REASONS
FOR ORDER
Graham J.
[1]
During the period from January 1, 1999 to
February 29, 2000, LBL Holdings Limited owned a wholesale grocery and dry goods
business selling goods to retailers in Ontario. Those goods included tobacco
products.
[2]
The Minister of National Revenue took the
position that LBL participated in a scheme that gave the false appearance that
certain tobacco products were sold to status Indians on a reserve and thus
exempt from GST when those products were, in fact, being sold by LBL to persons
who were not status Indians. As a result, the Minister determined that LBL underreported
its GST by failing to report the GST that should have been collected on those sales.
The Minister reassessed LBL for GST, penalties and interest of over $13.5
million. LBL appealed that reassessment and the Respondent filed a Reply.
[3]
The parties agree that the periods in question
are statute barred unless the Respondent can show that LBL made a
misrepresentation of fact attributable to neglect, carelessness or wilful
default.
[4]
In September 2014, I heard a motion brought by
LBL under subsection 53(1) of the Tax Court of Canada Rules (General
Procedure) (“Rules”) to strike the Reply on the basis that it
disclosed no reasonable grounds for opposing the appeal. The Respondent had not
pled any facts in the Reply but rather had relied solely on assumptions of
fact. The Minister may not rely upon assumptions of fact when reassessing a
statute barred period. Therefore I granted LBL’s motion and struck the entire
Reply with leave to amend.
[5]
The Respondent filed a Fresh Reply. LBL has now brought
a further motion under subsection 53(1) of the Rules to strike various
portions of the Fresh Reply.
LBL’s Theory of
the Case
[6]
Roberta MacNaughton is a status Indian
registered under the Indian Act. Ms. MacNaughton is a resident of the
Six Nations of Grand River Territory which is a reserve within the meaning of
section 87 of the Indian Act. Ms. MacNaughton operates the
Grandview Variety store on the reserve.
[7]
LBL takes the position that Ms. MacNaughton and
members of her immediate family purchased the tobacco products from LBL and
then subsequently sold those tobacco products to various third parties. My
understanding is that these third parties were wholesalers or retailers who
were not status Indians and who operated their businesses off the reserve
(“Third Party Purchasers”). Since the MacNaughtons were status Indians and the
sales from LBL to the MacNaughtons occurred on a reserve, LBL submits that no
GST was collectible.
Respondent’s
Theory of the Case
[8]
The Respondent alleges that LBL participated in
a scheme that gave the appearance that LBL was selling tobacco products to Ms.
MacNaughton and members of her immediate family when LBL was, in fact, selling
those products directly to the Third Party Purchasers.
[9]
The Respondent alleges that the scheme worked as
follows:
a.
Each Third Party Purchaser would be given an
identifying alphanumeric code.
b.
A Third Party Purchaser who wanted to purchase
tobacco products from LBL would fax its order to Ms. MacNaughton using LBL’s
standard order form. Ms. MacNaughton would then re-fax that form to LBL without
alteration.
c.
LBL would package its tobacco products in as
many packages as there were orders received and would identify the alphanumeric
code of the Third Party Purchaser who had ordered the products on the package.
d.
The number of invoices issued by LBL for a
given delivery would be equal to the number of Third Party Purchasers involved.
e.
The transfer of the tobacco products would occur
on the reserve.
f.
The tobacco products would be transferred
directly from LBL’s delivery vehicle to the Third Party Purchasers’ vehicles.
g.
The transfers would not occur until LBL was
satisfied that it had received cash payments from the Third Party Purchasers.
h.
If there were any shortages, the Third Party
Purchasers would deal directly with LBL. Any returned goods would be returned
by the Third Party Purchasers directly to LBL and LBL would provide them with
credit notes.
i.
The MacNaughtons were compensated for their
involvement in the scheme through volume rebates that LBL gave to Ms. MacNaughton
on purchases of goods that she made from LBL for her own store.
[10]
The Respondent says that, using this alleged
scheme, LBL sold over $97.7 million in tobacco products in a 14 month period to
persons who were not status Indians and failed to collect GST on those sales.
Analysis
[11]
LBL is seeking to strike different aspects of
the Fresh Reply. I have listed the relevant paragraphs of the Fresh Reply in an
order that makes the analysis easier to follow rather than in their numerical
order.
Paragraph 8:
[12]
Paragraph 77 of the Notice of Appeal states:
Also in or before February 2000, the CRA began auditing,
investigating, and making inquiries regarding the sales of tobacco products
made by the Appellant to the MacNaughtons.
[13]
Paragraph 8 of the Fresh Reply states:
With respect to
paragraph 77 of the Amended Notice of Appeal, he states that the audit relevant
to this appeal started in May 2002 but otherwise has no knowledge of any other
allegations of facts stated in these paragraphs. He further states that these
other allegations are not relevant to this appeal.
[14]
Paragraph 77 is not drafted in an ideal manner.
It contains both a presumption and a statement of fact and is thus difficult to
respond to. The presumption is that LBL was selling tobacco products to the
MacNaughtons. The statement of fact relates to when the Minister took certain
actions in respect of that presumption. While the presumption is not expressly
denied in paragraph 8, it is obvious from the balance of the Fresh Reply that
the Respondent denies it and the Respondent clarified that fact in her
submissions. Since the Respondent denies that these sales occurred, it is
therefore difficult for the Respondent to either admit or deny when the
Minister began taking actions in respect of those sales.
[15]
At the same time, the manner in which the
Respondent dealt with paragraph 77 is not satisfactory either. Paragraph 8
fails to clarify whether the Respondent agrees with the underlying presumption
or not. As a result, it is difficult to know exactly what it is that the
Respondent claims to have no knowledge of or what it is that the Respondent
feels is irrelevant.
[16]
If I were to simply strike paragraph 8, then, by
virtue of subsection 49(2) of the Rules, the Respondent would be deemed
to have admitted that LBL sold the tobacco products to the MacNaughtons. I am
unwilling to allow LBL to benefit from its complex drafting in this manner. However,
I am also unwilling to let the Respondent’s vague response stand. Accordingly,
I will strike paragraph 8 but I will give the Respondent leave to file an
Amended Fresh Reply with a new paragraph 8. In filing an Amended Fresh Reply
the Respondent may simply deny paragraph 77 on the basis that it contains a
presumption that the Respondent disputes.
[17]
If, after the Respondent has filed its Amended
Fresh Reply, LBL wishes to file an Amended Amended Notice of Appeal to correct
paragraph 77 it may do so and the Respondent may accordingly file an Amended
Amended Fresh Reply responding to that paragraph.
[18]
I do not, however, want this matter to sit in an
endless series of amendments and motions to strike pleadings. Accordingly I
would like to provide the following guidance to the Respondent in the event
that LBL files an Amended Amended Notice of Appeal:
(a) Relevance in general: If the Respondent
has a problem with the relevance of a fact pled in the Amended Amended Notice
of Appeal, the Respondent should bring a motion to strike that paragraph, not
simply plead that it is irrelevant.
(b) Relevance of particular facts: It
appears that the Respondent feels that the timing of when the CRA began various
activities is irrelevant. At first glance, that seems reasonable. The
Minister’s knowledge of what may have been occurring and any associated delay
in reassessing LBL would normally have nothing to do with whether LBL made a
misrepresentation attributable to neglect, carelessness or wilful default.
However, my understanding is that LBL intends to argue, in part, that the
nature of its relationship with the MacNaughtons is something upon which
reasonable people could disagree. A delay in assessing in the face of knowledge
of what was occurring could be indicative of the fact that the Minister was having
some difficulty deciding who should bear the tax. I therefore consider the
timing of when the CRA began the activities described in paragraph 77 to be relevant.
(c) Knowledge: The timing of the start of
the various activities described in paragraph 77 is entirely within the
Minister’s knowledge. The Minister cannot claim that she has no knowledge of these
facts.
Paragraph 7:
[19]
Paragraphs 75 and 76(a) of the Notice of Appeal
state:
75.
The Canada Revenue Agency (“CRA”) first became
aware that the Appellant was selling tobacco products to the MacNaughtons
without charging or collecting GST in or before February 2000.
76.
The CRA was also concurrently aware that:
(a). None
of the MacNaughtons were:
i. Registered for GST purposes;
ii. Charging or collecting GST on any of the sales of
tobacco products they made to their customers (be they Indians or otherwise) or
on any other of the revenues they earned; or
iii. Filing GST returns;
[20]
Paragraph 7 of the Fresh Reply states:
With respect to
paragraphs 75 and 76(a) of the Amended Notice of Appeal, he denies the
allegations of fact stated in these paragraphs as far as they relate to the CRA
officer who conducted the audit for the Periods and otherwise has no knowledge
of any other allegations of facts stated in these paragraphs. He further states
that these other allegations are not relevant to this appeal.
[21]
I will deal with each portion of the Amended
Notice of Appeal separately.
(a) Paragraph 75: Like paragraph 77, paragraph
75 is not drafted in an ideal manner as it contains both a presumption and a
statement of fact. Similarly, the manner in which the Respondent dealt with
paragraph 75 is not satisfactory either. It fails to clarify whether the
Respondent agrees with the underlying presumption or not. As a result, it is
difficult to know exactly what it is that the Respondent claims to have no
knowledge of or what it is that the Respondent feels is irrelevant.
(b) Paragraph 76(a): The Respondent asserts
that paragraph 76(a) is irrelevant. I disagree. How the MacNaughtons were
dealing with their GST obligations is potentially indicative of how they viewed
their relationship with both LBL and the Third Party Purchasers. The Respondent
also claims to have no knowledge of the facts in paragraph 76(a). This response
is ridiculous. The facts in this paragraph are entirely within the Minister’s
knowledge. The paragraph refers to what the Minister was “aware” of at a
certain time. Either the Minister was aware of these facts or she was not. The
Minister cannot claim that she has no knowledge of her own knowledge.
[22]
The fact that paragraph 7 deals with two
separate paragraphs of the Amended Notice of Appeal and the fact that paragraph
75 combines a presumption with a statement of fact makes it very difficult for
me to correct paragraph 7 by simply striking out words. Accordingly, I will
strike paragraph 7 but I will give the Respondent leave to file an Amended
Fresh Reply with a new paragraph 7. In that new paragraph 7, the Respondent may
simply deny paragraph 75 on the basis that it contains a presumption that the
Respondent disputes. The new paragraph 7 shall not cover paragraph 76(a).
Pursuant to section 49(2) of the Rules the Respondent will be deemed to
admit the facts in paragraph 76(a).
[23]
If, after the Respondent has filed her Amended
Fresh Reply, LBL wishes to file an Amended Amended Notice of Appeal to correct
paragraph 75 it may do so and the Respondent may accordingly file an Amended
Amended Fresh Reply responding to that paragraph.
[24]
Again, I do not want this matter to sit in an
endless series of amendments and motions to strike pleadings. The points I
raised at paragraph 18 above are equally applicable to paragraphs 75 and 7.
Paragraph 9:
[25]
Paragraph 91 of the Amended Notice of Appeal
states:
At no time has
the CRA or the Respondent:
a.
Assessed any of the MacNaughtons for failure to
charge, collect or pay GST in respect of any of the tobacco products purchased
from the Appellant during the Assessed Period and sold by them to non-Indian
purchasers;
b.
Assessed any of the MacNaughtons’ customers for
failure to pay GST in respect of any of the tobacco products they purchased
from the MacNaughtons’ [sic] during the Assessed Period;
c.
Assessed any of the MacNaughtons for failure to
charge, collect or pay GST in respect of any of the volume rebates paid by the
Appellant; or
d.
Taken any enforcement action against any of the
MacNaughtons or their customers for GST purposes in relation to any of the
tobacco products for which the Appellant has been reassessed.
[26]
Paragraph 9 of the Fresh Reply states:
With respect to
paragraph 91 of the Amended Notice of Appeal, he states that the facts stated
in that paragraph are not relevant to this appeal and are considered
confidential information under the Excise Tax Act. To avoid the
application of s. 49(2) of the [Rules], the respondent pleads no
knowledge of the facts stated in paragraph 91 of the Amended Notice of Appeal.
[27]
The Respondent, in essence, refused to respond
to paragraph 91 on the basis that it was irrelevant and that it would require
the Minister to disclose confidential information. These two issues are
intertwined.
[28]
The information that LBL seeks to have the
Respondent admit or deny clearly involves the private tax information of a number
of other taxpayers. Section 295 of the Excise Tax Act prevents the
Minister from disclosing confidential information about taxpayers. However,
paragraph 295(4)(b) provides an exception to that rule for disclosures
in the course of legal proceedings relating to the administration or
enforcement of the Act. This does not, however, mean that there is no limit on
the confidential information that the Minister may disclose in the context of
litigation. While paragraph 295(4)(b) does not state so explicitly, it
is fair to conclude that the exception is subject to the qualification that the
information disclosed must be relevant to the litigation in question. The
Minister has a duty to Canadians not to disclose confidential information
unnecessarily. Accordingly, if the Minister believes that she would otherwise
be required to disclose irrelevant confidential information she should bring a
motion to strike the relevant portion of the notice of appeal.
[29]
Rather than put the parties through the process
of having the Respondent bring a separate motion to strike, I will simply state
that, subject to the qualifications below regarding paragraphs 91(a) and (b), I
find the facts stated in paragraph 91 to be relevant to the appeal. Ironically,
I find them to be relevant because, if true, they may actually help the
Respondent’s case by showing that the Minister acted in a manner that is
consistent with her view that LBL sold the tobacco products to the Third Party
Purchasers thus suggesting that there never was any question in her mind as to who
should have charged GST.
[30]
Having set aside the questions of relevance and
confidentiality, the Respondent now needs an opportunity to properly plead.
Unfortunately, as with paragraphs 75 and 77, paragraphs 91(a) and (b) are not
drafted in an ideal manner as they contain both a presumption and a statement
of fact. Thus, it will be difficult for the Respondent to plead to them.
[31]
Accordingly, I will strike paragraph 9 but I
will give the Respondent leave to file an Amended Fresh Reply with a new
paragraph 9. In filing an Amended Fresh Reply the Respondent may simply deny
paragraphs 91(a) and (b) on the basis that they contain a presumption that the
Respondent disputes.
[32]
If, after the Respondent has filed its Amended
Fresh Reply, LBL wishes to file an Amended Amended Notice of Appeal to correct
paragraphs 91(a) and (b) it may do so and the Respondent may accordingly file
an Amended Amended Fresh Reply responding to those paragraphs.
Paragraph 12
(preamble):
[33]
The preamble to paragraph 12 of the Fresh Reply
reads:
During the
Periods, the appellant participated in a scheme that gave the false appearance
that the [tobacco products] were sold to status Indians. The appellant falsely
reported in its GST returns for the Periods that no GST was collectible on the
sales of the [tobacco products]. In determining that this misrepresentation was
attributable to the appellant’s neglect, carelessness and wilful default, the
Minister relied on the following facts:
[34]
This preamble appears in the section of the
Fresh Reply titled “Statement of Facts”. However, it is clearly a conclusion
reached by the Respondent based on the facts that follow rather than a
statement of facts. Accordingly, I will strike all of the words other than “the
Minister relied on the following facts:”
Paragraph
12(d):
[35]
Paragraph 12(d) of the Fresh Reply states:
during the Periods,
the appellant sold tobacco products (the “Tobacco Products”) to persons who
were not status Indians … in exchange for payments made by the [Third Party
Purchasers] to the appellant (the “transactions”);
[36]
LBL submits that this paragraph is a conclusion
of mixed fact and law. LBL says that the key issue in the Appeal is who the
“recipient” of the tobacco products was within the meaning of that term under
the Act. LBL argues that paragraph 12(d) merely asserts the conclusion that the
Respondent would like the Court to reach.
[37]
I note that LBL appears to be applying a
considerable double standard to what it considers to be statements of mixed
fact and law. LBL states in paragraphs 27, 57, 58 and 60 of the Amended Notice
of Appeal that the MacNaughtons “acquired” the tobacco products from LBL and in
paragraphs 26, 27, 47, 58, 59, 61 and 68 that the MacNaughtons “purchased”
those products. I fail to see the distinction that would cause a statement that
the tobacco products were “acquired” or “purchased” by the MacNaughtons to be a
statement of fact yet would cause the statement that the tobacco products were
“sold” to the Third Party Purchasers to be a statement of mixed fact and law.
Furthermore, in paragraphs 36, 38 and 71 of the Amended Notice of Appeal, LBL
refers to its “supplies” or “supplying” of tobacco products to the MacNaughtons
and in paragraphs 72 and 73 LBL states that it stopped “selling” tobacco
products to the MacNaughtons. Again, how is it a statement of fact when LBL
says it supplied or sold the tobacco products to the MacNaughtons but a
statement of mixed fact and law when the Respondent says LBL sold them to the
Third Party Purchasers?
[38]
Despite LBL’s double standard, I agree that whether
a sale occurred would be a question of mixed fact and law if the issue is
whether ownership transferred from LBL to the MacNaughtons. LBL would like to
characterize the Appeal as being a debate over whether ownership transferred to
the MacNaughtons when the tobacco products were delivered to the reserve. It
would like the debate to focus on offer, acceptance, consideration, delivery,
risk, payment and the terms of what it says are its contractual relationship
with the MacNaughtons. I can understand this desire. If that were the issue,
then LBL would be in a very strong position. In order to open a statute barred
year, a taxpayer must have made a misrepresentation of fact, not a
misrepresentation of mixed fact and law. A difference of opinion as to whether
the steps that LBL took successfully transferred ownership of the tobacco
products to the MacNaughtons would therefore be insufficient to open up the
periods in question.
[39]
However, my understanding is that this is not
how the Respondent is now framing the debate. Over the course of the two
motions on this matter, the Respondent appears to have slowly moved from a
shotgun approach to a much more refined position. As I understand it, the
Respondent is now simply arguing that LBL sold the tobacco products directly to
the Third Party Purchasers and that the MacNaughtons were merely window
dressing designed to hide the true nature of the transaction. The parties agree
that the tobacco products started with LBL and ended up being owned by the
Third Party Purchasers. The Respondent is not making a technical argument that
some element necessary to transfer ownership to the MacNaughtons along the way
was missing. To put it bluntly, the Respondent is simply saying that LBL and
the MacNaughtons are lying when they say that LBL sold the tobacco products to
the MacNaughtons who then sold them to the Third Party Purchasers. The
Respondent is saying that the MacNaughtons’ sole role was to give the false
impression that they bought and re-sold the tobacco products. The Respondent’s
position does not require a legal analysis of whether ownership transferred to
the MacNaughtons on the way to the Third Party Purchasers. There is no question
of mixed fact and law to be determined. It is purely a matter of credibility. The
Respondent is arguing that LBL knew that LBL did not sell the tobacco products
to the MacNaughtons, knew that the MacNaughtons did not sell the tobacco
products to the Third Party Purchasers, knew that LBL sold the tobacco products
directly to the Third Party Purchasers and knew that the MacNaughtons had no
role in the transactions other than assisting LBL by creating the false
impression that they were buying the tobacco products. The Respondent asserts that
these are the misrepresentations of fact that allow the Minister to open the
otherwise statute barred periods.
[40]
The trial judge will either find that LBL and
the MacNaughtons are telling the truth or not. If the trial judge finds that
LBL knew it was selling directly to the Third Party Purchasers and used the
MacNaughtons to disguise that fact, then he or she could find that the periods
in question are not statute barred.
[41]
Based on all of the foregoing, I see no reason
to strike paragraph 12(d).
Paragraph 18:
[42]
Paragraph 18 of the Fresh Reply is a portion of
the Respondent’s argument. It reads:
The appellant’s
alleged sales to a status Indian were merely a sham, designed to conceal the
true identity of the recipients of the appellant’s supplies of the Tobacco
Products. The appellant knowingly participated in a scheme, the purpose of
which was to falsely create the appearance to the Minister that the appellant
was making tax-relieved sales to status Indians, when in fact this was not the
case at all.
[43]
LBL argues that the Respondent should have to
plead “material facts setting out how, when, where [and] any other details as
to when and how the MacNaughtons and [LBL] formed this purported common
intention to mislead”. LBL submits that without those details, there is an
insufficient factual basis to support paragraph 18. I disagree. It is not
necessary for the Respondent to prove how, when or where any scheme was
hatched. It is sufficient to show that the scheme existed. In my view, the
Respondent has pled sufficient facts on which, if they were found to be true, a
trial judge could potentially reach the conclusion set out in paragraph 18. I
see no reason to strike it.
Paragraph
12(k):
[44]
Paragraph 12(k) of the Fresh Reply reads:
the MacNaughtons
were not wholesalers of the Tobacco Products but merely a conduit or a vehicle
through which the appellant supplied the Tobacco Products to the [Third Party
Purchasers] and at times received payment for those supplies from the [Third
Party Purchasers];
[45]
This is a conclusion, not a statement of fact.
Accordingly, I will strike it.
[46]
I note that at the hearing, LBL’s counsel
suggested that concluding that something is a “conduit or a vehicle” was a
conclusion of mixed fact and law. I disagree. I am unaware of any legal test
that one would have to reach to find someone to be a conduit or a vehicle. My
decision to strike paragraph 12(k) was not influenced by this argument.
Paragraph 19:
[47]
Paragraph 19 essentially repeats paragraph 12(k)
but does so in the portion of the Fresh Reply titled “Statutory Provisions,
Grounds Relied On, and Relief Sought”. This is an appropriate place for a
conclusion.
[48]
In my view, the Respondent has pled sufficient
facts on which, if they were found to be true, a trial judge could potentially
reach the conclusion set out in paragraph 19. I see no reason to strike it.
Paragraph
12(l):
[49]
Paragraph 12(l) of the Fresh Reply states:
in the
alternative, the MacNaughtons agreed to act as agents or trustees of the
appellant and of the [Third Party Purchasers] in respect of the transactions;
[50]
This paragraph should be struck for a number of
different reasons. Firstly, I fail to see how one can plead a statement of fact
in the alternative. Either a fact is true or it is not. There may be
alternative legal conclusions arising from a given set of facts but there
cannot be alternative facts.
[51]
Secondly, the Respondent clearly has no evidentiary
foundation for this assertion. If she did she would not be unsure whether it
was an agreement to be an agent or an agreement to be a trustee nor would she
be unsure whether the agreement was between the MacNaughtons and LBL or the
MacNaughtons and the Third Party Purchasers. She would also have been able to
respond to LBL’s demands for particulars. The Respondent appears to be hoping
to use the discovery process to engage in a fishing expedition on this point.
[52]
Finally, given that the Respondent has no
evidence of the existence of an agreement, what the Respondent is really
pleading is that the MacNaughtons were agents or trustees. Whether someone is
an agent or a trustee is a question of mixed fact and law and thus should not
be pled as a fact.
[53]
The Respondent did not raise any serious
challenge to the above points in her oral submissions. Based on all of the
foregoing, I will strike paragraph 12(l).
Paragraph 20:
[54]
Paragraph 20 is the portion of the Respondent’s
argument dealing with the trustee and agency arguments. Paragraph 12(l) of the
Fresh Reply was the only alleged assertion of fact that could have directly supported
paragraph 20. Since I have struck paragraph 12(l), I will also strike paragraph
20.
Paragraph
12(j):
[55]
Paragraph 12(j) of the Fresh Reply reads:
the appellant
knew or should have known that the MacNaughtons were not licenced by the
Province of Ontario as tobacco wholesalers;
[56]
LBL takes the position that paragraph 12(j)
should be struck because the MacNaughtons were not required to be licensed by
the province as tobacco wholesalers and thus the paragraph is misleading. The
Respondent takes the position that the MacNaughtons were required to be
licensed and thus that the paragraph is relevant. In essence, LBL would like me,
on a motion to strike, to determine the question of mixed fact and law of
whether the MacNaughtons were required to be registered or not. I am unwilling
to do so. That determination is best left of the trial judge. Even if LBL is
correct and the MacNaughtons were not required to be registered, I fail to see
what harm LBL would suffer by leaving this paragraph in the Fresh Reply and
waiting for the issue to be determined at trial. The paragraph’s existence is
unlikely to lead to any significant grounds of inquiry on examination for discovery
that would not be present in any event. Furthermore, the trial judge is
unlikely to be misled by the paragraph since LBL will raise the issue during
the trial.
Paragraph
12(y):
[57]
Paragraph 12(y) of the Fresh Reply states:
the appellant
knowingly participated in the scheme, the purpose of which was to give the
false appearance that a status Indian was involved in the transactions as a
tobacco products wholesaler with a view to avoiding the collection and
remittance of GST; and
[58]
LBL had a number of objections to this paragraph.
LBL objects to everything in the paragraph following the word “scheme”. LBL
argues that one cannot conclude what the purpose was without first determining
that the tobacco products were not sold to the MacNaughtons and that that determination
requires one to reach a conclusion of mixed fact and law. I disagree for the
reasons set out in my discussion of paragraph 12(d) above.
[59]
Based on all of the foregoing, I see no reason
to strike paragraph 12(y).
[60]
That said, I think this is a good point to
discuss a concern that I have with the term “scheme”. The term “scheme” is
defined in paragraph 12(g) which reads:
the appellant
represented that status Indians, namely [the MacNaughtons], purchased the
Tobacco Products from the appellant and that the [Third Party Purchasers]
purchased the Tobacco Products from the MacNaughtons (the “scheme”);
[61]
Paragraph 12(g) is poorly drafted. It is unclear
exactly what part of paragraph 12(g) involves a scheme. Presumably it cannot
have been LBL selling the tobacco products to the MacNaughtons who then sold
them to the Third Party Purchasers since the Respondent takes the position that
that did not happen. How could something that did not happen ever be a scheme?
It is also hard to see how the making of a representation, even a false one,
could be a scheme.
[62]
At the hearing, LBL indicated that it had no
objection to the phrase “the appellant knowingly participated in the scheme” in
paragraph 12(y) because LBL understands the defined term “scheme” to describe
LBL selling the tobacco products to the MacNaughtons who then sold them to the
Third Party Purchasers which is exactly what LBL says happened.
[63]
I anticipate the meaning of the term “scheme” becoming
a point of contention between the parties as they move forward into
examinations for discovery and I therefore think it is worthwhile for me to
clarify something at this point. Despite the poor drafting, it is clear to me
in the context of the entire Fresh Reply as a whole that the Respondent was
intending to define the “scheme” as being LBL’s characterizing the MacNaughtons
as purchasers of the tobacco products rather than as conduits or vehicles. The
parties shall treat that as being the meaning of the term “scheme” for the
purpose of conducting examinations for discovery.
Paragraphs 23 and 24:
[64]
Paragraph 23 sets out why the Respondent says it
is able to assess the periods in question despite their being statute barred.
Paragraph 24 sets out why the Respondent says gross negligence penalties should
be upheld. I have dealt with a number of LBL’s objections to these paragraphs
through some of the paragraphs that I have already struck. LBL’s remaining objection
to these paragraphs is rooted in its objection to paragraph 12(d). Its position
is that, without paragraph 12(d), the Respondent did not have a sufficient
factual basis to show that LBL had made a misrepresentation let alone that it
was grossly negligent. Having found that paragraph 12(d) stands, there is no
reason to strike paragraphs 23 or 24. I note however that, even if I had struck
paragraph 12(d), I would still have found that the remaining facts as pled
would have been sufficient that, if they were found to be true, a trial judge
could potentially reach the conclusion set out in paragraphs 23 and 24.
Concessions
[65]
During the hearing of the Motion, the Respondent
conceded that the words “as far as the facts relate to Roberta MacNaughton”
should be struck from paragraph 1 of the Fresh Reply.
[66]
Issues involving paragraph 3 of the Fresh Reply
were also resolved by the parties during the hearing of the Motion. LBL had
originally sought to strike the reference to paragraph 85 of the Notice of
Appeal in paragraph 3 of the Fresh Reply. LBL withdrew its opposition to that
reference. The Respondent conceded that the words “18 as far as the allegations
of fact relate to individuals other than Roberta MacNaughton,” should be struck
from paragraph 3 of the Fresh Reply.
Summary
[67]
Based on all of the foregoing, LBL’s motion is
granted in part. The following portions of the Fresh Reply are struck:
(a) the
phrase “as far as the facts relate to Roberta MacNaughton” in paragraph 1;
(b) the words
“18 as far as the allegations of fact relate to individuals other than Roberta
MacNaughton,” in paragraph 3;
(c) paragraph
7;
(d) paragraph
8;
(e) paragraph
9;
(f) all of the words in the preamble to paragraph 12 other than the
phrase “the Minister relied on the following facts:”;
(g) paragraph
12(k);
(h) paragraph
12(l); and
(i) paragraph 20.
[68]
The Respondent shall have leave to amend
paragraphs 7, 8 and 9 of the Fresh Reply in accordance with these Reasons for
Judgment by filing an Amended Fresh Reply.
Process and
Timing
[69]
The Respondent shall serve and file its Amended
Fresh Reply within 30 days of the date of these Reasons for Judgment.
[70]
If LBL wishes to serve and file an Amended Amended
Notice of Appeal to deal with the drafting problems in paragraphs 7, 8 and 9 it
shall do so within 30 days of the Respondent filing the Amended Fresh Reply.
[71]
If the Respondent wishes to serve and file an
Amended Amended Fresh Reply to respond to any changes made to paragraphs 7, 8
and 9 in the Amended Amended Notice of Appeal it shall do so within 30 days of
LBL filing the Amended Amended Notice of Appeal.
Costs
[72]
The results in this Motion are mixed. Both
parties share the blame for their pleadings being drafted in a less than ideal
manner. In my view, the parties should have been able to resolve their
differences on paragraphs 1, 3, 7, 8 and 9 and the preamble to paragraph 12 on
their own. The Respondent was successful in defending her primary position but the
need for that defence arose in the first place from the fact that the
Respondent took vague and conflicting positions and stubbornly refused to
commit herself until sometime in the middle of the second hearing when it
became apparent to her which way the wind was blowing. Based on all of the
foregoing, I award costs to LBL.
[73]
The parties shall have 30 days to either advise
the Court that they have reached a settlement as to the issue of costs on this
Motion or to submit to the Court their written representations with respect to
costs. In trying to reach a settlement, the parties may wish to bear in mind
that I feel that appropriate costs would be an amount significantly greater
than the tariff but significantly less than substantial indemnity.
Signed at Ottawa, Canada, this 14th day of May 2015.
“David E. Graham”
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