Docket: A-247-15
Citation:
2016 FCA 71
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CORAM:
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RYER J.A.
WEBB J.A.
RENNIE J.A.
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BETWEEN:
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LOUISE E.
CHEREVATY
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Appellant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS
FOR JUDGMENT
WEBB J.A.
[1]
This is an appeal from the Amended Order of
Favreau J. of the Tax Court of Canada dated May 11, 2015 (Tax Court of Canada
Docket 2012-4171(IT)G) compelling Louise Cherevaty to answer certain questions
at the discovery stage of the Tax Court process.
[2]
For the reasons that follow, I would dismiss
this appeal.
I.
Background
[3]
Ms. Cherevaty was assessed pursuant to the
provisions of section 160 of the Income Tax Act, R.S.C. 1985, c.1 (5th
Supp.) (the Act) for amounts payable under the Act by her spouse,
Anthony M. Speciale. Ms. Cherevaty is only liable under section 160 of the Act
for such amounts payable by her spouse if her spouse transferred property to
her. In this case, since there is no indication that paragraph 160(1)(d) of the
Act is applicable, the amount for which Ms. Cherevaty may be assessed is
the lesser of:
(a)
the fair market value of the property
transferred to her minus the amount of any consideration given for that
property; and
(b)
the amount payable under the Act by her
spouse for the taxation year in which the property was transferred or any
previous taxation year.
[4]
Ms. Cherevaty was assessed under section 160 of
the Act for $113,374. This amount was determined based on a series of
payments made by Ms. Cherevaty’s spouse on a line of credit that was secured by
a mortgage on a property owned by Ms. Cherevaty. It is the position of the
Crown that the amounts borrowed under the line of credit were not provided to
Ms. Cherevaty’s spouse.
[5]
Ms. Cherevaty’s spouse is a lawyer and he signed
the Notice of Appeal dated October 17, 2012 related to her assessment under
section 160 of the Act. Paragraph 6 of that Notice of Appeal stated
that:
The Appellant
states that Section 160 of the Act is not applicable in the circumstances of
this Appeal for at least the following;
(a) no transfer of property has occurred;
(b) the parties involved are by agreement dealing at arms [sic]
length;
(c) consideration has flowed between the transferor (“Speciale”)
and transferee;
(d) the transferor was not liable to pay under the Act at the
time of the transfer related to the specific taxation years.
[6]
The Appellant also alleged other arguments in
support of her position that section 160 of the Act was not applicable
including an argument that “the amounts alleged to have
been advanced to her represent the cost of occupancy for her and/or Speciale in
respect of the subject property…” (paragraph 13 of the Notice of Appeal).
[7]
The Crown filed a Reply dated January 14, 2013.
Following the close of pleadings, a discovery examination of Ms. Cherevaty was
held on April 29, 2014. At that discovery examination, Ms. Cherevaty provided
certain undertakings. By a letter from her counsel dated June 30, 2014 she
provided her response to those undertakings. As a result of the responses that
were provided, a number of questions were posed by the Crown by letter dated
July 11, 2014. Ms. Cherevaty refused to answer most of these questions and it
is this refusal that prompted a motion by the Crown to compel her to answer these
questions that were posed by the Crown.
[8]
The unanswered questions relate to the Personal
Loan/Mortgage Application in relation to the line of credit on which certain
payments had been made by Ms. Cherevaty’s spouse and to amounts that Ms.
Cherevaty had stated were paid as her income. Ms. Cherevaty refused to answer
these questions on the basis that an Amended Notice of Appeal had been filed on
or shortly after July 15, 2014. In this Amended Notice of Appeal she alleged
that the amounts borrowed under the line of credit were advanced to Mr.
Speciale and therefore, when he made payments on the line of credit, he was
simply repaying what he had borrowed. As a result, Ms. Cherevaty’s position was
that the questions posed by the Crown in relation to the accuracy of the
statements made in the application for the line of credit or the appraisal on
the house pledged as security for the line of credit were no longer relevant.
As well, Ms. Cherevaty’s position is that the questions related to amounts that
Ms. Cherevaty had previously claimed were her income (that she had directed be
paid to 715866 Ontario Limited) were also no longer relevant.
II.
Order of the Tax Court
[9]
The Tax Court Judge issued a very brief Amended Order
which provided as follows:
UPON
motion by the Respondent, pursuant to section 110 of the Tax Court of Canada
Rules (General Procedure), for an Order directing the Appellant to answer
follow-up questions 1(a), 1(b), 1(d), 2(a), 2(b), 2(c), 2(d), 2(e), and 2(f)
put to her by the Respondent, which arose from undertakings given at the
Examination for Discovery of the Appellant, held on April 19, 2014;
AND UPON having
heard the parties;
AND UPON being
satisfied that questions 1(a), 1(b), 1(d), 2(a), 2(b), 2(c), 2(d), 2(e), and
2(f) are relevant since one of the purposes of discovery is to enquire about
all matters that may have some bearing on the issues at trial and since the
questions put to the Appellant are clearly not abusive, do not form part of a
delaying tactic and are not clearly irrelevant;
IT IS ORDERED THAT the motion filed by the Respondent is
allowed with costs and the Appellant is compelled to answer questions 1(a),
1(b), 1(d), 2(a), 2(b), 2(c), 2(d), 2(e), and 2(f) in writing before June 8,
2015.
III.
Issues
[10]
The Appellant raises two issues in this appeal:
(a)
Whether the Tax Court Judge erred by failing to
provide adequate reasons for his decision; and
(b)
Whether the Tax Court Judge erred by finding
that the questions in issue were relevant.
IV.
Adequacy of Reasons
[11]
In R. v. R.E.M., [2008] SCC 51, [2008] 3
S.C.R. 3, McLachlin C.J., writing on behalf of the Supreme Court of Canada,
referred to several cases dealing with the issue of the sufficiency of reasons
and then stated that:
35 In summary, the cases confirm:
(1) Appellate
courts are to take a functional, substantive approach to sufficiency of
reasons, reading them as a whole, in the context of the evidence, the arguments
and the trial, with an appreciation of the purposes or functions for which they
are delivered (see Sheppard, at paras. 46 and 50; Morrissey, at p. 524).
(2) The
basis for the trial judge's verdict must be "intelligible", or
capable of being made out. In other words, a logical connection between the
verdict and the basis for the verdict must be apparent. A detailed description
of the judge's process in arriving at the verdict is unnecessary.
(3) In
determining whether the logical connection between the verdict and the basis
for the verdict is established, one looks to the evidence, the submissions of
counsel and the history of the trial to determine the "live" issues
as they emerged during the trial.
This summary is not exhaustive, and courts
of appeal might wish to refer themselves to para. 55 of Sheppard for a more
comprehensive list of the key principles.
[12]
In this appeal, in my view, the purpose or
function for which the reasons are being delivered by the Tax Court Judge is
critical. The reasons are being delivered to support a decision to compel a
person to answer certain questions at the discovery stage. The reasons are not
being provided in relation to the final determination of the appeal on its
merits.
[13]
The requirement to compel a witness to answer a
question could arise in two situations – one, as here, where the issue arises
during or following discovery examinations and the other where the issue arises
in the course of a hearing. If counsel for one party during a hearing should pose
a question to a witness and counsel for the opposing party should object on the
basis that the question is not relevant, the Judge would not be expected to
halt the hearing while he or she prepares detailed reasons to explain why the
witness should be compelled to answer the question or why the question is
irrelevant. The Judge will simply rule whether the witness is to answer the
question.
[14]
In my view, there should not be any greater
requirement to give detailed reasons when the issue of whether a witness should
answer a question arises during or following discovery examinations. Judges
have a broad discretion to determine relevancy at the discovery stage and any
requirement for a Judge to provide a detailed explanation of why a Judge should
consider a particular question to be relevant or not relevant, particularly at
this stage when the Judge has only limited exposure to the case, would not be
in the interests of the efficient determination of pre-trial matters.
[15]
In this case the Tax Court Judge stated what he
had decided (that the witness should answer the question) and why (because it
is relevant). The Tax Court Judge should not be required to provide any further
explanation of why he concluded, in this case, that the question was relevant
just as no further explanation would be required of a trial Judge who concludes
that a question posed during a hearing is relevant.
V.
Relevancy of the Questions
[16]
In 684761 B.C. Ltd. v. Canada, 2015 FCA 123,
[2015] F.C.J. No. 626, this Court stated that:
3 The determination of whether a particular question is
permissible or relevant is typically a question of mixed fact and law. Unless
an extricable error of law is established (such as using the wrong test in
respect of relevance), this Court will only intervene where a palpable and
overriding error is established (Canada v. Lehigh Cement Ltd., 2011 FCA
120, [2011] F.C.J. No. 515 at paragraphs 24-25, Grenon v. Canada, 2011
FCA 147, [2011] F.C.J. No. 637 at paragraph 2, Reddy v. Canada, 2012 FCA
85, [2012] F.C.J. No. 336 at paragraph 6).
[17]
The onus is on Ms. Cherevaty to show that either
the Tax Court Judge used the wrong test for relevancy or that he committed a
palpable and overriding error.
[18]
In HSBC Bank Canada v. Her Majesty the
Queen, 2010 TCC 228, [2010] T.C.J. No. 146, C. Miller J. summarized the
principles that had been applied by that Court in relation to discovery
examinations:
13 Both parties provided useful summaries of how this Court has in the
past addressed the question of the scope of examinations for discovery. Justice
Valerie Miller recently summarized some of the principles in the case of Kossow
v. R [2008 D.T.C. 4408]:
1. The principles for relevancy were stated by Chief Justice
Bowman and are reproduced at paragraph 50:
a) Relevancy on discovery must be broadly and liberally
construed and wide latitude should be given;
b) A motions judge should not second guess the discretion of
counsel by examining minutely each question or asking counsel for the party
being examined to justify each question or explain its relevancy;
c) The motions judge should not seek to impose his or her
views of relevancy on the judge who hears the case by excluding questions that
he or she may consider irrelevant but which, in the context of the evidence as
a whole, the trial judge may consider relevant;
d) Patently irrelevant or abusive questions or questions
designed to embarrass or harass the witness or delay the case should not be permitted.
2. The threshold test for relevancy on discovery is very low
but it does not allow for a "fishing expedition": Lubrizol
Corp. v. Imperial Oil Ltd., [1996] F.C.J. No. 1564.
3. It is proper to ask for the facts underlying an
allegation as that is limited to fact-gathering. However, it is not proper to
ask a witness the evidence that he had to support an allegation: Sandia
Mountain Holdings Inc. v. The Queen, [2005] T.C.J. No. 28.
4. It is not proper to ask a question which would require
counsel to segregate documents and then identify those documents which relate
to a particular issue. Such a question seeks the work product of counsel:
SmithKline Beecham Animal Health Inc. v. R., [2002] F.C.J. No. 837.
5. A party is not entitled to an expression of the opinion
of counsel for the opposing party regarding the use to be made of documents: SmithKline
Beecham Animal Health Inc. v. The Queen.
6. A party is entitled to have full disclosure of all
documents relied on by the Minister in making his assessment: Amp of
Canada Ltd., v. R., [1987] F.C.J. No. 149.
7. Informant privilege prevents the disclosure of
information which might identify an informer who has assisted in the
enforcement of the law by furnishing assessing information on a confidential
basis. The rule applies to civil proceedings as well as criminal proceedings: Webster
v.R., [2002] T.C.J. No. 689.
8. Under the Rules a party is not required to provide
to the opposing party a list of witnesses. As a result a party is not required
to provide a summary of the evidence of its witnesses or possible witnesses: Loewen
v. R., [2006] T.C.J. No. 384.
9. It is proper to ask questions to ascertain the opposing
party's legal position: Six Nations of the Grand River Band v. Canada,
[2000] O.J. No. 1431.
10. It is not proper to ask questions that go to the mental
process of the Minister or his officials in raising the assessments: Webster
v. The Queen.
14 The following additional principles can be gleaned from some
other recent Tax Court of Canada case authority:
1. The examining party is entitled to "any information, and
production of any documents, that may fairly lead to a train of inquiry that
may directly or indirectly advance his case, or damage that of the opposing
party": Teelucksingh v. The Queen [2010 TCC 94]
2. The court should preclude only questions that are "(1)
clearly abusive; (2) clearly a delaying tactic; or (3) clearly
irrelevant": John Fluevog Boots & Shoes Ltd. V. The Queen
[2009 TCC 345]
15 Finally in the recent decision of 4145356 Canada Limited v.
The Queen [2009 TCC 480] I concluded:
(a) Documents
that lead to an assessment are relevant;
(b) Documents in CRA files on a taxpayer are prima facie
relevant, and a request for those documents is itself not a broad or vague
request;
(c) Files reviewed by a person to prepare for an examination for
discovery are prima facie relevant; and
(d) The fact that a party has not agreed to full disclosure under
section 82 of the Rules does not prevent a request for documents that may seem
like a one-way full disclosure.
[19]
In this case, the first group of questions
relate to the application for the line of credit and the appraisal of the
property pledged as security for this line of credit. In my view, Ms. Cherevaty
has failed to demonstrate that the Tax Court Judge committed any error in
compelling her to answer these questions as relevancy is to be interpreted
broadly and liberally at the discovery stage and the line of credit is at the
centre of the dispute between the parties.
[20]
The follow-up questions related to her income
arose because her counsel, in the letter dated June 30, 2014, stated that “[t]he Appellant was paid income from Anthony’s law practice
of $75,000, $75,000 and $25,000 for 2006, 2007, and 2008 taxation years,
respectively. T4A slips were issued in respect of such. The funds were not paid
to the Appellant as she directed them to be deposited to 715866 Ontario Limited
and treated as a payable to her.”
[21]
In my view the follow-up questions related to
her income are intended to clarify the response provided by the counsel for Ms.
Cherevaty. According to the letter from the Crown dated July 11, 2014, the T4A
slips for Ms. Cherevaty indicated a significantly lower amount of income for
2006 and 2007 than the $75,000 that she had stated was her income in the letter
from her counsel. This train of inquiry related to amounts that may have been her
income started before the Amended Notice of Appeal was filed. The Appellant has
failed to establish that the Tax Court Judge committed any error in allowing
this train of inquiry to continue in this case where the answers to the
undertakings raise more questions as a result of the discrepancies between her
answers and documents that had been filed with the Canada Revenue Agency.
[22]
As a result, I would dismiss the appeal, with
costs.
"Wyman W. Webb"
“I agree.
C. Michael Ryer J.A.”
“I agree.
Donald J. Rennie J.A.”
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