569437 Ontario Inc. v. Her Majesty the Queen, [1994] 2 CTC 2399, 94 DTC 1922

Christie A.C.J.T.C.:— This is a motion on behalf of the respondent seeking an order:

(a) requiring a knowledgeable officer, director, member or employee of the appellant to resubmit to an examination for discovery of the appellant and answer the questions that the appellant's representative did not properly answer at the oral examination for discovery held on April 28 and 29, 1994, (set out in Schedule "A" hereto) and any further uestions arising as a consequence of the answers given by the representative of the appellant to those questions; and

(b) requiring the appellant to pay the costs of this applicationand the respondent's costs of reattending at an examination for discovery forthwith in any event of the cause.

The respondent also asks for an order:

(c) requiring the appellant to fulfil the undertakings (set out in Schedule “B” hereto) entered into at the oral discovery on April 28 and 29, 1994.

What is sought in paragraph (c) can be quickly disposed of because that request is uncontested. Counsel for the appellant concedes that there is an obligation on his client to honour 25 of the 26 undertakings described in Schedule "B". Undertaking numbered 8 has been disposed of to the satisfaction of the respondent. Mr. Chalmers said that efforts have been made and will continue to be made by counsel in fulfilment of the commitments made. It appears that there has been some difficulty in securing the necessary assistance from Mr. Michael J. Stenyk the sole director, officer, shareholder and employee of the appellant.

The only thing to be done is to set a date by which the undertakings shall be fulfilled. At the hearing I selected August 29, 1994, as that date.

With reference to additional discovery it is noted that subsection 95(1) of the Tax Court of Canada Rules (General Procedure) ("the General Rules") requires that a person examined for discovery shall answer, to the best of that person's knowledge, information and belief, any proper question relating to any matter in issue in the proceedings. Reference is also made to Sydney Steel Corp. v. The "Omisalj" (1992), 52 F.T.R. 144, [1992] 2 F.C. 193, wherein Mr. Justice MacKay of the Federal Court-Trial Division said at page 147 (F.T.R.):

Counsel for the parties are essentially agreed that the standard for propriety of a question asked in discovery is less strict than the test for admissibility of evidence at trial and the appropriate standard is whether the information solicited by a question may be relevant to the matters which at the discovery stage are in issue on the basis of pleadings filed by the parties. As noted by the defendants the test is as set out by Norris D.J.A., in Me Keen & Wilson Ltd. v. Gulf of Georgia Towing Co. Ltd., [1965] 2 Ex. C.R. 480, at page 482:

. . .the questions objected to may raise matters which are relevant to issues raised on the pleadings. This is all that the defendants are required to show. As to whether or not they are relevant and admissible at the trial is a matter for the learned trial judge.

And at page 148:

. . .when objection is taken that a question is not properbecause it is not relevant for reasons given, the party asking the question must satisfy the Court that the information it seeks may be relevant to a fact in issue. That standard is not likely to be difficult to meet in light of the goal of openness which the rules seek to foster in pretrial proceedings, particularly discovery, a goal which is the same whether discovery be oral or by written questions. Moreover, it is settled that where there is doubt as to whether the question need be answered the benefit of that doubt, in light of the principal goal of openness, favours requiring the answer to be given: (Royal Specialty Sales v. Mayda Industries Ltd. (1986), 4 ET.R. 77, 10 C.P.R. (3d) 131 (F.C.T.D.) per Madame Justice Reed at page 79).

I adopt these two propositions in the reasons for judgment delivered by Chilcott J., in Algoma Central Railway v. Herb Fraser and Associates Ltd. et al. (1988), 36 C.P.C. (2d) 8, 66 O.R. (2d) 330 (Div. Ct.). He was sitting as a member of the Divisional Court of the Supreme Court of Ontario on an appeal from an order of Montgomery J. First, there is a broader standard of relevance regarding questions asked at the discovery stage of proceedings than at trial. Second, questions asked on examination for discovery may be proper bearing in mind that issues of admissibility and weight to be assigned to evidence at trial are for the trial judge to determine.

I shall deal with each of the six refusals in turn.

1. Refusal to provide the names and addresses of individuals who are knowledgable or may be knowledgable about the events which are in issue in this case, either the transactions which we have discussed in detail or the alleged research and development itself.

Counsel agreed this should be amended to read, as follows:

1. Refusal to provide the names and addresses of individuals who might reasonably be expected to have knowledge about the events which are in issue in this case, either the transactions which we have discussed in detail or the alleged research and development itself.

This wording is in line with subsection 95(4) of the General Rules. Mr. Chalmers told the Court that the paragraph as amended would be answered.

2. Refusal to advise whether the appellant continues to own the patents it acquired in one of the transactions in issue and if the appellant does not own them, the details of any transfer which has taken place, including to whom they were conveyed, the circumstances under which they were conveyed, and for how much.

This should be answered.

3. Refusal to produce any documents within the appellant’s control which relate to the contract with Gerotor Motor (sic) Systems, including the negotiation of the contract, the establishment of the terms, and reporting letters from counsel.

This exchange between counsel occurred at the examination for discovery of Mr. Stenyk on April 29, 1994.

MS BROWN: And, in fact, I ask you to make best efforts to produce any documents within the appellant’s control which relate to the contract with Gerotor Power Systems and to the payments of the contract.

MR. BIRLEY: Well, you've —MS BROWN: I’ve asked you for background about the contract —MR. BIRLEY: — got the contract.

MS BROWN: — which might be in Mr. Weir's — yes, but any documentation which relates to the negotiation of the contract, the establishment of the terms, the reporting letters from counsel and, as well, I’m asking for any documentation which goes to show that the amounts were, in fact, paid.

MR. BIRLEY: Well, I don't think that any documents related to the negotiation of the contract are relevant. Once the contract’s been entered into, it is the agreement.

If I can locate a reporting letter, I will take it under advisement as to whether or not I'll make that available to you.

These documents and questions about them may raise matters that are relevant to issues raised on the pleadings. On being further examined Mr. Stenyk shall answer questions regarding the existence of any documents pertaining to the contract, including the negotiation of the contract, the establishment of the terms, and reporting letters from counsel. Such of these documents that exist shall be produced at the further examination and questions regarding them shall be answered. A list of them shall be served on the respondent prior to the further examination for discovery. If solicitor-client privilege is invoked with reference to one or more of these documents and there is a dispute about this the issue can be settled at the trial unless counsel for the respondent considers it necessary to make a further interlocutory application in this regard.

Counsel for the respondent did not hear from Mr. M.C. Birley about the existence of a reporting letter. At the hearing Mr. Chalmers was asked from the Bench about the existence of reporting letters. He was unable to reply, but undertook to ascertain the answer. The trial is scheduled to commence at 9:30a.m. on November 16, 1994 and I expect there may be much to do by way of preparation. For this reason I wish to deal with this motion expeditiously and the order will be made without waiting further to hear from Mr. Chalmers

4. Refusal to provide the financial statements of the appellant for the years subsequent to the 1988 taxation year.

This exchange between counsel occurred at the examination for discovery on April 29, 1994.

MS BROWN: Can you produce for me, please, the financial statements and tax returns of the appellant for years subsequent to 1988?

MR. BIRLEY: Why?

MS BROWN: Because as I understand, there's been activity ongoing throughout the continued progress of this so-called R&D project that is relevant to the appeal.

MR. BIRLEY: It's not relevant to the appeal and I won't produce it.

These documents may be relevant to issues between the parties. On being further examined Mr. Stenyk shall answer questions regarding the existence of any financial statements or income tax returns of the appellant for years subsequent to 1988. Such of these documents that exist shall be produced at the further examination and questions regarding them shall be answered. A list of these documents shall be served on the respondent prior to the further examination for discovery.

5. Refusal to advise whether the witness, the sole director, officer, shareholder and employee of the appellant, has been involved in any activity involving the Gerotor Motor outside the context of the appellant.

As I understand it counsel for the appellant suggested at the hearing that the answers are to be found in the transcript of the examination for discovery and, in particular, at pages 29 to 47. I do not find the answers there.

There was some discussion at the hearing about the precise meaning of the words "in the context of the appellant". I believe that it would be more accurate and understandable to word the paragraph in this way:

5. Refusal to advise whether the witness has been involved in any activity involving the Gerotor Motor other than in his capacity as the sole director, officer, shareholder and employee of the appellant.

Paragraph 5 as amended should be answered.

6. Refusal to describe the efforts to raise funds for the appellant since September, 1985.

This should be answered.

Mr. Stenyk shall reattend to be further examined for discovery. The further examination for discovery shall be conducted at a date to be agreed upon by counsel. If there is no agreement it will take place not later than August 31, 1994.

In any event of the cause the respondent is entitled to costs of this motion and costs for reattending at the further examination for discovery. These costs shall be paid not later than October 1, 1994.

Motion granted.