Ashton v. The Queen, docket 1999-2401-GST-G

Date: 19990512

Docket: 1999-2401-GST-G

BETWEEN:

HUGH W. ASHTON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Order

Mogan J.T.C.C.

[1] At all relevant times, the Appellant was a director of Ashton-Potter Limited (the "Company"). By notice of assessment dated November 28, 1996, the Minister of National Revenue assessed the Appellant (in his capacity as a director) under section 323 of the Excise Tax Act with respect to an alleged failure by the Company to remit goods and services tax ("GST"). The Appellant has appealed to this Court from that assessment claiming that he was a diligent director.

[2] The parties agreed to conduct examinations for discovery on December 6, 1999. Respondent's counsel had informed Appellant's counsel that the Respondent would produce Lisa Kelly as the person to be examined on behalf of the Respondent. The Appellant has brought a motion under Tax Court of Canada Rules (General Procedure), subsection 93(3), for an Order naming Lou Coretti as the person to be examined on behalf of the Respondent. The circumstances of this motion are set out below but, first, I will set out the relevant part of section 93:

93(1) A party to a proceeding may examine for discovery an adverse party once, and may examine that party more than once only with leave of the Court.

(2) A party to be examined, other than an individual or the Crown, shall select a knowledgeable officer, director, member or employee, to be examined on behalf of that party, but if the examining party is not satisfied with that person, the examining party may apply to the Court to name some other person.

(3) The Crown, when it is the party to be examined, shall select a knowledgeable officer, servant or employee, nominated by the Deputy Attorney General of Canada, to be examined on behalf of that party, but if the examining party is not satisfied with that person, the examining party may apply to the Court to name some other person.

(4) Where an officer, director or employee of a corporation or of the Crown has been examined, no other officer, director or employee of the corporation or the Crown may be examined without leave of the Court.

[3] The parties attended for discoveries on December 6, 1999 and the Appellant himself was the first person to be examined. The Appellant's affidavit in support of this motion states in paragraphs 7 and 8:

7. That during the course of my examination for discovery, counsel for the Respondent produced for the first time to me and my counsel copies of correspondence between Thomas Andrew Silverman, Wayne H. Stubbington and a Mr. L. Coretti of Revenue Canada, subsequently known as the Canada Customs and Revenue Agency (the "Agency"). Mr. Silverman was at all material times the Chief Financial Officer, Chartered Accountant and Auditor of Ashton-Potter Limited. Mr. Stubbington was the comptroller of Ashton-Potter Limited and reported to Mr. Silverman. The main thrust of my defence to the assessment against me as a director is that I relied on Mr. Silverman as an experienced and qualified professional advising me and the other directors of Ashton-Potter Limited that there were no arrears of GST, and that Mr. Silverman mislead the directors as to the true state of affairs. Attached hereto and marked as Exhibit C are true copies of this correspondence between Messrs. Silverman, Stubbington and Coretti.

8. That at the time when the above documents were produced at my examination, my counsel asked counsel for the Respondent why the correspondence between Messrs. Silverman, Stubbington and Coretti had not been produced earlier when they were clearly relevant to the appeal. Counsel for the Respondent replied that the documents had only been recently discovered by the Crown. These documents were marked as exhibits to my examination subject to identification, as I had never seen these documents before and did not know any Mr. L. Coretti.

[4] Exhibit C to the Appellant's affidavit contains four short letters passing between the Company and Mr. Coretti of Revenue Canada. The letters are dated April 9, 1992, September 23, 1992, October 28, 1992 and December 18, 1992. Immediately after the discovery of the Appellant, his counsel asked Respondent's counsel to produce Mr. Coretti as the person to be examined on behalf of the Respondent. Respondent's counsel stated that he would consider the request and the proceedings ended without the Appellant's counsel attempting to examine Lisa Kelly on discovery.

[5] Exhibits D, E, F, G and H to the Appellant's affidavit are letters passing between Appellant's counsel and Respondent's counsel (dated from December 22, 1999 to February 2, 2000) with respect to the possible production of Mr. Coretti as the person to be examined on behalf of the Respondent. In a nutshell, Respondent's counsel attempted to impose certain conditions on the production of Mr. Coretti (if he were to be produced in place of Lisa Kelly) and Appellant's counsel would not accept those conditions. Having regard to the terms of subsection 93(4) of the Tax Court of Canada Rules (General Procedure), one might very well question whether it was necessary or desirable or even reasonable to impose any conditions at all but that question is no longer relevant. The Appellant seeks an Order naming Lou Coretti as the person to be examined on behalf of the Respondent.

[6] Considering the terms of subsection 93(3), I am inclined to the view that the Crown (as Respondent) has the right to select the person to be examined on behalf of the Respondent; and the Appellant must first attempt to examine that person (to determine if that person is knowledgeable) before applying to the Court to name some other person. Otherwise, the Appellant appropriates the Respondent's right to select the person to be examined. In the letter of December 22, 1999 (Exhibit D), Respondent's counsel states that Appellant's counsel refused to examine Lisa Kelly. In the letter of January 6, 2000 (Exhibit E), Appellant's counsel acknowledges that he refused to examine Lisa Kelly.

[7] My prima facie view expressed in the preceding paragraph is supported by case law. In Backman v. The Queen, 97 DTC 550, the taxpayer brought a motion under subsection 93(3) for an Order naming N as the Crown's nominee to be examined for discovery. The Crown proposed to produce T as its nominee. When dismissing the taxpayer's motion, Bell J. stated:

He (Appellant's counsel) appears to have advanced this argument in support of his earlier premise that Rule 93(3) permits him to make an application to the Court on the basis of dissatisfaction with a nominee before the commencement of an examination for discovery. I do not accept the Applicant's submission. Obviously, Rule 93(4) is designed to limit the number of persons that may be examined. It does not really assist in the interpretation of Rule 93(3). That Rule refers to the "examining" party not being satisfied with the person selected for examination. The use of the word "examining" suggests that an examination for discovery must have commenced. The Respondent has the custom of setting forth in Replies to Notices of Appeal the facts and assumptions of fact on which an assessment is based. It follows that appellants' counsel may wish to examine the Respondent's officer in this regard. This fact alone, however, does not entitle an appellant to examine only the Departmental officer who conducted a pre-assessment audit. The Respondent must select a knowledgeable person to be examined. Upon failure so to do, which cannot be determined until an examination is conducted, it is appropriate for an appellant to seek relief under Rule 93(3). The reasoning of the Federal Court of Appeal is hard to resist. It is my view that the examination for discovery must be held or at least commenced and objectively found to be unsatisfactory before an application under Rule 93(3) can succeed. The logical basis for such dissatisfaction would be that the person being examined was not properly informed.

[8] In Chief John Ermineskin et al v. The Queen et al, [1995] 3 F.C.R. 554, there was a similar motion by the Plaintiffs under Federal Court Rule 456 which is similar to Tax Court Rule 93 (General Procedure). When dismissing the Plaintiffs' motion, MacKay J. stated at page 553:

... Subsection 456(3) of the Rules now provides for naming of the deponent by the Crown, and under subsection 456(4) of the Rules for the Court "on the application of a party entitled to examine the person selected under paragraph ... (3) [to] order that some other person be examined". It seems clear to me that this means a two-step process, a determination about who shall be nominated as deponent for the Crown to be made by the Attorney General or his deputy, and only thereafter possible intervention by the Court. It is unlikely that intervention would be exercised unless it were to be demonstrated that the nominee of the Crown is not informed, or capable of being informed, of the facts essential to the issues upon which discovery is pursued.

[9] It is important to remember that a party being examined is not necessarily giving evidence of personal knowledge. In Champion Truck Bodies Ltd. v. The Queen, Federal Court Trial Division, July 3, 1986, Strayer J. stated in his closing paragraph:

... An examinee is not necessarily giving "evidence" of his personal knowledge and observations as does a witness at trial, but rather is there to state the position of the party he represents. In doing so he may be giving purely hearsay evidence. The purpose of the examination is not to obtain disclosure of the intended evidence of the particular examinee but rather of facts relevant to the pleadings which are within the knowledge of the other party. ...

[10] It is not necessary that Lisa Kelly have first-hand knowledge of the letters between Lou Coretti and employees of the Company. Ms. Kelly can locate those letters; inform herself of their content; and undertake to obtain further information from Mr. Coretti if he is still an employee of Revenue Canada. The Appellant cannot apply to the Court under subsection 93(3) of the General Procedure Rules until after the Appellant has at least attempted to examine the person selected by the Deputy Attorney General of Canada to be examined on behalf of the Respondent. If such an attempt to examine by the Appellant should prove that the person so selected is not knowledgeable, then the Appellant would be in a position to apply to the Court under subsection 93(3).

[11] This motion is premature. The Appellant's motion is dismissed, with costs to the Respondent in any event of the cause.

Signed at Ottawa, Canada, this 12th day of May, 2000.

"M.A. Mogan"

J.T.C.C.