Docket: A-127-16
Citation: 2017 FCA 65
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CORAM:
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PELLETIER J.A.
RENNIE J.A.
WOODS J.A.
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BETWEEN:
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CBS CANADA
HOLDINGS CO.
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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
PELLETIER J.A.
[1]
CBS Canada Holdings Co. (CBS) appeals from a
decision of Madam Justice Lyons of the Tax Court of Canada, reported as 2016
TCC 85 (Reasons). Justice Lyons (the Tax Court Judge) granted the Minister of
National Revenue’s (the Minister) motion to strike the affidavit CBS filed in
support of its motion to enforce a settlement entered into by its counsel and
counsel for the Minister. For the reasons that follow, I would allow the appeal
with costs and set aside the order of the Tax Court of Canada.
[2]
The essential material facts are not in dispute.
The issue giving rise to the dispute between the parties is the ability of CBS
to apply certain non-capital losses to its income for certain taxation years.
CBS appealed from the Minister’s reassessment of its returns for certain
taxation years. The issue was whether CBS had non-capital losses to apply to
its income for those taxation years.
[3]
On April 24, 2014, CBS (by its counsel) made a
settlement offer which included a schedule of CBS’ losses, Schedule A. Counsel
were in touch with each other over a period of 8 months or so, in the course of
which various matters were finalized. They concluded minutes of settlement, on
behalf of their respective clients, which incorporated Schedule A. On January
7, 2015, counsel advised the Tax Court of Canada that they had reached a
settlement and were awaiting the issuance of the notices of reassessment to
implement the settlement agreement.
[4]
Shortly thereafter, counsel for the Minister
advised counsel for CBS that the Minister was having difficulty implementing
the minutes of settlement. On February 20, 2015, counsel for the Minister wrote
to counsel for CBS to advise that the Minister had determined that there were
no non-capital losses available to CBS and that the Minister could not issue a
reassessment that was contrary to the provisions of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) [the Act].
[5]
Following certain case management proceedings in
the Tax Court of Canada, counsel for CBS filed a notice of motion and
supporting affidavit seeking to have the settlement enforced. The deponent of
the supporting affidavit was Ms. Toaze, a lawyer in CBS’ counsel’s firm. The
affidavit sets out the course of events leading up to the filing of the motion
by reference to a series of documents which were made exhibits to the
affidavit, together with references to a small number of non-controversial
contacts between counsel.
[6]
Counsel for the Minister cross-examined Ms.
Toaze on her affidavit, an exercise which proved unsatisfactory from counsel’s
point of view. Ms. Toaze and counsel for CBS took the position that the former
was not at liberty to disclose any information which was privileged. In
addition, Ms. Toaze would not confirm or deny the existence of the losses
claimed in Schedule A or whether or not she was counsel for CBS. As a result of
these limitations on her cross-examination, counsel for the Minister moved to
have Ms. Toaze’s affidavit struck.
[7]
The Tax Court Judge allowed the motion. She
found that the pivotal or “controversial” issue
in the enforcement motion and in the motion before her was the “accuracy, truth and origin of the non-capital losses in
Schedule A”: Reasons at para. 23.
[8]
This led to a consideration of Rule 72 of the Tax
Court of Canada Rules (General Procedure) SOR/90-688a, (the Rules) which
permits the use of statements based on information and belief in an affidavit
for use on a motion providing that the source of the information and the fact
of the belief are specified in the affidavit. In several paragraphs of the
affidavit, this information was missing.
[9]
The Tax Court Judge reasoned that Rule 72 was
consistent with the principled approach to the admissibility of hearsay
evidence, according to which hearsay evidence is admissible if it meets the
criteria of necessity and reliability. She found that hearsay evidence in an
affidavit must be capable of being tested so as to allow the court to assess
its reliability. The paucity of information surrounding Schedule A as a result
of the various objections taken in the course of Ms. Toaze’s cross-examination
rendered it hearsay: Reasons at para. 36. The limitations placed on
cross-examination of the affiant led the Tax Court Judge to conclude that the
contents of Schedule A were unreliable.
[10]
The Tax Court Judge then considered whether the
choice of Ms. Toaze as the affiant with respect to the controversial issue was
appropriate given her involvement in the file. In particular, the Tax Court
Judge found that Ms. Toaze’s reticence as to whether she was counsel for CBS
amounted to “obfuscation to straightforward questions
that warrant straightforward responses”: Reasons at para. 42. After
referring to the Rules of Professional Conduct of the Law Society of
Upper Canada on the propriety of lawyers swearing affidavits on contentious
issues in matters in which they are advocates, the Tax Court Judge inferred
that the affidavit could have been sworn by a representative of CBS instead of
Ms. Toaze.
[11]
The Tax Court Judge then considered the scope of
cross-examination on an affidavit. She noted that the scope of
cross-examination can vary according to the nature of the application. In this
case, the Tax Court Judge noted that the information in Schedule A was crucial
in the enforcement motion. The Tax Court Judge went on to find that the
limitations on the Minister’s ability to cross-examine were prejudicial to the
Minister’s position.
[12]
The Tax Court Judge’s ultimate conclusion is
succinctly summarized in paragraph 67 of her Reasons:
Applying the principles on a motion to
strike based on hearsay and based on the foregoing reasons, I conclude that the
Affidavit containing hearsay, sworn by the affiant as CBS counsel on a
controversial issue, failed to meet the twin criterion of reliability and
necessity to assist me in evaluating the evidence for the CBS motion. In
exercising my discretion against allowing the Affidavit, as noted by the
Federal Court of Appeal in Pluri Vox, the Court should consider if
evidence could have been supplied by a person other than counsel. CBS personnel
could have done so.
[13]
Having decided to strike the CBS affidavit, the
Tax Court Judge nonetheless gave CBS leave to file another affidavit.
I.
Issues
[14]
The issues in this appeal are the following:
1.
What is the test for striking an affidavit?
2.
Is Schedule A hearsay evidence?
3.
What is the proper scope of cross-examination on
an affidavit?
4.
Was Ms. Toaze a proper affiant?
II.
Analysis
[15]
The decision of the Tax Court Judge to strike
the Affidavit is a discretionary decision reviewable on the standard of
palpable and overriding error except in the case of an error in principle, that
is an extricable question of law: Hospira Health Care Corporation v. Kennedy
Institute of Rheumatology, 2016 FCA 215, [2016] F.C.J. No. 943 (QL).
1.
What is the test for striking an affidavit?
[16]
An affidavit on a motion is tendered for the
purpose of providing the evidentiary basis for the relief sought by a party or
for the objection raised to the granting of the relief sought by the other party.
[17]
An affidavit, or portions of an affidavit, may
be struck (as opposed to being accorded little or no weight) in certain
circumstances:
As a general rule, the affidavit must
contain relevant information which would be of assistance to the Court in determining
the application. As stated by our Court in Dwyvenbode v. Canada (Attorney
General), 2009 FCA 120, the purpose of an affidavit is to adduce facts
relevant to the dispute without gloss or explanation. The Court may
strike affidavits, or portions of them, where they are abusive or clearly
irrelevant, where they contain opinion, argument or legal conclusions, or where
the Court is convinced that admissibility would be better resolved at an early
stage so as to allow the hearing to proceed in a timely and orderly fashion (McConnell
v. Canadian Human Rights Commission, 2004 FC 817, affirmed 2005 FCA 389).
Canada (Attorney General) v. Quadrini, 2010 FCA 47 at para. 18, 399 N.R. 33.
[18]
In this case, it appears that the Tax Court
Judge struck the affidavit because it contained hearsay evidence to prove the
existence and origin of the losses, evidence whose necessity and reliability
was not tested by cross-examination. The Tax Court Judge was also influenced by
the fact that an affiant other than a lawyer from CBS’ firm could have been
found to swear the affidavit.
2.
Is Schedule A hearsay evidence?
[19]
The definition of hearsay evidence is an out of
court statement tendered as proof of its contents. The locus classicus
of the definition of hearsay is Subramaniam v. Public Prosecutor (Malaya),
[1956] UKPC 21, [1956] 1 W.L.R. 965 at 969:
Evidence of a statement made to a witness by
a person who is not himself called as a witness may or may not be hearsay. It
is hearsay and inadmissible when the object of the evidence is to establish the
truth of what is contained in the statement. It is not hearsay and is
admissible when it is proposed to establish by the evidence not the truth of
the statement but the fact that it was made.
[20]
Because the determination as to whether a
statement is hearsay or not depends on the purpose for which it is tendered, no
evidence is, on its face, hearsay: R. v. Baldree, 2013 SCC 35 at para. 3,
[2013] 2 S.C.R. 520.
[21]
The Tax Court Judge was of the view that the
issue before her, as well as in the enforcement motion which had not yet been
heard, was the “accuracy, truth and origin of the
non-capital losses in Schedule A”: Reasons at para. 23-24. She went on
to find that Schedule A was tendered to prove the truth of its contents, namely
to “demonstrate the existence of the non-capital
losses” (Reasons at para. 36), not “merely to
prove the statements were made” (Reasons at para. 25).
[22]
One could reasonably ask how the Tax Court Judge
came to that conclusion. Nothing in the affidavit argued that position and the
parties’ memoranda of fact and law on the enforcement motion had not been filed
at the time the Tax Court Judge heard the motion which was before her.
[23]
CBS asserted the validity of the settlement and
brought a motion to enforce the settlement. In support of that motion, it filed
an affidavit which put the settlement agreement and the course of negotiations
leading up to the settlement before the Court. In response, the Minister
alleged that the settlement it had concluded with CBS was void because it was contrary
to the terms of the Act, a position which was later described as a mistake of
fact. Since the Minister was the one asserting that the settlement was
entered into under a mistake of fact, that the facts did not permit her to give
effect to the settlement, counsel for CBS apparently did not see the need to
attempt to negative the Minister’s assertion.
[24]
The hearsay rule applies to documents as well as
to oral statements. The exceptions to the hearsay rule, such as admissions
against interest, also apply to statements made in documents. But, documents
which are evidence of a settlement are admissible, independently of the hearsay
rule, to prove that the undertakings given by each party to the other were
indeed given. Such documents are not tendered to prove the truth of their
contents but to prove that the words they contain were literally or
figuratively spoken: see Pfizer Canada Inc. v. Teva Canada, 2016 FCA 161
at para. 89.
[25]
To the extent that the documents appended to the
Toaze affidavit were tendered to prove the existence and terms of the
settlement between the parties, they were admissible subject to being tested by
cross-examination, the proper scope of which I will address later in these
reasons.
[26]
The Tax Court Judge was correct to hold that, to
the extent that Schedule A was tendered to prove the truth and origin of the
losses to which it referred, it was inadmissible except to the extent permitted
by the principled approach to the hearsay rule. But, the Tax Court Judge erred
in attributing to CBS an intention which it had not manifested, namely an
intention to prove its non-capital losses by tendering Schedule A. The Tax Court
Judge could not conclude that Schedule A was tendered for the proof of its
contents on the basis that some paragraphs of the Toaze affidavit were not
stated to be on information and belief or that they attested to events as
opposed to documents. To the extent that the Tax Court Judge had difficulties
with specific paragraphs of the affidavit, those paragraphs stand on their own.
[27]
In summary, the Tax Court Judge’s conclusions as
to the basis on which Schedule A and other documents appended to the Toaze
affidavit were tendered was inconsistent with the content of the affidavit
which simply asserted the facts leading to the settlement and the proof of
settlement in the form of the minutes of settlement. It was not open to the Tax
Court Judge to find that CBS was tendering these documents for a wider purpose
and then to hold that its contents were inadmissible for that purpose (and
liable to be struck) because the affidavit’s necessity and reliability were not
tested by cross-examination.
3.
What is the proper scope of cross-examination on
an affidavit?
[28]
Even if the Tax Court Judge erred on the issue
of the purpose for which Schedule A was tendered, the question which remains is
whether counsel for the Minister could nevertheless cross-examine Ms. Toaze on
the origin and accuracy of the non-capital losses in Schedule A on the basis
that “the cross-examiner has the right to put questions
covering all matters relevant to the determination of issues in the motion”:
Reasons at para. 63.
[29]
The scope of cross-examination on an affidavit
has been the subject of a number of decisions in which the relevant principles
are set out: see Ontario v. Rothmans Inc., 2011 ONSC 2504 at para. 143, [2011]
O.J. No. 1896 (QL) and Ottawa Athletic Club Inc. (Ottawa Athletic Club) v.
Athletic Club Group Inc., 2014 FC 672 at paras. 130-33, [2014] F.C.J. No.
743 (QL) [Ottawa Athletic Club]. For the purposes of this motion, I am
prepared to accept as correct the following statement taken from paragraph 132
of Ottawa Athletic Club:
However, there seems to be a consensus that
"[a]n affiant who swears to certain matters should not be protected from
fair cross-examination on the very information he volunteers in his
affidavit," and "should submit to cross-examination not only on
matters set forth in his affidavit, but also to those collateral questions
which arise from his answers": Merck Frosst Canada Inc v Canada
(Minister of National Health and Welfare), [1996] F.C.J. No. 1038 at para
9, 69 CPR (3d) 49 [Merck (1996)], quoting Wyeth Ayerst Canada Inc v
Canada (Minister of National Health and Welfare) (1995), 60 CPR (3d) 225
(FCTD).
[30]
In this case, Ms. Toaze’s affidavit put into
evidence the negotiations leading to a settlement and the minutes of settlement
which evidence this settlement. Any questions on those subjects would be proper
questions that the affiant would be bound to answer. Any collateral matters
would, in my estimation, relate to relevant particulars arising from answers
given in response to those questions.
[31]
Questions seeking to explore the factual basis
of the losses set out in Schedule A are not questions about the information set
out in the affidavit nor are they collateral matters.
[32]
If one takes a wider view of the scope of
cross-examination, as the Tax Court Judge did, then the question becomes
whether Ms. Toaze’s failure to answer questions with respect to the losses in
Schedule A goes to a matter in issue in the proceedings. Since the matter has
yet to be heard by the Tax Court, I will only say that Ms. Toaze’s refusal to
answer questions with respect to the losses in Schedule A does not appear to me
to have deprived the Minister of a fair hearing. If the losses are an issue in
the enforcement motion, then CBS is bound by its choices as to the evidence it
has led. If the issues of necessity and reliability arise, the onus would be on
CBS as the party tendering the evidence to establish those factors, and not on
the Minister to negate them. On the other hand, if the losses are not the issue
then the Minister cannot have been prejudiced by Ms. Toaze’s failure to answer
questions about them.
[33]
In the end, Ms. Toaze’s refusal to answer
questions about the existence of the losses may have deprived the Minister of a
tactical advantage but it does not deprive her of a fair hearing. The tactical
advantage would be the possibility of proving her case from the mouth of CBS’
affiant (assuming the issue to be existence of the losses). The loss of a
tactical advantage is not a breach of procedural fairness: see Canada v. ACI
Properties Ltd., 2014 FCA 45 at para. 25, 459 N.R. 184.
4.
Was Ms. Toaze a proper affiant?
[34]
The Tax Court Judge was critical of the choice
of Ms. Toaze as CBS’ affiant and of her invocation of solicitor-client
privilege in refusing to answer various questions put to her by counsel for the
Minister.
[35]
A good deal of the Tax Court Judge’s criticism
was a function of her view that Schedule A was hearsay evidence so that CBS
must produce a witness who could answer questions that would address the
necessity and reliability of the affidavit evidence. To the extent that CBS has
to date only advanced the affidavit to prove the fact of settlement, the Tax
Court Judge’s criticisms are unfounded.
[36]
The objection taken to Ms. Toaze as affiant was
that it was not necessary to rely upon her for that purpose as others from CBS
would have been able to give the evidence which she put before the Court. Once
again, this is a function of the view taken by the Tax Court Judge as to the
purpose for which the affidavit was tendered. All settlement negotiations were
conducted between counsel. A lay witness would have been in no better position
than Ms. Toaze to give evidence as to the circumstances leading to the minutes
of settlement.
[37]
The Tax Court Judge was also critical of the Ms.
Toaze’s equivocation on the question of whether she was counsel for CBS. This
line of inquiry appears to go to the appropriateness of Ms. Toaze being an
affiant on the motion.
[38]
Language has a habit of evolving so that
distinctions that were once clear may no longer be so. The distinction between
counsel and other members of a firm can be seen in the practice of most
official court reports, such as the Supreme Court Reports. After the headnote
and the list of cases and legislation cited in the reasons, the names of the
lawyers who appeared on behalf of the litigants are listed. Following the
reasons for judgment, there is a list of the law firms who represent the various
litigants. These firms are identified as the parties’ solicitors.
[39]
To the best of my knowledge, this approach comes
to us from the English practice where barristers are all single practitioners
and are instructed by a firm of solicitors. To the extent that this distinction
still holds, it is incorrect to say, as the lawyer who appeared before us on
behalf CBS did, that his firm was counsel for CBS. The firm may be CBS’
lawyers, their solicitors if English usage is followed, but CBS’ counsel is the
lawyer who speaks on their behalf in Court, their barrister. As a result, the
answer to the question as to whether Ms. Toaze was counsel for CBS was
self-evident. She was not. She was a witness for CBS.
[40]
It may be that the underlying reason for this
controversy was solicitor client privilege and Ms. Toaze’s right to invoke it.
This is a false issue as the privilege is the client’s and not the lawyer’s
though it may be claimed for the client by his counsel.
[41]
The Tax Court Judge referred to the Law Society
of Upper Canada’s Rules of Professional Conduct for the proposition that
lawyers who appear as advocates should not submit their own affidavits unless
the matter is purely formal or uncontroverted. The Tax Court Judge went on to
find that Schedule A was controversial, leaving the implication that Ms. Toaze
acted contrary to the Rules of Professional Conduct in affirming her
affidavit.
[42]
This was unfortunate slight upon a lawyer’s
professional reputation. While there was some to and fro as to whether Ms.
Toaze was counsel to CBS, no one suggested, nor could they, that Ms. Toaze had
appeared or was appearing as an advocate for CBS. It was not necessary for the
Tax Court Judge to venture upon this territory in order to deal with the motion
before her.
III.
Conclusion
[43]
To summarize, the Tax Court Judge erred in
principle in concluding prematurely that the contents of the Toaze affidavit
were tendered in proof of their contents. This error led to further errors as
to the scope of cross-examination of Ms. Toaze on her affidavit and the
appropriateness of her affirming her affidavit. This combination of errors led
the Tax Court Judge to strike the Toaze affidavit without justification, a
palpable and overriding error. As a result, I would allow the appeal with costs,
set aside the Tax Court Judge’s order, and dismiss the motion to strike the
Toaze affidavit, also with costs.
"J.D. Denis Pelletier"
“I agree
Donald J. Rennie J.A.”
“I agree
J. Woods J.A.”
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