A-542-96
CORAM: THE CHIEF JUSTICE
MARCEAU J.A.
HEALD D.J.
BETWEEN:
OWEN
HOLDINGS LTD.
Appellant
(Respondent
by Cross-Appeal)
-
and -
HER
MAJESTY THE QUEEN
Respondent
(Appellant
by Cross-Appeal)
REASONS
FOR JUDGMENT
MARCEAU J.A.
This
appeal and cross-appeal arise from a ruling made by a Tax Court of Canada judge
on a motion for an order requiring the Crown to produce documents for discovery
in the course of the appellant's appeal proceedings against a reassessment by
the Minister of National Revenue of its 1992 income tax liability.
The
underlying action concerns a disallowance by the Minister of the appellant's
claim under subsection 85(5.1) and paragraph 69(5)(d) of the Income
Tax Act for a loss transferred from a related corporation. The Minister
disallowed the loss claim on the basis of section 245 of the Act, and
particularly subsection 245(2), the general anti-avoidance provision. In its
appeal from the Minister's decision, the appellant argues that section 245 of
the Act is unconstitutionally vague, and therefore of no force or
effect, and that, in any case, the Minister erred in finding that subsection
(2) applied to the facts of its claim.
After
having itself provided disclosure of its proposed list of documents in
compliance with the Tax Court of Canada (General procedure) Rule 82, the
appellant, through counsel, requested the Crown to make discovery on a list of
documents comprising, inter alia, the following categories:
(i)all reports, memoranda, notes,
e-mails, etc. ("reports") leading up to the drafting of GAAR [s.
245], including all drafts of the Explanatory Notes to GAAR and any reports
relating to those Explanatory Notes;
(ii)all reports leading up to the
drafting of subsection 85(5.1) and paragraphs 69(5)(d) and 88(1)(d);
...
(v)all reports leading up to the
drafting of the following documents on the Appellant's List: 5, 6, 7, 8, 9,
11, 14, 19, 20, 22, 36, 37, 38, 46, 65, 189 (to the extent it deals with loss
transfers between related parties), 190, 191, 193, 213, 214;
(vi)all reports relating to
testimony by various Finance officials before the Commons and Senate Committees
relating to GAAR (Appellant's List /15, 28, 29, 31);
...
(ix)any Advance Rulings or Technical
Interpretations issued to any other taxpayer concerning the application of GAAR
in the context of a transfer of property with an inherent loss to a related
party (see subsection 241(3) and Ouellet v. The Queen, 94 D.T.C. 1315
(TCC));
The
Crown did not include in its list all the documents requested, so the appellant
brought the motion that gave rise to the order, the validity of which is
disputed before us by both parties. The learned Tax Court judge refused to
order production of the documents in categories (i), (ii), (v) and (vi), hence
the appeal, but he ordered production of the documents in category (ix), hence
the cross-appeal.
The Appeal
With
respect to the appeal, counsel for the appellant argues that the judge erred in
holding that only documents which are relevant, that is to say which may
advance the appellant's case or damage that of the respondent, should be
disclosed. Rule 82(1), counsel says, uses the phrase
"relating to" not "relevant to," a basic distinction
clearly confirmed and acted upon by this Court in Canada (Attorney-General)
v. Bassermann. At this stage, submits counsel, relevance
should be of no concern; a "semblance of relevance," if necessary,
should suffice, an abuse of process being the only thing to be avoided.
We
indicated at the hearing that we disagreed with counsel's argument. Although
obviously not synonyms, the words "relating" and
"relevant" do not have entirely separate and distinct meanings.
"Relating to" in Rule 82(1) necessarily imparts an element of
relevance, otherwise, the parties would have licence to enter into extensive
and futile fishing expeditions that would achieve no productive goal but would
waste judicial resources. The well established principles that give rise to
the relatively low relevance threshold at the stage of discovery, as opposed to
the higher threshold that will be required at trial for the admission of
evidence, are well known. We simply do not believe that the Tax Court ever had
the intention of abandoning those principles any more than this Court could
have had such an intention when, in 1990, it changed the word
"related" to "relevant" in revising its corresponding
provisions, namely subsections (1) and (2)(a) of Rule 448. It is our opinion,
therefore, that the learned Tax Court judge adopted the proper approach and his
findings with respect to the documents in categories (i), (ii), (v) and (vi)
should not be disturbed. His assessment that those documents, which did not
tend to establish "legislative facts" but rather set forth the
"opinions of writers," were so remotely related to the issues in
controversy that they could not lead to a line of inquiry that could be of any
use to the appellant, appears to us to be perfectly sound. The appeal will
therefore be dismissed.
The Cross-Appeal
The
cross-appeal against the order to produce advance rulings and technical
interpretations, referred to in category (ix), is more complex.
There
is first a preliminary point raised by the appellant cross-respondent based on
subsection 241(6) of the Act which reads as follows:
241. (6) An order or direction
that is made in the course of or in connection with any legal proceedings and
that requires an official or authorized person to give or produce evidence
relating to any taxpayer information may, by notice served on all interested
parties, be appealed forthwith by the Minister or by the person against whom
the order or direction is made to
(a) ...
(b) the Federal Court
of Appeal, in the case of an order or direction made by a court or other
tribunal established by or pursuant to the laws of Canada.
Counsel
submits that notice to the taxpayers to whom the advance rulings and technical
interpretations were issued was a pre-condition to the validity of the appeal
proceedings. I simply do not agree. The Tax Court judge provided specifically
that names and other personal details respecting taxpayers should be removed
from the documents to be disclosed. It follows that taxpayers cannot be
affected by the order or the appeal: there is no confidentiality to be waived
and all interested parties are before the Court.
Category
(ix) in the appellant's motion grouped together advance rulings and technical
interpretations, and the learned Tax Court judge considered them together. He
ordered their production on the basis that they could all be used by the
appellant to show that the Minister had, in the past, applied section 245 of
the Act contrary to the way he applied it to the appellant's situation,
which demonstration could tend to advance the appellant's case.
There
is, as was explained to us, a basic difference between an advance ruling and a
technical interpretation. While the former is applicable to proposed
transactions considered in the context of the factual situation of a particular
taxpayer, the latter focuses on specific problems of interpretation relating
most often to words, clauses or sentences in a provision. This difference, in
my view, requires that the validity of the Tax Court judge's basis for ordering
production be verified separately with respect to each group. It is certainly
not as binding precedents that the appellant may use any of these documents.
It is well established that they have no binding legal effect, as this Court
had occasion to repeat recently in Minister of National Revenue v. Ford
Motor Company of Canada, Limited. What the appellant may do with these
documents is establish a certain inconsistency in the Minister's interpretation
and application of the provision. Perhaps this can be accomplished using the
technical interpretations which are relatively simple and to the point; by
comparison, however, it appears to me that this could be almost impossible to
do using advance rulings, given the difficulties in establishing similarities
between different and complex factual situations. The possible relevance of
the advance rulings, if any, is too problematic and remote to satisfy the
requirement of Rule 82(1). I believe, with respect, that the learned Tax Court
judge should not have ordered production of these documents.
This
being the case, I, of course, do not have to deal with the motion of the
respondent to add evidence relating to the costs of producing the advance
rulings.
I
would, therefore, allow the cross-appeal as it concerns the advance rulings but
dismiss it with respect to the technical interpretations.
"Louis Marceau"
J.A.
"I concur.
Darrel V. Heald, D.J."
A-542-96
CORAM: THE CHIEF JUSTICE
MARCEAU J.A.
HEALD D.J.
B E T W E E N :
OWEN
HOLDINGS LTD.
Appellant
-
and -
HER
MAJESTY THE QUEEN
Respondent
REASONS
FOR JUDGMENT
THE CHIEF JUSTICE
I
have had the privilege of reading the reasons for judgment proposed to be
delivered by my brother, Marceau J.A. in these proceedings. I agree with him
that the appeal should be dismissed for the reasons that he has given. I also
agree with his disposition of the preliminary point raised by the appellant
(respondent by cross-appeal) in the cross-appeal, and with his reasons.
I
am unable to agree, however, that the cross-appeal should be dismissed with
respect to technical interpretations. In my respectful view, the cross-appeal
should be allowed both with respect to disclosure of advance rulings and with
respect to technical interpretations. My reasons follow.
Analysis
Test for production of documents
The
appellant's (respondent by cross-appeal) entitlement to the documents described
in category (ix), that is, advance rulings and technical interpretations, turns
on the interpretation of the disclosure obligation imposed by subsection 82(1)
of the Tax Court Rules:
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.
[emphasis
added]
The
appellant contended before us that the Tax Court Judge erred by adopting a
relevancy test for production of documents under Rule 82(1). It was argued, on
the basis of the decision of this Court in Canada v. Basserman, that "relevance"
was not the test for production of documents. Rather, it was urged, the words
"relating to a matter in question" connote a different and broader
scope than the common law concept of "relevancy".
In
Basserman, this Court addressed the scope of the words "relating
to" in the context of discovery of documents. Mahoney J.A. held for the
Court:
In Nowegijick v. Canada ...
Dickson J., as he then was, delivered the judgment and, at p.200, said:
The words "in respect
of" are, in my opinion, words of the widest possible scope. They import
such meanings as "in relation to", "with reference to", or
"in connection with". The phrase "in respect of" is
probably the widest of any expression intended to convey some connection
between two related subject-matters.
It seems to me that "relating
to" are words of comparable scope.
In my opinion, the words
"relating to any matter in question" in the rules are broad enough to
support the order made and the words "relating to the matter within the
scope of this proceeding" in the order are broad enough to require
production of the third party tax returns in issue. It is not necessary that
they be relevant to any issue to be resolved in the litigation, only that they
relate to a matter in question. The appellant's submissions to us as to their
potential relevance are simply not to the point at this stage.
Thus
"relating to a matter in question" encompasses a broader range of
documents than does the common law concept of relevancy. The words of Rule
82(1) require production of a broad spectrum of documents which "relate
to" the main action. However, these words are not so broad as to dispense
entirely with all requirements of relevance.
Ontario
Rules 30.02(1) and (2) use virtually identical wording to that of Tax Court
Rule 82(1): they subject all documents "relating to any matter in
issue" to discovery. In Discovery Law, Practice and Procedure, the
authors note that the phrase "relating to any matter in issue" simply
requires that the concept of relevance be defined generously at the discovery
stage:
Pursuant to the above subrules
[Ontario Rules 30.02(1) and (2)], all documents "relating to any matter in
issue" are subject to discovery. The authorities are very clear that
relevance is the only test by which to judge whether a document should be
disclosed and produced. ...
Note, however, that relevance in
the discovery process is not to be confused with admissibility for evidentiary
purposes. In the discovery process, everything is relevant which bears upon
any issue raised by the pleadings. The authorities indicate that precise rules
cannot be laid down at the discovery stage as to what is or is not relevant to
the issues pleaded. If the documents have "a semblance of
relevancy", they will be declared producible, leaving it to the trial
judge to make the determination of relevance at trial.
The
standard under Rule 82(1) for production of documents is the same as that for
posing questions on discovery. Holmested & Watson, in Ontario Civil
Procedure note in their commentary on Rule 31.06(1), which, as noted above,
also uses the phrase "relating to":
While clearly irrelevant matters
may not be inquired into, relevancy must be determined by the pleadings
construed with fair latitude. The court should not be called upon to
conduct a minute investigation as to the relevance of each question and where
the questions are broadly related to the issues raised, they
should be answered. The tendency is to broaden discovery and the "right
to interrogate is not confined to the facts directly in issue, but extends to
any facts the existence or non-existence of which is relevant to the existence
or non-existence of the facts directly in issue".
[emphasis
added; citations omitted]
Thus
the phrase "relating to any matter in question" requires that, at the
discovery stage, relevancy must be construed generously, or with fair
latitude. Nonetheless, "semblance of relevancy" should not be
interpreted so broadly that it allows one party to engage in a fishing
expedition, or simply harass the other. A semblance of relevancy exists only
where the documents sought may lead the party seeking discovery
to a train of inquiry which may directly or indirectly advance
its case or damage that of its adversary. Thus the Tax Court Judge adopted the
correct standard for production of documents under Rule 82(1).
Application to the documents in category (ix)
The
Tax Court Judge, then, would have been correct in ordering production of the
technical interpretations and unpublished advance rulings if those documents
might have led the appellant to a train of inquiry which might advance its case
or damage that of the respondent. In this case, however, neither the technical
interpretations nor the advance rulings were capable of assisting the appellant
in this way.
Relevance
must be assessed in light of the issues raised by the appellant in its
pleadings. The appellant alleges that the documents in category (ix)
constitute administrative interpretations which "relate
to" its alternative argument that the Minister misinterpreted section 245
when he found that the appellant's loss transfer was an avoidance transaction.
Administrative
interpretations can be admissible as aids to statutory interpretation.
Administrative interpretations can form part of the legislative history, that
is, they can illuminate the legislative context, purpose and background. Administrative
interpretations such as departmental policy and practice, Department of National
Revenue interpretation bulletins, and technical notes have all been admitted as
aids to the interpretation of statutory ambiguity.
However,
it is not every comment, opinion, memorandum, departmental report or e-mail
produced in the context of departmental interpretation of section 245 that is
admissible as an aid to its interpretation. It should be recalled that
administrative interpretations may be referred to only to illuminate the
meaning of the legislative text. Intra-departmental memoranda and opinions of
individual departmental officials do not reflect the intention of Parliament in
enacting the section.
Technical
interpretations and unpublished advance rulings are not published by the
Department for the general guidance of taxpayers. Thus they are of no
assistance in the proper interpretation of a legislative provision.
Moreover,
technical interpretations, like the documents in categories (i), (ii), (v) and
(vi), do not represent administrative interpretations by the Department.
Technical interpretations are issued by a particular departmental official in
respect of hypothetical questions posed by a particular taxpayer. Unlike
advance rulings, which this Court has recently held to be irrelevant to the tax
liability of another taxpayer, technical interpretations do not purport
to represent the position of the Department of National Revenue. They are
signed by and attributed to a particular departmental employee. Moreover, they
are issued subject to the following caveat:
Please note that the following
document, although believed to be correct at the time of issue, may not
represent the current position of the Department.
It
is clear to me, then, that a particular technical interpretation is not
endorsed by the Department of National Revenue. I have some considerable difficulty,
therefore, understanding how a non-binding, unpublished statement of one
departmental official, in respect of a hypothetical question posed by a
particular taxpayer, which never purpoted to represent the position of the
department, is an "administrative interpretation" which is relevant
to the interpretation or application of a legislative provision of another
taxpayer. The words of Christie A.C.J.T.C. in Shell Canada Ltd. v. The
Queen, though in a different context, are apposite:
To my mind the phrase
"administrative practice", in the context referred to and in relation
to the proceedings at hand, must be taken to mean a practice promulgated by
someone at National Revenue authorized to do so and which employees thereof are
generally expected to follow and apply in the administration and enforcement of
that portion or portions of the Act with which the practice is concerned. It
does not include ad hoc decisions pertaining to particular cases.
Technical
interpretations are not "administrative interpretations" which
reflect on the proper interpretation of a particular taxing provision. Thus
the technical interpretations of section 245 which the appellant seeks are not
capable of assisting its case or damaging that of the respondent. The Tax Court
Judge, then, erred in ordering their production.
Like
technical interpretations, advance rulings are not required or recognized by
the Act, but constitute an administrative service which the Department
provides at the request of particular taxpayers. Each advance ruling is issued
for the guidance of a particular individual taxpayer in respect of a specific
proposed transaction. As the appellant points out, the Department is free to
discontinue issuing advance rulings at any time. Further, and more importantly,
when advance rulings are published, they are typically accompanied by the
following caveat:
Income Tax Rulings are published
for the general information of taxpayers but are considered to be binding on
the Department only in respect of the taxpayer to whom the ruling was given.
In
Minister of National Revenue v. Ford Motor Company Ltd., which was rendered after
the decision of the Tax Court Judge in this case, this Court held that
ministerial decisions as to the tax liability of other taxpayers cannot affect
the tax liability of any taxpayer in a particular case:
Finally, we wish to comment on the
issue of whether the Minister's treatment of other importers under the Act is
relevant to evaluating the Minister's exercise of discretion in this case. The
cross-appellant submits that the Minister's failure to properly exercise his
discretion is evidenced by his differential treatment of similarly situated
importers such as Chrysler Canada and American Motors Canada in his
administration of paragraph 2(1)(f) ...
... we find that,
whatever the similarities or dissimilarities between Ford Canada and its
importing competitors, the Minister's treatment of other taxpayers cannot be
determinative of the tax liability of Ford Canada. The reasons which support this finding are amply expressed in the
decision of the Associate Chief Justice on the interlocutory application in
these proceedings:
The activities of other
automotive manufacturers and the defendant's treatment of those manufacturers
is of no relevance to the plaintiff's action. No matter how similar the
activities of two businesses, if one company can frame its dispute in such a
way as to make another company's affairs relevant, the result would be chaos.
In each individual case the plaintiff must prove that it meets the requirement
of the legislation. Here, if the plaintiff establishes that its manufacturing
activities fall within the definition in s.2(1)(f), then it will be
entitled to the consideration
provided in s.26.1 for "similar goods". That entitlement does not
flow from the fact that other automotive manufacturers have received it but
rather from the fact that the plaintiff meets the requirements in the
legislation.
A
taxpayer's entitlement to a benefit or deduction under the Act cannot be
established on the basis that another similarly situated taxpayer received it,
but only on the basis that the Act establishes the taxpayer's
entitlement. Since a taxpayer is not entitled to rely on treatment of another
taxpayer to establish eligibility for a tax benefit, similar treatment of
similarly situated taxpayers is irrelevant to the appellant's claim that the
Minister erred in finding that the appellant's loss transfer fell within the
scope of subsection 245(2) of the Act. Thus the disclosure of
unpublished advance rulings would not tend to assist the appellant's case or
damage that of the respondent. The Tax Court Judge therefore erred in ordering
that they be produced.
On
the facts of this appeal, the appellant's entitlement to the deduction under
subsections 85(5.1) and paragraph 69(5)(d) of the Act did not and could
not be affected by the unpublished advance rulings or technical interpretations
whose disclosure the appellant seeks. Thus these documents cannot be relevant
to the appellant's alternative claim that the Minster was wrong to have applied
section 245 to the loss transfer at issue in the main action.
Conclusion
For
these reasons, I would allow the cross-appeal with costs and set aside the
order of the Tax Court Judge.
"Julius A. Isaac"
C.J.
A-542-96
CORAM: THE
CHIEF JUSTICE
MARCEAU
J.A.
HEALD
D.J.
BETWEEN:
OWEN HOLDINGS LTD.
Appellant
(Respondent
by Cross-Appeal)
-
and -
HER MAJESTY THE QUEEN
Respondent
(Appellant
by Cross-Appeal)
Heard
at Vancouver, British Columbia, on Thursday, June 19, 1997.
Judgment
rendered at Ottawa, Ontario, on Thursday, July 17, 1997.
REASONS FOR JUDGMENT BY: MARCEAU
J.A.
CONCURRED IN BY: HEALD
D.J.
REASONS DISSENTING IN PART BY: THE CHIEF JUSTICE
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