Docket: 98-1659(IT)G
BETWEEN:
ALLAN McLARTY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard on February 1, 2012, at Calgary, Alberta.
Before: The Honourable
Justice T.E. Margeson
Appearances:
|
Counsel for the Appellant:
|
Jehad
Haymour
|
|
Counsel for the Respondent:
|
Josée Tremblay and
Shane Aikat
|
|
Counsel for
Grant Thorton LLP:
|
Alexandra Brown
|
|
For Norman
Knecht:
|
Norman Knecht himself
|
____________________________________________________________________
ORDER
UPON motion by the Respondent for an Order
granting leave to examine a representative of Grant Thornton LLP or Mr. Norman
Knecht (a former partner of Grant Thorton LLP) pursuant to section 99 of the Tax Court of Canada Rules (General Procedure) (the “Rules”);
AND UPON reading the materials filed and hearing from counsel
for the Appellant, counsel for the Respondent, counsel for Grant Thorton LLP
and Norman Knecht himself;
THIS
COURT ORDERS THAT:
1. The stringent
requirements of section 99 of the Rules have not been met. The motion
is dismissed with costs to the other parties.
2. The Court
will hear the parties on the issue of costs.
Signed at Vancouver,
British Columbia, this 8th day of March 2012.
“T.E. Margeson”
Citation: 2012 TCC 79
Date: 20120308
Docket: 98-1659(IT)G
BETWEEN:
ALLAN McLARTY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Margeson J.
[1]
The Respondent has brought a
motion requesting that the Court grant the Respondent leave to examine a representative
of Grant Thornton LLP (“Grant Thornton”) or Mr. Norman G. Knecht (“Mr.
Knecht”), a former partner of Grant Thornton pursuant to section 99 of the Tax
Court of Canada Rules (General Procedure) (the “Rules”). The
Appellant, Grant Thornton and Mr. Knecht all oppose this motion. In
support of the application, counsel for the Respondent argued that at the core
of this issue was the nature of the business carried on by the Appellant. The
audited statements and other financial statements may support the Crown’s
theory of the case, according to counsel. Relevant to the question as to
whether the Appellant was in the exploration business were the economic
conditions at the relevant times. Financial statements of the Appellant are
often indicative of the true nature of the business. The company’s auditors
have specific tasks as set out in the audit report. The accounting firm has to retain
documents under Rule 218
on the nature of the work done on the audit. They have to take specific actions
to verify the work audited. They must be accountable and give assistance as to
what the forms mean.
[2]
Counsel said that if the
Appellant’s counsel accepts Canada Revenue Agency’s interpretation of what the
audited statements mean, then she will withdraw the motion. There was no
objection to the relevance of the questions asked by the Appellant on discovery
nor the Respondent when he was required to obtain answers for the questions
that were not answered.
[3]
The Appellant argues that the
Respondent, to be successful in this motion, must satisfy the Court that either
Grant Thornton or Mr. Knecht have information that is relevant to a material
issue in this appeal. The Respondent must satisfy the Court that each of the
elements of subsection 99(2) have been met. This section should be applied
sparingly, according to the Courts. The use of this section represents an extraordinary
measure and is only used when all requirements of the section are met and even
then such an order is discretionary.
[4]
The affidavit evidence presented
to the Court outlines the significant disclosure of documents and oral
disclosure made by the Appellant, the third party 507326 Alberta Ltd. and by
Grant Thornton.
[5]
The Court should not be satisfied
that the examination by the Respondent of Grant Thornton or Mr. Knecht, under
oath is “vital to the carriage of this case to a joint conclusion”. Further,
the Respondent has obtained significant disclosure of documents from the
Appellant and has subjected the Appellant and Mr. Sapieha, on behalf of 507326
Alberta Ltd., to numerous days of examination for discovery, written
examinations for discovery and numerous answers to undertakings and follow-up
questions. This information provided includes the full Grant Thornton external
file, audit file materials for the joint venture from 1993 to 2006, except for
27 documents that are subject to solicitor-client privilege.
[6]
The Respondent has been unable to
satisfy the Court that it has been unable to obtain information from either the
Appellant, 507326 Alberta Ltd. or Grant Thornton and what information is
missing from these disclosures. In this motion, the Respondent is merely
carrying on a fishing expedition or trying to depose a potential witness under
oath. These actions are not proper under section 99 of the Rules.
[7]
Here the Respondent is not seeking
information but confirmation of the Respondent’s theory (see Labow v.
Canada, 2008 TCC 511, 2008 DTC 4870). The timing of
examination of Mr. Knecht or Grant Thornton could unduly delay the commencement
of the May 28, 2012 hearing. The motion should be denied and the Appellant
given the opportunity to address the Court on the matter of costs.
[8]
In written and oral argument,
counsel for Grant Thornton argued that section 99 “adopts a middle ground.
It does not confer a right to discovery of non‑parties but does permit a
right of discovery of non-parties under well-defined conditions.” The Tax Court
Rules do not provide a right to take some evidence before trial by “deposing”
any person who may be a prospective witness.
[9]
The requirements of Rule 99 are
cumulative and stringent. Therefore, in this case, the preliminary threshold
has not been met.
[10]
The Crown has not established that
Grant Thornton has further information relevant to a material issue in this
appeal and has not overcome the obstacles posed by subsection 99(2).
[11]
The unchallenged evidence of Grant
Thornton is that it has no relevant information that the Crown has been unable
to obtain from other parties that it is entitled to examine (see the evidence
of Wayne Wasylyshyn in his affidavit). There is nothing to indicate that
anyone currently associated with Grant Thornton has any independent knowledge
of the audits of the joint venture in issue except that which is
reflected in the records already provided. The Crown is in possession of all
the materials relating to the relevant audits. Nothing can be added by any
person simply to be examined.
[12]
The Crown has not been able to
show that it would be unfair for it to proceed to trial without discovery of
those it seeks to examine.
[13]
The Crown can easily perform the
review of the documents itself without the discovery it seeks.
[14]
The Crown is attempting to obtain
information to confirm its theory of the case. It is not entitled to do so.
[15]
Mr. Knecht stated to the Court
that there is nothing that he could remember that would be relevant to the
issues in this case.
Decision
on the Motion
[16]
In order for the Respondent to be
successful in this motion, she must bring herself within the provisions of
section 99 of the Tax Court of Canada Rules (General Procedure).
[17]
Section 99 provides partly as
follows:
Discovery of Non-Parties
with Leave
99. (1) The Court may grant leave, on such terms respecting
costs and other matters as are just, to examine for discovery any person who
there is reason to believe has information relevant to a material issue in the
appeal, other than an expert engaged by or on behalf of a party in preparation
for contemplated or pending litigation.
(2) Leave under subsection (1) shall not be granted unless
the Court is satisfied that,
(a) the moving party has
been unable to obtain the information from other persons whom the moving party
is entitled to examine for discovery, or from the person sought to be examined,
(b) it would be unfair to
require the moving party to proceed to hearing without having the opportunity
of examining the person, and
(c) the examination will not,
(i)
unduly
delay the commencement of the hearing of the proceeding,
(ii) entail unreasonable expense for other parties, or
(iii) result in unfairness to the person
the moving party seeks to examine.
[18]
It is clear that this will
represent an extraordinary measure and one that should be used sparingly as in McBane
Estate v. Canada, 2005 TCC 264, [2005] 2 C.T.C. 2787, Schiesser
v. Canada, 2009 TCC 513, 2009 DTC 1345 and Labow, supra. Further, the cases indicate that paragraph 99(2)(a)
is cumulative.
[19]
The onus is on the
Respondent to show that the stringent requirements of the section 99 have been
met.
[20]
When counsel for the
Respondent was addressing the Court, she made it clear that she believed that
she was entitled to examine these non-parties in order to be able to support
the Crown’s theory of the case. This argument was considered by Bowie J. in Labow
above and was rejected as it is by this Court.
[21]
The Court is not
satisfied that either Grant Thornton or Mr. Knecht has information that is
relevant to a material issue in this appeal. Mr. Knecht said very little in his
address to the Court but he made it clear that after 19 years he could provide
no information from his personal knowledge that would be relevant. Further, it
is obvious that the Respondent has obtained significant disclosure of documents
from the Appellant, 507326 Alberta Ltd. and Grant Thornton and the information
that the Respondent seeks should have been obtainable from the above.
[22]
The Court is further
satisfied that there would be no unfairness to the Respondent if this motion
does not succeed.
[23]
The Court is satisfied
that the further examination sought would cause undue delay and unreasonable
expenses. The case has been set down for hearing commencing on May 28, 2012,
and the Court is not satisfied that this date would not be jeopardized if the
order was granted.
[24]
The stringent requirements
of section 99 have not been met. The motion is dismissed with costs to the
other parties. The court will hear the parties on the issue of costs.
Signed at Vancouver, British Columbia, this 8th day of March 2012.
“T.E. Margeson”
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