Citation: 2012 TCC 160
Date: 20120608
Docket: 2010-3531(IT)G
BETWEEN:
AECON CONSTRUCTION GROUP INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Angers J.
[1]
This is a motion by the
respondent for an order that Graham Farquharson of Strathcona Mineral Services
Limited is not disqualified, by reason of conflict of interest, from being
retained by the respondent as an expert witness in this income tax appeal. The
affidavits of Graham Farquharson, Verena Zbyrovski and Ali Lakhani were
submitted in support of the respondent's position and the appellant submitted
one from Susan Washbun in support of her position.
[2]
The substantive issue
of the appeal concerns the 1993 fair market value (FMV) of mining properties
located in the Keno Hill - Galena Hill near Elsa,
Yukon, which translates to the amount deductible as Canadian development
expenses pursuant to section 66 of the Income Tax Act. The appellant,
through its predecessor corporations, contend that the FMV at the time was 32
million dollars while the respondent claims that it amounted to no more than 3
million dollars. Both parties will be calling experts to determine the FMV.
[3]
At the time, the
appellant relied on the valuation report prepared by one Ross Lawrence of
the firm Watts, Griffis and McOuat ("Watts"),
dated December 17, 1993. During the course of the audit, Watts prepared an
additional analysis dated September 21, 2000, which was submitted to the Canada
Revenue Agency (CRA). In addition, the appellant also retained one Christopher Lattanzi
of Micon International Limited as an additional expert. Mr. Lattanzi
prepared a report dated June 2009 but the respondent alleges that Mr.
Lattanzi might have been contacted as far back as June 2001.
[4]
The CRA also had its
own valuation analysis made by Mr. Gerry Martin from Business Valuations at the
Calgary Tax Services Center. Mr. Martin was assisted by Paul Hawkins &
Associates, a mining consulting firm from Calgary
and summarized in a memo dated February 9, 2001. Final proposal letters were
issued by CRA to the appellant on June 1, 2001 and reassessed in October 2001.
[5]
By June 18, 2001, the
appellant had contacted two senior mining valuation experts, namely Graham
Farquharson (Mr. F) of Strathcona Minerals Services Limited and William Rascoe
(Mr. R) of Roscoe Postle and Associates. The appellant did not retain either expert
but information was disclosed to both which I will address subsequently in my
reasons.
[6]
The appellant filed
their notice of appeal on November 12, 2010 and an amended notice of appeal on
January 5, 2011. The respondent filed their reply on March 4, 2011.
[7]
By April 15, 2011, the
respondent contacted Mr. F and learned that he had been previously contacted by
the appellant. Mr. R was contacted in June 2011 but he withdrew as a potential
expert witness for the respondent a month later. Mr. R had invoiced the
appellant and withdrew. He communicated the following to respondent's counsel:
The fact that we received a binder of documents implies there was
confidential information in addition to the Watts Firm report. The fact that we
invoiced for our work certainly would give the perception of a conflict of our
part. Aecon personnel may have notes that reinforce the potential for conflict
of interest.
[8]
The respondent
contacted the appellant on September 21, 2011 to advise that it had contacted
both Mr. F and Mr. R. The respondent advised that the appellant's contact with
Mr. F would not disqualify him from being retained as an expert. The respondent
wanted to resolve this potential issue without undue cost and delay. The
appellant disagreed with the respondent's position and took the same position
with regards to Mr. R. Hence, the respondent is bringing this motion.
[9]
Mr. F's initial
recollection in April 2011 about his contact with the appellant was a visit of
an officer of the appellant with the appellant's counsel at that time. The
meeting was to enable them to inquire about whether Mr. F would participate in
a review of a mining investment that was in dispute with the CRA. Mr. F recalls
the name Neil Bacon who is vice president and controller of Aecon and the law
firm of Wildeboar, Rand, Thomson, Apps and Dellelce LLP is vaguely familiar.
[10]
Mr. F's most important
recollection was that he had advised the appellant that they were unlikely to
agree with the opinion expressed by Watts. This was based
on his previous dealings with that firm in another litigation, namely the Raglan
case.
[11]
Subsequently, Mr. F
reviewed his diaries and correspondence files. His entries indicated the
following:
1. June 18, 2001 – Telephone call – Neil
Bacon - Taxation - JEL
2. June 19, 2001 – Keno Hill file review,
Aecon vs CCRA
3. June 20, 2001 – Meeting – Neil Bacon –
Keno Hill valuation – CCRA
4. June 22, 2001 – Telephone call – Neil
Bacon – Thanks for Raglan case
5. July 11, 2001 -
[12]
After the June 20, 2001
meeting, Mr. F sent Mr. Bacon a letter on the same day. The letter included a
copy of the Raglan Mines Ltd v. Blok-Anderson, [1993] O.J. No. 727. In
the letter, Mr. F described how he was on opposite sides with Watts. He noted
that the trial judge made some interesting observations on share market values
relative to the basic underlying value of the mining properties as well as the
use of "potential" reserves in the DCF (discounted cash flow) value approach
which Watts Griffis had used. It may provide some interesting background for
your consideration as to what approach to follow on the matter that we
discussed.
[13]
The last meeting on
July 11, 2001 was again with Mr. F, Mr. Bacon and Mr. Rand who was counsel for
the appellant at the time. Subsequent to his review of correspondence, files
and diaries, Mr. F wrote to counsel for the respondent on May 2, 2011 to inform
him that his notation "Declined to be creative" refers to his
response to Mr. Rand's request that they were looking for an expectation to be
creative in their response to CCRA. Mr. F believed that the July 11, 2001
meeting resulted in the appellant not having any further interest in discussion
with him on this matter.
[14]
In Mr. F's letter to
respondent's counsel on May 16, 2011 which was in response to queries made by
counsel earlier, he wrote that he had never signed a retainer or any agreement
to undertake any assignment on behalf of the appellant; had never received any
payment from the appellant, did not recall any specific information from the
appellant to review but given the note in his diary, he acknowledges that he
must have been given some documentation to review at the initial meeting and
says it is possible it may be the Watts valuation report but cannot recall
specifically. He adds that we were obviously not enthusiastic about whatever
documentation we reviewed, given we took the position to send Mr. Bacon a
copy of the Raglan case. He also adds that no project file was
established on this matter, does not recall any request for confidentiality nor
of any specific legal strategy other than their suggestion to take an approach
with which we were not comfortable and declined to be creative and finally
never expected to hear anything further on the matter.
[15]
The issues in this
motion are:
(a) Should the
decision of whether Mr. F be disqualified, by reason of conflict of interest,
be left to the trial judge, or can my decision on this interlocutory motion
bind the trial judge?
(b) Is Mr. F
disqualified as an expert witness for the respondent by reason of conflict of
interest?
[16]
It is well-known that
before expert testimony can be admitted, the expert must be properly qualified
as such. That is for the trial judge to decide. According to the Supreme Court
of Canada in R. v. Mohan, [1994] 2 S.C.R. 9,
the admission of expert testimony is a two-fold process. First, the witness must
be qualified on the basis of the following four criteria, namely: relevance,
necessity in assisting the trier of fact, the absence of any exclusionary rule
and proper qualifications. Once the evidence is heard on the expert witness'
qualifications, the judge is to then rule on the areas he may testify on. In
particular, it may be all the relevant areas counsel has moved the Court for
the witness to testify to or only some of the areas or none at all.
[17]
That being said, it is
my opinion that this interlocutory motion is not really about the pre-clearance
of an expert but rather about resolving one party's challenge of the retention
of a particular expert. The former kind of issue calls for a discussion of the
four Mohan criteria, in contradistinction to considerations of conflict of
interest or apprehension of bias. It is quite possible to resolve the latter kind
of issue by interlocutory motions and eventually to dispose of experts on that
basis, and that is a matter quite distinct from the former kind of issue. This view
seems to be confirmed by relevant provisions of the recently amended Federal
Courts Rules, which read as follows:
52.5(1) A party to a proceeding shall, as early as possible in the
proceeding, raise any objection to an opposing party's proposed expert witness
that could disqualify the witness from testifying.
(2) An objection may be raised
(a) by serving and filing a document
containing the particulars of an basis for the objection; or
(b) in accordance with subsection 262(2)
or subparagraph 263(c)(i) if, in the case of an action, the objection is known
prior to the pre-trial conference.
[18]
That Rule allows a
party to bring forth reasons why a particular expert should be disqualified as early
as possible. The underlying policies of that rule are to save cost, risk of
delay at trial and, globally, to streamline the trial process. This Court is
moving towards similar rules and although one may think that it may encourage
other pre-emptive motions to qualify or disqualify experts, the Rule only
contemplates "disqualifying motions". This leaves the process of
qualification of expert witnesses in the hands of the trial judge.
[19]
Although this Court is not
yet governed by such a rule, I believe there is sufficient discretion conferred
to a motion judge by Rule 70 in addition to its inherent jurisdiction to
dispose of this matter.
[20]
The respondent, by this
motion, is not asking whether evidence should be admissible or not. It is not a
motion for a final determination that Mr. F may or may not give evidence at
trial. The trial judge in this case will be concerned with the evidence dealing
with the FMV of the mining property. The evidence heard on this motion does not
reveal how this motion would bind a trial judge in determining admissibility of
evidence regarding FMV and potentially cause problems for the trial judge. The
evidence heard does not clarify the effect of confidential information if any
on the determination of admissibility of evidence or if it would have an effect
on the determination of the FMV. In my opinion, the question in this motion is
therefore not an evidentiary matter that is solely for the trial judge to
decide.
[21]
When the respondent was
informed that Mr. F had been previously contacted by the appellant, it so
informed the appellant. After discussing the matter with Mr. F, the
respondent took the position that the appellant's contact with Mr. F would not
disqualify him from being retained. The appellant disagrees with the respondent
and the respondent is now seeking a ruling on this issue.
[22]
The leading authority
on whether or not an expert should be disqualified is Abbott Laboratories v.
Canada (Minister of Health), 2006 F.C. 340. In that case, Mr. Justice
O'Keefe cited Prothonary Milczynski on a different motion of the same parties.
I reproduce paragraphs 19, 20 and 21:
[19] The proper approach to determine whether or not an
expert should be disqualified must consider the facts and surrounding
circumstances of each case and:
- whether the expert knew he or she was receiving confidential
information, with the expectation that the information would be maintained in
confidence;
- the nature of the confidential
information;
- the risk of the confidential
information being disclosed
- the risk of
prejudice arising to either the party challenging the expert or to the party
seeking to retain the challenged expert; and
- the interests of justice and
public confidence in the judicial process.
[20] Accordingly, the principles require that
the Court balance the interests of the party seeking to retain an expert
witness and the party seeking to protect its confidential information. In that
regard, counsel for Pharmascience raises the danger of expert witnesses
being contacted simply to deprive an opposing party of their expertise. This
danger was eloquently described by Lord Denning in Harmony Shipping Co SA v.
Davis et al, [1979] 3 All ER 177 (C.A.):
If an expert could have his hands tied
by being instructed by one side, it would be very easy for a rich client to
consult each of the acknowledged experts in the field. Each expert might give
an opinion adverse to the rich man, yet the rich man could say to each,
"Your mouth is closed and you cannot give evidence in court against
me" ..... Does that mean that the other side is debarred from getting the
help of any expert evidence because all the experts have been taken up by the
other side? The answer is clearly No .... There is no property in an expert
witness as to the fact he has observed and his own independent opinion of them.
There being no such property in a witness, it is the duty of a witness to come
to court and give his evidence in so far as he is directed by the judge to do
so.
[21] In Labee
v. Peters, [1996] A.J. No. 809 (Alta Q.B.), after reviewing a number of authorities, the
Court set out the principles:
1.
There is no property
in a witness.
2.
Even though a party
has retained an expert and communicated privileged information to the expert,
the expert may still be asked for an opinion by an opposing party and may call
that expert at trial.
3.
The expert may not,
however, be questioned concerning any privileged material he received from the
opposing solicitor nor shall he disclose any opinion he has given to the
opposing counsel.
[23]
Neither party in this
motion, has been able to clarify the nature of the confidential information
that may or may not have been communicated. Mr. F's affidavit does not disclose
if he has, in fact, received any and the appellant did not cross-examine Mr. F
on his affidavit. It is therefore unclear as to the risk associated with
disclosing said information or if, it will cause a prejudice to the appellant.
No evidence was put forward that allowing the respondent to retain Mr. F.
would prejudice the appellant.
[24]
In the light of the
evidence presented, one cannot conclude that Mr. F and the appellant shared
sufficient information for either one to expect that whatever that information
may be would be kept in confidence or is privileged. Mr. F was never retained,
no retainer agreement or confidentiality agreement was signed and there is no
evidence that the appellant would have requested Mr. F not to discuss the
matter with others. Mr. F did not open a file, did not invoice the appellant
nor received any payment, nor was he asked to perform any services. It appears
to me that the discussions Mr F had with the appellant in 2001 were of an
informal nature and nothing more than an attempt to see if Mr. F shared their
point of view. In his affidavit, Mr. F did not recall discussing specific legal
strategy other than the fact that he refused to be "creative" in
responding to CRA's position. He cannot recall the documents he reviewed nor
did he retain any documents. He also said that early on, he communicated to the
appellant that, on the basis of previous experience with Watts, it was unlikely that the appellant would agree with
his firm's method of valuation. That is hardly the foundation necessary for the
appellant to shield Mr. F from being retained by the opposing party and provide
his opinion.
[25]
I do not believe that
the fact situation of this case jeopardizes the interest of justice and public
confidence in the judicial process. This is not a situation where an expert is
motivated in selling his opinion to the highest bidder even if it means a
breach of a confidential agreement.
[26]
It has long been
recognized by the courts that there is no property in a witness (see Abbot,
supra). An expert witness is to testify on his particular expertise objectively
and the courts should discourage parties from shopping for experts in order to
disqualify them from the other side. Although this latter question was not
raised in this fact situation, it is nonetheless a question of preserving the
integrity of the judicial system.
[27]
Counsel for the
appellant has argued that the respondent is not prejudiced as he is in a
position to retain a different expert and that the standards he has set are too
strict in his choice of experts. That may well be, but it is not this Court's
responsibility to rule on what experts should be retained by either party or
that one expert would be better than another in a given situation. Counsel are
masters of the evidence they wish to present and the trial judge will weigh the
evidence presented accordingly.
[28]
I therefore conclude
that Mr. F is not disqualified as an expert witness for the respondent by
reason of conflict of interest. The respondent is entitled to the costs of the
motion which I set at $1,500. The parties had to complete the examinations for
discovery by March 30, 2012. That date is hereby extended to September 28, 2012
with undertakings to be satisfied by November 16, 2012. The parties shall
communicate with the hearings coordinator in writing on or before December 7,
2012 to advise the Court whether the case will be settled, whether a settlement
conference would be beneficial or whether a hearing date should be set. In the
latter event, the parties shall file a joint application to fix a time and
place for the hearing in accordance with section 123 of the Tax Court of
Canada Rules (General Procedure) by said date.
Signed at Ottawa, Canada, this 8th day of June 2012.
"François Angers"
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