Walsh, J:—This is a motion on behalf of defendant seeking an order as follows:
(a) dismissing the plaintiffs action on the basis that this honourable Court, in exercising an inherent jurisdiction over its own process, will not allow the Plaintiff to use that process to pursue its appeal further where the facts are as set out in the affidavit of Richard Edward Campbell, filed.
(b) in the alternative, granting the defendant an examination for discovery of Victor Johnson pursuant to Rule 465(19) of the Rules and Orders of this Honourable Court;
(c) in the further alternative,
(i) granting the defendant a further examination for discovery of Walter Edwin Stracey as an officer of the plaintiff;
(ii) requiring Walter Edwin Stracey to take all reasonable steps to inform himself about the material litigation pursuant to Rule 465(18) of the Rules and Orders of this Honourable Court, including
(A) making inquiries of directors, officers and employees or former directors, officers and employees of Pillar Holdings Limited, later known as Pillar Limited RTZ Pillar Limited, RTZ Europe Limited and RTZ Industries Limited (hereinafter referred to as “RTZ”), Pillar International Services Limited, Rallip Canada Limited, Indal and the plaintiff and any other corporation in The Rio Tinto Zinc Corporation Limited multinational group of corporations so that he is able to provide answers to questions posed on the further discovery relating to matters referred to in the undertakings set forth in Exhibit 2 to the affidavit of Richard Edward Campbell, filed, and to the subject matters of the records referred to in subparagraph (c)(iii) hereof;
(B) loans made by Pillar International Services Limited in each of the plaintiffs 1970 to 1980 taxation years and the flow of those loans through The Rio Tinto Zinc Corporation Limited multinational group of corporations including the original source of loans made to Rallip Canada Limited and corporations owning shares of Rallip Canada Limited in each of the plaintiffs 1970 to 1980 taxation years inclusive where applicable; and
(C) corporations in the Rio Tinto Zinc multinational group of companies, for the years under appeal, through which RTZ controls (a) the plaintiff, and (b) Pillar International Services Limited.
(iii) requiring the plaintiff to take all reasonable steps to obtain and produce copies of the records of Pillar International Services Limited for 1970, for the years in question and for the years 1975, 1976 and 1977, and in particular with respect to the following:
(A) working papers including ledgers, records, reports, memoranda, correspondence or documents relating to the financial statements of Pillar International Services Limited for those years;
(B) all contracts, records, reports, memoranda, correspondence or documents relating to the negotiations that purportedly took place from time to time between (i) Pillar International Services Limited and Alcan; and (ii) Pillar International Services Limited and the plaintiff respecting the establishment of and payment of discounts by Alcan to Pillar International Services Limited on aluminum extrusion billet shipped to the plaintiff by Alcan and the establishment of the intercompany price from time to time prevailing between Pillar International Services Limited and the plaintiff;
(C) all records, reports, memoranda, correspondence or documents relating to the termination of the arrangement between Pillar International Services Limited and Alcan and Pillar International Services Limited and the plaintiff for the purported purchase and sale of aluminum extrusion billet.
The issue on the merits arose out of plaintiffs failure to include in its income for the taxation years 1971 through 1974, $2,644,000 plus interest which apparently arose out of dealings during that period between plaintiff and Pillar International Services Limited a corporation incorporated under the laws of Bermuda. As a result plaintiff was assessed for non-resident tax and interest of over $540,000 plus penalty on the allegation that it had failled to deduct and remit this tax on moneys paid or credited to RTZ Pillar Holdings Limited. By notice of reassessment this was subsequently reduced to $342,000 plus penalty. The Minister for his part contends that plaintiff which is in the business of manufacturing aluminum extrusions, for which purpose it acquired all its unwrought aluminum from Alcan and none from Pillar International Services Limited, that RTZ Pillar Holdings Limited, a company incorporated in the United Kingdom owned approximately 58 per cent of the shares of Indal Limited and that Indal Limited, a public company at all material times owned all the shares of the plaintiff. Pillar International Services Limited is a company incorporated in Bermuda and all of its shares were owned by RTZ Pillar Holdings Limited. Plaintiff earned discounts from the listed price based on the volume of its purchases of unwrought aluminum from Alcan. The discounts were in the following amounts:
1971 | $1,723,552.00 |
1972 | 1,742,335.00 |
1973 | 756,901.00 |
1974 | 2,035,525.00 |
| TOTAL $6,258,313.00 |
Of these discounts the following amounts were appropriated by RTZ Pillar and on its direction paid to Pillar International and retained by it:
1971 | $653,370.00 |
1972 | 599,763.00 |
1973 | 452,187.00 |
1974 | 938,989.00 |
| TOTAL $2,644,309.00 |
so that plaintiff was paid only the following portions of the discounts which it had earned:
1971 | $1,070, 182.00 |
1972 | 1,142,572.00 |
1973 | 304,714.00 |
1974 | 1,096,536.00 |
| TOTAL $3,614,004.00 |
Defendant will contend on the merits that neither RTZ Pillar nor Pillar International Services earned any said discounts all of which had been earned by plaintiff and that the interposition of Pillar International in the transactions of purchase and sale between plaintiff and Alcan was a cloak that concealed the real situation which lacked a bona fide business purpose or was a sham. It 1s further contended that by virtue of its control of Pillar International and Indal and through Indal over the plaintiff RTZ Pillar caused Indal via the plaintiff to confer the discounts earned by it as a benefit or advantage on RTZ Pillar and RTZ Pillar then directed payment of a benefit or advantage to Pillar International either for its own benefit or as a benefit it desired to have conferred on Pillar International. At all material times with respect to transactions of purchase and sale between plaintiff and Alcan Pillar International was a puppet of RTZ Pillar which on behalf of plaintiff negotiated the agreements of purchase and sale of the aluminum between plaintiff and Alcan using its world purchasing power to negotiate the price for plaintiff, so that plaintiff earned the discounts paid by Alcan as well as certain special credits in each of the said taxation years on its said purchases. The special credits were also appropriated by RTZ Pillar and on its direction paid to Pillar International. These special credits defendant alleges were reasonable compensation to RTZ Pillar for services rendered by it to plaintiff in negotiating the discounts. In the alternative it is pleaded that if plaintiff purchased unwrought aluminum from Pillar International which it does not admit, then its outlays for its purchases were unreasonable and exceeded the fair market value by an amount not less than the discounts. It is argued that the discounts constituted part of the profit from the business carried on by plaintiff and were part of its income and that the interposition of Pillar International in the transactions of purchase and sale between plaintiff and Alcan was a cloak that lacked a bona fide business purpose or was a sham. It is submitted that plaintiff paid a shareholder, or must be deemed as having done so, the amount of $2,644,309 during its 1971 to 1974 taxation years on which income tax was payable as appropriations to a shareholder, RTZ Pillar, which should have included said amount in its income and that plaintiff had to pay the tax it is liable for on this as a deemed dividend.
While these are issues which will of course have to be decided on the merits it was necessary to outline them for a better understanding of the issues raised in the present motion. The intercorporate relationships are even more complex than set out in the pleadings. RTZ Industries Limited controlled but did not wholly own plaintiff and its parent Indal Limited, doing so through a company known as Rallip of Canada Limited which in addition owned 58 per cent of the shares of Indal Limited which in turn owned 100 per cent of the shares in In- dalex. Furthermore RTZ was controlled by the Rio Tinto Zinc Corporation Limited. There is also a company in the United States known as Indal Inc. which is wholly owned by Indal Limited and has a division in California. It is admitted by Walter Edwin Stracey, chairman and chief executive officer of Indal Limited, who was a director of plaintiff during the years 1971 to 1974, during the course of his examination for discovery that one of the reasons for setting up the Bermuda corporation to purchase aluminum from Alcan was to obtain a tax advantage. There is of course nothing wrong with this.
Plaintiffs counsel in argument stated that the company had existed since 1962 under a different name and that Alcan bought 20 per cent of the share equity in return for an agreement that it would buy all its aluminum billets from Alcan at list price. In 1964 Indal bought the other 80 per cent of plaintiffs shares and in 1968 bought out Alcan’s holdings. In discovery Mr Stracey had explained that members of the Board James Paterson (now deceased) and Dennis Fredjohn had conducted the acquisition by Pillar Holdings (RTZ Pillar). Paterson had been to school with David Culver, President of Alcan and they had worked together in the company for 10 years. Pillar also obtained aluminum extrusions from the United Kingdom and Germany. By agreement negotiated by Paterson on behalf of RTZ Pillar it was provided that if Pillar bought all its aluminum from them it would get a discount. In addition to the Canadian company it has aluminum extrusion plants in Portugal, Sweden and Australia. While Indal has been a public company since March of 1969 it was under the control of RTZ Industries which held 58 per cent of its shares. Pillar Holdings, the United Kingdom company also a public company was taken over in March 1970 by RTZ which bought all its shares, RTZ also being a public United Kingdom company.
Plaintiff concedes that RTZ could control what the Bermuda company Pillar International Services did, but argues that if the latter company were a sham or puppet it was in this relationship with RTZ and not with the plaintiff Indalex. Pillar International Services has ceased operating since 1976, but some of its documents which defendant seeks to examine were obtained by Vic Johnson before that date. While the complex relationships of the various companies in the group make the issues somewhat difficult, it appears that what the trial court will have to determine is whether plaintiff was entitled to all of the discounts allowed by Alcan on purchase of aluminum from it although this agreement with Alcan had been negotiated by Pillar Holdings, which subsequently became RTZ, or whether RTZ which through subsidiaries could control plaintiffs operations could decide how to divide up these discounts, allowing plaintiff to retain only a portion of them, and subsequently transferring the balance to Pillar International Services Limited in Bermuda, from whom plaintiff was obliged to purchase the aluminum rather than buying it directly from Alcan.
Without in any way attempting to decide the issue on this motion it must be pointed out that it is a legitimate objective, well recognized in tax law, for any corporation to so conduct its affairs as to avoid or minimize tax obligations. Tax avoidance as distinct from tax evasion is fully acceptable. Certainly RTZ could have bought the aluminum from Alcan and resold it to plaintiff for whatever price it chose, whether this represented an increase in the price over what it had had to pay to Alcan after taking the discount into consideration or not. In any sale by a parent company to a controlled subsidiary the price will of course have a significant effect on which corporation is to make the profit resulting from resales of the finished product by the subsidiary, but the fact that it is not an arm’s length transaction does not invalidate it or make it a sham. The question before the Court in the present motion is what information must be given to defendant respecting the operations of the parent and associated companies in the group in order to enable it to get at the true situation to determine plaintiffs tax liability.
Defendant already has a breakdown showing the distribution of the benefits from Alcan to plaintiff and to Pillar as well as information as to list prices of sales by Alcan to other arm’s length purchasers, should the question of whether plaintiff by only receiving part of the rebate paid more than it should have for the aluminum billets, become an issue before the trial judge. There is no doubt that plaintiff is endeavouring to prevent defendant from obtaining any more information than it 1s strictly obliged by law to give with respect to the financial operations of the parent companies. V R Johnson became managing director of Pillar International Services Limited on August 1, 1973 and took part in negotiations with Alcan in 1974 and 1975, and later in connection with the termination by Indalex Limited at the end of 1976 of its purchasing contract with Pillar International Services Limited. In reply to a letter to John Lister, general counsel of RTZ Pillar Industries Limited dated September 24, 1981 in London respecting undertakings given by RTZ Pillar Limited during the examination for discovery of its witness Walter Stracey in which it is stated that there was an undertaking to inquire from RTZ Pillar Limited as to whether it was prepared to provide the information, the said Mr Lister replies that Pillar International Services Limited ceased its metal buying business and disposed of its offices in Bermuda at the end of 1976. The letter goes on to state “Furthermore all those who were directors during the years under review have now either retired, moved on or died”. It concludes “In the circumstances we really do not feel we can assist you on the very numerous and wide ranging questions which have been raised”. This reply, while perhaps literally true, was, to say the least, misleading. Mr Johnson was still alive, as according to a letter dated May 10, 1977, from the Vice-President of Finance of Indal Limited (the Canadian company) to Revenue Canada he was still at that time the managing director of Pillar International Services which evidently had not yet been dissolved. As of the said date it was also stated in the document sent with the letter that J A Paterson had become a director of Pillar International Services Limited on December 11, 1969 and still was. It states that he was principally instrumental in creating Pillar Holdings Limited in the United Kingdom and author of the Pillar group purchasing concept. He participated in the negotiations with Alcan which enabled Pillar International Services Limited to obtain a source of aluminum at prices which would permit the Pillar group to continue to grow. He was also at the date said information was given a Director of RTZ, a position he had held since it acquired the Pillar group in the Spring of 1970, being at the time chairman and chief executive officer of RTZ Industries Limited.
D Fredjohn was a director of Pillar International Services Limited from December 11, 1969 to December 12, 1973, being one of the early associates of Mr Paterson in the aluminum industry. He left the RTZ Group at the end of 1973.
Mr MacNab, general counsel of Revenue Canada wrote plaintiffs Canadian counsel, W L N Somerville, QC on May 20, 1982 in reply to this letter of Mr Lister’s. He states that he went to England and contacted two former directors of the parent company RTZ Industries Limited or its predecessor and the offshore company Pillar International Services Limited who were involved in a major way in the activities of both of those corporations. Mr Fredjohn was also a former director of Indal Limited in the years 1971, 1972 and 1973. His purpose was to discuss the matter with them and obtain material facts which counsel had maintained that he was unable to provide. One of these parties was a Mr Greenwood who said that he would be in London the following day and would communicate with him, but Mr MacNab received a telephone call the next day from Mr Greenwood informing him that he had discussed the matter with counsel for RTZ Industries Limited who advised him not to talk to him. He also arranged a meeting with Mr Fredjohn but early the following day, before the meeting, he received a telephone call from Mr Lister who stated that this meeting with Mr Fredjohn was cancelled and which upbraided him for attempting to communicate with Mr Greenwood or Mr Fredjohn through what he called the “back door”. Mr Lister undertook that if he would submit a list of questions to him for Mr Fredjohn in advance of a meeting then Mr Lister would review them without making any commitment that a meeting would take place, but subsequently stated that there would be little point to it as his position had not changed. Mr MacNab then telephoned Mr Fredjohn about the cancellation of the meeting and was informed by Mr Fredjohn that he was somewhat disappointed as he felt he might have been able to clear the entire matter up but confirmed that RTZ Industries Ltd had requested that he not speak to him. He concludes that much of the information requested in discovery of Mr Stracey is available but that a decision has been made not to provide it.
It would appear that paragraph (a) of defendant’s motion seeking a dismissal of plaintiffs action on the basis of the Court’s inherent jurisdiction over its own process is based on the refusal of plaintiff to cooperate in obtaining information which defendant would like to have. It is by no means clear however that it 1s entitled to have this information.
Defendant invokes the’fundamental principle that a full and complete discovery should be given in order to enable it to procure admissions which will dispense with other formal proof and procure admissions respecting the opposite party’s case which will save time at trial. Reference was made inter alia to the judgment of Lord Esher, MR in Marriott v Chamberlain, (1886) 17 QBC 154, where he stated at 163:
... The right to interrogate is not confined to the facts directly in issue, but extends to any facts the existence or non-existence of which is relevant to the existence or nonexistence of the facts directly in issue.
and to the decision of Collier, J in Irish Shipping Ltd v The Queen et al, [1974] FC 455, in which he stated at 449:
The tendency in the Courts of this country in recent years has been to provide all litigants with full and complete discovery prior to trial and to remove as much as possible what used to be known as the “ambush” tactics of the adversary system. In my view that is the general intention of the Federal Court Rules.
This does not necessarily mean however that the witness being examined can be required to inform himself with respect to information in the possession of another company, even if that company is associated with or controlled by the company on whose behalf he is being examined as a witness. This is a delicate question which has given rise to considerable litigation both in this country and in Great Britain. Perhaps one of the best expressions of the problem is found in the judgment of Lord Denning, MR in the case of Lonrho Limited and Another v Shell Petroleum Co Ltd and Another in which Shell and BP did not include in their lists of documents those in the possession of their subsidiaries in South Africa or Rhodesia. Lord Denning in addressing the question of whether a parent company has “power” over the documents of the subsidiary in another country stated at 373:
I would like to say at once that to my mind, a great deal depends on the facts of each individual case. For instance, take the case of one man company where one man is the shareholder — perhaps holding 99% — where perhaps he is the sole director. In these circumstances his control over the company may be so complete, his “power” over it so complete — that it is his alter ego .................... but in the case of multinational companies it is important to realize that their position with regard to their subsidiaries is very different from the position of a one-man company. And often it 1s different from the position of a 100% company operating in one country only.
On the next page he refers to the fact that the South African and Rhodesian companies were very much self-controlled, the directors being local directors, running their own show with comparatively little interference from London. On page 376 he refers to the documents of the subsidiary companies as not being in the “immediate power” of the parent and that if it has to take further steps to get them they need not be disclosed.
It is true that the Lonrho case dealt with production of documents rather than with examinations for discovery. In the Appeal Court decision in the case of Paul D Bowlen v The Queen, [1977] FC 589; [1977] CTC 531; 77 DTC 5433, an order for production of documents in possession of a wholly owned subsidiary of the Royal Bank, a separate corporation established under American law and operating in the United States, was refused as it had not been shown that the documents sought were the property of the Royal Bank and that the subsidiary held them in trust or as its agent. This was based on Rule 464 respecting production of a document in the possession of a person not a party to the action, production of which document at trial might be compelled. Thurlow, CJ said it was suggested that the use of the single word “possession” in that Rule indicates that the application of the Rule is narrower than that of Rules 448, 451 and 453 to 456 relating to discovery of documents which are in the “possession, custody, or power” of the party. The learned Chief Justice expressed his doubt that there is much difference, but was careful to say it was not necessary to decide the point, so that the statement is somewhat obiter in nature.
In the case of Leesona Corp v Snia Viscosa Canada Ltd, 26 CPR (2d) 136, in which the president of the defendant company also held a position with the parent company, I ordered the deponent (who was not the said President) to inform himself from him and answer questions of a technical nature which could only be obtained from the parent company in Italy as to the manufacture of the allegedly infringing yarn.
I found that this was not merely a fishing expedition.
In the case of Foseco International Limited et al v Bimac Canada et al, 53 CPR
(2D) 186, in which the plaintiff was a wholly-owned subsidiary of a British company, the action being one for patent infringement, Mahoney, J found that plaintiff was not entitled to refuse to produce relevant documents of an American company also wholly-owned by the British company nor to refuse to answer questions simply because it had to get the necessary information from it.
In the British case of Taylor v Rundell Cr and Ph 103, 429 it is stated at 433:
If it is in your power to give the discovery you must give it; if not you must show that you have done your best to procure the means of giving it.
I had occasion to examine and comment on all of these cases in the recent case of W H Brady Co v Letraset Canada Limited, Court No T-4853-77, a judgment of September 2, 1983. Here again this dealt with production of documents. The judgment stated:
Certainly if a parent company cannot be obliged to disclose documents in possession of a subsidiary, the converse would be even more true — that the subsidiary does not have the “power” to force disclosure by the parent. While this proposition may well be sound as a general principle, the facts of each individual case must be considered as Lord Denning suggests. In the present case we are not dealing with taxation, nor with damages, but with priority of invention of a patent, with most of the information required to decide it being in the possession of the parent company.
I went on to state that the witness who was supposed to be examined for discovery was the principal officer of both companies and in my view had the “power” to give defendant the information to enable it to list the documents sought to be listed.
In an earlier case of C Ralph Lipper v The Queen, 80 DTC 6248, in the course of which the defendant taxpayer had refused to answer questions on examination for discovery it was stated that the information was in the knowledge of another person who was the prime mover behind the limited partnership which had been formed to purchase rights to two motion pictures with a view to obtaining tax advantages. The Crown applied to hold an examination for discovery of this other person who was not a party to the appeal brought by the taxpayer. I found that he was in possession of highly pertinent information which the taxpayer either could or would not supply. He was not a totally disinterested stranger and his examination was not in the nature of a fishing expedition. Plaintiff takes strong issue with this decision relying largely on an argument which may be described as that applying the maximum “inclusio unius fit exclusio alte- rius”. The argument is to the effect that Rule 465(19) makes no specific provision for examination of a third party for discovery, unlike Rule 464 which permits an order to be made for the production of documents in the possession of a third party, Rule 465(5) which permits the assignor of a patent to be examined for discovery and Rule 477(1) which permits an order to be obtained to take the commission evidence of “any person, whether a party of not”, so if it were intended that third parties could be examined under Rule 465(19) this would have been stated clearly; there would have been no need for Rule 465(5). It was further submitted that Rule 465(8) provides that an appointment for an examination shall be served on the attorney for the party to be examined except in cases falling under Rules 465(l)(b) or 465(5). No mechanism is provided under the rules to enforce the attendance of a third party who would not necessarily have an attorney and a subpoena would not apply.
In cases arising out of examination of an assignor in a patent case pursuant to Rule 465(5), which the present case is not, Jackett, J stated in the case of Lido Industrial Products Limited v Teledyne Industries, Inc. and Teledyne Water Pik Limited, [1979] 1 FC 310:
The mode of enforcing attendance for examination of a person subject to questioning by virtue of Rule 465(5) is a subpoena (Rule 465(9)); as such a person is not necessarily under the control of the opposing party, that party does not become subject to having his defence struck out or having his action dismissed by reason of such person failing to attend and answer as required (465(20)). Presumably, Rule 465(12) contemplates the Court authorizing such an examination taking place outside Canada but one does not find anything in the Rules authorizing the Court to order such a person to appear for examination inside or outside Canada; and any such authority would not be expected having regard to the provision for subpoena in Canada and the Court’s inability to issue orders or other process having effect outside its geographical jurisdiction. In other words, there is an implied limitation, as far as Rule 465 is concerned on the ambit of Rule 465(5) in that it cannot operate where the person to be examined is outside Canada and cannot be made the subject of a subpoena issued out of a Canadian Court. This is not to say that there may not be an international convention between Canada and another country, duly implemented by statute in both countries, that would authorize such examination. I do not recall any such convention that contemplates pre-trial examination of potential witnesses as opposed to obtaining evidence in one country for use at trial in another country.
Plaintiffs counsel have not been able to find in this case an international convention of the kind referred to by Jackett, CJ.
In a more recent case of Sternson Ltd v C C Chemical Ltd, 124 DLR (3d) 76, an order had been obtained from the United States District Court, in respect of a separate action in that Court based on the same cause of action as that brought in the Federal Court here for the examination in discovery of the assignor of the patent resident in the United States. The Court of Appeal judgment at page 84 reads as follows:
It is true that, for the reasons given in the Lido case, supra, the Trial Division of the Federal Court could not have ordered the examination of Mr Rehmar for discovery. This would be so because Mr Rehmar would not be subject to a subpoena issued in Canada, but for this reason only. I do not see, however, why this should prevent the appellant from going into a United States Court which has jurisdiction over Mr Rehmar to obtain under applicable United States law the sort of order it could have ob- tained from the Federal Court had Mr Rahmar, the assignor of the patent, been within Canada. The sort of procedure invoked abroad is a procedure which 1s available in the Federal Court action in respect of an assignor of a patent who is subject to service in Canada. The examination conducted abroad will, of course, have no status under Rule 465. That does not mean, however, that it would be illegitimate to conduct it.
It is not for the Court to attempt to speculate on this motion whether such an order could be sought for the examination of Mr Johnson in England or in the United States or whether such an examination abroad which would have no status under Rule 465 would be of any use to defendant. It would appear however that the better view now is that Rule 465(19) would not justify an order for the examination for discovery of Victor Johnson. Another issue was raised by plaintiff to the effect that Rule 465(1 )(b) which reads as follows:
465 (1) For the purpose of this Rule, a party may be examined for discovery, as hereinafter in this Rule provided,
(b) if the party is a corporation or any body or group of persons empowered by law to sue or to be sued, either in its own name or in the name of any officer or other person, by questioning any member or officer of such corporation, body or group.
does not permit a former employee to be examined for discovery unless his employment was terminated for the purpose of avoiding the examination. This rule is similar to Ontario Rule 326(2) which differs from the British Columbia Rule 27(4) which provides that ‘‘a person who is or has been a director, officer, employee, agent or external auditor of a party may be examined for discovery”. Ontario case law has established that a former employee or officer may not be examined for discovery unless he resigned expressly for the purpose of avoiding the examination. In the case of Stepps Investments Ltd et al v Security Capital Corporation Ltd, [1973] 2 OR (2d) 648, an appointment for the examination of one E Paul Henry, an officer of the defendant was served on the date on which he was still an officer but he resigned prior to the time the examination was actually held. It was held that he could not be required to attend the examination as his resignation was bona fide. This decision was affirmed in Hamilton Harbour Commissioners v J P Porter Co Ltd et al (1978), 19 OR (2d) 66.
A third argument was raised with respect to the application for examination of Victor Johnson to the effect that he could only be questioned as to matters of knowledge which he had acquired in his capacity as an employee of plaintiff and he was not an employee of plaintiff at the time all the transactions in issue transpired, so that any knowledge he might have of such transactions would have been acquired outside the scope of his employment with Indal and an order for his examination would be useless. The same would apply to an order requiring Walter Stracey to inform himself of Victor Johnson because none of the information he might obtain from Johnson would have been acquired by him in his capacity as an Indal employee. Reference was made to the case of Welsbach Incandescent Gas Lighting Company v New Sunlight Incandescent Company, [1900] 2 Ch 1, a patent infringement case in which the patent belonged to a company which transferred its undertaking including the patent to plaintiff, and some of the officers and directors of the plaintiff had been officers and directors of the former company. Defendant alleged that the patent was not novel and that previous use had been made thereof by the former company. In answering inquiries the plaintiffs secretary stated:
The matters inquired into refer to events which occurred prior to the incorporation of the plaintiff company and in respect of matters as to which I have no personal knowledge whatever. I have made inquiries of the directors, officers, servants and agents of the plaintiff company as to what knowledge they had acquired in the course of their employment as directors, officers, servants, or agents of the plaintiff company with regards to the matters inquired of by the said interrogatories, and I have been unable to obtain any information thereon whatever. ...
I am not bound for the purpose of answering their interrogatories to make inquiries of any person who may happen to be at the present moment directors, officers, servants, or agents of the plaintiff company as to any knowledge or information they may possess accidentally, not in the course of their employment by the plaintiff company and not in the ordinary course of their business as such, and I have, therefore, not made such inquiries, (at pp 2-3).
In rendering judgment Collins, LJ stated at 13 and 14:
I think that once it is realized that the answer is the answer of the company, and not of the individual who gives it, the difficulty is solved. Under the present practice at any rate the answer of a company stands on precisely the same footing as the answer of an individual: in either case it is an admission by the party who makes it (in the present case the company), and, being an admission it can be read against that party. . . . And that is precisely the reason why, when someone who is not the company has to answer for the company, the admission must be guarded with the proper restrictions. A corporate body cannot answer for itself, and it is necessary that some individual should answer for it. His function is to give the answer of the company. Some restriction must, therefore, be put upon the knowledge which he is to apply in answering the questions put to him. Where is the line drawn? It seems to me that it was drawn logically and practically by Brett, LJ in Bolckow v Fisher when he said that the person who 1s called upon to answer is not bound to answer as to what he has learnt accidentally, and not in the ordinary course of business.
In Act Oils Ltd v Pacific Petroleums Ltd and Westcoast Transmission Co Ltd (1965), 50 DLR (2d) 532, a motion to compel officers and employees of the defendant companies to answer certain questions which they refused to answer on examination for discovery, Kirby, J stated at 545-546:
I am of the opinion that matters pertaining to Westcoast that are within the knowledge of officers, directors or employees of Westcoast as such, who are likewise officers, directors or employees of Pacific, is not necessarily knowledge of Pacific. . .. Therefore I feel that the witness need not answer questions relating to matters pertaining to Westcoast of which he does not have knowledge in his capacity as an officer of Pacific; that he need not inform himself with respect to such matters unless they are in the records of Pacific; that he need not inform himself of such matters from other officers or employees of Pacific who are likewise officers or employees of Westcoast if such information was gained by them in their capacity as officers or employees of Westcoast and not as officers or employees of Pacific.
It was pointed out that Rule 465(15) of the Rules of this Court speaks of the individual being questioned with respect to facts within the knowledge of “the party being examined for discovery” and in an action by or against a corporation it is the corporation and not the person being examined who is the party whose knowledge is relevant so that information acquired by an employee outside the scope of his employment with the corporation itself is not knowledge of the corporation.
With respect to the re-examination of Walter Stracey his obligation is only to make reasonable inquiries. Plaintiff has already made inquiries of RTZ Pillar but RTZ refused to cooperate in providing the necessary information and Stracey’s sworn testimony establishes that any further inquiries would produce an identical response. Counsel for the defendant had indicated to counsel for plaintiff that he would accept plaintiffs undertaking to inquire of RTZ. In the case of Gravlev v Venturetek International Limited et al (1979), 15 CPC 18 Steele, J stated at 23-24 and 25:
Merely because a person becomes a former employee does not excuse the plaintiff from attempting to obtain information from him. The test really is that the plaintiff is bound to obtain the information from such former agents or servants unless he can show that it would be unreasonable to require him to do so. The test is not whether such employee is still within the control of the plaintiff but whether it is unreasonable to require him to inform himself. It may be that if the plaintiff cannot obtain information from a former employee no longer under his control he will be excused from answering the question, but that is a secondary matter and not the primary matter.
In the present case, all of the persons from whom information may be obtained are still available and there is no evidence to indicate that they will not supply the information to the plaintiff.
The test is that the party being examined must inform himself unless it would be unreasonable to require him to do so. I am of the opinion that it is not unreasonable to require that the plaintiff should do so in the present case. Obviously, if the persons from whom he must obtain the information are not available or refuse to give him information, the matter would have to be considered further but he should be required to attempt to obtain the information in the first instance.
In this Court in the case of Carling O'Keefe Breweries of Canada Ltd v Anheuser-Busch, Inc (1981), 60 CPR (2d) 200, the defendant had applied for an order requiring the reattendance of plaintiffs witness on a discovery to answer certain questions and to obtain the necessary information from former employees of plaintiff. Mahoney, J stated:
The defendants seek to require the plaintiff to obtain information from certain former employees. It would obviously be neater from the point of view of both the defendant and the Court to ascertain what, if any, relevant facts the people are possessed of and, if, in fact, the plaintiff has the necessary influence over them, it might wish to use it. However, I cannot order the plaintiff to produce information from a source not under its control. If those individuals will not cooperate with the defendants in its legitimate inquiries, they can be subpoenaed for the trial.
Fishing expeditions have always been discouraged. In Aintree Investments Ltd et al v District of West Vancouver et al, (1977), 82 DLR (3d) 502, the Court held at 507:
On the other hand, the corporation must be protected from “fishing expeditions” where the opposite party is merely trying to make a case for himself through examinations for discovery because he may not have one apart from such an inquiry.
While it is true that plaintiff has obtained a tax advantage as a result of the manner in which it was directed by the corporations controlling it to carry out its business and this merits a careful scrutiny of what was done to ascertain whether the various transactions have in fact been carried out in such a manner that they do not constitute a sham, this does not in my view, after a careful examination of the jurisprudence to which I have referred as well as a number of other cases referred to by both plaintiff and defendant, justify a full inquiry into the business dealings of corporations not parties to the action herein, even if these corporations do control the operations of plaintiff which has a distinct corporate personality, the consequences of which must be recognized and observed. Defendant has already been given a great deal of information on examination for discovery of Mr Stracey, in the documents produced and in his cross- examination on his affidavit. While defendant may have considerable curiosity as to what has transpired with the other companies of the group I believe sufficient information is now available to enable the action to be fully argued on the merits, with one or two exceptions which I will now deal with.
The relief sought by defendant in paragraph (a) of its order of dismissing plaintiffs action will not be granted. While plaintiff has certainly not been cooperative through its witness Mr Stracey in providing all the information which defendant seeks, this is not a ground for dismissing an action raising very serious tax issues, especially as plaintiff is either unable to or not required by law to provide much of the information sought. The relief sought in paragraph (b) granting defendant an examination for discovery of Victor Johnson pursuant to Rule 465(19) of the Rules and Orders of this Court has already been dealt with and will not be granted because there is no way in which he can be compelled by the Court as a non-resident of this country to submit to examination for discovery, to force him as a third party to answer the questions put to him.
With respect to the relief sought in paragraph (c) requiring Walter Edwin Stracey to attend for further examination for discovery, previous undertakings to obtain information from directors, officers, employees or former directors, officers and employees of the RTZ Group have proven unavailing and any further inquiries made by him will be met with the same refusal to provide any assistance or information. In particular information sought in paragraph
(c)(ii)(B) of the motion respecting loans made by Pillar International Services Limited would appear to be entirely irrelevant and the same applies to subparagraph (C).
With respect to subparagraph (c)(iii)(A) this again seeks information about another company with a separate corporate existence not a party to the action.
With respect to subparagraphs (B) and (C) the information sought therein may have some direct pertinence to the present action. While it is going too far to ask for “‘all contracts, records, reports, memoranda, correspondence or documents relating to the negotiations that purportedly took place from time to time between (i) Pillar International Services Limited and Alcan; and (ii) Pillar International Services Limited and plaintiff respecting the establishment of and payment of discounts by Alcan to Pillar International Services Limited on aluminum extrusion billets shipped to the plaintiff by Alcan and the establishment of the inter-company price from time to time prevailing between Pillar International Services Limited and the plaintiff, and similarly in subparagraph (C) the termination of the arrangement between Pillar International Services Limited and Alcan and Pillar International Services Limited and the plaintiff for the purported purchase and sale of aluminum extrusion billet, I believe that a limited further discovery should be granted to defendant so as to determine the terms of the agreements between Alcan and Pillar International Services Limited and Pillar International Services Limited and the plaintiff respecting the discounts paid by Alcan, whether to Pillar International Services Limited or other companies in the group for aluminum extrusion billets sold to plaintiff by Alcan, and with respect to the inter-company price from time to time prevailing during the years in question between Pillar International Services Limited and plaintiff, as well as the terms of the termination of the arrangement between Pillar International Services Limited and Alcan and Pillar International Services Limited and Alcan, and Pillar International Services Limited and plaintiff for the said purchases.
In all other respects the motion will be dismissed with costs.
ORDER
1. Defendant’s motion to dismiss plaintiffs action is dismissed.
2. Defendant’s motion for discovery of Victor Johnson is dismissed.
3. With respect to a further examination for discovery of Walter Edwin Stracey, this is allowed subject to said discovery being limited to requiring him to inform himself and if possible provide details of the actual agreements between Alcan and Pillar International Services Limited and Pillar International Services Limited and plaintiff respecting discounts to be paid by Alcan whether to Pillar International Services Limited or other companies in the group for aluminum extrusion billets sold to plaintiff by Alcan and with respect to the inter-company price prevailing from 1971 to 1974 between Pillar International Services Limited and plaintiff, and the terms of termination of the arrangement between Pillar International Services Limited and plaintiff for the said purchases.
Since for the most part the relief sought in defendant’s motion is dismissed, costs will be against defendant.