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Citation: 2004TCC738
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Date: 20041213
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Docket: 2002-1002(IT)G
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BETWEEN:
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GLP NT CORPORATION
(Formerly Varitech Investors
Corporation),
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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
Little J.
[1] Notices of Reassessment (the
"Reassessments") were issued by the Minister of
National Revenue (the "Minister") for the
Appellant's 1994 and 1995 taxation years.
[2] The Reassessments were issued by
the Minister under section 191.1 of Part VI.I of the
Income Tax Act (the "Act").
[3] Section 191.1 of the Act
imposes a special tax on certain dividends declared by a
corporation. However, a Mutual Fund Corporation as defined in
subsection 131(8) of the Act is considered to be a
"financial intermediary corporation" under subsection
191(1) of the Act and section 191.1 provides that
dividends from a financial intermediary corporation are exempt
from tax.
[4] In order to qualify as a Mutual
Fund Corporation the Corporation must satisfy a specified test at
the time that the dividends are declared. The specified test that
must be met is that the fair market value of the issued common
shares of the Corporation must not exceed five per cent of the
fair market value of the Corporation's total share capital.
This test has been referred to as the "95 per cent
test".
[5] On April 1, 1993 the Appellant
redeemed 2,399,900 preferred shares for some $59,997,500.00 in
cash.
[6] As a result of the redemption of
the 2,399,900 preferred shares the Minister determined that the
Appellant no longer qualified as a Mutual Fund Corporation and
therefore the dividends declared by the Appellant lost their tax
exempt status.
[7] The Reassessments issued by the
Minister imposed tax under Part VI.I of the Act in
the amount of $11,902,611.00 in respect of dividends declared in
the 1994 and 1995 taxation years.
[8] The Appellant filed Notices of
Appeal to the Reassessments in which it maintained that it met
the 95 per cent test and therefore the dividends were exempt from
tax.
[9] Following the close of pleadings
both parties produced lists of documents and examinations for
discovery were conducted. The Appellant's nominee for the
examination for discovery was Mr. George Myhal. The
Respondent's nominee for the examination for discovery was
Mr. Gordon MacGibbon.
[10] An examination for discovery of Mr.
Myhal was held in Toronto on May 18, 2004 and was continued
in Vancouver on June 23 and 24, 2004. The examination of Mr.
Myhal has been adjourned. During the examination Mr. Myhal
refused to answer certain questions.
[11] An examination for discovery of Mr.
MacGibbon was held in Toronto on May 18, 2004. During the
examination Mr. MacGibbon refused to answer certain
questions.
[12] On October 19, 2004 counsel for the
Respondent filed a Notice of Motion with the Court requesting
that the Court Order that Mr. Myhal provide a response to various
questions that were asked at the examination for discovery.
[13] On October 19, 2004 counsel for the
Appellant filed a Notice of Motion with the Court requesting that
the Court order that Mr. MacGibbon answer various questions
that were asked at the examination for discovery and that the
Court order that portions of the Respondent's Reply be
deleted.
A. Respondent's Notice of
Motion:
[14] During the hearing of the Motion
counsel for the Respondent suggested that the questions which Mr.
Myhal refused to answer on the examination for discovery may be
broken down into the following Categories:
Category I - Questions related to the Appellant's
connections with the Edper Group, or the Hees Edper Group, the
Edper Brascan Group and other related or affiliated
companies.
Category II - The Financial Statements of Hees
International Bankcorp. Inc. ("Hees") for the 1994 and
1995 fiscal periods.
Category III - Questions related to the Appellant's
connection with Dexleigh Corporation.
Category IV - Terms of the Appellant's Articles of
Association.
Category V - Questions involving the Hathaway
Valuation.
ISSUE
[15] Should Mr. Myhal be compelled to answer
the specific questions that were asked at the examination for
discovery by counsel for the Respondent?
ANALYSIS
[16] The Tax Court of Canada Rules
(General Procedure) contain rules regarding an examination
for discovery. The main provisions relating to the issues in this
application read as follows:
DISCOVERY OF DOCUMENTS
List of Documents (Full Disclosure)
82. (1) The parties may agree or, in the absence of
agreement, either party may apply to the Court for a judgment
directing that each party shall file
and serve on each other party a list of all the documents
which are or have been in that party's possession, control or
power relating to any matter in question between or among them in
the appeal.
EXAMINATION FOR DISCOVERY
General
92. An examination for
discovery may take the form of an oral examination or, at the
option of the examining party, an examination by written
questions and answers, but the examining party is not entitled to
subject a person to both forms of examination except with leave
of the Court.
[...]
Scope of Examination
95. (1) A person examined for discovery shall answer, to
the best of that person's knowledge, information and belief,
any proper question relating to any matter in issue in the
proceeding or to any matter made discoverable by subsection (3)
and no question may be objected to on the ground that,
(a) the
information sought is evidence of heresay,
(b) the
question constitutes cross-examination, unless the question is
directed solely to the credibility of the witness, or
(c) the
question constitutes cross-examination on the affidavit of
documents of the party being examined.
(2) Prior to the
examination for discovery, the person to be examined shall make
all reasonable inquiries regarding the matters in issue from all
of the party's officers, servants, agents and employees, past
or present, either within or outside Canada and, if necessary,
the person being examined for discovery may be required to become
better informed and for that purpose the examination may be
adjourned.
(3) A party may on an
examination for discovery obtain disclosure of the findings,
opinions and conclusions of an expert engaged by or on behalf of
the party being examined that relate to a matter in issue in the
proceeding including the expert's name and address, but the
party being
examined need not disclose the information or the name and
address of the expert where,
(a) the
findings, opinions and conclusions of the expert relating to any
matter in issue in the appeal were made or formed in preparation
for contemplated or pending litigation and for no other purpose,
and
(b) the party
being examined undertakes not to call the expert as a witness at
the hearing.
(4) A party may on an
examination for discovery obtain disclosure of the names and
addresses of persons who might reasonably be expected to have
knowledge of transactions or occurrences in issue in the
proceeding, unless the Court orders otherwise.
[17] In 569437 Ontario Inc. v.
Canada, [1994] T.C.J. No. 531 Judge Christie of the Tax
Court of Canada said:
[5] ... it is noted
that subsection 95(1) of the Tax Court of Canada Rules
(General Procedure) requires that a person examined for
discovery shall answer, to the best of that person's
knowledge, information and belief, any proper question relating
to any matter in issue in the proceedings.
[18] In Sydney Steel Corp. v. The
Queen, [1992] 2 F.C. 193 Mr. Justice MacKay of the
Federal Court, Trial Division said at page 147:
Counsel for the parties are essentially agreed that the
standard for propriety of a question asked in discovery is less
strict than the test for admissibility of evidence at trial and
the appropriate standard is whether the information solicited by
question may be relevant to the matters which at the discovery
stage are at issue, on the basis of the pleadings filed by the
parties.
[19] In Baxter v. The Queen, [2004]
T.C.J. No. 564 Associate Chief Justice Bowman quoted from the
decision of Hugessen J. in Montana Band v. Canada, [2000]
1 F.C. 267 and said at paragraph 12:
The general purpose of examination for discovery is to render
the trial process fairer and more efficient by allowing each
party to inform itself fully prior to trial of the precise nature
of all other parties' positions so as to define fully the
issues between them. It is in the interest of justice
that each party should be as well informed as possible about
the positions of the other parties and should not be put at a
disadvantage by being taken by surprise at trial.
Category I
[20] During the examination for discovery of
Mr. Myhal held on May 19, 2004 counsel for the Respondent
asked Mr. Myhal the following questions:
Schedule 1 - Connections between Various Companies
Question 35 - Would the companies listed on the Edper Group
pamphlet be part of the Edper Group at the time that you had a
position as an officer of Hees?
Question 51 - Is there common control with respect to all of
those companies?
Question 85 - Are Hees, Noranda, Trilon Financial Corporation,
Great Lakes Power Inc. listed in the pamphlet because they are
controlled by the Edper Group?
Question 101 - Was Noranda Inc. controlled by the Edper
Group?
Question 116 - 123 - Did Edper Group Limited control Hees
International Bancorp?
Request 133 - Undertake to advise whether Edper Group Limited
had de jure control over Hees International Bancorp?
Question 135 - Are you aware of any other arrangements or
agreements by which the Edper Group had defacto controlling
interest?
Question 142 - Are there any arrangements or agreements which
effectively gave the Edper Group defacto controlling
interest?
Request 161 - Undertake to advise whether or not Edper Group
exercised control over Great Lakes Power Inc.
Request 281 - Undertake to advise whether or not Brascan
Limited held 49% voting interest in Great Lakes Holdings Inc.
during the relevant tax period.
Request 284 - Undertake to advise whether or not Great Lakes
Holdings Inc. held 46% voting interest in Great Lakes Power Inc.
during the relevant tax period.
Request 286 - Undertake to advise whether or not Hees held 49%
voting interest in Brascan Limited during the relevant tax
period.
Request 287 - Undertake to advise whether or not Hees held 49%
voting interest in Great Lakes Holdings Inc. during the relevant
tax period; whether or not Brascan Limited and Hees held 50%
ownership in Braspower Holdings Inc. during the relevant tax
period; and whether or not Braspower Holdings Inc. held 46.2%
voting interest in Great Lakes Power Inc. during the relevant tax
period.
Request 289 - Undertake to advise whether or not Brascan
Limited and Hees controlled Great Lakes Power Inc. indirectly
during the relevant tax period.
Request 377 - Undertake to make reasonable inquiries and
advise whether or not Great Lakes Group Inc. or Trilon Financial
Corp., had preferred shares in Varitech.
Request 455 - Undertake to make reasonable inquiries and
advise whether or not Hees owned, or held an interest in,
Dexleigh in the period between 1988 to 1995.
Request 559 - Undertake to advise whether or not Hees or any
company of the Hees Edper Group have any control, other than by
virtue of shareholdings, over the decisions of Noranda Inc.,
Brascan Ltd., Brascan Holdings, Dexleigh Corporation, Great Lake
Holdings Inc., Trilon Financial Corporation and Great Lakes Power
Inc.
June 23
Questions 122 & 123 - Was your experience and work with
Hees and Trilon and as president of Varitech, a contributing
factor to your appointment as a director of Noranda?
Request 253 - Undertake to make reasonable inquiries and
advise whether or not it was Hees or an affiliate of Hees that
invested in the preferred shares of Northstar Investment
Corporation, and if so when the investment took place, for what
period of time, and the extent of the investment.
Request 286 - Undertake to speak to Ian Cockwell and determine
what period of time he was a director of Canadian Northstar
Corporation.
Requests for Undertakings #19, 20, 21 listed in
Appellant's letter of October 19, 2004: - Note: These
questions have been partially answered.
#19 Undertaking to make inquiries to determine if Hees or any
affiliate company owned preferred shares of Northstar Investment
Corporation.
#20 Undertaking to make inquiries to determine if any
employees of Hees or subsidiaries or affiliate of Hees were
employed by a company that own preferred shares of Northstar
Investment Corporation.
#21 Undertaking to make inquiries to determine if Hees or any
affiliate company owned preferred shares of Canadian Northstar
Corporation.
[21] Counsel for the Respondent argued that
the Minister wishes to explore the extent of the relationship or
connections between all of the companies involved in this case as
common shareholders and preferred shareholders of the Appellant,
as guarantors of the Appellant and as companies in which the
Appellant invested, and particularly the connections to one
another and to the Edper Group.
[22] In support of his argument counsel for
the Respondent made the following points in his Motion Brief:
Established Connections amongst Varitech and the
Edper Group
20. Varitech has been
identified by Mr. Myhal in previous unrelated proceedings as a
company which was an affiliate of the Edper Group of companies.
The Affidavit of Mr. Myhal sworn August 8, 1995 in a
proceeding Ontario Court File B209/95 (Affidavit of CJ, Ex.
B).
21. An information
brochure produced by the Appellant in this case identifies the
following companies as being part of the Edper Group: Hees; Great
Lakes Power Inc.; Noranda Inc; Trilon Financial Corporation;
Brascan Limited; Carena Developments Ltd. All of these companies
have some form of connection with this case (Affidavit of CJ, Ex.
D).
22. As an example of the
relevance of Varitech connections with companies considered to be
in the Edper Group of Companies, the Appellant itself outlined
the general relationships in a letter written by its solicitors,
Tory and Tory Deslauriers & Binnington to the auditor
Gordon MacKibbon. The letter comments that both the Hathaway
valuation and the Revenue Canada valuation of the shares of
Varitech "reflect the association with Varitech and the
Edper Group of companies and applied discounts by reason of the
financial uncertainties relating to these companies in the eyes
of the financial markets...." (Affidavit of CJ, Ex. F).
. . .
39. With respect to the
first element, despite the relevance of the connections of the
various companies to the issue in this case, the Appellant has
failed to express a clear reason why Mr. Myhal should be
permitted to evade the requirement of answering relevant
questions based on knowledge.
40. With respect to the
second component, the Appellant appears to suggest that it is not
required to make inquiries of "third parties" with
respect to the various connections between these companies and
their officers. It is however incumbent on the Appellant to make
relevant inquiries with former officers of Veritech and of people
within companies identified as being within the same affiliated
group.
[23] Counsel for the Appellant raised a
number of reasons in an attempt to establish that Mr. Myhal was
not required to provide answers to the questions outlined above.
Counsel for the Appellant suggested that the information was not
relevant and that the Appellant did not control the various
companies referred to by counsel for the Respondent.
[24] In his submission on the
Respondent's Motion counsel for the Appellant said:
5. In short,
while there may have been some common directorships between
Veritech and other companies, there is no evidence that during
the relevant taxation years that Veritech controlled these other
companies, or that these other companies controlled Veritech, but
more importantly, there is no evidence that GLP NT (as it is
now known) has any control over any of those companies or that
they have any control over it at this time.
6. In short,
paragraphs 19 and 40 of the Respondent's Brief are wrong -
Veritech during the relevant taxation year had no affiliates but
more importantly, there is no evidence that it has any affiliates
at this time ...
[25] Counsel for the Appellant and counsel
for the Respondent each referred to comments contained in
Crestbrook Forest Industries v. The Queen, (1993) 3
F.C.R. 251 in support of their respective position. In
Crestbrook the Federal Court of Appeal made the
following comment:
In the appropriate circumstances, this Court does have the
power to require the sort of answers sought by the Crown here.
But this Court will only do so in special situations where it is
shown as a prerequisite that it is in the interests of the
administration of justice to look behind the sanctity of the
corporate identity.
[26] I do not agree with the narrow view
adopted by counsel for the Appellant and I accept, in general,
the arguments raised by counsel for the Respondent.
[27] In my view the so-called "Edper
Group of Companies" are so connected and interrelated with
the Appellant that "in the interest of justice" the
Appellant's witness should be compelled to answer the
majority of the questions outlined above.
[28] In reaching my conclusion I have
determined that the information requested by counsel for the
Respondent could be relevant in establishing the Respondent's
position or in disposing of the position adopted by the
Appellant. If Mr. Myhal did not provide answers to these
questions the appeal would amount to a "trial by
ambush" which a Court will not permit. (See Elders Grain
Co. v. Ralph Misener, 2000 F.C.J. No. 1862.)
[29] However I do not agree that Mr. Myhal
should be compelled to answer the following questions: Questions
135, 142 and 161.
I have concluded that Mr. Myhal should not be compelled to
answer these questions because questions involving "de
facto control" or whether one company "exercised
control" over another company require a legal
conclusion.
Category II
[30] During the examination for discovery
Mr. Myhal was asked a series of questions regarding the Financial
Statements of Hees International Bancorp Ltd.
"Hees".
[31] Counsel for the Appellant instructed
Mr. Myhal not to answer any question concerning the Financial
Statements of Hees.
[32] The Appellant stated at paragraph 3.27
of its Notice of Appeal that Hees (which later became Great Lakes
Power Inc.) provided the Appellant with standby financial
facilities in the amount of $150,000,000.00 to ensure that any
retraction of the Appellant's preferred shares could be
met.
[33] It should be noted that Appellant's
counsel included the Financial Statements of Hees in its List of
Documents.
[34] It should also be noted that Hees was
the promoter and sponsor of the Appellant and both the Appellant
and Hees were part of the Edper Group.
[35] In addition, Mr. Myhal is currently a
Director and Chief Operating Officer of Brascan Corporation which
as a result of an amalgamation effectively includes Hees.
[36] In his Motion Brief counsel for the
Respondent said:
59. Despite having
produced the Hees financial statements, and asserting in both its
pleadings and a Notice to Admit that Hees was able to meet its
obligations to Veritech, the Appellant refused to answer
questions regarding items in those financial statements which may
challenge Hees' financial ability to meet such obligations.
It is apparent that the Appellant would likely be able to answer
this question by seeking the response from Hees.
60. Mr. Myhal is currently
a Director and Chief Operating Officer of Brascan Corporation
which by amalgamation effectively includes Hees (Affidavit of CJ,
Ex. G, p. 11, Affidavit of JH, Ex. B.
61. In the circumstances,
the refusals in this category suggest an intention to conduct a
trial by ambush. The purpose of the rules for discovery is to
avoid trial by ambush, which the Court should not permit.
See Elders Grain Co. v. Ralph Misener, [2000] F.C.J. No.
1862.
[37] I agree with the submission made by
counsel for the Respondent. In my opinion Mr. Myhal should
be compelled to answer the questions relating to the Financial
Statements of Hees.
Category III
[38] The following questions were asked of
Mr. Myhal re Dexleigh Corporation:
Schedule 3 - Dexleigh (June 23)
Question/Request 134-137 - Undertaking to make inquiries,
including inquiries within Dexleigh, Edper Investments or other
Edper group companies to determine why Dexleigh sold its shares
in Varitech to Edper Investments Limited.
Request 314 - Undertaking to make inquiries, including
inquiries with Bruce Flatt to advise if and when he was an
officer of Dexleigh Corporation.
[39] Counsel for the Appellant instructed
Mr. Myhal not to answer these questions.
[40] It should be noted that Mr. Myhal is an
officer of Dexleigh Corporation and Dexleigh Corporation appears
to have owned, at one time, senior preferred shares of the
Appellant. Dexleigh Corporation also owned shares in other
companies that were part of the Edper Group of companies.
[41] In my opinion Mr. Myhal should be
compelled to answer these questions.
Category IV - Terms of the Appellant's Articles of
Incorporation.
[42] Counsel for the Respondent asked the
following questions of Mr. Myhal during the examination for
discovery held on June 24, 2004:
Question 42 - Notwithstanding the features built into the
different classes of shares, was there the possibility that the
value of the common shares could increase at a higher level than
the value of the junior or senior shares and therefore a
potential that the value of the common shares could exceed the
five per cent threshold?
Request 69 - When clause 7 was included in the articles, was
it designed to provide that if one of these two classes, the
junior or common shares, were to be subdivided, consolidated,
converted, exchanged or otherwise changed, that the other share
class would have to be subdivided, consolidated, converted,
exchanged or otherwise in the same proportion.
Counsel for the Respondent argued that:
72. The rights and
obligations of each class of shares are necessarily relevant to
the valuation of each class of shares. There are two questions in
this category for which answers were refused.
Counsel noted that:
73. Question 69 from the
Examination on June 24, 2004 asked Mr. Myhal for the reason
why Varitech included a particular provision of the articles of
incorporation (Affidavit of CJ, Ex. X).
74. A consideration of the
nature or effect of a contract or the right and obligations
flowing therefrom necessarily involves applying legal rule and
principles, an exercise in construing the document and is not a
factual question.
. . .
77. The second question in
this category, Question 42 simply asks if there was the
possibility that the value of the common shares could increase at
a higher level than the value of the junior or senior shares,
notwithstanding the presence of a particular clause. Again there
is no issue of legal interpretation involved in such a question
(Affidavit of CJ, Ex. W).
[43] I do not believe that Mr. Myhal should
be compelled to answer these questions because the answers to
these questions require a legal interpretation of the various
provisions in the Articles of Incorporation. Furthermore,
question No. 42 is a question that could only be answered by a
person who is qualified to provide an opinion on the value of
securities.
Category V - The Hathaway Valuation
Schedule 5 in the Respondent's Motion Brief reads as
follows:
Schedule 5 - Hathaway Valuation (from May 19 and June
23)
Request 540 - Provide all material related to Brascan
Holdings, Noranda Inc., Dexleigh Corporation, Great Lakes
Holdings and HIL Corporation that was provided by the Appellant
and/or obtained by the Hathaway Corporation in valuing the shares
of Varitech (And provide the annual and quarterly reports that
Hathaway relied on-added on June 23).
Request 2 - Undertaking to provide information relating to
Brascan Holding, Noranda Inc., Dexleigh Corporation, Great Lakes
Holdings and HIL Corporation for the year 1992 through 1995
including:
-any auditor's working papers; any documents dealing with
the features of the securities of those companies; any brokerage
reports; any annual or interim financial statements; any analyst
or management information; any structural documents or internal
management documents (including emails, memos or analysis); any
tax strategy documents; any information relating to any valuation
exercises, reports, memorandums regarding those companies;
details and information regarding the conditions of the preferred
shares in these companies and their rights, restrictions, or
conditions regarding retraction; any other agreements regarding
the exercise of those rights; any corporate documents relating to
the issuance of dividends and any annual reports.
Question 38 - Provide any previous reports that Hathaway
provided, any drafts and any notes taken by Hathaway with respect
to the valuation.
Request 7 - Undertaking to make inquiries, including inquiries
within the Edper Group companies to determine other instances
where Hathaway provided services to Hees or any other Edper Group
company.
Question 36 - What amount did the Appellant pay Hathaway
Corporation for the valuation of the shares of Varitech?
In his Motion Brief counsel for the Respondent said:
80. By Request 540 the
Appellant gave an undertaking to provide all information that was
provided to Hathaway (Affidavit of CJ, Ex. G). It is
apparent by the written responses of Mr. Myhal that inquiries
were not made with other Edper Group companies who may have
provided information directly to Hathaway (Affidavit of JH, Ex.
A. p. 2-3, Responses #9-11).
81. The valuation of the
shares is a key issue in this case. The Appellant has not
undertaken not to call any person from Hathaway as an expert
witness. Since the report has already been disclosed as part of
the Appeals process (and not pursuant to Rule 95 or the
expert rules for disclosure of reports), the Respondent is
entitled to explore precisely what information Hathaway relied on
in coming to its opinion, particularly if they were provided with
access directly to information in the hands of the Edper Group
companies.
82. Hathaway has been used
by other Edper Group companies for other jobs. It is telling that
prior to the objection of counsel, Mr. Myhal indicated that
he was able to make inquiries within the Edper Group as to who in
the Edper Group had used the services of Hathaway in the past
(Affidavit of CJ, Ex. H. p. 9). This demonstrates that there was
the ability to obtain such information within the Edper
Group.
83. Further, by Request 2
(June 23), the Respondent has requested a significant amount of
information regarding the five Edper Group companies that
Varitech invested in during the tax period referred to in the
Hathaway valuation: Dexleigh Corp; Noranda Inc.; Great Lakes
Holdings; Brascan Holdings and HIL Corporation.
84. The Appellant has
retained a second expert to provide a valuation. It would be
expected that this expert will be provided with significant
access to information of the five Edper Group companies in which
Varitech held private issues. Mr. Myhal is in fact a director of
two of these companies, Dexleigh and Noranda Inc.
85. In the circumstances,
the refusal to make inquiries within the Edper Group companies to
determine what information Hathaway was provided with in
preparing its opinion, and the refusal to provide full access to
information to the five Edper Group companies suggests an
intention to conduct a trial by ambush. The purpose of the rules
for discovery is to avoid trial by ambush which the Court should
not permit.
Previous Hathaway Drafts
86. The Appellant was
asked to provide previous drafts of the Hathaway valuation. As
the report itself has been disclosed and included on the List of
Documents, any privilege attaching to the report and connected
documents has been waived and no privilege can attach to any
drafts.
Traskv Canada Life Assurance Co., 2002 B.C.J.
No. 2823(S.C.)(Q.L.), 2002 BCSC 1741, paras. 69 & 72
(BA, Tab 12)
Browne (Litigation Guardian of) v Lavery, [2002] O.J.
No. 564 (Ont. C.J.) (Q.L.) (BA, Tab 4).
87. The Hathaway valuation
was disclosed by the Appellant during the audit/assessment stage,
and not pursuant to Rule 95 or Rule 145 for disclosure of
reports. As such, there is a waiver of privilege as the Appellant
would have been aware of the privilege, has voluntarily evinced
an intention to waive it and has not been compelled to disclose
the privileged material by any statutory requirement.
S & K Processors Ltd. v Campbell Avenue Herring
Producers Ltd., [1983] B.C.J. No. 1499 (S.C.) (Q.L.) (BA, Tab
10).
88. Further, and
irrespective of any privilege issues, this undertaking was
accepted by the Appellant and it appears the Appellant is
attempting to retract it (Affidavit of JH, Ex. F, p. 16). A party
cannot withdraw an undertaking unless the opposing party releases
it.
Towne v. Miller, [2001] O.J. No. 4241 (Ont. C.J.)
(Q.L.) (BA, Tab 11).
Other Requests Re Hathaway
89. Request 7 of June 23
was for an undertaking to make inquiries to determine other
instances where Hathaway provided services to Hees or any other
Edper Group company. Mr. Myhal initially confirmed that he was
able to make inquiries within the Edper Group as to who in the
Edper Group had used the services of Hathaway in the past
(Affidavit of CJ, Ex. H, p. 9).
90. Question 36 of the
Examination on June 23, 2004 asked Mr. Myhal for the amount
the Appellant paid Hathaway Corporation for a valuation of the
shares of Varitech (Affidavit of CJ, Ex. V).
[44] In commenting on the request for
information on the Hathaway Valuation, including drafts and
information provided to the valuator, counsel for the Appellant
said that the Appellant has waived privilege over the main report
but has not waived privilege over the draft reports.
Counsel
for the Respondent also referred to Rule 95(3) of the Tax
Court of Canada Rules, (General Procedure) which reads as
follows:
95. (3) A party may on an examination for discovery
obtain disclosure of the findings, opinions and conclusions of an
expert engaged by or on behalf of the party being examined that
relate to a matter in issue in the proceeding including the
expert's name and address, but the party being examined need
not disclose the information or the name and address of the
expert where,
(a) the
findings, opinions and conclusions of the expert relating to any
matter in issue in the appeal were made or formed in preparation
for contemplated or pending litigation and for no other purpose,
and
(b) the party
being examined undertakes not to call the expert as a witness at
the hearing.
[45] Category V
I have
carefully considered this situation and I have concluded that the
Appellant should not be compelled to provide the draft reports
and other documents that were requested in connection with the
Hathaway Valuation. In reaching my conclusion on this issue I
have reviewed the decision of the British Columbia Supreme Court
in Vancouver Community College v. Phillip Barratt, 20
B.C.L.R. (2d.) 289. At pages 296 and 297 the Court said:
So long as the expert remains in the role of a
confidential advisor, there are sound reasons for maintaining
privilege over documents in his possession. Once he becomes a
witness, however, his role is substantially changed. His opinions
and their foundation are no longer private advice for the party
who retained him. He offers his professional opinion for the
assistance of the court in its search for the truth. The witness
is no longer in the camp of a partisan. He testifies in an
objective way to assist the court in understanding scientific,
technical or complex matters within the scope of his professional
expertise. He is presented to the court as truthful, reliable,
knowledgeable and qualified.
... It seems to me that in holding out the
witness's opinion as trustworthy, the party calling him
impliedly waives any privilege that previously protected the
expert's papers from production.
This
position was adopted by Madam Justice Reed of the Federal
Court in Jesionowski v. Gorechi, [1999] 1 F.C.R.
36.
[46] I have therefore concluded that the
Appellant's witness does not have to answer the following
questions in Schedule 5:
Request
540
Request
2
Question 38
Request
7
Question 36
[47] Before concluding my remarks on the
Hathaway valuation I must determine whether counsel for the
Appellant (Mr. Nitikman) made a commitment to provide drafts.
Question 38 reads as follows:
Q. Can you undertake
to make proper search and enquiries, and if you discover, to
provide any copies?
Mr. Nitikman said:
"A. We'll give
the undertaking to look for them. As to providing copies,
we'll have to take that under advisement, depending on what
it is and whether we believe you're entitled to it.
Q. Okay.
A. But we'll
certainly undertake to look for them.
Q. All right. And
the balance of the undertaking you'll take under
advisement?
A. Yes.
[48] Counsel for the Respondent has argued
that counsel for the Appellant made a commitment to provide
copies of drafts.
[49] In my opinion when you look carefully
at the answers counsel for the Appellant gave an undertaking to
look for drafts. However, as to providing copies of the drafts
counsel for the Appellant said:
We'll have to take that under advisement, depending on
what it is and whether we believe you're entitled to it.
In my
opinion Mr. Nikitman did not make a commitment to provide copies
of drafts to the Respondent.
Category I
[50] I Order that the Appellant provide
answers to the following questions that were asked in the
examinations for discovery. Examination of George Myhal
May 19, 2004: Questions numbered 35, 51, 85, 101, 116-123,
Request 133 and Requests numbered 281, 284, 286, 287, 289, 377,
455, 559. On the Examination of Mr. Myhal on June 23, 2004.
Questions 122, 123, Requests 253 and 286 and Undertakings
numbered 19, 20 and 21.
Category II
[51] With respect to Hees' Financial
Statements Mr. Myhal is Ordered to answer the following
questions: 504, 512, 621-2, 625-7, 645, 646 and
Requests 721, 734, 738 and number 29.
Category III
[52] With respect to the questions asked
concerning Dexleigh Corporation, Mr. Myhal is ordered to answer
Questions 134-37 and Request 314.
Category IV
[53] With respect to the Appellant's
Articles of Incorporation, Mr. Myhal is not compelled to answer
these questions.
Category V
[54] With respect to the Hathaway Valuation
Mr. Myhal is not compelled to answer the following questions or
requests:
Request
7
Request
540
Request
2
(Note: In reviewing the Respondent's Notice of
Motion I have confined my conclusions to the questions and
comments as outlined by counsel for the Respondent in Schedule
1-5 in the Motion Brief dated November 1, 2004.)
B. Appellant's Notice of
Motion:
Question No. 296
[55] In Question number 296 the Appellant
asked the Respondent to review certain of Hees' financial
information including Hees' income tax returns, audited
financial statements, etc. and confirm that the amounts shown as
"dividends paid" for Hees' 1993, 1994 and 1995
years and the Appellant were accurate.
[56] Counsel for the Respondent refused to
do so on the basis that "they are not about to conduct an
audit of Hees and cannot be compelled to do so.
[57] Counsel for the Appellant said that the
Minister should be able to access T-5 Slips and determine
the total of the dividends paid by Hees and the Appellant for
each year.
[58] In my opinion the Respondent is not
required to provide this information to the Appellant.
[59] In the Notice of Motion filed with the
Court on October 19, 2004 counsel for the Appellant requested
that the Court compel Mr. MacGibbon to answer the following
question:
Question No. 602
Q. I would like you to undertake to ask Mr. Demarco whether
the values shown in Tab 76 on each of the dates for those private
group issues represents his opinion of the actual fair market
value of those shares on that date.
And if the answer is no, I would like you to ask him for his
opinion on what the actual fair market value of those shares were
on each of the sales.
[60] Counsel for the Respondent said:
I think we can give the first part of the undertaking. We will
take the second part of the undertaking under advisement.
Because, again, I think it is seeking an opinion that hasn't
been given.
[61] In his submission counsel for the
Appellant said:
11. Veritech says that if
the Crown admits that a valuation is required of the private
company shares, and if the Crown admits that Demarco's
valuation at cost was not in fact their fair market value, then
the Crown must say what the actual fair market value was. The
Crown cannot say "yes we are supposed to value those shares,
and yes we admit we didn't value those shares correctly, but
we won't tell you what the actual value is." In fact
Demarco himself has suggested that the actual value of the
private company shares is 25% - 35% less than cost.
. . . All Veritech is asking Demarco to do is confirm that
this is in fact the discount to be applied in determining the
actual value of the private shares.
[62] Counsel for the Respondent maintains
that the Appellant is not entitled to the information requested.
Counsel for the Respondent said:
They're asking him to go do something else and tell us
what your result is. That's clearly outside the parameters of
discovery.
[63] I agree with the position adopted by
counsel for the Respondent. I do not believe that Mr. MacGibbon
should be compelled to answer these questions.
Question No. 717
[64] Counsel for the Appellant asked Mr.
MacGibbon the following question:
Given what we have gone through today, that the company had
enough money to retract all the senior shares, do you still
believe it is reasonable to assume that the fair market value of
the senior shares, at the very most is $21.50.
Counsel for the Respondent:
You are taking a back door run at what has already been told
to you about the Crown's position in this case, that the
values were not less than a certain amount.
. . .
We have told you what the Crown's position is, so that
question is improper.
[65] I agree with the position adopted by
counsel for the Respondent on this issue. I also note that these
questions are questions that would be asked of a witness who is
qualified to provide an expert opinion on share valuations.
Mr. MacGibbon is not qualified to answer this question.
Question No. 849
[66] Counsel for the Appellant asked the
following question:
Q. I would like you
to ask Mr. Demarco if ... he believes that a timing discount
should have been assigned to the common shares and, if so, how
much that timing discount should be.
[67] In my opinion Mr. MacGibbon should not
be compelled to answer this question.
[68] In his Notice of Motion counsel for the
Appellant requested that the Court strike out the word
"purported" in the second last sentence of
paragraph 9 and the entire last sentence of paragraph 9 of
the Reply to Notice of Appeal.
[69] The last two sentences of paragraph 9
of the Respondent's reply read as follows:
9. ...
However, he states for further clarification that this range of
percentages of the fair market values of the various classes of
shares was based on the assumption that the Junior Participating
Shares were to share in the retained earnings balance based on
their purported legal entitlements. The Minister also assumed
that if the Junior Shares were not to share in the retained
earnings balance based on their purported legal entitlements,
then the percentage of the fair market value of the Common Shares
on the Dividend Payment Dates in relation to the fair market
value of all issued shares was as follows: . . .
(The Reply then outlines the fair market value of Common
Shares as a percentage of total fair market value of all
Shares at particular dates when dividends were paid.)
[70] With respect to the Motion to strike
the word "purported", counsel for the Appellant
suggested that the word "purported" was intended to
mean the participation right did not actually exist.
[71] Counsel for the Respondent said in his
Motion Brief for the Appellant's Motion:
5. Rule 53
provides that a pleading can be struck if it is scandalous,
frivolous, vexatious, an abuse of process or if it may prejudice
or delay the fair hearing of the trial. Pleadings are struck only
in plain and obvious cases.
6. The Rule
does not contemplate striking a pleading based on an admission at
discovery. There is nothing requiring a party to amend
their pleadings as their case develops, unless it chooses to do
so.
. . .
9. In making
this motion, the Appellant alleges that an admission has already
been made at discovery. Even if that is so, there is neither any
reason nor precedent to require an amendment to the pleadings.
The only apparent purpose for the motion to strike is to force
the Respondent to make an admission that it has not already made,
or to attempt to crystallize an inaccurate characterization of
the nature of the admission made. This is not permissible.
[72] I agree with the position adopted by
counsel for the Respondent and I deny the Appellant's Motion
to strike any portion of the Respondent's pleadings.
[73] Since success is mixed, I Order that
the costs shall be in the cause.
Signed at Vancouver, British Columbia, this 13th day of
December 2004.
Little J.
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