Citation: 2010TCC279
Date: 20100521
Docket: 2005-1974(IT)G
BETWEEN:
KATHRYN KOSSOW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
C. Miller J
[1]
The Respondent brings a
Motion for:
a) an order dismissing
the Appellant’s Motion for, among other things, further oral discovery and a
further Rule 82 affidavit of documents as set out in her Notice of
Motion dated September 3, 2008;
b) an order setting
this Appeal down for trial to be heard on common evidence with the Appeals in Gould
v. Her Majesty the Queen, court file numbers 2004-4449(IT)G and
2006-2188(IT)G, and Fiorante v. Her Majesty the Queen, court file number
2005-3091(IT)G;
c) in the alternative,
an order setting down this Appeal for trial on its own; and
d) in the further
alternative, an order dismissing the appeal.
[2]
This litigation for the
years 2000, 2001 and 2002 concerns what the Respondent calls a
leveraged-donation scheme, by which a taxpayer borrows, on favourable terms,
80% of funds used to make a donation to Ideas Canada Foundation. The Respondent
claims that, given the circumstances of the loan, the taxpayer cannot be said
to have made a gift. In the alternative, if there was a valid gift, the General
Anti-Avoidance Rules ("GAAR") is engaged to deny the credit that
would otherwise flow from the donation.
[3]
The Appellant objects
to the Motion, firstly on the basis that it would deny the Appellant fair and
full disclosure, and, secondly, on the basis that it would be unfair to ask the
Appellant to incur any further costs in this matter, especially the cost of a
two-week trial, when the Federal Court of Appeal has before it an appeal in the
Maréchaux v. R.
case. Justice Woods in the Tax Court of Canada decision in Maréchaux dealt with
the issue of whether a donation is a gift in circumstances of using borrowed
funds. After referring to the definition of a gift in the Friedberg v.
R.
case she concluded:
…
32. In applying the above definition to the
facts of this appeal, it is clear that the appellant did not make a gift to the
Foundation because a significant benefit flowed to the appellant in return for
the Donation.
33. The benefit is the financing arrangement.
The $80,000 interest-free loan that was received by the appellant, coupled with
the expectation of the Put Option, was a significant benefit that was
given in return for the Donation. The financing was not provided in isolation
to the Donation. The two were inextricably tied together by the relevant
agreements.
…
35. I would also comment that, even without the
Put Option, the financing provided a significant benefit. It is self-evident
that an interest-free loan for 20 years provides a considerable economic
benefit to the debtor. I would also note that the $8,000 security deposit could
not reasonably be expected to accrete to anywhere near $80,000 in 20 years. The
evidence of Mr. Johnson clearly showed this, even taking into account
differences of opinion regarding some of his assumptions.
…
[4]
The Appellant’s
counsel, while not prepared to be bound by the result in Maréchaux,
acknowledged that the Federal Court of Appeal’s decision could have a serious
impact on Ms. Kossow’s Appeal. Likewise, the Respondent was not prepared to be
bound by the Federal Court of Appeal decision.
[5]
It will be helpful to
provide a brief overview of the history of this litigation. Ms. Kossow filed
her Appeal with the Tax Court of Canada in June 2005. There are well over a
thousand taxpayers who made donations to the Ideas Canada Foundation in similar
circumstances to Ms. Kossow, and who have an interest in the outcome of this Appeal.
The taxpayers are spread across the country. In November 2007, I had a
teleconference with counsel from Toronto representing Ms. Kossow and counsel
from Vancouver representing Messrs. Gould and Fiorante
who had also brought appeals in connection with the Ideas Canada
Foundation’s donation arrangement. I ordered that the Kossow matter should
proceed expeditiously and set a two-week trial date in mid-June 2008. I was
satisfied at the time that the Kossow matter was further advanced vis-à-vis
discoveries and pre-trial matters. All related appeals would await the outcome
in Kossow. At the same time, I ordered full disclosure pursuant to Rule
82 by January 31, 2008.
[6]
One month before trial,
Justice Valerie Miller adjourned the trial to September 8, 2008, allowing the Appellant
to bring a Motion in mid-June to strike parts of the Reply, to direct the Respondent
to bear the burden with respect to certain assumptions, to direct the Respondent
to satisfy certain undertakings given at the Examination for Discovery and to
provide a further Rule 82 affidavit of documents, and to have the Respondent’s
nominee re-attend examinations. The nominee had already attended two weeks of
examination. Justice Valerie Miller, by Order dated July 18, 2008,
directed the Respondent to provide written answers to certain refusals and to
provide certain documents by August 8, 2008. She also ordered the Appellant had
until August 15, 2008 to provide written questions regarding the additional
documents which the Respondent was to answer by August 29, 2008. Justice
Valerie Miller described the Appellant’s success on the Motion as minor and
ordered costs to the Respondent payable forthwith.
[7]
By letter dated June
24, 2008 the Respondent served upon the Appellant written responses to certain
questions conceded by the Respondent at the hearing of the Motion. As a result
of Justice Valerie Miller’s Order, the Respondent provided close to 200
additional documents. In keeping with Justice Valerie Miller’s Order, the Appellant
provided written questions in connection with each document: many of the
questions were identical. Using document 590 and questions 286 to 292 by way of
example, the following are representative of the general questions asked:
…
286 When did you obtain this document? If an
exact date is not available, was it obtained before or after the position paper
was approved?
287
From whom did you obtain this document?
288
Who authored the document?
289
Did you or any member of your team, review this
document in the course of your audit? If not, why not?
290
Did you rely on this document in making any of
the assumptions of facts pleaded at paragraphs 9, 10 and 31 through 41,
including the Schedule "A" of the Reply?
291
If the answer to the previous question is yes,
which assumption or, if more than one, which assumptions?
292
Do you admit the authenticity of this document?
…
[8]
The Respondent provided
a written response to all 1546 questions, though objected to answering written
questions 1424 to 1546 arising from undertakings, on the basis that Justice
Valerie Miller did not order such, notwithstanding the Appellant’s motion
before her.
[9]
The Appellant appealed Justice
Valerie Miller’s Order to the Federal Court of Appeal and brought a Motion
before me in August 2008 to adjourn the September trial. I denied the Motion.
On August 25, 2008 the Appellant sought from the Federal Court of Appeal a stay
of the Tax Court of Canada trial scheduled for September, which Justice Ryer
granted stating: "In the circumstances, I am of the view that
Kossow must do her part to ensure an expeditious disposition of the appeal in
this Court."
[10]
In the meantime, the
Appellant served on the Respondent:
a) a Notice of Motion
dated August 29, 2008, which Motion was made returnable in the Tax Court of
Canada on September 8, 2008. The Appellant sought an Order striking certain
paragraphs in the Respondent’s pleadings, and in the alternative directing that
the Respondent bear the burden of proof with respect to certain assumptions of
fact made by the Minister. …; and
b) a Notice of Motion
dated September 3, 2008, which Motion was made returnable to the Tax Court of
Canada on September 8, 2008. The Appellant sought an Order directing the
Respondent to answer certain examination questions posed by the Appellant,
directing the Respondent to file a supplementary Rule 82 affidavit of
documents, adjourning the trial and compelling further oral examinations.
[11]
On March 16, 2009, the
Federal Court of Appeal dismissed the Appellant’s Appeal of Justice Valerie
Miller’s Order and Justice Létourneau stated:
"As for the Appellant’s request that the discovery process
continue, the Judge noted that there had been extensive discovery. "At
some point in time", she writes at paragraph 66 of her Reasons for
Judgment, "discoveries must end so that the parties can get ready for the
trial in this matter. That time has arrived". In the exercise of her
discretion, she was entitled to put an end to the discovery process: see Canada v. Aventis Pharma Inc. 2008 FCA
316."
The Federal Court of Appeal ordered costs of $3,000
payable forthwith to the Respondent.
[12]
On May 15, 2009, the
Appellant filed an Application for Leave to Appeal the Federal Court of Appeal
decision to the Supreme Court of Canada. From a review of the Appellant’s
Notice of Application for Leave and Written Memorandum, it appears the
Appellant concentrated exclusively on the issue of the burden of proof at
trial. The Supreme Court of Canada denied leave on September 17, 2009.
Both at the Tax Court of Canada and the Federal Court of Appeal it was decided
that the issue of burden of proof shall be left to the trial judge.
[13]
In November 2009, the
Respondent contacted the Appellant requesting a Joint Application for Trial be
made. In December, Appellant’s counsel responded that the matter was not ready
for trial and preferred a case management conference.
[14]
It is clear the
Respondent is ready to go to trial and sees no need for further Affidavits of
Documents or Examinations. The Respondent’s Application to have the Appellant’s
Motion in that regard dismissed is akin to a request to end the discovery
process. The Respondent relies on Rule 53 to seek the dismissal of the
Appellant’s Motions, as well on relying on Justice Létourneau’s comments in the
Federal Court of Appeal decision in this matter, as quoted earlier.
[15]
I will first address Rule
53 and then look at the broader picture of simply ending the discovery process.
Rule 53 of the Tax Court of Canada Rules (General Procedure)
reads as follows:
…
53. The Court may strike
out or expunge all or part of a pleading or other document, with or without
leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay
the fair hearing of the action,
(b) is scandalous, frivolous
or vexatious, or
(c) is an abuse of the
process of the Court.
…
There are three areas to this Rule that would justify the Court
dismissing the Appellant’s Motion, without her being heard. First, would
allowing the Appellant’s Motion to be heard cause delay in the fair hearing of
the action? Given that the Appellant does not want to proceed with the Motion
until after the Federal Court of Appeal decision in Maréchaux, then
certainly it causes a delay of the hearing. But is the delay necessary to
ensure a "fair" hearing? There are two elements to this issue of the
fairness of the hearing. First, the hearing may not be fair as the Judge would
not have the benefit of the Federal Court of Appeal decision if the hearing
precedes that decision. That is readily resolved by the Judge simply reserving,
or setting a trial date sufficiently in the future to minimize the risk of not
having received the Federal Court of Appeal decision. Second, the hearing may
not be fair because, according to the Appellant, without success on her Motion
for further disclosure and discovery, she will not have had a fair and full
disclosure. I asked the Appellant’s counsel to help me out with this aspect of
the argument. What were the documents the Appellant believed she had not
received from the Government, notwithstanding a number of updates on the Rule
82 Affidavit for full disclosure of documents? I needed to appreciate the
significance of what the Appellant believed was missing to weigh that against
prolonging litigation, or, as succinctly put by Justice Létourneau in the
case of Yacyshyn v. R.
– “justice delayed is justice denied, especially where it is unjustifiably
delayed.”
[16]
The Appellant’s counsel
identified three areas from the examination of Mr. Tringali, the
Respondent’s nominee, which suggested there were documents that should have
been part of the Respondent’s Rule 82 disclosure, but were not. First,
documents in connection with evaluation of Bronzes cast from the same plasters
as the Bronzes in issue in this matter; second, documents that were similar to
documents already provided, which the Respondent was of the view were
redundant; third, photos of the Bronzes the Respondent’s officers may have seen
at the MacLaren Art Centre. The Appellant also wants the right to continue
examinations regarding these documents and also to have further discovery
beyond the written questions and answers on the previous bundle of documents
provided as a result of Justice Valerie Miller’s Order of July 18, 2008.
[17]
While not deciding the
merits of the Appellant’s Motion for disclosure of these types of documents and
for further discovery, this information assists me in deciding whether it is in
the best interests of justice to allow the Appellant to even bring the Motion,
as only by doing so can she have a fair hearing. This is indeed a fine
balancing act.
[18]
On one side of the
balance, in support of the position that the matter is ready now for a fair
hearing and that the Appellant’s Motion would only delay that fair hearing, I
see:
- eight to 10 years
having passed since the events leading to the litigation;
- two previous orders
in 2008 setting the matter for trial on the basis it was ready for a fair
hearing at that point;
- extensive
examinations and affidavits over the last three years;
- compliance with
Justice Valerie Miller’s Order for written discoveries on the additional
disclosed documents.
[19]
On the other side of
the balance, in support of the position the Appellant’s Motion will not delay a
fair hearing, I see:
- the Appellant’s
concern that written responses with respect to the additional documents are
inadequate;
- acknowledgement by
the Respondent’s nominee that certain documents may not have been disclosed.
[20]
With respect to the
inadequacy of the Respondent’s written responses to the Appellant’s written
questions regarding the additional documents ordered produced by Justice
Valerie Miller, the Appellant submits that Justice Valerie Miller would not
have made such an Order had she known of the extent of the documents. But she
did make the Order and the Parties have complied with it. This factor does not
sway me in support of the Appellant’s position.
[21]
With respect to the
Appellant’s position that there remain documents to be disclosed, I have
considered the nature of those documents and concluded that even if the
Appellant was successful in her Motion, the potential marginal knowledge that
might be unearthed is insufficient to justify any further delay. The issues in
this matter are clear. The extensive documentation surrounding the Ideas Canada
Foundation program is known to both sides. I recognize that there is an awkwardness
in a situation such as this when the taxpayer is a small cog in a larger wheel,
of which the taxpayer has minimal knowledge and limited access to the extensive
surrounding documentation. But that is something for the trial judge to
address. The preliminary process of disclosure of documents and examinations is
meant to put both sides on an equal footing as far as knowing the case each has
to meet. I find the Parties are there, and that any delay at this stage is a
delay of a fair hearing.
[22]
The Respondent went on
to argue that I could also rely on Rule 53(c) that the Appellant’s
Motion should be dismissed as an abuse of process, as she has not brought her
Motion since March 2009 when the stay of the proceedings in this Court was
effectively lifted. The Respondent referred me to the decision of R. v.
Special Risks Holdings Inc.
wherein Justice Walsh stated:
…
12. Plaintiff quite properly objects to the
present motion, contending that it is a further last minute attempt to delay
the trial of the action, and moreover to introduce material the production of
which would certainly be objected to, which is probably irrelevant, and which
in any event was not required in order to comply with the precise terms of the
order of the Court of Appeal which related only to allegations in paragraphs
13, 15 and 17 of the statement of claim. Rules i of the court must be strictly
followed, and the Crown is in no more favoured position than any other litigant
in this connection, and no proceeding should be entertained, even if it might
be found to have some relevance, when it seeks the introduction of material,
which the parties could have sought to introduce many months earlier, and which
if granted would have the effect of preventing the action from proceeding. For
this reason alone therefore the motion is an abuse of the process of the Court
and cannot be entertained.
While it is unnecessary for me to rely on Rule
53(c) given my view of Rule 53(a), the fact the Appellant has not, since
March 2009, brought her Motion before the Court is troubling. The Appellant
raises the Supreme Court of Canada Leave Application as some justification. I
disagree. There was no reason to wait for the Supreme Court of Canada’s
decision. There is a responsibility on litigants to move their litigation along,
and I find the Appellant has not done so. I would not go so far however, as the
Respondent contends, that the Appellant’s behaviour demonstrates an intention
to not take this matter to trial.
[23]
I wish now to look at
the broader issue – the setting of a trial date and the steps, if any, to get
there. There are two major concerns in this regard. First, what impact should
the Maréchaux appeal have on setting this matter down for trial? Second,
should the discovery process be put to an end?
[24]
The Maréchaux
appeal does address the issue of the effect of favourable financing arrangements
on the determination of a gift. Clearly that is an important element in this
case. Yet that was a decision in a very fact specific arrangement. This case
involving Ideas Canada Foundation is not the same arrangement as in Maréchaux,
notwithstanding the particular issue may be the same. The determination of a
gift can involve many factors (see my comments in my recent decision of Coleman
v. R.).
It is critical the trial judge scrutinize all of them, as while it is to a
large degree an objective examination, there will always be a subjective
element. The trial judge needs to appreciate the very specific facts of these
types of arrangements, especially, in a case such as this, where there are over
1000 other taxpayers waiting to see the results of this case. The facts of the
matter need to be heard.
[25]
Further, neither side
provided me with any assurance that this litigation would resolve itself based
on the Federal Court of Appeal decision in Maréchaux. This is not
surprising, but it certainly satisfies me there is no need to hold off getting
the trial heard. I recognize that the Federal Court of Appeal’s decision will
be of some considerable assistance to the trial judge, but he or she can always
reserve pending that decision, if it has not already been released.
[26]
Finally, as Justice
Bowie put it in the case of Loewen v. R.:
…
24. … Case law is always in a state of flux;
the trial courts are not required to refrain from hearing cases because they
involve legal issues that may be affected by the outcome of appeals that are
proceeding elsewhere.
…
I agree.
[27]
The Appellant raises
the issue of having to incur costs unnecessarily by proceeding. Given the
extensive litigation to date on this matter and my view that this case is very
likely to proceed in any event, I place little emphasis on the question of
costs.
[28]
The Court is not
available for a two-week trial until late October or November. Ms. Tari has
indicated she is in the process of scheduling another matter for a three-week
trial in November. Given that, and given expectations of a decision in Maréchaux
before the end of the year, January is the most appropriate time for a two-week
trial.
[29]
Finally, I turn to the
question of the remaining steps in preparation for trial. I harken back to
Justice Létourneau’s comments in the Federal Court of Appeal’s decision in this
matter quoted in paragraph 11 of these reasons. Two years ago I was of the
view the matter was ready for trial. There have been additional disclosures
since then. My view has not changed, and, if anything, is stronger. Further
delays are simply not warranted.
[30]
I am aware the
Appellant is of the view that there needs to be a decision regarding the burden
of proving certain assumptions. This Court and the Federal Court of Appeal
have indicated that issue is best left to the trial judge. As case management
Judge, I would like to discuss this issue with the Parties in the fall to
establish how best to proceed before the trial judge in that regard; that is,
leaving it to the first day of trial or considering an earlier conference with
the trial judge. This, and the question of experts, on which I presume the
Parties will simply comply with the Tax Court of Canada Rules (indeed I
believe the Respondent has already filed the expert’s report) are the only
matters I find remain to be addressed before the trial in January 2011.
[31]
I have not addressed
the question of a joint trial with the cases of Gould and Fiorante
as little emphasis was put on that at the Motion, and I see no need to go down
that path.
[32]
In summary, the time
has come to end the procedural skirmishes and to get this matter to trial. Certainly
we have rules and procedures in our system to ensure both Parties approach a
trial on a level playing field. If one side believes the other is not playing
by the rules, then, yes, they can come to Court to seek a resolution to the
impasse so the litigation can move on its steady course to the fair hearing.
But, at the same time, the Court should be able to say, as the impartial
arbiter – enough. Time, expense, extensive disclosure and fairness dictates an
end to the process. I do not share Ms. Tari’s view that doing so denies fair
process at this stage. By setting a trial date in January 2011, I hope to
accomplish the following: to ensure the availability of counsel and the Court,
to provide time for the release of the Federal Court of Appeal decision in
Maréchaux, to minimize the risk of delay by further motions, to minimize
further costs other than trial and to provide some certainty, not just to Ms. Kossow,
but to all taxpayers with an interest in this matter arising from donations to
Ideas Canada Foundation.
[33]
I grant the
Respondent’s Motion and set the matter down for a two-week trial in Toronto, the weeks of January 17 and 24, 2011. The costs of this
Motion shall be in the cause. I would also like to have a case management
teleconference with the Parties in October 2010, at a time to be arranged. As
well, I expect the Parties to be ready for trial in January 2011, and I expect
them to afford each other the ongoing courtesies of a reasonable exchange of
information without further recourse to the Court. I therefore also order that
the Court will not hear any further motions in connection with discovery of
documents or examinations for discovery.
Signed at Ottawa, Canada, this 21st day of May 2010.
"Campbell J. Miller"
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