Vanguard Coatings and Chemicals Ltd. v. MNR, 86 DTC 6342, [1986] 2 CTC 139 (FCTD)

Walsh, J.:—Plaintiff moves pursuant to Rule 465(18) of the Federal Court Rules that defendant answer the following questions:

1. Why did the Minister not determine a fair price based on the cost of the product plus any reasonable markup or discounts?

2. Has the Minister ever considered there to have been a distributor level in an industry when sales to independent third parties have not amounted to 15% of the total sales of an industry at large?

3. Why did the Minister not consider the K-G Contract to have established or offered persuasive evidence of a distributor level in this industry?

4. Determine whether Valspar has been selling in excess of $1,000,000 of paint brush goods to companies such as Ro-Na and perhaps co-operatives and certain buying groups in the more recent years following July 31, 1980 being the date of cancellation of Valspar’s manufacturing licence.

5. How does the Minister determine the existence of a distributor level in any case where such a level is newly established?

6. Did the Minister determine that, with respect to the subject goods manufactured by Vanguard and sold to Flecto, that there was some sort of unwarranted or undue advantage in the pricing of these products in the industry?

7. What, if anything, did the Minister do with respect to the information supplied to him (Exhibit 28) on behalf of the Plaintiff indicating that companies such as Ro-Na, Home Hardware and Beaver and certain franchised stores buy brush paint products from a central warehouse which in turn come from a manufacturer such that the plaintiff says that the central warehouse is or constitutes a distributor level in this industry in Canada?

and further, pursuant to Rule 455(2) the defendant produce the following documents requested by plaintiff at the examination for discovery:

(a) All documentation and information accumulated with respect to the Minister’s survey regarding the existence or not of a distributor level in this industry in Canada.

(b) With respect to the letter from the Regional Director, Excise, Pacific region, dated July 22, 1982, a copy of the letter from Mr. M. J. Tremblay that was apparently attached to the original advising Valspar Corporation how to account for tax on purchases.

(c) The industry survey upon which Paint Circular ET 135 was based.

Plaintiff further moves that a writ of subpoena duces tecum be issued to the Honourable Elmer Mackay, Minister of National Revenue and to the Honourable Pierre Bussiéres.

At the hearing the issues raised by the motions were somewhat simplified and plaintiff's counsel declared that after consultation with defendant's counsel he had abandoned the request that a subpoena be issued to the Honourable Elmer Mackay on the understanding that defendant would bring at the trial, P. C. Hannon, Acting Director General of Excise Programs, Excise Branch, Department of National Revenue, who has knowledge of the facts giving rise to these motions for questioning as a witness. The issue of the propriety of subpoenaing a minister of the Crown as a witness to produce documents does not therefore have to be dealt with.

With respect to the subpoena sought for the Honourable Pierre Bussières, who was Minister of National Revenue at the time the events giving rise to the proceedings herein occurred, counsel for defendant stated that he had no instructions from him at this time. In any event, the subpoena could be issued ex parte but the issue of whether a former Minister of National Revenue enjoys any immunity with respect to events occurring while he was Minister and whether he will testify willingly or a court order must be sought is not one which can be dealt with at this time. The subpoena can, therefore, be issued.

Plaintiff’s counsel also stated that he has been informed that the industry survey upon which Paint Circular ET 135 was based cannot be located by defendant so the request for this document listed under (c), supra, is now abandoned. The serious issues remaining to be dealt with are the demand for the production of documents referred to in (a) and (b) of the notice of motion, supra.

Before dealing with the background of the matter and defendant's reasons for objecting to the productions sought, it will be convenient to cite the sections of the law in question:

Excise Tax Act, R.S.C. 1970-71-72, c. E-13 as amended:

34. Where goods subject to tax under this Part or under Part III are sold at a price that in the judgment of the Minister is less than the fair price on which the tax should be imposed, the Minister has the power to determine the fair price and the taxpayer shall pay the tax on the price so determined.

Canada Evidence Act, R.S. 1970-71-72, c. E-10, as amended:

36.1 (1) A Minister of the Crown in right of Canada or other person interested may object to the disclosure of information before a court, person or body with jurisdiction to compel the production of information by certifying orally or in writing to the court, person or body that the information should not be disclosed on the grounds of a specified public interest.

(2) Subject to sections 36.2 and 36.3, where an objection to the disclosure of information is made under subsection (1) before a superior court, that court may examine or hear the information and order its disclosure, subject to such restrictions or conditions as it deems appropriate, if it concludes that, in the circumstances of the case, the public interest in disclosure outweighs in importance the specified public interest.

It is set out in affidavits of plaintiffs counsel in support of the motion that plaintiff carries on the business of manufacturing and selling finishing coating goods such as varathane, coloured plastic paints and wood stains and sells them to its parent corporation, Flecto Coatings Ltd. (hereinafter called “Flecto”). It paid sales tax pursuant to the provisions of section 27 of the Excise Tax Act on the sale price of its goods sold to Flecto but by letter dated June 29, 1981 from the Excise Branch of Revenue Canada, it was advised that for excise tax purposes it would be considered a manufacturer of the goods sold to Flecto and since there was an association between Flec- to's prices for tax would have to be considered in establishing “fair price” for taxation. Subsequently, by letter dated October 16, 1981, plaintiff was advised that since a distributor trade level did not exist in Canada in the paint industry, an acceptable fair price for tax on sales to the associate distributor would be not less than that associate’s sale price to independent producers. Plaintiff contends that a distributor level did exist in Canada with respect to similar goods and so advised the Department.

After further exchange of correspondence with the Department and even a meeting with the then Minister, the Honourable Pierre Bussiéres, by letter dated October 27, 1983, he made a fair price determination pursuant to the provisions of section 34 of the Excise Tax Act.

Plaintiff seeks relief from this determination in the statement of claim filed herein on February 7, 1984 as amended by amended statement of claim filed on September 13, 1985. The trial of the action has been set down for four days commencing on June 24, 1986. It is plaintiff’s contention that in making its determination the Minister relied on information contained in various documents and surveys prepared by his officers as to the existence or non-existence of a distributor level in the paint industry. Documents relied on by him in making the fair price determination are now in the possession of the office of the present Minister and these documents will be required in order to determine whether the fair price determination has been made fairly.

In his affidavit opposing the production of documents by the defendant, Mr. Hannon points out that the documentation and information being sought was obtained by the Department of National Revenue for the Minister for the purpose of determining the nature of trade levels in the industry in order to determine whether a fair price determination was required to be made pursuant to section 34 of the Excise Tax Act. This information was provided by various companies involved in the same industry as plaintiff which compete with it and the information in question consists of their sales figures expressed as percentages at the various trade levels and indicates the degree of market penetration at the various trade levels and total annual sales of the companies, which information is supplied on the basis that it remain confidential and would not be released by the department to competitors such as plaintiff as this would threaten the interests and competitive position of the companies that provided the information. The affidavit points out that in fair price determination made pursuant to section 34 of the Excise Tax Act it is essential that full and reliable information be forthcoming from the industry involved and will only be obtained by ensuring the companies providing it that the information will be kept confidential and not released by public officials to whom it was entrusted.

With respect to the copies of the letter from M. J. Tremblay to the Valspar Corporation Limited advising that company how to account for tax on purchases, objection is made to its disclosure as being contrary to public interest since it contained information that related solely to Valspar’s operations and marketing strategies. It is contended that it is essential that the Department be able to correspond with taxpayers and others on a confidential basis without the threat of such correspondence being disclosed to third parties or competitors; otherwise the administration of the Department would be severely impaired.

It is common ground between the parties that the decision by the Minister was an administrative one. It has now been well established that while administrative decisions are normally not subject to review by any court they must, nevertheless, be made fairly or they can be quashed. Plaintiff contends there is no way in which it can determine whether the Minister acted fairly in making his determination unless it has access to the information on which it was based, which will be required at the trial of the issue in order for the trial court to make this determination. The Excise Tax Act, unlike many other statutes, contains no provision for appeal from the Minister's decision which must be made by him, as was done in this case and not delegated. The Court was informed that as recently as May 1 amendments to the Act have been made providing appeal provisions similar to those in the Income Tax Act, but as this would not be applicable in any event. The issue before the Court relates to additional excise taxes claimed for the 1981 period under review, amounting to some $50,000, with no figures being given for subsequent years and the legislation would not be retroactive. Therefore the question of the effect of the amendments on the determination of fair value by the Minister need not be gone into here.

Plaintiff concedes that it has received fair treatment in the procedural sense being given full opportunity to make representations to the Minister before this determination was made but contends in its action that the ruling was not fair in its determination that there was no distributor level in the industry and in assessing tax on Flecto’s selling price. Competitors sell directly from the manufacturer to the wholesaler, possibly for cost plus about 25 per cent.

At the trial a Charter of Rights issue will be raised to the effect that the provisions of section 34 of the Excise Tax Act, which do not determine how “fair price" should be determined, are too vague especially as the statute provides for no appeal. It was argued that the degree of fairness depends on the degree of discretion imposed on the Minister which, in this case, is absolute. A constitutional question will also be raised as to whether section 34 does not in effect delegate taxation powers to the Minister since, although he cannot determine rate of excise tax, he can by determining what constitutes, in his view, “fair value" affect the amount of tax payable. These are matters to be dealt with on the merits. The issue before the Court on the present motion is now confined to deciding whether the Minister should be ordered to produce for examination by plaintiff and use at the trial the documents which he objects to producing.

It may be said that plaintiff has already been given a number of the documents sought, only a relative few remaining subject to the privilege claim, which were delivered to the Court in a sealed envelope. One of the issues to be dealt with is whether the Court should look at them or not. In the event that it does, a second issue would arise as to whether the production should be ordered in toto or deletions of names and perhaps figures or subject to other restrictions or conditions pursuant to subsection 367.1(2) of the Canada Evidence Act.

Reference was made, inter alia, by plaintiff to the Supreme Court case of Canadian Javelin Limited; Sparling et al. v. Smallwood; 44 N.R. 571, in which at page 585 Madam Justice Wilson refers to the leading Canadian authority of Rex v. Snider, [1954] S.C.R. 479; [1954] C.T.C. 255, in which the Court affirmed the right of the Court to examine documents to ascertain whether there might be a prejudice to the public interest in their disclosure. The Director of Taxation for the district of Vancouver had been subpoenaed to give oral evidence and to produce the income tax returns of the accused in criminal proceedings. Reference was made to the judgment of Rand, J. at 482 (C.T.C. 258) in which he stated: “It requires as its essential condition that there be a public interest recognized as overriding the general principle but in a Court of Justice every person, every fact must be available to the execution of its supreme functions.”

Reference in the Canadian Javelin case was also made to the judgment of the House of Lords in the case of Burmah Oil Company Limited v. Bank of England, [1979] 3 All E.R. 700, in which Edmund-Davies L. J. stated at page 726:

Since not only justice itself but also the appearance of justice is of considerable importance, the balancing exercise is bound to be affected to some degree where the party objecting to discovery is not a wholly detached observer of events in which it was in no way involved. It cannot realistically be thought that the government is wholly devoid of interest in the outcome of these proceedings.

Reference was also made to the case of M.N.R. v. Huron Steel Fabricators (London) Limited, [1973] C.T.C. 422; 73 D.T.C. 5347, in which the Federal Court of Appeal approved the production of the income tax return of another person not party to the action which the taxpayer required to establish his case. Page 429 (D.T.C. 5352) of the judgment states:

There must, moreover, be reason at least to doubt that section 41 of the Federal Court Act can be relied on as establishing any new right or basis for a claim to immunity. The section, as I read it, gives statutory sanction to the authority of the Court to examine a document for which immunity is claimed on grounds heretofore known to the law as grounds for claiming Crown privilege and to weigh the public interest asserted in favour of immunity against that in the proper administration of justice. It is thus a procedural provision and I do not read it as conferring any new right based on grounds of public interest not heretofore recognized as being sufficient to justify privilege from production.

Section 36.1 of the Canada Evidence Act, supra, is the section which now replaces section 41 of the Federal Court Act where discretion is left to the Court as to whether despite the certificate the information should not be disclosed on grounds of specified public interest. The Court may nevertheless order disclosure if the public’s interest in the disclosure outweighs the importance of the specified public interest for non-disclosure. In the present case, in addition to the affidavit referred to above, the Minister has filed a certificate pursuant to section 36.1 containing similar information to that set out in his affidavit.

Defendant also referred to extensive jurisprudence although some of it dealt with objections to disclosure on grounds of national security which is not the issue here. Reference was made to the judgment of Chief Justice Thurlow in the case of Maurice Goguen and Gilber Albert v. Frederick Edward Gibson, [1983] 1 F.C. 872, in which he discussed at length the provisions of section 36.1 of the Canada Evidence Act and also section 36.2 which is not applicable here as no question of national security is involved. He compared them with section 41.1 of the Federal Court Act which had been repealed. At page 886 he states:

But while subsection 36.1(2) now permits examination by the Court of the information sought, the subsection, in my opinion, also manifests an intention to confer on the Court a discretion as to whether or not to make such an examination.

This was referred to by Justice Urie rendering the judgment of the Court of Appeal in the case of Jack Gold and Her Majesty the Queen in Right of Canada, No. A-440-85, judgment dated February 3, 1986, in which he stated:

This Court in Goguen approved the proposition that inspection ought only to be undertaken if it appears necessary to determine whether disclosure should be ordered. That proposition is equally valid when disclosure is sought by a party in a civil action as by the defense in a criminal prosecution.

Reference was also made to page 907 of the judgment in the Goguen case in which Chief Justice Thurlow stated:

After giving the matter the best consideration I can give it, I am unable to regard the disclosure of the documents and information as being of critical importance to the defenses of the applicants, particularly having regard to the availability to them of witnesses who will be able to give in general terms evidence of at least some of the matters that they express their need to prove to confirm their own evidence.

The effect of the Charter of Rights in disclosure was discussed at some length by Madam Justice Reed in the case of Donald Cadieux v. Director of Mountain Institution and National Parole Board, [1985] 1 F.C. 378. While I have indicated that this is a matter for decision on the merits, it is instructive to look at the judgment on this motion to produce. At page 392 reference is made to the British case of Rogers v. Secretary of State for the Home Department, [1973] A.C. 388; [1972] 2 All E.R. 1057; with Justice Reed stating:

In this case a person who had been unsuccessful in obtaining a gaming licence attempted to obtain, for the purposes of prosecuting a suit in criminal libel, production of a letter written to the Board containing information on his character, reputation and related matters. The House of Lords held that disclosure was not required, that protection for the document could be claimed, not on the basis of Crown privilege but because the public interest required such communications to the Board to be immune from disclosure. It was held that this was necessary in order to allow the Board to effectively perform its statutory duty. In the performance of that duty if was necessary to obtain, from varying sources, the fullest possible information about the applicant; if the persons volunteering such information were afraid of repercussions, they would not speak up.

[Emphasis mine]

That appears to be very close to the present case.

Reference was also made, however, at page 394 in the House of Lords case of D. v. National Society for Prevention of Cruelty to Children, [1978] A.C. 171; [1977] 1 All E.R. 594, in which Lord Diplock stated at 218 (All E.R. 594):

The fact that information has been communicated by one person to another in confidence, however, is not of itself a sufficient ground for protecting from disclosure in a court of law the nature of the information or the identity of the informant. . .. The private promise of confidentiality must yield to the general public interest that in the administration of justice truth will out, unless by reason of the character of the information or the relationship of the recipient of the information to the informant a more important public interest is served by protecting the information or the identity of the informant from disclosure in a court of law.

At page 399 of the Cadieux judgment Madam Justice Reed refers to the Snider and Huron Steel case, supra, concluding that the mere fact that information provided in confidence is not in itself sufficient reason to justify non-disclosure. She states:

I think that such fact is particularly not sufficient when one is considering the rules of fundamental justice required by section 7 of the Charter. To allow nondisclosure to be justified merely on the ground that the information was given in confidence, is far too weak a justification for a limitation on the scope of a constitutional guarantee. This is particularly so when a person’s liberty is at stake (even though that liberty be of a limited and conditional nature).

As I see it in the present case, however, there is no question of liberty at stake but merely a commercial question.

In the case of Electrohome Limited et al. v. D/M.N.R. for Customs and Excise, and Daewoo Electronics Company Limited and Goldstar Co. Limited, Court No. T-2726-85, in a judgment dated January 31, 1986, Rouleau, J. refused to quash the refusal of the Deputy Minister of National Revenue, to disclose certain confidential information to applicant’s counsel and to issue mandamus compelling him to disclose the information and for prohibition of proceeding with the investigation under the Special Import Measures Act until the confidential information was disclosed. This dealt with an antidumping investigation. After reviewing the jurisprudence, Justice Rouleau states at page 17:

In this case the applicants maintain that they are being treated unfairly by virtue of the Deputy Minister’s refusal to provide them with the confidential information as requested. That argument must fail. The applicants have failed to provide this Court with any evidence of unfair treatment; they have failed to produce any evidence to indicate that the Deputy Minister may have used or been provided with incorrect information in his investigations. In effect, the applicants have failed to provide any reason as to why I should reverse the decision of the Deputy Minister except that they want the confidential information in order to ensure that the Deputy Minister has correctly fulfilled his statutory duty in determining normal value, export price and the resultant margin of dumping. In my view, the applicants have no statutory nor common law right to the confidential information nor do they have the right to force the Deputy Minister to solicit their assistance in the performance of his statutory duty. I am not satisfied that the Deputy Minister’s refusal to disclose the confidential information in his possession is a breach of any common law duty of fairness. As stated by Le Dain, J. in Inuit Tapirisat of Canada v. The Right Honourable Jules Leger, [1979] 1 F.C. 710 (F.C.A.) at p. 717:

. . . It is necessary to consider the legislative context of the power as a whole. What is really in issue is what is appropriate to require of a particular authority in the way of procedure, given the nature of the authority, the nature of the power exercised by it and the consequences of the power for the individuals affected. The requirements of fairness must be balanced by the needs of the administrative process in question.

[Emphasis added]

Were I to find that the Deputy Minister was required to provide such confidential information on request, I cannot avoid the conclusion that the whole legislative process would eventually come to a grinding halt, while every complainant requested the confidential information provided to the Deputy Minister in order to make their own calculations of normal value, export price and margin of dumping.

When it comes to the hearing of the matter the principal issue will be merely whether a distribution level existed in the industry as a whole and plaintiff will be in a position to submit evidence to this effect despite the Minister’s finding that there was insufficient evidence that such a distribution level existed. The Minister also refused to look at what was being paid on imported goods but only manufacturer's prices. To the extent that goods were bought by Flecto from other manufacturers than its subsidiary, the present plaintiff, they were bought on a tax paid basis. Counsel for the Minister indicated that the Minister is now taking Flecto's selling price as was done previously and that the plaintiff now knows everything the Minister knew except for the figures of competitors. If the concept of lack of sufficient evidence of a distribution system is wrong then seeing these documents will not help plaintiff.

There is no overriding issue of public interest in the present case justifying disclosure of information provided to the Minister in confidence. Plaintiff desires this information in order to determine whether the Minister acted fairly in determining its “fair price" for excise tax purposes, but this is a commercial interest applicable to it and not a matter of public interest.

The action opens the door to the review by an aggrieved taxpayer by virtue of sections 17 and 18 of the Federal Court Act of the multitude of administrative decisions which must be made by the Minister, but the question of whether this should be permitted in the present case is of course for the trial judge.

Plaintiff by examining the documents already furnished by defendant, cross-examining the witness Hannon and possibly the former Minister the Honourable Pierre Bussières at trial, subject as always to such objections as may be made and decided by the trial judge, and by virtue of such evidence as plaintiff itself may present, would appear to have sufficient opportunity to have the issue of whether the Minister acted fairly in his determination reviewed by the Court without being given access to the detailed confidential information furnished to the Minister by plaintiffs competitors. In making this finding I am relying on dicta in the Goguen, Rogers and Electrohome cases (supra). Moreover the Goguen and Jack Gold cases (supra) are also authority for not even looking at the documents furnished by defendant under seal unless the Court finds this necessary in the circumstances.

However, in order to make sure that the documents with respect to which objection to produce has been made contain information which should not be disclosed to plaintiff or whether they would be of any use to the Court if produced with names and figures blacked out, I have looked at the sealed documents. Among them is one letter dated March 18, 1980 from Jean Pierre Tremblay of Tax Interpretations, Excise to Valspar Corporation, which may be relevant in a determination of “fair value” for plaintiff. I believe that this letter should be produced, and so direct, although it is not specifically referred to in the present motion unless it is the letter referred to in paragraph (b). The other documents will remain under seal.

With this single exception, plaintiffs motion in so far as it relates to production of documents is dismissed with costs.

Order

Plaintiff’s motion, in so far as it relates to the production of documents, is dismissed with costs, save for the production of letter dated March 18, 1980 from John Pierre Tremblay to Valspar Corporation referred to in paragraph (b) of the motion.

Order accordingly.