Date: 19981223

Docket: 95-3459-GST-G; 95-3460-GST-G

BETWEEN:

9005-0428 QUÉBEC INC. (FORMERLY ALEX RECHERCHE II INC.), 9004-9255 QUÉBEC INC. (FORMERLY ALEX RECHERCHE INC.),

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for order

P.R. Dussault, J.T.C.C.

[1] The respondent has brought in connection with the appeal by each of the appellants a motion the main purpose of which is to obtain an order granting leave to withdraw admissions that her representative made in an examination for discovery held on March 27, 1998.

[2] In 1991 and 1992, the appellants signed contracts with some Quebec universities. Those contracts involved two supplies: a supply of equipment by the appellants, and a supply of either goods or research and development (“R & D”) by the universities. The second matter is one of the points in issue in ultimately determining whether the appellants are entitled to the input tax credits claimed in connection with these contracts.

[3] On March 27, 1998, Guy Du Pont, one of the appellants’ counsel, conducted an examination for discovery of Luc Guénette, an auditor with the Direction générale de la vérification et des enquêtes (audit and investigation branch) of the Quebec Department of Revenue. Nathalie Labbé represented the respondent as counsel at that examination.

[4] In the course of the examination, with reference to one of the contracts concluded between one of the appellants and a university, Mr. Du Pont questioned Mr. Guénette on the matter of whether the contract was [TRANSLATION] “all taxes included” and whether the consideration paid included the goods and services tax (“GST”).

[5] A passage from the questions and answers will be sufficient to illustrate the problem. The passage consists of paragraphs 132 to 138, which are found at pages 56 to 58 of the transcript of the examination for discovery:

[TRANSLATION]

GUY DU PONT:
132	Q.	OK. Are we agreed, Mr. Guénette, that all taxes were included in the lump sum consideration of fifteen million thirty-three thousand six hundred fifty-three ($15,033,653)? And obviously, in taxes, I am including the GST and–I don’t think it was applicable, but the QST, no, that is not relevant here.
	A.	What I understand from . . . from that clause, is that taxes were in fact included.
133	Q.	So the contract is a contract with, as one would say in modern parlance, all taxes included?
	A.	Right.
134	Q.	OK. So the total consideration was equivalent to a hundred and seven per cent (107%), based on the formula provided in the GST legislation?
	A.	Well, the Act doesn’t provide . . .
135	Q.	No, but what I mean . . .
	A.	Yes, yes.
136	Q.	Mr. Guénette, in common parlance.
	A.	Yes, yes. Tax is included, and you have to collect the tax that there is at that point, and if there is only the GST, then it is seven hundred sevenths of the amount (700/7).
137	Q.	Right, fine. But we are agreed that the contract, and the other contracts as well, included all taxes?
	A.	Not all of them did.
138	Q.	But at least that one?
	A.	That one, yes.

[6] With respect to the other contracts signed by the appellants, reference may be made to the following paragraphs of the transcript, in which Mr. Guénette gives substantially the same answers:

paragraphs 159 to 165, pages 63 to 65;

paragraphs 239 to 241, pages 82 and 83;

paragraphs 491 to 502, pages 148 to 152.

[7] Paragraphs 491 to 502, supra, also contain remarks made by Nathalie Labbé. As well, I would note in passing that Ms. Labbé undertook to amend the Reply to the Notice of Appeal to reflect the answers given by Mr. Guénette. Paragraph 385 and the first sentence of paragraph 386, at pages 119 and 120 of the transcript, read as follows:

[TRANSLATION]

GUY DU PONT:
385	Q.	Paragraph (g), page 4, Mr Guénette, 26(g). You say, in the last sentence: “no provision of the agreement provides that the consideration paid as lump sums included GST.” I assume, Ms. Labbé, that this will be corrected?
NATHALIE LABBÉ:
		Yes, but because there was the . . . that no longer is of any consequence.
GUY DU PONT:
		No, but since it is an error . . .
NATHALIE LABBÉ:
		Yes.
GUY DU PONT:
		You understand what I mean, Mr. Guénette?
	A.	Yes, yes, I understood.
386	Q.	That’s the opposite of what you are saying, so I was making sure that it was clear. . . .

[8] In a document entitled [TRANSLATION] “Outline of Appellants’ Argument”, counsel for the appellants describe as follows the circumstances that led to the motions herein being brought, at paragraphs 18 to 32 of that document:

[TRANSLATION]

E. FIRST HEARING AND NEGOTIATIONS - FIRST CONFERENCE

18. Based on those examinations and the points in issue as thus defined, the parties prepared for the hearing on June 1, and retained experts, etc.

19. The parties asked the Court to adjourn the hearing scheduled for June 1, in one last attempt to settle these appeals. On July 9, 1998, the first conference was held, with Judge Bowman presiding. Following that conference, negotiations intensified. On June 31, 1998, with negotiations still underway, Her Majesty the Queen wrote the letters to the Universities, which letters will be referred to infra; and on August 4, by telephone, and August 5, by letter, Her Majesty the Queen informed the Appellants that talks were being broken off. Since the negotiations had not borne fruit, the parties asked the Court on June 10, 1998, to set the appeals down for hearing on the merits on October 19, 1998, which was done on · .

F. THE REPUDIATIONS

1. The first repudiation – the inaccurate and imprecise repudiator

20. On August 5, 1998, Her Majesty the Queen informed the Appellants that She “believes that the agreements in issue were not university research agreements with all taxes included”.⁵

21. On August 7, 1998, Her Majesty the Queen informed the Appellants that “further to the examination for discovery of Luc Guénette . . . Her Majesty recently noted that certain answers to the questions asked were incomplete or inaccurate . . . ”.⁶

22. Surprisingly, no mention was made of the formal admissions made by one of the counsel for Her Majesty the Queen, Nathalie Labbé, at that examination.

2. The second repudiation – the confused repudiator

23. On September 1, 1998, two days before the date set for the second pre-hearing conference, Her Majesty the Queen served on counsel for the Appellants a third set of motions⁷, this time seeking the withdrawal of admissions, that Her Majesty the Queen intended to bring at that pre-hearing conference on September 3, 1998.

24. These motions to withdraw related only to the admissions made at the examination for discovery of Her Majesty the Queen, and not to those made by counsel for Her Majesty the Queen. The motions were supported by a “detailed statement” under oath by Guénette, the authorized representative of Her Majesty the Queen.

25. In her motions, Her Majesty the Queen essentially contended that:

(a) her authorized representative did not have the right questions in mind when he answered; and

(b) the questions asked were not clear.

3. The third repudiation – the repudiator repudiates her “all taxes included” calculations

26. On September 2, 1998, the day before the date set for the second pre-hearing conference, Her Majesty the Queen served counsel for the Appellants with two “supplementary” statements modifying and partially repudiating certain assertions referred to in the previous sworn “statement”, as Guénette’s calculations had reflected the transactions in issue as being all taxes included.

4. The repudiations cause the trial on October 19, 1998 to be aborted

27. On September 3, 1998, after these motions were brought, the Appellants had no alternative but to ask Judge Bowman to terminate the second pre-hearing conference and postpone sine die the hearing of the appeals set down for October 19, 1998, so that the Court could dispose of all these motions, and the Appellants could ultimately know what had become the real issue before the Court. The Appellants then asked the T.C.C. for leave to examine Guénette viva voce before the Court.

5. The fourth repudiation – the repudiator repudiated

28. On October 9, 1998, Her Majesty the Queen brought a fourth set of motions seeking to call third parties to testify at the hearing of its motions for withdrawal.

29. On October 13, 1998, Her Majesty informed the Appellants that the basis of her initial repudiation had, in turn, been repudiated:

On September 3, 1998, the auditor, Luc Guénette, signed an affidavit in support of the motions to withdraw admissions. In his affidavit, Mr. Guénette referred to what he had in mind when he said at the examination for discovery that four of the five contracts in issue were “all taxes included”, and that the consideration given under those contracts included the GST. In his affidavit, Mr. Guénette said that what he had in mind at that time was the supply of equipment to the universities, and not the supply of R & D to the appellant companies: see in particular paragraphs 20, 25 and 37 of the affidavit.

After a detailed review of the evidence in the record, Her Majesty will make no argument based on a misunderstanding on the witness’s part concerning the subject matter of the questions put to him at that time. In its report on the objection, the objections section of the Department of National Revenue itself in fact said that the supply of equipment and the supply of R & D were carried out with “all taxes included". In this context, regardless of what Mr. Guénette says he had in mind at the examination for discovery, the authorities responsible for administering the Excise Tax Act cannot disregard what they had said earlier in the report on the objection.

I am therefore instructed to inform you that Her Majesty will proceed with her motions to withdraw on the basis that an admission was made regarding four of the five contracts in issue, which was that those contracts were “all taxes included” and that the consideration given under those contracts included the GST. [Emphasis added.]

6. Summary of the multiple and successive repudiations

30. On August 5, 1998, Her Majesty tried to contradict the position that she had taken in support of her assessments and with respect to the objection.

31. On September 1, 1998, Her Majesty the Queen contended that her representative’s mind was on something else at his examination for discovery, a plainly untenable position having regard to the evidence: the questions were clear and precise and could not lead to this kind of confusion. In any event, there was no evidence to suggest that Ms. Labbé was similarly confused.

32. On October 13, 1998, Her Majesty the Queen repudiated the basis of her motions to withdraw, and for all practical purposes repudiated Guénette, as the admissions made at the examination were consistent with the position taken in the objections.

________________

⁵ Letter from Guy Laperrière to Claude E. Jodoin dated August 5, 1998

⁶ Letter of August 7, 1998 from Guy Laperrière to Claude E. Jodoin, Exhibit I-6 to the statement by Luc Guénette.

⁷ An initial set of motions to produce undertakings was served and the undertakings were produced the following day, which made the motions moot. A second set of motions was served requiring that various documents be produced by third parties.

[9] A point should be added that was not mentioned by counsel for the appellants: they themselves answered the letter of August 7, 1998 from Mr. Laperrière with a letter dated August 27, 1998 signed by Guy Du Pont.[1] As Mr. Laperrière indicates in paragraph 4 of the document entitled [TRANSLATION] “Representations of the Respondent”, counsel for the appellants [TRANSLATION] “contended that on the pretext of providing particulars, Her Majesty was trying to qualify, if not withdraw, the admissions made by Mr. Guénette at the examination for discovery. Counsel for the appellants therefore suggested that the respondent proceed by way of withdrawal of admissions.”

[10] The hearing of the motions took place on October 19 and 20, 1998.

[11] During the two days of the hearing, Mr. Laperrière, counsel for the respondent, took a variety of contradictory positions. First, counsel for the respondent asked the Court to dismiss his own motions on the ground that Mr. Guénette had not made any real admissions at the examination for discovery, since he had expressed an opinion on what was strictly a question of law. When invited several times by the Court to simply withdraw his motions, if that was his opinion, counsel for the respondent nonetheless refused to do so. Counsel for the respondent then submitted that if Mr. Guénette had in fact expressed an opinion on a question of mixed fact and law, the Court should then allow the motions and grant leave to withdraw the admissions. In addition, if I understand correctly counsel’s reasoning, withdrawal of the admissions made by Mr. Guénette would also entail the withdrawal of the admissions made by Ms. Labbé.

[12] Counsel for the respondent admitted that there was some [TRANSLATION] “wavering” on the respondent’s part between the examination of Mr. Guénette and the hearing of the motions, but submitted that the motions brought by the respondent were a prudent move in the circumstances.

[13] The position taken by counsel for the appellants arose out of the indignation engendered by the repeated about-faces on the part of counsel for the respondent. In their lengthy document entitled “Outline of Appellants’ Argument”, at paragraph 33 (pages 16 and 17), the appellants ask that the motions be dismissed with solicitor and client costs, for the following reasons:

[TRANSLATION]

(a) the “statement” served in support of the two motions does not comply with the rules of this Court in that it is more in the nature of a pleading than a “sworn statement” in due form;

(b) it is unacceptable that, after the audits, assessments, objections and appeals to the Tax Court of Canada, examinations for discovery, pre-hearing conference and negotiations, the Appellants should be suddenly confronted with motions to withdraw admissions regarding fundamental questions of fact, based on which these appeals were set down for hearing by this Court and were to have been heard first on June 1, 1998 and then on October 1998; and

(c) it would be contrary to the interests of justice to give Her Majesty the Queen the right to withdraw her admissions and, at this stage in the hearing of these appeals, to reopen the entire debate on a pure question of fact, when the Appellants would suffer prejudice that could not be compensated by costs.

[14] I would add that counsel for the appellants also submitted that the motions to withdraw admissions, which motions were brought in relation to the examination for discovery of Mr. Guénette, cannot have any effect on the admissions by Nathalie Labbé at that same examination. In view of the position taken by the respondent at the hearing, counsel for the appellants believe that those admissions must stand, and submit that the respondent would have had no choice but to repudiate Ms. Labbé.

[15] Of course, counsel for each of the parties referred to a number of authorities in support of their respective arguments.

[16] At the end of the hearing, I asked Mr. Du Pont and Mr. Laperrière to send me a written summary setting out, in a few pages, the main propositions stated in their submissions at the hearing. I received much more than that, particularly from Mr. Laperrière, who now submits, in a document 78 paragraphs long, that the motions he brought should simply be dismissed on the ground that the alleged admissions by Mr. Guénette were not admissions at all, and that at the examination for discovery Mr. Guénette essentially expressed an opinion on a question of law, namely how the contracts signed by the appellants with the Quebec universities should be construed.

[17] Mr. Laperrière also altered his position regarding the admissions made by Ms. Labbé in that he now submits that she merely [TRANSLATION] “acknowledged that an admission was made earlier by Guénette, and a separate admission was not made by counsel herself”. Of course, this new position is contested by Mr. Du Pont at page 4 (paragraph 10) of yet another, equally detailed document, entitled [TRANSLATION] “Representations of the Appellants”, which was submitted in response to my request at the end of the hearing.

[18] What confusion! How can it be argued that there was a mere acknowledgement that admissions were made when it has just been said that there were no admissions? This position is as untenable as the one taken by counsel for the appellants, who submit that the entire debate relates [TRANSLATION] “to a pure question of fact”.

[19] First, I would say that there are only two motions by the respondent before me, each relating to the appeal of one of the appellants and essentially seeking an order granting leave to withdraw the alleged admissions made by Mr. Guénette at the examination for discovery on March 27, 1998, and nothing more.

[20] Despite the strong desire and forceful urgings of counsel for the parties to have me go further and perhaps elucidate certain other points before the hearing on the merits, I categorically decline to embark on a discussion of any matters that are not currently before me.

[21] I therefore need express no opinion as to Ms. Labbé’s position at the examination for discovery of Mr. Guénette. I need not determine the consequences of what she said, nor need I determine the potential consequences of her failure to amend the Reply to the Notice of Appeal when she had undertaken to do so. These are questions that are not before me, according to the actual terms of the motions brought by the respondent.

[22] The fundamental question to be determined with respect to these motions for withdrawal of admissions is, first, whether or not any admissions were made by Mr. Guénette.

[23] We know, or ought to know, that an admission can relate only to facts, and not law. In their Traité de droit civil du Québec, Montréal, Wilson & Lafleur Limitée, 1965, vol. 9, at page 508 (paragraph 600), André Nadeau and Léo Ducharme have written:

[TRANSLATION]

An admission may not relate to the law.— Since an admission is an acknowledgement of the existence of facts, the only subject matter of an admission can be facts. Facts are the only thing that can be considered to be established by an admission. An admission carries no weight when it is outside the purview of the person making it. Accordingly, there can be no admission as to the law, because the intention of the parties can be of no relevance to a decision on points of law.

While an admission, to be valid, can relate only to the facts, it will be valid only provided that it is not a mere statement of opinion as to those facts.

[References omitted.]

[24] The nature of an admission as essentially the acknowledgement of a fact derives from the actual definition in the new article 2850 of the Civil Code of Québec, which simply codifies the earlier academic opinion and case law.[2] That point is hardly open to dispute, and the corollary is that an alleged admission as to a question of law carries no weight and cannot bind a person who has stated an opinion on a question of that nature (see Léo Ducharme, Précis de la preuve, Montréal, Wilson & Lafleur Limitée, 5th edition, 1996, pages 192 and 193, paragraphs 633 to 635).

[25] Any consideration of the nature or effects of a contract, or the rights and obligations flowing therefrom in respect of the parties or third parties, essentially and necessarily involves applying legal rules and principles which may provide an answer that will be expressed in the form of an opinion. This is an exercise in construing the contract, which has nothing to do with acknowledging a fact, and that exercise falls squarely in the realm of the law.

[26] In Regina v. International Vacations Ltd. (1980), 124 D.L.R. (3d) 319, a decision of the Ontario Court of Appeal referred to by counsel for the respondent, the Court, per Blair J.A., addressed this question as follows, at page 323:

It is well established that the construction of a written document is a matter of law and not a question of mixed law and fact as was contended by counsel for the respondent; Wigmore on Evidence, 3rd ed., vol. IX (1940), § 2556, p. 522, and 17 Hals., 4th ed., p. 20, para. 25. Lord Denning M.R. restated this principle in Woodhouse AC Israel Cocoa Ltd. SA et al. v. Nigerian Produce Marketing Co. Ltd., [1971] 1 All E.R. 665, where he said at p. 671:

It has long been settled that the interpretation of a document is a matter of law for the court, save in those cases where there is some ground for thinking that the words were used by the writer—and understood by the reader—in a special sense different from their ordinary meaning. Unless there is evidence of some such special sense, the document must be given its ordinary meaning as found by the judges, no matter whether it be a contract contained in correspondence or a representation on which another acts. The reason is so that the parties can know where they stand. When a question arises on a written contract or a written representation—it often arises long after it was made—the parties themselves will look it through to see what it means. They will study it closely. They will take the advice of their lawyers on it. They will go by the written word. It is the thing that determines their course of action. It is no good one party saying he meant this, and the other saying he meant that. He must accept it as its true meaning—and that is its meaning as ultimately found by the courts.

This decision was affirmed by the House of Lords: [1972] A.C. 741, [1972] 2 All E.R. 271.

This principle was applied by the Supreme Court of Canada to the specific issue of construing a written advertisement in a charge of misleading advertising under the Combines Investigation Act. In Alberta Giftwares Ltd. v. The Queen, [1974] S.C.R. 584, at p. 588, 11 C.C.C. (2d) 513 at p. 516, 36 D.L.R. (3d) 321 at p. 324, Ritchie J. held that the construction of the advertisement was a matter of law and stated:

. . . in my opinion in construing a will, deed, contract, prospectus or other commercial document, the legal effect to be given to the language employed, is a question of law . . .

[27] In the context of the assessment process, the assessor assumes certain facts that have been brought to his or her attention, and that he or she regards as relevant. Where necessary, the assessor must also interpret a contract or a provision of a contract or of some other written document in order to determine its legal effects in relation to a particular taxpayer, the ultimate purpose being to determine its tax consequences, having regard to the applicable legislation. The assessor’s opinion, once the exercise of interpreting the contract or written document has been completed, may or may not be correct. While the actual existence of that opinion is a question of fact, the conclusion it expresses, on the other hand, is a question of law. Thus as long as the construction of a contract or written document is an issue that has been properly stated in the pleadings filed by the parties, that issue will, like any other question of law submitted, be settled by the Court after hearing the appeals on the merits.

[28] I find that the questions Mr. Guénette was asked by Mr. Du Pont at the examination for discovery on March 27, 1998 and the answers given by Mr. Guénette, which are referred to in paragraphs [5] and [6] of these reasons, amounted to an exercise in the construction by a third party of the contracts signed by the appellants themselves. The purpose of that exercise was to obtain Mr. Guénette’s opinion as to the meaning and effects of a contract of that nature, having regard to the applicable legislation. The answers given cannot be regarded as admissions, as the questions asked were intended to elicit not the acknowledgement of a fact, but an opinion as to the meaning of the contracts, having regard to the legislation concerning the GST.

[29] The futility of the exercise is in a way demonstrated by the fact that Mr. Laperrière is himself asking that the motions he brought on behalf of the respondent be dismissed. While I recognize that the exercise was dictated by prudence rather than malice, nonetheless that exercise has delayed the hearing on the merits by several months. While it may have been clumsy, there was no wrongful conduct. I would have to think that Mr. Laperrière’s reaction was somehow prompted by the position taken by Mr. Du Pont in his letter of August 27, 1998. That being the case, I find that this judicial mini-saga has already gone on for too long, and that counsel for the respondent are not the only ones responsible. However, I would note that at the end of his document entitled “Representations of the Respondent”, in paragraph 74, Mr. Laperrière acknowledges that [TRANSLATION] “All these motions bring us back to exactly the same situation as the parties were in on August 7, 1998, when Her Majesty sent her letter under rule 98.” In addition, one of the things he says in paragraph 75 is that he can [TRANSLATION] “understand the appellants’ disappointment at seeing a question they thought had been resolved coming up again”. Lastly, he adds the following, in paragraph 77:

[TRANSLATION]

That being said, it is understandable that the appellants would find the compensation provided for in the tariff inadequate in the circumstances. We are therefore open to a lump sum being awarded as costs of the motion, a solution that might be more appropriate in the appellants’ case.

[30] I take note of his openness to that solution. On reviewing all of the circumstances that resulted in these motions being brought, I do not find that solicitor and client costs are justified, having regard to the case law on the point, and more particularly to the decisions of this Court in Bruhm v. The Queen, 94 DTC 1400 and Canderel Limited v. The Queen, 94 DTC 1426. Otherwise, it seems to me to be appropriate to reserve my final decision as to awarding costs for these motions until my decision on the merits of the appeals.

[31] As a result of the foregoing, the motions are dismissed and the decision concerning costs is reserved pending judgment on the appeals.

Signed at Ottawa, Canada, this 23rd day of December 1998.

“P.R. Dussault”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 30th day of July 1999.

Erich Klein, Revisor

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