REASONS
FOR ORDER
Hogan J.
I. Overview
[1]
The Appellant is the successor to a gas
distribution business that was previously carried on indirectly by the Superior
Plus Income Fund (the “Fund”).
[2]
In late 2006, the Minister of Finance announced
a new distribution tax for specified investment flow‑through entities (“SIFTs”)
to curtail the benefits afforded by their conduit tax status. This legislative
change encouraged SIFTs to restructure their businesses (commonly known as a “conversion”)
by December 31, 2010 by putting in place a non‑flow‑through corporate
structure, failing which they would be subject to the new tax (the “SIFT Tax”).
[3]
To facilitate conversions, the Department of
Finance, in July 2008, introduced legislation allowing for tax-deferred
conversion methods (commonly known as the “Exchange Method” and the “Distribution
Method”).
[4]
In general terms, under the Exchange Method unit
holders are invited to exchange their units of a SIFT for shares of a single
class of shares of a taxable Canadian corporation. This exchange is allowed to
occur on a tax-deferred basis. Once the corporation acquires all of the units
of the SIFT, the SIFT can then be wound up on a tax-free basis.
[5]
In contrast, under the Distribution Method, the SIFT’s
business is first restructured as or under a corporation. The SIFT is then
wound up on a tax-free basis. The unit holders are afforded a tax-free rollover
if they surrender their units for a single class of shares of the corporation.
[6]
These measures sparked a large number of
conversions, most of which were scheduled to be completed immediately prior to
the coming into force of the SIFT Tax. Bucking the trend, the Fund chose to
convert earlier, allegedly in order to establish itself as a dividend‑paying
corporation before many of the other SIFTs.
[7]
The Fund converted using the Distribution
Method. The motion record shows that it did not use a new corporation to
complete its conversion. Instead, the Fund entered into a complex plan of
arrangement with Ballard Power Systems Inc. (“Old Ballard”, now the Appellant) under
which:
(a)
the net assets of Old Ballard were transferred
to a new corporation (“New Ballard”) that then carried on Old Ballard’s
business;
(b)
Old Ballard was left with its tax attributes
consisting, inter alia, of non‑capital losses, capital losses,
research and development expenses and investment tax credits (the “Tax
Attributes”);
(c)
the existing shareholders of Old Ballard became shareholders
of New Ballard;
(d)
the Fund restructured its gas distribution business
under Old Ballard;
(e)
the unit holders of the Fund became shareholders
of Old Ballard; and
(f)
Old Ballard changed its name to Superior Plus Corp.,
the Appellant.
[8]
The Appellant used the Tax Attributes to shelter
profits earned in its gas distribution business for its 2009 and 2010 taxation
years. The Minister of National Revenue (the “Minister”) disallowed the use of
the Tax Attributes on the grounds that either:
(a)
the unit holders constituted a group of persons who
acquired control of the Appellant under the plan of arrangement, triggering the
application of the so‑called streaming restrictions (the “Streaming
Restrictions”) under subsections 111(4), 111(5), 37(6.1) and 127(9.1) of the Income
Tax Act (the “Act”); or
(b)
the general anti-avoidance rule (the “GAAR”) applied
because the conversion was structured to circumvent the Streaming Restrictions
in an abusive manner.
[9]
The Appellant has brought a motion (the
“Appellant’s Motion”) to compel (i) answers to questions that were refused
during examination for discovery (the “Refused Questions”), (ii) production
of unredacted copies of documents produced in redacted format, and (iii) production
of documents for which production was refused outright (the documents are
referred to collectively as the “Refused Documents”).
[10]
The Respondent has brought a motion (the
“Respondent’s Motion”) to compel the Appellant to produce documents containing tax
advice (the “Other Legal Opinions”) on the basis that solicitor‑client privilege
has been waived.
II. Analysis
A. The
Appellant’s Motion
[11]
The motion record shows that the Refused
Documents were obtained by the Appellant under the Access to Information Act
(the “AIA”). Prior to commencement of the discovery process, the Appellant
asked for unredacted copies of the Refused Documents under the AIA.
[12]
Initially the Respondent’s refusal was based on
(i) cabinet confidence privilege, (ii) solicitor‑client privilege,
(iii) settlement privilege, and (iv) irrelevance. The Appellant
accepts the refusals based on solicitor-client and settlement privilege, provided
the Court confirms upon review that the redactions at issue (or the outright
non-production of a document) are justified on the basis of the application of
either privilege. The Appellant has retracted its demand with respect to
documents protected by cabinet confidence privilege. The objections that remain
to be determined by me are based strictly on the concept of relevance.
[13]
The Respondent in her oral and written
submissions asks me to follow the principles enunciated by the Federal Court of
Appeal (the “FCA”) in Owen Holdings Ltd. v. Canada. The Appellant relies on the
more recent decision of the FCA in The Queen v. Lehigh Cement Limited.
[14]
In Owen Holdings, the FCA said:
6 . . . The well established principles that give rise to the relatively low
relevance threshold at the stage of discovery, as opposed to the higher
threshold that will be required at trial for the admission of evidence, are
well known. . . . His [the Tax Court judge’s] assessment that
those documents, which did not tend to establish “legislative facts” but rather
set forth the “opinions of writers,” were so remotely related to the issues in
controversy that they could not lead to a line of inquiry that could be of any
use to the appellant, appears to us to be perfectly sound. . . .
[15]
In Owen Holdings, the FCA ruled that the
following types of documents were not relevant:
(a)
all reports, memoranda, notes, e-mails, etc.
leading up to the drafting of the GAAR, including all drafts of the explanatory
notes to the GAAR and any reports relating to those explanatory notes;
(b)
all reports leading up to the drafting of
particular provisions of the Act;
(c)
all reports relating to testimony concerning the
GAAR by various Finance officials before the Commons and Senate Committees.
[16]
A couple of observations are warranted here.
First, unlike the present case, the facts of Owen Holdings show that the
above‑mentioned documents were not prepared in the context of the audit
of the taxpayer. Secondly, as the Appellant correctly points out, Owen
Holdings was decided before Canada Trustco Mortgage Co. v. Canada. In Canada Trustco, the
Supreme Court confirmed that the Crown must identify the object, spirit or
purpose of the provisions (hereinafter referred to as the “Policy”) that it
claims have been frustrated or defeated by the avoidance transaction and
persuade the Court that an abuse or misuse of that Policy has indeed occurred.
The benefit of any doubt is given to the taxpayer.
[17]
In Lehigh, which was decided after Canada
Trustco, the FCA endorsed a broader train of inquiry test in relation to
discovery in the context of an assessment based on the GAAR:
34 The
jurisprudence establishes that a question is relevant when there is a
reasonable likelihood that it might elicit information which may directly or
indirectly enable the party seeking the answer to advance its case or to damage
the case of its adversary, or which fairly might lead to a train of inquiry
that may either advance the questioning party’s case or damage the case of its
adversary . . . .
[18]
In that case, the FCA endorsed the trial judge’s
order that allowed the disclosure of documents pertaining to policy observations
on the scope of the Act:
38 Turning to the
application of these principles, in the present case the Crown had disclosed
the Gulliver memorandum to Lehigh. The memorandum was produced in response to a
request that the Crown provide “all correspondence and memoranda within head
office, the district office, and between head office and the district office,
giving instructions or dealing with their advisement on the GAAR issue.”
. . .
40 In my view,
the inference may be drawn from the Gulliver memorandum and the subsequent
reassessment of Lehigh on the basis of subsection 95(6) that there may
well be subsequent memoranda prepared within the CRA that considered whether
subsection 95(6) of the Act could be argued to be a general anti-avoidance
provision. Such documents, if they exist, would be reasonably likely
to either directly or indirectly advance Lehigh’s case or damage the Crown’s
case. In my view, the Judge did not err in ordering their production. The trial
judge will be the ultimate arbiter of their relevance.
41 In so concluding, I have considered the Crown’s
arguments that the opinions of CRA officials outside the context of a
particular taxpayer are irrelevant and that official publications of the CRA
are of limited relevance. Those may well be valid objections in another case.
However, in the factual and procedural context of this case, the Crown has
already disclosed as relevant the Gulliver memorandum. For Lehigh to proceed
expeditiously towards a fair hearing, knowing exactly the case it has to meet,
it should receive any subsequent memoranda relating to the development of a
general policy concerning paragraph 95(6)(b) of the Act.
[Emphasis added.]
[19]
In Lehigh, the Crown argued that “[o]pinions expressed by CRA officials outside of the context
of a particular taxpayer’s situation are irrelevant.” This assertion was rejected
and the FCA ordered the production of documents that were acknowledged not to
have been prepared in the context of the audit of Lehigh. In the instant case,
the motion record shows that the Refused Documents were either prepared directly
in the context of the audit of the Appellant or were considered by CRA
officials who were charged with the audit of the Appellant or who were
consulted regarding the application of the GAAR.
[20]
In Birchcliff Energy Ltd. v. R., my colleague C. Miller outlined
some of the specific requirements for the Minister’s pleadings in a GAAR case:
15 GAAR is a unique piece of legislation in that it allows the
Government to bypass provisions of the Act based on an abuse of Policy, a
Policy that it is up to the Crown to prove, and then impose whatever
consequences it deems reasonable. I do not accept the Crown’s argument that
requiring a disclosure in the pleadings of the Policy abused would be opening
the doors for the Crown to have to explain its legal interpretation of any
provision of the Act. The Supreme Court of Canada has made it clear the Crown
must prove a Policy in GAAR cases: it is the integral starting point of a GAAR
challenge. It is unlike any other provision of the Act. There is no slippery
slope.
[21]
In Birchcliff, the Tax Court concluded
that it was imperative that the Crown’s reply set out “the fact [that] the
Minister relied upon x or y policy underlying the legislative provisions at
play”.
The Court noted that this does not bind the Crown, but stated that that
“ultimate aim” was to ensure that there were no surprises at trial. Birchcliff sets out the
pleadings requirements in relation to policy in a GAAR case. It is well established that
relevance at discovery is defined by the pleadings. It follows that a taxpayer
should be entitled to proceed along a train of inquiry related to the policy that
the Minister claims he considered and/or relied on in the making of a GAAR
assessment.
[22]
In Gwartz v. The Queen, I discussed the role of a
subsequent legislative amendment in the context of a GAAR case:
57 Those
decisions demonstrate that a subsequent amendment, which would have defeated a
tax avoidance strategy challenged under the GAAR, does not in itself indicate
either that the strategy was abusive or that it was non-abusive. Instead, the
subsequent amendment must be considered along with all other relevant materials
to ascertain the object, spirit and purpose of the provision. In certain
circumstances, a subsequent amendment might suggest that the provision’s
object, spirit and purpose were frustrated by the tax avoidance strategy. In
other circumstances, it might suggest that Parliament simply changed its mind
and now intends to prevent something that initially was not intended to be
captured by the provision.
[23]
The Respondent pointed to Gwartz in
support of the proposition that the individual opinions of CRA or Finance officials
on the applicability of the GAAR lack relevance. However, those determinations
were made by me acting as a trial judge. Similarly, in the matter at bar, it
will be the trial judge’s role to determine the ultimate admissibility of, or
weight to be given to, facts or information garnered at the discovery stage.
[24]
A thorough summary of the general discovery
principles is provided in HSBC Bank Canada v. The Queen. Both parties cited this case
and many of the cases referenced in the passage below:
13 Both parties
provided useful summaries of how this Court has in the past addressed the question
of the scope of examinations for discovery. Justice Valerie Miller recently
summarized some of the principles in the case of Kossow v. R.:
1. The principles for relevancy were stated by Chief Justice
Bowman and are reproduced at paragraph 50:
a) Relevancy on discovery must be broadly and liberally construed
and wide latitude should be given;
b) A motions judge should not second guess the discretion of
counsel by examining minutely each question or asking counsel for the party
being examined to justify each question or explain its relevancy;
c) The motions judge should not seek to impose his or her views of
relevancy on the judge who hears the case by excluding questions that he or she
may consider irrelevant but which, in the context of the evidence as a whole,
the trial judge may consider relevant;
d) Patently irrelevant or abusive questions or questions designed
to embarrass or harass the witness or delay the case should not be permitted.
2. The threshold test for relevancy on discovery is very low but
it does not allow for a “fishing expedition”: Lubrizol Corp. v. Imperial
Oil Ltd.
3. It is proper to ask for the facts underlying an allegation as
that is limited to fact-gathering. However, it is not proper to ask a witness
the evidence that he had to support an allegation: Sandia Mountain
Holdings Inc. v. The Queen.
4. It is not proper to ask a question which would require counsel
to segregate documents and then identify those documents which relate to a
particular issue. Such a question seeks the work product of counsel: SmithKline
Beecham Animal Health Inc. v. R.
5. A party is not entitled to an expression of the opinion of
counsel for the opposing party regarding the use to be made of documents: SmithKline
Beecham Animal Health Inc. v. The Queen.
6. A party is entitled to have full disclosure of all documents
relied on by the Minister in making his assessment: Amp of Canada Ltd. v.
R.
7. Informant privilege prevents the disclosure of information
which might identify an informer who has assisted in the enforcement of the law
by furnishing assessing information on a confidential basis. The rule applies
to civil proceedings as well as criminal proceedings: Webster v. R.
8. Under the Rules a party is not required to provide to the
opposing party a list of witnesses. As a result a party is not required to
provide a summary of the evidence of its witnesses or possible witnesses: Loewen
v. R.
9. It is proper to ask questions to ascertain the opposing party’s
legal position: Six Nations of the Grand River Band v. Canada.
10. It is not
proper to ask questions that go to the mental process of the Minister or his
officials in raising the assessments: Webster v. The Queen.
14 The following additional principles can
be gleaned from some other recent Tax Court of Canada case authority:
1. The examining party is entitled to “any information, and
production of any documents, that may fairly lead to a train of inquiry that
may directly or indirectly advance his case, or damage that of the opposing
party”: Teelucksingh v. The Queen.
2. The court should preclude only questions that are “(1) clearly
abusive; (2) clearly a delaying tactic; or (3) clearly irrelevant”: John
Fluevog Boots & Shoes Ltd. v. The Queen.
15 Finally in the recent decision of 4145356
Canada Limited v. The Queen. I concluded:
(a) Documents that lead to an assessment are relevant;
(b) Documents in CRA files on a taxpayer are prima facie
relevant, and a request for those documents is itself not a broad or vague
request;
(c) Files reviewed by a person to prepare for an
examination for discovery are prima facie relevant;
and
(d) The fact that a party has not agreed to full disclosure under
section 82 of the Rules does not prevent a request for documents that may
seem like a one-way full disclosure.
[Emphasis added.]
[25]
As noted in Lehigh, the particular
factual and procedural context of an appeal involving a GAAR assessment influences
how these principles should be applied.
[26]
As additional background information, the
Appellant alleges that its conversion, and SIFT conversions in general,
attracted the attention of the Canada Revenue Agency (“CRA”). It submits that the
Rulings Division of the CRA brought the conversions to the attention of the
Department of Finance in late 2008. The Aggressive Tax Planning Division (“ATP”)
of the CRA instructed the Calgary office to commence an audit of the Appellant
around January 2010 as part of a review of SIFT conversions. The ATP had in
turn been instructed by the GAAR Committee to collect facts concerning conversions.
The Appellant outlined in considerable detail the various discussions or
referrals between the CRA auditors, the ATP and the GAAR Committee, and between
the Minister and Finance.
[27]
On the basis of documents highlighting these
discussions, the Appellant suspects that there was a dispute between Finance
and the CRA regarding the application of the GAAR. According to the Appellant,
the CRA pressed Finance to amend the law in order to prevent SIFTs from gaining
access to the tax attributes of arm’s length taxpayers on their conversions.
Finance ultimately shared the CRA’s concern and enacted paragraph 256(7)(c.1)
to bar those types of loss trading transactions. However, Finance did not make
that provision retroactive. Instead, the Appellant alleges, Finance chose to
pressure the Minister to invoke the GAAR to assess the Appellant.
[28]
Because of this alleged dispute, the Appellant
questions whether the Minister did in fact rely on the policy assumptions set
out in paragraph 19 of the Reply, which read as follows:
a)
that the general policy of the Act is to
prohibit the transfer of losses between arm’s length parties, subject to
certain express and permissive exceptions, and that subsection 111(5) (and also
the related provisions in respect of the Tax Attributes under subsections
111(4), 37(6.1) and 127(9.1) of the Act) is an anti-avoidance provision
designed to prevent arm’s length loss trading from an unrelated business;
b)
that the purpose of the SIFT legislation
proposing a distribution tax was to restore the balance and fairness to the
federal tax system by effecting income tax neutrality on business profits
earned by corporations and income trusts; and
c)
the Minister assumed that the Conversion Rules
for SIFTs, including under subsections 107(3) and (3.1) of the Act, were
designed to ensure that income trusts could reorganize as corporations without
facing an additional tax burden at the time of conversion, but were not meant
to facilitate loss trading between unrelated parties.
[29]
The Appellant, in its Amended Answer, puts at
issue the Policy identified and allegedly relied on by the Minister. Moreover,
the Appellant alleges that the introduction of paragraph 256(7)(c.1)
constituted a change in policy under the Act.
[30]
With the exception of redactions objected to on
grounds of privilege, the Respondent justifies most of her refusals on the basis
that the Appellant is not entitled to investigate the mental process of the
Minister or her officials in raising the assessment. I note that the Respondent
adopts an inconsistent position with respect to this objection. For example,
the Respondent disclosed the final minutes of the meeting of officials of the
GAAR Committee that culminated in the approval of the application of the GAAR.
The Respondent justifies this disclosure on the grounds that only those
opinions of CRA officials expressed as a group are relevant in the context of a
GAAR assessment. This raises the question of why collective opinions on policy
should be afforded greater importance than individual views.
[31]
In the context of this appeal, the Respondent’s
position appears to me to be unfair. The motion heard shows that Ms. Jina,
a Calgary‑based auditor in the ATP, was assigned to audit the appellant. Ms. Jina
was the Respondent’s nominee at discovery. She signed the affidavit filed in
response to the Appellant’s motion.
[32]
The motion record further shows that Ms. Jina
participated in the redaction of a proposal letter and position paper that she
asserts in her affidavit contains the facts and the basis of the Minister’s
assessment at issue in this appeal. The motion record also shows that a number
of CRA and Finance officials provided information, input or advice that
directly or indirectly may have found its way into these documents. The motion
record further appears to show that Ms. Jina consulted the unredacted version
of the Refused Documents in preparing for discovery. They may have influenced
what are alleged to be the Minister’s findings set out in the proposal letter
or stated in the Reply. Therefore it is only fair that the Appellant be granted
access to the Refused Documents similar to that which was afforded Ms. Jina.
This may enable the Appellant to discover information that may be used to
contradict Ms. Jina’s testimony if she is called as a witness at trial.
Equally, by probing this information, the Appellant potentially could establish
that the Minister did not rely solely on the Policy asserted in the Reply and/or
that the Minister did not conclude that the avoidance transactions identified
in the Reply clearly frustrated or abused that Policy.
[33]
As correctly pointed out by the Appellant’s
counsel, discovery serves a much broader purpose than eliciting evidence that
is admissible at trial. For example, the discovery process allows the parties
to gauge the weaknesses of their opponent’s case. This promotes the making and/or
consideration of settlement offers, an approach that should be welcomed in all
cases.
[34]
I cannot help but wonder what attitude the
Respondent would adopt if the proverbial shoe was on the other foot. For
example, let us assume that the Respondent was seeking full access on discovery
to the working papers of a taxpayer’s external auditor in which the auditor
comments on whether there is any need or not for a tax reserve in the
taxpayer’s financial statement to cover the financial risk of an avoidance
transaction. In the absence of protection afforded by privilege, I surmise that
the Respondent would not accept a refusal based on the argument that opinions
on policy are not relevant at the discovery stage.
[35]
The Respondent has identified in her Reply the
Minister’s findings relating to the Policy. I agree with the Appellant’s
submission that the Appellant has the right to probe the facts and
circumstances surrounding the pleading of that Policy. Much of what is
discovered may ultimately be viewed as altogether irrelevant or inadmissible.
However, this is a determination to be made by the trial judge acting as the gatekeeper
of the evidence allowed to form part of the trial record.
B. Refused
Questions
[36]
The questions refused by the Respondent are as
follows:
Question 1: Advise
whether the Attorney General is going to take the position at trial that the
policy choice of allowing the use of an existing corporation as part of the
conversion (and not to insist on there being a new corporation) is any
different when using the exchange method of conversion.
Decision: The Respondent has now agreed to answer this question.
Question 2: Advise
whether the Attorney General is going to take the position at trial that the
distribution method did not permit the use of an existing corporation as part
of the conversion (i.e., that there was an insistence on using a new
corporation).
Decision: The Respondent has now agreed to answer this question.
Question 3: If the
Attorney General does not take the position that under the distribution method
of conversion the use of an existing corporation was permitted, then provide
the facts, information, knowledge and documents that lead the Attorney General
to say that the Minister was wrong in so concluding.
Objection: The
question calls for the Crown’s argument about the object, spirit and purpose of
legislation, which is a question of law. Therefore, the question is improper.
Decision: The Appellant is seeking facts, information and knowledge and not
a legal conclusion. As the Policy is clearly at issue since GAAR has been
pleaded, the Appellant is entitled to an answer to this question.
Question 4: With
regard to when the Department of Finance introduced the 2010 amendment, do you
have any facts, information or knowledge as to whether the Department of
Finance considered making that amendment retroactive?
Objection: The
amendment was not made retroactive, although it had a coming‑into‑force
provision. The amendment is what it is. The trial judge will have to consider
whether the amendment indicates anything about the object, spirit and purpose
of the pre‑amendment provisions: see Gwartz, at paragraph 57.
Whether officials of the Department of Finance internally considered a
retroactive amendment is irrelevant. Likewise, possible alternative legislative
approaches are not relevant.
Decision: As stated in Gwartz, a subsequent amendment may be
considered in ascertaining the object, spirit and purpose of the provisions at
issue. Although the admissibility or weight of the response to this question
will be determined by the trial judge, the Appellant is entitled to an answer
to the question given that the Policy is in issue and the Appellant has
specifically addressed the amendment in its amended answer, at paragraph 15.
Question 5: When
the CRA raised the assessments in issue, did the CRA make any inquiries to the
Department of Finance as to why the change was made from “extend” in the 2010
Budget to “clarify” in the September 2010 technical notes?
Objection: The
explanatory notes respecting the 2010 Budget and the September 2010 technical
notes speak for themselves. Whether the CRA made any particular inquiry or
whether Finance officials expressed views or opinions is not relevant.
Decision: This question should be answered for the same reasons as those
stated in respect of Question 4.
Question 6: With
reference to the statement “As of September 2011 the audit of Superior was
halted” at page 1438 of Tab A23 of the Appellant’s Supplementary Book
of Documents, advise why the audit was halted.
Objection: The
mental process of the Minister in raising the assessment is not relevant.
Decision: I cannot see how anything relevant will be discovered from an
answer to this question. Therefore, it does not need to be answered.
Question 7: Advise
whether the Attorney General’s position with respect to why the unitholders
constituted a group is different from the basis of assessment by the Canada
Revenue Agency.
Decision: The Respondent has agreed to answer the question.
Question 8: Identify
what documents the Crown relies on to say that the unitholders constitute a
group.
Objection: A party
is not required to segregate documents by issue for the benefit of the other
party. The request is improper as per Teelucksingh at paragraph 15(vii)
and Kossow at paragraph 60.
Decision: As the Respondent has correctly pointed out, parties are not
required to segregate documents for the benefit of the other party. Contrary to
what the Appellant argued, 4145356 Canada Ltd. v. The Queen, 2009 TCC
480, does not overturn that principle. Therefore, this question can remain
unanswered.
Question 9: Advise
what the Attorney General relies on for the statement contained at paragraph 19a)
of the Reply that subsection 111(5) is “an anti‑avoidance provision
designed to prevent arm’s length loss trading from an unrelated business”.
Objection: The
question seeks the Crown’s argument on a question of law and is improper.
Decision: The question is answerable as it relates to any facts or
information and not legal argument. Secondly, it is designed to avoid surprises
at a later stage by letting the Appellant know whether the Respondent will
identify a different policy. If, for example, the Attorney General has no facts
or information with respect to this question and will only be making legal
arguments to support it, that is a sufficient answer.
Question 10: Advise
whether the Attorney General admits that the general policy of the Act is that
other losses and tax attributes can be utilized against income from any
business provided there has not been a de jure acquisition of control.
Objection: The
question is improper as it seeks an admission on a question of law.
Decision: The Appellant is permitted to proceed along a train of inquiry
related to the policy which the Minister pleaded in the Reply. This question
should be answered.
Question 11: Advise
whether the Attorney General admits that the purpose of the SIFT conversion
rules referenced in paragraph 19c) of the Reply was simply to facilitate
the conversion of trusts into corporations.
Objection: The
question is improper as it seeks an admission on a question of law.
Decision: This question should be answered for the reasons noted above with
respect to the Question 10.
Question 12: Advise
whether the Attorney General agrees that when the SIFT conversion rules were
introduced, the policy choice was to allow conversions using existing
corporations and was not restricted to new corporations; and advise whether the
Attorney General will take a different position than that set out in the
Minister’s findings and assumptions with respect to the object, spirit and
purpose of those provisions.
Objection: The
question is improper as it seeks an admission on a question of law.
Decision: This question should be answered for the same reasons as those
stated for Question 10. Additionally, I note that this question is similar
to questions 1 and 7, which the Crown has agreed to answer.
Question 13: Question
withdrawn by the Appellant (transcript, page 109).
Decision: N/A
C. Refused
Documents
[37]
The documents for which full production was
refused by the Respondent are as follows:
Document 1: Item 1
of the GAAR Committee Meeting 1104-1 dated April 19, 2011.
Objection: The
individual views of members of the GAAR Committee are not relevant. The Crown
has produced the relevant portion of the summary of recommendations of the GAAR
Committee.
Decision: The redacted portion for Item 1 (Superior Plus – Loss
acquisition on conversion from trust to corporation) is clearly relevant, as it
relates to the Appellant. Although a trial judge may place little or no weight on
(or not admit as evidence at all) the views of individual members of the GAAR
Committee or the CRA, the information certainly passes the low threshold for
disclosure during discovery.
Document 2: Minutes
of GAAR Committee meeting held on November 1, 2011.
Objection: The
views and opinions of CRA and Finance officials are not relevant. The Crown has
produced that portion of the minutes which concerns the conclusion and
recommendation of the GAAR Committee.
Decision: This document should be produced for the reasons outlined for Document
1.
Document 3: Memorandum
to File of Salimah Jina (CRA Auditor).
Objection: The
redacted portion is not relevant and concerns internal discussions and the
mental process of the CRA. Moreover, page 001826 contains information subject
to solicitor‑client privilege.
Decision: This document should be produced with one exception: the middle
paragraph on page 001826 should remain redacted as it is protected by solicitor‑client
privilege.
Document 4: Email
dated December 18, 2008 from Wayne Adams to Brian Ernewein.
Objection: The
redacted portions are not relevant. In particular, the views and opinions of
CRA officials are not relevant. The substance of the document is not admissible
extrinsic evidence or evidence of legislative facts. Also, page 000134 contains
irrelevant taxpayer information protected by section 241.
Decision: This document should be produced with one redaction: the first paragraph
on page 000134 contains irrelevant taxpayer information protected by section 241
and should be redacted.
Document 5: Email
from Salimah Jina to Dan Rivet in which she asks whether he looked at the question
whether the amendment to subsection 256(7) introduced in 2010 (i.e., 256(7)(c.1))
is a clarification or a change in policy.
Objection: The same
as for Document 1.
Decision: This document should be produced for the same reasons given for Document
1.
Document 6: Email
from Dan Rivet to Salimah Jina in response to her question regarding whether
the amendment to subsection 256(7) introduced in 2010 (i.e., 256(7)(c.1))
is a clarification or a change in policy.
Objection: The
individual views and opinions of Dan Rivet, including on questions of law and
the chances of success, are not relevant. Also, page 1 contains
information subject to solicitor-client privilege.
Decision: This document should be produced for Document 1 above. The second
to last sentence in paragraph 2 that refers to Justice should be redacted.
Document 7: Email
dated February 24, 2012 from Dan Rivet to Theresa Murphy and Mark Symes
and attached email regarding “Loss Trading”.
Objection: The
individual views and opinions of Dan Rivet, including on questions of law, are
not relevant.
Decision: This document should be produced for the same reasons as those indicated
for Document 1. There is a brief mention of what appears to be another taxpayer
in the last paragraph on page 000021, which should be redacted.
Document 8: Memorandum
to GAAR Committee from the ATP dated February 8, 2011.
Objection: The
views and opinions of CRA officials during the deliberative process leading up
to the decision to reassess, including on questions of law, are not relevant.
The Crown has produced the documents which disclose the collective view of the
CRA and the recommendations of the GAAR Committee.
Decision: This document should be produced for the reasons noted for
Document 1 above.
Document 9: Memorandum
to GAAR Committee from the ATP dated September 2, 2011.
Objection: The
views and opinions of CRA officials during the deliberative process leading up
to the decision to reassess, including on questions of law, are not relevant.
The Crown has produced the documents which disclose the collective view of the
CRA and the recommendations of the GAAR Committee.
Decision: This document should be produced for the reasons noted for
Document 1 above.
Document 10: Email
dated February 22, 2012 from Mark Symes to Phil Jolie et al. and attached email
regarding “GAAR Committee Meeting”.
Objection: The views
and opinions attributed to Finance officials during the deliberative process
leading up to the decision to reassess, including on questions of law, are not
relevant. The Crown has produced the documents which disclose the collective
view of the CRA and the recommendations of the GAAR Committee. The document is
not admissible extrinsic evidence.
Decision: This document should be produced for the reasons noted for
Document 1 above.
Document 11a): Email
from Brent Percival to Dan Rivet and Jim Randall and attached email chain regarding
“SIFT loss trading — acquisition of control by a group of persons” and the documents
referred to therein.
Document: 11b): An
email to Deen Olsen and Dan Rivet dated April 10, 2012, which was included
in the above‑mentioned email chain.
Objection: The
views and opinions of CRA officials during the deliberative process leading up
to the decision to reassess, including on questions of law, are not relevant.
The Crown has produced the documents which disclose the collective view of the
CRA and the recommendations of the GAAR Committee. The document also concerns
the mental process of the CRA and page 000003 contains information that is
subject to solicitor‑client privilege (the seeking of legal advice) and
settlement privilege.
Decision: (a) This document should be produced for the reasons noted for
Document 1 above. However, the middle sentence in the second paragraph of
the email to Deen Olsen on page 000003 and the last paragraph in that email are
protected by privilege and should remain redacted.
(b) The email dated
April 10, 2012 to Deen Olsen and Dan Rivet is protected by solicitor‑client
privilege and does not have to be produced.
Document 12: Memorandum
to GAAR Committee from HQ dated July 30, 2012 regarding Superior Plus Inc.
Settlement Offer — Lossco SIFT Conversion.
Objection: The
redacted portion of the document concerns matters that are subject to settlement
privilege and page 000214 contains information relating to the seeking of legal
advice.
Decision: The redactions are protected by settlement privilege and should
not be produced.
Document 13: Email
from Lucie Bergevin to Dan Rivet dated August 29, 2012 and attached chain
of emails re: “GAAR Committee Meeting re Superior Plus”.
Objection: The
views and opinions of CRA officials during the deliberative process leading up
to the decision to reassess, including on questions of law and chances of
success, are not relevant. Moreover, part of the redactions are subject to
settlement privilege. Page 000229 contains information that is subject to
solicitor-client privilege. There are also references of a general nature to
other taxpayers.
Decision: The redactions are protected by either settlement or solicitor‑client
privilege and should not be produced.
Document 14: Memorandum
to GAAR Committee dated February 8, 2010 [actually 2011] from the ATP regarding
Superior Plus Inc.
Objection: The
document is an unsigned earlier draft of Document 8 above. Moreover, the
views and opinions of CRA officials during the deliberative process leading up
to the decision to reassess, including on questions of law, are not relevant.
Decision: Production of the final version (Document 8 above) has been
ordered. The earlier version should be produced as the Appellant may wish to
pursue a train of inquiry related to changes.
Document 15: Memorandum
to GAAR Committee dated August 18, 2010 from HQ (unexecuted) regarding
“Superior Plus Inc. — Lossco SIFT conversion”.
Objection: A signed
unredacted and final version of this document, namely the February 8, 2011
referral to the GAAR Committee, was produced to the Appellant at page 1841 of
the Motion Record. An earlier draft is not relevant.
Decision: This document should be produced for the reasons noted above with
respect to Document 14.
Document 16: Email
from Gilles Pelletier to Jean-Marc Miszaniec dated July 28, 2010 and attached
chain of emails regarding “Tax loss Trading”.
Objection: The
chain of emails concerns intradepartmental communications unrelated to the
appellant and is irrelevant. The redactions also concern irrelevant taxpayer
information that is subject to section 241. Moreover, the redactions do
not concern admissible extrinsic evidence.
Decision: The redacted information is not relevant to the Appellant and
contains other information relating to other taxpayers which is protected by
section 241. Therefore, the redactions should not be produced.
Document 17: Letter
to Gérard Lalonde from Richard Montroy dated February 18, 2008 regarding
“Subsection 111(5) of the Income Tax Act”.
Objection: The document
concerns an interdepartmental communication between the CRA and Finance
expressing views and concerns about legislation. The document also contains
irrelevant taxpayer information that is subject to section 241. The document is
not admissible extrinsic evidence, is too remotely connected and cannot
establish a train of inquiry.
Decision: The redacted information should not be produced for the same
reasons as those noted for Document 16.
Document 18: Letter
from Jackson MacGillivray to Wayne Adams dated March 9, 2004 regarding
“Subsection 111(5) of the Income Tax Act (Canada)” with attachments
(including Document No. E 2004‑006210F11 and Document No. E 2001‑0068105).
Objection: The
document concerns an interdepartmental communication between the CRA and
Finance expressing views, opinions and concerns about questions of law and
legislation. The document also contains irrelevant taxpayer information that is
subject to section 241. The document does not contain admissible extrinsic
evidence, is too remotely connected and cannot establish a train of inquiry.
Decision: The redacted information does not have to be produced for the
reasons given for Document 16.
Document 19: Email
from Alexander Johnstone to Venetia Putureanu dated July 28, 2011 and attached chain
of emails regarding “Questions relating to 256(7)(c.1), (f) &
(g)”.
Objection: The
redacted portions of pages 000239 and 000240 are not relevant.
Decision: The redacted information is relevant to the issues in the appeal
as the Appellant has put in issue the introduction of paragraph 256(7)(c.1)
in its amended answer. Everything should be disclosed except the redacted
sentence in the last email on page 000240 as it is not relevant.
Document 20: Email
from Ted Cook to Gérard Lalonde dated March 5, 2010 and attached chain of
emails regarding “Trust Conversions”.
Objection: The
redacted portion of the email chain concerns views and opinions of CRA
officials on questions of law. The information is not relevant.
Decision: The redacted information should be produced for the reason
noted above with respect to Document 19.
Document 21: Email
from Shawn Porter to Annemarie Humenuk dated December 21, 2011 and attached
chain of emails regarding “Draft Email for CRA on GAAR issue relating [to] loss
trading in the context of SIFT conversions”.
Objection: The
redacted portion of page 000001 concerns a view or opinion of a Finance
official and is not relevant.
The redacted
information on pages 000002 to 000004 concerns views and opinions expressed by
CRA and Finance officials and is not relevant. The information is not
admissible extrinsic evidence of legislative facts. Further, the redacted
information is subject to solicitor-client privilege.
Decision: The redacted information should be produced for the reasons
indicated for Document 1. However, two paragraphs on pages 000003 and 000004/000005
which make reference to Justice are protected by solicitor‑client
privilege and should not be disclosed.
Document 22: Email
from Annemarie Humenuk to Grant Nash dated March 4, 2012 and attached chain of
emails regarding “The Application of the GAAR relating to loss trading in the
context of SIFT conversions”.
Objection: The
redacted information concerns views and opinions expressed by CRA and Finance
officials and is not relevant. The information is not admissible extrinsic
evidence of legislative facts. Further, the redacted portion on page 000017
is protected by solicitor‑client privilege.
Decision: This document should be produced for the reasons given for Document 1.
The first full paragraph on page 000017 makes reference to Justice and is
protected by solicitor‑client privilege and should not be disclosed.
Document 23: Email
from Shawn Porter to Davine Roach, Robert Duong, Kerry Harnish and Grant Nash
(undated) and attached email chain regarding “The Application of the GAAR
relating to loss trading in the context of SIFT conversions”.
Objection: The
redacted information at page 000033 is in part subject to settlement privilege.
The remainder of the redacted information concerns views and opinions expressed
by CRA and Finance officials and is not relevant. The information is not
admissible extrinsic evidence of legislative facts. Further, the redacted
portion of page 000034 is protected by solicitor-client privilege.
Decision: Only the following should be produced unredacted:
(a) the
second grey block on the bottom of page 000033,
(b) the
last paragraph on page 000034 beginning with “With respect to the”,
(c) all
of page 000035 because it is not protected by privilege.
Document 24: GAAR
Committee Referral dated November 1, 2011 regarding “Superior/Ballard —
Loss Trading”.
Objection: This
internal Finance document concerns the views and opinions of Finance officials.
It is not an official published statement. The information is not admissible
extrinsic evidence of legislative facts. In short, the redacted information is
not relevant.
Decision: This document should be produced for the reasons given for Document 1.
Document 25: Item number 3
of the GAAR Committee Minutes dated March 6, 2012.
Objection: The
individual views or opinions of members of the GAAR Committee or attendees at
the meeting are not relevant. The Crown has produced the documents which
disclose the collective view of the CRA and the recommendations of the GAAR
Committee.
Decision: These minutes should be produced for the reasons given in
respect of Document 1.
III. Respondent’s Motion to Produce
[38]
The Respondent, on the basis of implied waiver,
seeks the production of three documents with respect to which the Appellant
claims solicitor-client privilege. The Respondent argues that the production of
a Macleod Dixon Memorandum (the “Macleod Dixon Memorandum”) dated October 24,
2008
entitles the Respondent to the disclosure of three memorandums containing tax
advice pertaining to the transactions at issue in the present appeal.
[39]
The Appellant alleges that the Fund initially was
to be converted under the Exchange Method. The Appellant further alleges that
the Fund was advised that the Exchange Method could lead to a change of control
of the Fund as defined in its debt indentures, requiring the Fund to redeem its
debt at a premium in relation to its face value. This result could be avoided
if the Fund’s conversion was carried out under the Distribution Method. This is
what was done and the motion record shows that the Fund received advice in the Macleod
Dixon Memorandum confirming that the publicly traded debt could be assumed by
the Appellant without triggering its early redemption.
[40]
The Appellant relies on the decision Bone v.
Person
in which the Manitoba Court of Appeal said:
10 The first
issue relates to the nature and extent of the waiver of solicitor/client
privilege. Was it limited and, if so, to what extent? The law is clear that a
party to legal proceedings may voluntarily waive solicitor/client privilege on
a limited basis, that is to say with respect to a particular defined subject
matter. See, for example, Power Consolidated (China) Pulp Inc. v. British
Columbia Resources Investment Corp. (1988), [1989] 2 W.W.R. 679 (B.C. C.A.)
at 682. However, a reasonable balance must be struck so that the court and the
other parties are not misled. The party making the disclosure cannot pick and
choose between the favourable and the unfavourable. In Transamerica Life
Insurance Co. of Canada v. Canada Life Assurance Co. (1995), 46 C.P.C. (3d)
110 (Ont. Gen. Div.) Sharpe J., as he then was, put the matter this way, at
paras. 41-42:
It is plainly not the law that
production of one document from a file waives the privilege attaching to other
documents in the same file. It must be shown that without the additional
documents, the document produced is somehow misleading . . . .
The waiver rule must be applied if
there is an indication that a party is attempting to take unfair advantage or
present a misleading picture by selective disclosure.
[41]
The Federal Court of Appeal in Slansky v.
Canada (Attorney General)
endorsed Bone and added:
261 A party cannot disclose part of the content of a privileged
document and unfairly withhold the rest of it: David M. Paciocco and Lee
Stuesser, The Law of Evidence, 6th ed. (Toronto: Irwin Law, 2011) at
page 220. Privilege is not a swinging door, open when there is information to
communicate, but slammed shut when information is sought. . . .
A party may not cherry-pick privileged communications, disclosing what is
helpful to it and withholding the rest . . . .
[42]
Justice Woods cited Bone with approval in
MIL (Investments) S.A. v. The Queen,
where she also noted that the waiver rule should be applied restrictively. The Appellant
also cited Justice Woods’ decision in Gerbro Inc. v. The Queen, which summarizes the
principles of implied waiver:
50 A general
summary of the principles applicable in considering whether there has been
implied waiver of privilege can be found in Mahjoub (Re), 2011 FC 887,
at para. 10:
10 The jurisprudence supports the
following propositions relating to implied waiver of the privilege:
(a) waiver of privilege as to part of a communication will be
held to be waiver as to the entire communication. S. & K. Processors
Ltd. v Campbell Ave. Herring Producers Ltd. (1983), 35 CPC 146, 45 BCLR 218
(SC) (S & K);
(b) where a litigant relies on legal advice as an element of
his claim or defence, the privilege which would otherwise attach to that
advice is lost. (S & K);
(c) in cases where fairness has been held to require implied
waiver, there is always some manifestation of a voluntary intention to waive
the privilege at least to a limited extent. The law then says that in fairness
and consistency, it must be entirely waived. (S & K);
(d) the privilege will [be] deemed to have been waived where
the interests of fairness and consistency so dictate or when a communication
between a solicitor and client is legitimately brought into issue in an action.
Bank Leu Ag v Gaming Lottery Corp., [1999] OJ No. 3949 (Lexis);
(1999), 43 C.P.C. (4th) 73 (Ont. S.C.) at paragraph 5;
(e) the onus of establishing the waiver rests on the party
asserting waiver of the privilege. (S & K at paragraph 10).
[Emphasis added.]
[43]
The Court in Gerbro further noted that
the bar is set high when it comes to ordering the disclosure of privileged
materials:
57 The parties
referred me to a great many judicial decisions regarding implied waiver of
privilege. Each case appears to depend on its own particular facts, and the
general approach that the courts have taken recognizes the importance of
upholding solicitor-client privilege.
58 In my view,
these judicial decisions generally follow the approach described by the British
Columbia Court of Appeal in Procon Mining & Tunnelling Ltd. v McNeil,
2009 BCCA 281, at para 19: “[t]o establish waiver, the disclosure sought must
be “vital” or necessary to the opposing party’s ability to answer an
allegation.”
59 The bar is set
high for a court to require disclosure when the legal advice has not been put
in issue by a party. In this motion, the Crown has not established that the
legal communications are so important to their case that they should be
divulged.
[44]
The above passages confirm that privilege can be
waived by a party for a limited purpose. If the waiver results in unfairness or
inconsistency, the Court can order production of related privileged
information. However, the bar for setting aside privilege is high and
disclosure should only be ordered when it is “vital or necessary”.
[45]
Waiver appears to typically be asserted when a
document is produced with portions redacted on the grounds of privilege. This
was the case in KF Evans Ltd. v. Canada, cited by the Respondent,
where around 10% to 20% of the memoranda were redacted. To ensure that the other
party was not misled, and in the interest of consistency, the Court ordered
disclosure.
IV. Conclusion
[46]
In light of the above, I agree with the
Appellant’s submission that the Macleod Dixon Memorandum is a stand‑alone
document providing corporate advice on a distinct issue regarding the early redemption
of the Fund’s debentures. The Other Legal Opinions contain tax advice on the conversion.
In my opinion, there is no unfairness or inconsistency in the Appellant
disclosing only the Macleod Dixon Memorandum. As noted above, in Gerbro
and Bone the bar with respect to setting aside privilege is high and
disclosure should only be ordered when it is “vital or necessary”. I am
satisfied that the disclosure of the Macleod Dixon Memorandum does not bring
the tax advice received by the Appellant into issue. For these reasons, the
Respondent’s motion is dismissed.
Signed at Ottawa, Canada, this 22nd day of May 2015.
“Robert J. Hogan”
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