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Citation: 2005TCC120
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Date: 20050301
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Docket: 98-712(IT)G
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BETWEEN:
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GLAXOSMITHKLINE INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Bowie J.
[1] The motion before me is for an Order restricting access by the
public to part of the Court file concerning these appeals under the Income
Tax Act (the Act). Specifically, the Appellant seeks an Order that
would prevent access to the material filed by the Respondent in support of a
motion to dismiss the appeals for alleged abuse of process, and to the material
filed by the Appellant in opposition to that motion. I made an Interim Order on
August 4, 2004 to maintain the status quo pending the hearing of this
motion and my disposition of it.
[2] These appeals are concerned with the price at which
the Appellant (Glaxo) purchased the chemical compound ranitidine from certain
affiliated foreign companies (the affiliates), for import into Canada, during its 1990, 1991, 1992 and
1993 taxation years. The Appellant and those affiliates are all part of a large
multi-national group of companies (the Glaxo group) that manufactures and
distributes various pharmaceutical products worldwide. The Appellant is the
operating company in Canada, and it manufactures, in Canada, a widely prescribed drug for the
treatment of ulcers. To do so, it purchases supplies of ranitidine manufactured
by the foreign affiliates, and sold to it through a Swiss affiliate, for use at
its Canadian manufacturing facility. At issue is the reasonableness of the
consideration that was paid by the Appellant to the affiliates for ranitidine.
The Minister of National Revenue says that the consideration was not reasonable
in the circumstances, and has assessed accordingly. It is from those assessments
that these appeals are brought. In addition to the Glaxo foreign affiliates,
there are other primary manufacturers of ranitidine in other countries, and
they supply it to generic manufacturers in Canada and elsewhere. These Canadian generic manufacturers operate in
competition with the Appellant, selling finished product into the Canadian
market. The Appellant has pleaded that the appropriate method by which to
determine the transfer price for purposes of the Act is the resale price
method; the Respondent says it is the comparable uncontrolled price (CUP)
method, or alternatively, the cost-plus method, that should be used.
[3] Each party has produced many thousands of documents.
Non-parties also have produced a very large volume of documents, usually subject
to a confidentiality Order restricting the dissemination of them. Many weeks of
examinations for discovery have been held. The next major phase of the
litigation is a pre-hearing conference, which the parties hope may produce a
settlement of the appeals; at minimum, they expect that many of the factual
issues can be agreed upon following the pre-hearing conference, thereby
simplifying and shortening the trial of the remaining issues. All this is said
simply to put in context the motion that is now before me.
[4] I do not propose to go into the Respondent's
allegations of abuse of process here. That motion has not yet been heard. When
it is, those allegations will be examined in light of all the evidence then
before the Court. For the present, it is sufficient to say that the motion is
founded upon two affidavits made by a paralegal who is part of the legal team
representing the Respondent. They contain a total of 65 paragraphs and 82
exhibits. In opposition to the motion, the Appellant has filed an affidavit
sworn by the Appellant's principal nominee for discovery. It consists of 95
paragraphs and has 30 exhibits attached to it. Together, the two affidavits
with their exhibits are about 17 cms. thick. This is the material that the
Appellant wishes to keep from public view. Much of it consists of
correspondence between counsel in relation to examinations for discovery and
the satisfaction of undertakings given during discoveries, requests to admit
facts or documents and the responses to them, and drafts of agreed statements
of facts exchanged between counsel for the purpose of being put before the
judge at the pre-hearing conference when it takes place.
[5] The Appellant expresses its grounds for seeking an
Order precluding public access to the part of the Court file containing these
two affidavits this way:
a) That such an
order is necessary:
1. in
order to prevent a serious risk to important interests, including a commercial
interest, in the context of litigation. This includes the risk resulting from
the continued disclosure of confidential commercial documents and information.
Moreover, in the present case, the affidavit filed in support of the
Respondent’s motion and several exhibits in support thereof contain a number of
references and extracts of drafts agreed statements of facts which the parties
have agreed would, in the absence of prior written consent, be used only for
the facilitation of the pre-trial hearing and would be kept confidential;
2.
because
reasonably alternative measures will not prevent the risk.
b) The
salutary effects of the confidentiality order, including the effects on the
right of civil litigants to a fair trial, outweigh its deleterious effects,
including the public interest in open and accessible court proceedings;
c) That
the Appellant is entitled to the confidential commercial documents, information
and extracts of draft agreed statements filed as exhibits by the Respondent
remaining confidential to properly pursue his appeal.
On the hearing of the motion, counsel abandoned the
ground based upon the alleged need to protect the Appellant's commercial
interests, and proceeded simply upon the basis that the parties had agreed that
they would keep confidential their agreed statements of facts. Paragraphs 5 to
10 of Dr. Winterborn's affidavit in support of the motion describes the process
by which the parties were developing those agreed statements of facts.
5. Parties
started exchanging draft ASFs in 2003. Since then, approximately 50 draft ASFs
have been in development. While many are close to completion, parties have to
this date not agreed to any final statements of fact.
6.
Throughout the
process, draft ASFs have been exchanged, discussed and modified with the
understanding that they would remain work in progress until parties had agreed
on a final version and that such draft ASFs, along with discussions and
communications taking place between parties and their counsel, would be treated
under strict confidentiality.
7.
At all times,
the Appellant’s willingness to participate in drafting ASFs was premised on the
assumption that drafts would be treated under strict confidentiality by the
Respondent, that such draft would never be used in current or other proceedings
and that they would not be communicated to the Court. Only final versions of
ASFs were to be communicated to the Court, in due time and in accordance with
agreed “ASF Standards”.
8.
In March 2004,
parties agreed to a revised set of written rules governing the use of ASFs. These
“ASF Standards” were similar to those that had been agreed to by parties
previously, which (sic) a few modifications and clarifications. Paragraph
8 of these “ASF Standards” stated:
8. The
Agreed Statements of Fact are not to be used by either party for any purpose
other than the facilitation of the pre-trial in this matter and no use may be
made of the Agreed Statements of Fact other than for that purpose, without the
written permission of the other party. Parties will agree to what needs to be
done for trial purposes at a later date (confidentiality order with the trial
judge?).
9.
I was advised
by the Appellant’s counsel that these “ASF Standards” were jointly submitted by
parties to the Court on April 2, 2004 (see fax copy attached herewith) and
forwarded to Justice Bowie for discussion during the conference call hearing of
April 6, 2004.
10. Over
the last few months, parties have been actively working at finalizing ASFs. By
the end of June 2004, both parties were aware that the time limit that parties
had set for themselves to finalize 30 “major” ASFs had passed but were
continuously proceeding with their discussions, in the hope to be finalizing
the ASFs promptly.
I am satisfied by the affidavit, and the transcript
of the cross examination on it, that the parties had agreed to keep the agreed
statements of fact, and the drafts leading up to them, confidential, and also
that the Appellant would not have embarked upon the process without that
assurance.
[6] Much of the argument before me was directed to the
question whether the documents in question could be said to be privileged,
either as concessions made in the course of settlement negotiations, or within
the principle enunciated by Professor Wigmore and
adopted by the Supreme Court of Canada in Slavutych v. Baker.
The question before me, however, is not so much one of privilege, which after
all is principally an evidentiary rule, but rather whether there is a public
interest in protecting the documents in question from scrutiny that outweighs
the general rule that proceedings before the courts are to be conducted in
public. Indeed, it was not argued before me that the drafts of agreed
statements of facts, or any other documents annexed to the Respondent's
affidavit in support of the main motion, are not admissible in evidence to
support the motion; the Appellant's position is simply that they should not be
available for examination by members of the public at the Court registry.
[7] In recent years the Supreme Court of Canada has
settled the principles governing the open courts rule, and the conditions under
which it may be subordinate to another public interest. Sierra Club of Canada v. Canada (Minister of Finance) governs the making of
confidentiality orders in civil matters. At paragraphs 53 to 57, Iacobucci J.
said this:
53 Applying the
rights and interests engaged in this case to the analytical framework of and
subsequent cases discussed above, the test for whether a confidentiality order
ought to be granted in a case such as this one should be framed as follows:
A
confidentiality order under Rule 151 should only be granted when:
(a) such
an order is necessary in order to prevent a serious risk to an important
interest, including a commercial interest, in the context of litigation because
reasonably alternative measures will not prevent the risk; and
(b) the salutary effects of the
confidentiality order, including the effects on the right of civil litigants to
a fair trial, outweigh its deleterious effects, including the effects on the
right to free expression, which in this context includes the public interest in
open and accessible court proceedings.
54
As in , I
would add that three important elements are subsumed under the first branch of
this test. First, the risk in question must be real and substantial, in that
the risk is well grounded in the evidence, and poses a serious threat to the
commercial interest in question.
55
In addition,
the phrase "important commercial interest" is in need of some
clarification. In order to qualify as an "important commercial
interest", the interest in question cannot merely be specific to the party
requesting the order; the interest must be one which can be expressed in terms
of a public interest in confidentiality. For example, a private company could
not argue simply that the existence of a particular contract should not be made
public because to do so would cause the company to lose business, thus harming
its commercial interests. However, if, as in this case, exposure of information
would cause a breach of a confidentiality agreement, then the commercial interest
affected can be characterized more broadly as the general commercial interest
of preserving confidential information. Simply put, if there is no general
principle at stake, there can be no "important commercial interest"
for the purposes of this test. Or, in the words of Binnie J. in , 2000 SCC 35, at para. 10, the open court rule
only yields "where the public interest in confidentiality outweighs
the public interest in openness" (emphasis added).
56
In addition to
the above requirement, courts must be cautious in determining what constitutes
an "important commercial interest". It must be remembered that a
confidentiality order involves an infringement on freedom of expression.
Although the balancing of the commercial interest with freedom of expression takes
place under the second branch of the test, courts must be alive to the
fundamental importance of the open court rule. See generally Muldoon J. in Eli
Lilly and Co. v. Novopharm Ltd. (1994), 56 C.P.R. (3d) 437 (F.C.T.D.), at
p. 439.
57 Finally, the
phrase "reasonably alternative measures" requires the judge to
consider not only whether reasonable alternatives to a confidentiality order
are available, but also to restrict the order as much as is reasonably possible
while preserving the commercial interest in question.
[8] In the present case,
the Appellant no longer asks for an order that would protect its business
information from exposure simply on the basis of some potential impairment of
its economic interests, perhaps because it was apparent to counsel that there
was not the evidentiary grounding for such an order that the Sierra Club
case requires. However, in my opinion the Appellant is entitled to an order
that will maintain the essentially private nature of the drafts of agreed
statements of facts that are appended to the Respondent's affidavit. Iacobucci
J. was careful in Sierra Club not to restrict the possible bases for a
confidentiality order in civil litigation simply to the protection of
commercial information that business competitors might find useful. Clearly,
there are other public interests whose protection may be of sufficient
importance to require some abrogation of the public right of access to a court
proceeding. In my view, early and efficient dispute resolution is one. To
promote pre-trial settlement of litigation has become a goal of courts across Canada at all levels during the last two
decades or more. Judges, lawyers and the public have all come to recognize the
importance of reducing the cost of dispute resolution, not just in monetary but
also in human terms.
[9] Do the salutory effects of maintaining the
confidentiality of draft agreed statements of fact outweigh the deleterious
effect of preventing public access to a part of the evidence on which the main
motion will be decided? In my view they do. Dr. Winterborn is emphatic that
without the expectation that the drafts would remain in confidence, the
Appellant would never have been willing to embark on the process of agreeing on
facts. Indeed, the parties entered into a protocol to restrict the use of the
agreed statements of facts to the purposes of the pre-hearing conference that
both parties hoped would assist them in achieving a settlement of the
litigation. Nothing in the cross-examination of Dr. Winterborn detracts from
this. It is obvious that without substantial agreement between the parties as
to numerous factual issues raised by the pleadings, no settlement conference is
likely to be very productive.
[10] Counsel for the Respondent sought to characterize the
process of developing these agreed statements of facts as simply synthesizing
the information obtained during examinations for discovery. This, I think, is
an unwarranted oversimplification of the exercise. The reality is that as the
parties exchange drafts the language is parsed, admissions are negotiated, and
trade-offs are made on both sides in a dynamic process. It must be remembered,
too, that the information contained in the transcripts of the examinations for
discovery is not in the public domain. It
remains private, unless and until it becomes evidence by being read into the
record at a trial or, as in this case, by being included in the affidavit
evidence filed to support a motion.
[11] I am bound,
before making any Order of the kind sought here, to consider whether there are
any alternatives that might suffice. I do not believe that there are. The
Appellant's legitimate concern is the possibility that admissions that it may
consider making for a limited purpose and under controlled conditions may become
public. The public interest that must be set against the interest in open
courts and the constitutional right to freedom of speech is the interest in
creating an environment that is conducive to productive settlement
negotiations, and that requires that litigants be able to negotiate agreements
as to facts in privacy. However, minimum impairment requires that any order I
make must restrict access only to those documents as to which the evidence
satisfies me that there is a serious likelihood that the prospect of public
exposure would be deleterious to the pre-hearing process. I have no doubt that
if the parties were required to negotiate the facts of their dispute in public
they would be far less likely to be able to reach meaningful agreements than if
they did so in private. The prospects of holding meaningful pre-trial
settlement conferences would be greatly impaired.
[12] I shall
make an Order, therefore, that precludes inspection by non-parties of those
parts of the affidavits of Marla McKitrick sworn July 20, 2004 and of Dr. Ian Winterborn
sworn August 10, 2004 (including the exhibits annexed to them) that would
reveal any of the contents of agreed statements of facts, or drafts of them.
The other material in those affidavits will be available for inspection, with
the exception of a few documents as to which confidentiality Orders were made
sometime ago. All of these shall remain sealed until further Order.
[13] The Interim
Order that I made on August 4, 2004 will be dissolved.
[14] Costs of
this motion will be in the cause.
Signed at Ottawa,
Canada, this 1st day of March, 2005.
Bowie J.
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