Citation: 2010TCC353
Date: 20100629
Docket: 2008-2213(IT)G
BETWEEN:
ENVISION CREDIT UNION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Webb, J.
[1]
At the conclusion of
the evidence portion of the hearing, counsel for the Respondent asked to read-in
excerpts from the discovery evidence given by Gordon Huston, one of the
Appellant’s witnesses. Mr. Huston had testified during the hearing. Counsel for
the Appellant objected to this request by counsel for the Respondent. Since
neither counsel was specific in relation to their arguments for or against the
admission of such discovery transcripts and since this arose late in the day on
a Friday afternoon, I requested that the parties submit written representations
in support of their positions. These submissions were subsequently received.
[2]
A copy of the extracts
from the discovery transcript that the Respondent is proposing to read-in was
attached to the written submissions provided by counsel for the Respondent but
there is no indication of the reason why the Respondent wants to introduce
these excerpts. The facts as set out in the Respondent’s submissions are as
follows:
5.
Huston was examined by the respondent on
September 29, 2009.
6.
Pursuant to Practice Note 8 of the Rules,
on April 16, 2010, the respondent provided the appellant with notice of the
specific portions of Huston's examination for discovery that the respondent
intended to read-in to evidence at the trial.
7.
The appellant did not indicate that it objected
to the respondent’s read-ins prior to doing so at the close of the respondent’s
evidence at the hearing. Appellant's counsel first made known its objection at
the hearing of this matter on April 23, 2010, when the respondent attempted to
hand up the read-ins in accordance with Rule 100(1). As a result, the Court
asked the parties to provide their positions in writing.
[3]
The remainder of the
submissions of the Respondent are general statements in relation to the
application of Rule 100(1) of the Tax Court of Canada Rules (General
Procedure) (the “Rules”) with no indication of the purpose for which
these particular extracts would be introduced. When the issue first arose at
the hearing counsel for the Respondent did not indicate the reason why the
proposed excerpts were to be read-in. She only indicated that the excerpts were
not being introduced to impeach the witness.
[4]
In the Appellant’s
written representations (which were only 10 paragraphs – 2 pages), it is stated
in paragraph 3 that:
3. The essence of the Appellant’s submission is this: Mr.
Huston was called as a witness and was both examined and, more importantly,
cross-examined, extensively. By the Appellant’s clock he was cross-examined for
approximately for approximately 4 to 4 ½ hours over two days. In those
particular circumstances, no Discovery should be handed in. There are really
only two possibilities: either his answers on Discovery merely duplicate those
given on cross, in which case the Discovery is unnecessary and repetitive,* or [sic]
the his answers on Discovery contradict those given on cross, in which case
they should have been put to Mr. Huston under the rule in Browne v. Dunn
(1893), 6 R. 67 (HL), at Tab 4. In either case the Discovery should not be
handed in.
(* denotes a footnote reference that was in the original text but
which has not been included)
[5]
The essence of the Respondent’s
position is simply that the provisions of Rule 100(1) of the Rules allow
the Respondent to read-in excerpts from the discovery examination of Mr. Huston
even though he testified during the hearing.
[6]
Rule 100(1) of the Rules
provides as follows:
100. (1) At the hearing, a party may read into
evidence as part of that party's own case, after that party has adduced all of
that party’s other evidence in chief, any part of the evidence given on the
examination for discovery of
(a) the adverse party,
or
(b) a person examined
for discovery on behalf of or in place of, or in addition to the adverse party,
unless the judge directs otherwise,
if the evidence is otherwise admissible, whether the
party or person has already given evidence or not.
[7]
Neither the Appellant
nor the Respondent focused on the words “if the evidence is otherwise
admissible” which, it seems to me, is an important qualification to the
introduction of the discovery evidence. The Appellant submitted that there were
two possibilities – either the discovery evidence was consistent with the
evidence at the hearing or it was contradictory. It seems to me that this does
not take into account the possibility that the discovery evidence deals with
matters that were not addressed during the testimony of the witness at the
hearing.
[8]
I would prefer to
characterize the possibilities in relation to the introduction of excerpts from
the discovery examination of a witness who has testified during the hearing, as
follows:
Either:
(a)
the discovery excerpts
deal with matters that were dealt with by the witness during his or her testimony
at the hearing; or
(b)
the discovery excerpts
deal with matters that were not dealt with by the witness during his or her testimony
at the hearing.
[9]
If the discovery
excerpts deal with matters that were dealt with by the witness during his or
her testimony at the hearing, then it seems to me, as noted by the Appellant, that
the answers given at discovery would either confirm the evidence of the witness
given at the hearing or would contradict or cast doubt on the evidence of the
witness given at the hearing.
[10]
If the discovery
excerpts reflect the same questions that are asked during the hearing and
reflect the same answers, then there is no probative value in admitting the
excerpts and the excerpts should be excluded on the same basis that prior
consistent statements would be excluded. In most cases it would be the party
whose witness testified during the hearing who would be trying to introduce a
prior consistent statement of that witness, not the opposing party. If the
proposed read-in questions and answers from the discovery examination of Mr.
Huston reflect prior consistent statements then it would be the Respondent who
would be attempting to show that the Appellant’s witness gave a prior
consistent statement. An unusual procedure but it seems to me that the rule
against allowing prior consistent statements should still apply.
[11]
In The Law of
Evidence in Canada (Third Edition) by Justices Bryant, Lederman and Fuerst
of the Superior Court of Justice for Ontario, (2009, LexisNexis), the rule
against the admission of prior consistent statements is described as follows:
7.1 There is a general exclusionary rule against the admission
of self-serving evidence to support the credibility of a witness unless his or
her credibility has first been made an issue.* The rule is generally applied to
prior consistent statements of the witness. Although contradictory statements
may be used against a witness,* “you are not entitled to give evidence of
statements on other occasions by the witness in confirmation of her testimony.*
7.2 The rule is not limited to statements, but is applicable
to any out-of-court evidence which is entirely self-serving and would shed no
light on the material issues in the case. Polygraph evidence tendered by the
accused would be precluded on this basis.*
7.3 Two different rationales have been given for the exclusion
of such evidence. The one most commonly relied on is that, due to the risk of
fabrication, no person should be allowed to create evidence for him or
herself.* That is a hearsay danger inherent in such out-of-court statements. The
other view emphasizes the valuelessness of such evidence since a
witness’ story is not made more probable or trustworthy by any number of
repetitions of it.* Moreover, it would take needless trial time in order
to deal with a matter that is not really in issue, for it is assumed that the
witness is truthful until there is some particular reason for assailing his or
her veracity.*
II. EXCEPTIONS
A. General Explanation of Exceptions
7.4 A number of exceptions to the rule have developed in
common law permitting the introduction of a witness’ prior consistent statement
when credibility has been impeached. The purpose of such evidence is generally
limited to bolstering the witness' credibility by showing consistency with his
or her testimony, and is not evidence of the truth of the earlier assertion.*
(* denotes footnote references that are in the original text but
which have not been included)
(emphasis added)
[12]
Assuming that the
Respondent would not be intending to introduce prior consistent statements of
Mr. Huston to bolster his credibility, it seems to me that if the discovery
read-ins proposed by the Respondent contain prior consistent statements of Mr.
Huston, that such statements would not be admissible on the basis that there is
no value in such statements. As stated in The Law of Evidence in Canada, supra, “it would take needless trial time in order to deal with a
matter that is not really in issue, for it is assumed that the witness is
truthful until there is some particular reason for assailing his or her
veracity.” It seems to me that this rationale still applies even though
the discovery read-ins were submitted as copies of the typed transcript from
the discovery examination and not actually read. It would take needless time to
read questions and answers from a previous discovery that simply confirm the
evidence of the witness given during the hearing.
[13]
If the discovery
excerpts are being introduced to impeach the witness, then the question and
answer must be brought to the attention of the witness. Rule 100(2) of the Rules
provides that:
(2) Subject to the provisions of the Canada Evidence Act, the
evidence given on an examination for discovery may be used for the purpose of
impeaching the testimony of the deponent as a witness in the same manner as any
previous inconsistent statement by that witness.
[14]
Subsection 10(1) of the
Canada Evidence
Act provides
that:
10. (1) On any trial a witness may be cross-examined as to
previous statements that the witness made in writing, or that have been reduced
to writing, or recorded on audio tape or video tape or otherwise, relative to
the subject-matter of the case, without the writing being shown to the witness
or the witness being given the opportunity to listen to the audio tape or view
the video tape or otherwise take cognizance of the statements, but, if it
is intended to contradict the witness, the witness’ attention must, before the
contradictory proof can be given, be called to those parts of the statement
that are to be used for the purpose of so contradicting the witness,
and the judge, at any time during the trial, may require the production of the
writing or tape or other medium for inspection, and thereupon make such use of
it for the purposes of the trial as the judge thinks fit.
(emphasis
added)
[15]
In Cholakis v. Cholakis,
[2006] 2 W.W.R. 229, Justice Beard of the Manitoba Queen’s Bench dealt with the
provisions of Rule 31.11 of the Queen’s Bench Rules, which is the rule that
permits a party to read-in any part of a discovery examination. Justice Beard
stated that:
7 When
an examination for discovery is used to impeach the credibility of the witness
who was examined and who subsequently testifies during the trial, rule 31.11(2)
states that the examination for discovery is used in the same manner as any
other previous inconsistent statement. The use of a previous inconsistent
statement to impeach the credibility of a witness is codified in s. 20 of the
MEA, which requires that the witness be referred to those parts of the prior
statement that are to be used for the purpose of contradicting him.
…
11 To
the extent that questions and answers from Paul's examination are being read in
to impeach his credibility and were used for that purpose during
cross-examination, they have already been read into the record and form part of
the evidence on the issue of his credibility. Reading them in again would be
unnecessarily repetitive and add nothing to the proceeding. To the extent that
the questions and answers were not brought to Paul's attention on
cross-examination, they cannot now be read in as they do not comply with the
requirements of s. 20 of the MEA for use as a contradictory statement.
[16]
In International Corona Resources Ltd. v. LAC Minerals Ltd., [1986] O.J. No. 68, Justice Holland stated that:
By reason of
the provisions of the Evidence Act, set out above, it appears that counsel for
Lac can only read in those parts of the examination for discovery of Mr. Bell
and Miss Dragovan which are admissions and those parts that go to credibility
so long as the provisions of the Evidence Act were complied with when the
witness was in the box in connection with such parts.
[17]
In The Law of
Evidence in Canada, supra, it is stated at page 1150 that:
16.153 A transcript of an examination for discovery is a special
species of a previous statement. In civil cases, Rules of Court generally
permit questions and answers to be read by a party adverse in interest as an admission.*
When used as previous inconsistent statements to impeach the credibility of a
party, it would appear that the statutory requirements must be complied with.
Accordingly, if a party testifies, the opposite party is obliged to put the
relevant passages from the examination for discovery to the party -- witness.*
(* denotes footnote references that are in the original text but
which have not been included)
[18]
Therefore it seems
clear that since Mr. Huston’s attention was not drawn to the excerpts prior to
the proposal of the Respondent to read-in such excerpts, these excerpts cannot
be read-in for the purpose of impeaching the witness.
[19]
The other possibility
is that the excerpts from the examination for discovery deal with matters that
were not addressed during the testimony of the witness. It seems to me that
this would be the most logical use of the rule permitting the read-in of
discovery examinations. If a party has obtained admissions from a witness
during discovery examination it could shorten the hearing by reading in the
questions and answers instead of asking the same questions again at the
hearing.
[20]
In this case the Respondent
is seeking to read-in approximately 108 questions (with the answers) from the
discovery. The witness, Gordon Huston, was examined and cross-examined over two
days. Counsel for the Respondent, during the cross‑examination of Mr.
Huston asked approximately 320 questions (which when transcribed cover
approximately 106 pages). There were several objections to various questions so
the actual number of questions for which there was an answer would be less than
320. Since the Respondent is seeking to submit approximately 108 additional
questions, this would bring the total number of questions to over 400 questions.
These are just the questions that were posed by counsel for the Respondent and
do not include the questions that were asked of Mr. Huston by the Appellant’s
counsel.
[21]
It seems to me that there
are three issues in this appeal:
1.
Whether the
reassessment of the Appellant’s 2001 taxation year, which was issued after the
end of the normal reassessment period for this year, is valid? This seems to me
to turn on the question of whether the Appellant made any misrepresentation
that is attributable to neglect, carelessness or wilful default in filing the
return or in supplying any information under this Act (there being no
suggestion of fraud in this case);
2.
Whether the merger of First
Heritage Savings Credit Union and Delta Credit Union was an amalgamation to
which section 87 of the Income Tax Act applies, and if not, what are the
implications under the Income Tax Act?
3.
Does the general
anti-avoidance rule (“GAAR”) in section 245 of the Income Tax Act apply?
[22]
One would have thought
that in the more than 300 questions that were asked (which would mean, on
average, 100 questions per issue) that any and all relevant questions that the
Respondent would have wanted to ask, would have been asked.
[23]
The first series of
questions and answers from the discovery examination that the Respondent seeks
to read-in are the following:
Q. All right. And don't think anything- - or,
there's certainly no dispute about this. But, in a nutshell, my understanding
is that FICOM would be the body responsible for approving an amalgamation of
the Delta and First Heritage Credit Unions, and that there was a fair bit of
correspondence going back and forth with respect to how it was going to take
place, and various terms in the agreements. And that this was the type of
correspondence, that it would have been useful or helpful for both Delta and
First Heritage to cooperate on; is that a fair summary?
A. It is, yes.
Q. Okay. So on page 2 of that document under
paragraph 3. I’m going to take you to the second paragraph of that numbered
paragraph. It says:
“Our tax lawyers, Fraser Milner, and our tax accountants, Grant
Thornton and KPMG, have extensively researched” - -
I guess that should be just “tax treatment”, but whatever.
“Fraser Milner provided the exact wording of section 8 of the
amalgamation agreement in order to achieve this tax outcome.”
Do you see that?
A I do.
Q And does that refresh your memory with respect
to my question about section 8 in the amalgamation agreement?
A. No, actually, it doesn't.
I understand what these words say. And I don't recall that Fraser
Milner drafted the exact wording of section 8, but I accept the wording here.
Q Okay. Well, did you draft this letter or did
Peter?
A Well, it was likely drafted with the help of
Peter and I and others in the organization who would have put this together for
our signature.
Q Okay. So is it fair to say that others in the
organization, such as Tom Webster, for example, may have had more dealings with
FICOM directly, and may have participated in drafting this letter, for example?
A The second part of your question, yes. The
first part, not [sic] necessary.
Q But, in any event, you don't quarrel with the
phrase or the paragraph that I just read to you?
A No.
Q. And, as far as you know, that must be true; is
that right?
A. Yes, I accepted this to be true.
[24]
It seems to me that the
point that the Respondent was trying to make with these questions was that FICOM’s
approval was required in order for the credit unions to merge and that Fraser
Milner drafted section 8 of the amalgamation agreement.
[25]
During the
cross-examination of Mr. Huston, the following exchange took place:
Q A credit union can’t
amalgamate without FICOM’s blessing, is that true?
A Yes, that’s true.
…
Q If I could have you please
turn to Volume 1 of Exhibit 1, thank you, and specifically tab 65. This is
again the amalgamation agreement that we've had you look at a little bit
yesterday. Now, I'll just turn you, please, to Part 8, the transfer of
assets. Now, it's true that Fraser Milner drafted the exact wording of Part 8,
correct?
A I don't know.
Q Okay, if I could turn you
to, perhaps keep your hand there, turn to Tab 31, and this is a letter to
FICOM, I believe we also looked at this briefly yesterday, June 5th,
2000, in response to some of FICOM's questions. If I could turn you to page 2,
paragraph 3, and you'll see in the second paragraph of number 3:
"Our tax lawyers, Fraser Milner, and our
tax accountants, Grant Thornton and KPMG, have extensively researched its tax
treatment. Fraser Milner provided the exact wording of Section 8 of the
amalgamation agreement in order to achieve this tax outcome."
And this is a letter from
you, correct?
A Right.
Q So you'd agree with me that
Fraser Milner drafted the exact wording?
A Yes, I would.
Q Did you have anything to do
with the drafting of Part 8?
A Of the drafting? No.
Q Were you asked for your
input?
A I don't recall.
[26]
It seems to me that the
additional questions that the respondent is seeking to read-in from the
discovery do not add anything to the answers provided during the hearing and
simply duplicate the questions that were asked and answered during the hearing.
The statements made by Mr. Huston at discovery are consistent with his evidence
at the hearing and should be excluded as prior consistent statements. It is
unusual that the Respondent would be seeking to introduce prior consistent
statements of the Appellant’s witness.
[27]
The second group of
questions related to the identity of the accounting/auditing firms for each of
the two credit unions that merged. The following are the questions that the Respondent
seeks to read-in with the answers given at discovery:
Q Okay. Perhaps you could tell me or- - Grant
Thornton is a chartered accounting firm in the city of Vancouver; right?
A Yes.
Q And they do audited financial statements and
other similar engagements?
A. Um-hmm. They do.
Q And they also are tax planners; is that
correct?
A Tax planners? I guess - - yes, I guess that's
a fair description.
Q Okay. Prior to the amalgamation, discussions
were commenced. Let’s just say in mid-1999, did First Heritage use Grant Gordon
to prepare their financial statements or to file their tax returns?
A No.
Q Did Delta?
A Yes.
Q Who did First Heritage use?
A KPMG.
Q And had that [sic] be a long-standing
relationship?
A Yes.
Q For as long as you can recall?
A. For as long as I can recall, yes.
[28]
During the cross-examination
of Mr. Huston, the following exchange took place:
Q Grant Thornton was the tax
preparer of Delta, correct?
A Correct.
Q And KPMG was First
Heritage's tax preparer and advisor?
A Auditing firm, in both
cases.
Q Pardon me, I missed the --
A Auditing firm.
Q Auditing firm.
A Yeah.
Q And when you say "in
both cases", what do you mean, in both cases?
A Well, Grant Thornton
in the case of Delta, KPMG in the case of First Heritage.
Q Their relationship is that
of auditing firm.
A Yes.
Q And First Heritage and KPMG
had a long-standing relationship? And the time I'm speaking of is around the
2000 time, up to that time there was a long-standing relationship.
A Yes.
Q How many years?
A Certainly before my time, so
at least from '96 through 2000. I know it was well before my time.
[29]
This time counsel for
the Respondent had correctly matched the accounting firms with the credit
unions. There is nothing of substance that is added by the questions that the
Respondent is seeking to read-in from the discovery examination. Again the
statements made by Mr. Huston at the discovery are simply prior consistent
statements and would be excluded.
[30]
The third group of
questions relate to retaining Fraser Milner. These questions, that the
Respondent seeks to read-in, are as follows:
Q Did the predecessors retain Fraser Milner to
produce this tax opinion?
A Yes.
Q And do you recall when that retainer was
given?
A Not precisely.
Q Approximately?
A My estimate would be sometime in early 2000.
[31]
It is impossible to
discern what opinion is being referenced since the question simply refers to
“this opinion”. The opinion itself would presumably be protected by
solicitor-client privilege. It is clear from the evidence (even the excerpt
quoted above) that Fraser Milner were directly involved in the planning and
implementation of the merger. On what basis would questions and answers related
to an unidentified opinion from this firm be admissible? It does not seem to me
that these questions and answers would be admissible since they do not identify
the tax opinion.
[32]
During the
cross-examination of Mr. Huston, the following exchange took place:
Q Tab 25, which is in
Volume 1, which is was our first book. Would you please turn to that. Now
this is a memo to Doug Graham from Tom Webster and it says "for
discussion". And it says "to Delta". On the first page it's a
memorandum, "Delta Credit Union's board of directors and senior
management". Subject is "Merger Taxation". Is this something
you've seen?
A Yes, I have seen this.
Q If I could take you
please to the second paragraph from the bottom of that first page. And what
this says was:
"Additionally, Canada Customs Revenue
Agency, (CCRA) could disagree with our interpretation of the Income Tax Act
Canada (the Act) and disallow the disappearance
of FHA's preferred rate, thereby eliminating our gain of 4.1756 million.
Howard Kellough of Fraser Milner is currently examining this GAAR issue."
Now the phrase "disappearance" --
well, first I should say FHS, First Heritage. Is that --
A That's First Heritage
Savings, yes.
[33]
Perhaps the opinion
that is referred to during the discovery examination is the opinion of Howard
Kellough of Fraser Milner, in which case it was established during the hearing
that Fraser Milner was examining the GAAR issue. In any event, it seems to me that
it is not appropriate to admit the discovery questions that refer to an
unidentified opinion.
[34]
Perhaps buried within
the approximately 90 remaining questions from the discovery of Mr. Huston that
the Respondent is seeking to read-in there are some questions that were not
asked in the more than 300 questions posed by counsel for the Respondent during
the cross-examination of Mr. Huston. However it does not seem to me that the
job of ferreting out these questions from the transcript for the discovery
(which would mean that each of the proposed read-in questions would have to be
compared to the more than 300 questions posed by counsel for the Respondent
during the cross-examination of Mr. Huston) should fall to the Judge who was
not present during the discovery examination. Counsel for the Respondent who is
seeking to read-in questions from the discovery and therefore who knows (or
ought to know) what questions were asked during the discovery examination and
what questions were asked during the examination and cross-examination of the
witness, is the person who should, prior to submitting questions in bulk for
read-in, edit the list so that the read-in questions only deal with questions
that were not asked of the witness during the hearing. To read in questions
that are the same questions as were asked at the hearing with the same answers being
given is not, in my opinion, appropriate. Such questions and answers would not
be admissible as they simply repeat the evidence of the witness and therefore
would be excluded as prior consistent statements. They add no value.
[35]
As a result, the
Respondent’s motion is dismissed. Costs shall be in the cause.
Signed at Toronto, Ontario, this 29th day of June, 2010.
“Wyman W. Webb”
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