form part of the many foundations for the
Respondent’s report, which I reject almost in its entirety.
e) Other
points raised on May 11, 2005
[90] Of all the points raised during this day, only those
related to costs merit a few comments, as the issue of the interests was
dropped by the Appellants, while the points raised about the pension plan and
RRSP, respectively, have no basis in fact on which the Appellants can rely. Section
96 of the Act cited in respect of these last two points provides no
assistance to the Appellants in this case.
[91] All told, given the
divided success in these appeals,
the parties must pay their own costs, except those incurred by the Appellants for
their expert, which must be paid by the Respondent due to the serious
shortcomings in the report of its expert. Despite the fact the Respondent offered
the Appellants the option of seeking the opinion of another expert, I do not
deem this offer sufficient. The Appellants state that what the Respondent offered
was an expert from the same regional office or an expert with a potential link
to that office. Instead, the Minister should have offered to retain the services
of an expert from another regional office to avoid creating an appearance of
partiality. I share the Appellants’ concern on this point.
Signed at Ottawa, Canada, this 25th day of
October 2005.
"Paul Bédard"
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