Canderel Limited v. Her Majesty the Queen, [1993] 1 CTC 2762, 93 DTC 467

Brulé, T.C.C.J.:—Two motions were presented to the Court, one by each party, as follows:

1. by the respondent/applicant (” respondent") for an order that a subpoena duces tecum be set aside on the basis that it was an abuse of process.

2. by the appellant/applicant ("appellant") for an order pursuant to section 93 of the Tax Court of Canada Rules ("general procedure") for leave to examine for discovery a knowledgeable officer of the respondent.

Facts

For the purpose of these motions the relevant facts are herein set out. The appellant was reassessed for its 1986 taxation year during which it paid $1,208,369 as lease inducements. This amount was deducted by the appellant in its 1985 and 1986 taxation years and such deductions were disallowed, the respondent claiming that such amounts must be amortized over the life of the leases. In an attempt to determine this issue, the motions referred to above, were brought by the respective parties. The motions were heard on common evidence which was given by way of affidavit.

Motion to set aside subpoena

A notice of motion dated February 22, 1993, was filed by the respondent for an order that a subpoena duces tecum dated February 15, 1993 or the part of that subpoena commanding the production of documents be set aside pursuant to section 65 of the general procedure. The subpoena required the attendance of a Mr. Holtz, Chief of the Leasing and Financing section of the Rulings Directorate of Revenue Canada, Taxation, and required him to bring:

All briefs, submissions, reports, studies, memoranda, notes, opinions, interpretations, discussion papers, positions papers, proposals, projects, statements, notices, correspondence, minutes, resolutions, rulings, decisions, instructions, policies, procedures, documents, records and material relating to lease inducement payments.

This was attacked on the grounds that it was an abuse of process because it sought to frustrate the rules regarding discovery and that it was vague. The subpoena was attacked on the alternative grounds that it failed to restrict the demand for documents to those relied on or prepared in confirming or raising the subpoena in issue or that it demanded the appearance of a person without knowledge of the matters in issue.

Counsel for the respondent argued that the Court has the inherent jurisdiction to prevent an abuse of process and the power to restrain the oppressive use of subpoena as found in Brittain Steel Fabricators Ltd. v. Amiabel (1967), 64 D.L.R. (2d) 663 (B.C.S.C.). He cited Drewery v. Century City Developments Ltd. (No. 1) (1974), 6 O.R. (2d) 288, 52 D.L.R. (3d) 512, at page 290 (O.R.) (Ont. H.C.), for the proposition that a subpoena will be set aside where the evidence to be adduced from the witness is inadmissible. He argued that, because the documents were not relied on in the making of the assessment and relate to the activities of other taxpayers, it cannot be said that they are material or relevant and therefore the subpoena should not stand. He further argued that the subpoena was an abuse of process within the principles enunciated in The Queen v. Special Risks Holdings Inc., [1984] C.T.C. 563, 84 D.T.C. 6215 (F.C.A.), affirming [1984] C.T.C. 71, 84 D.T.C. 6054 (F.C.T.D.).

Analysis

I find that the motion was not a last minute attempt to delay the trial of this action. Moreover, I am by no means convinced that the subpoena would result in the production of irrelevant evidence the admissibility of which is in issue.

The subpoena is worded in a manner which could possibly entail the production of irrelevant documents because it fails to limit which documents must be produced. Under Dalgleish v. Basu (1974), 51 D.L.R. (3d) 309, [1975] 2 W.W.R. 326 at page 312 (W.W.R. 330) (Sask. Q.B.), the subpoena must specify with as much precision as is fair and feasible the particular documents desired. The witness must know what is not needed; he must have a chance to familiarize himself with the documents required. Where he has only a passing interest in the case, there must be no onerous duty on him to identify documents and the subpoena must take into consideration the scope of the investigation. Although the subpoena fails to meet this test, it was conceded by counsel for the appellant that it was the result of an abundance of caution. In my opinion, it is possible and appropriate to eliminate this problem through rewording the subpoena as follows:

. . all documents, records and material in his possession, within his knowledge or within his control relating to lease inducement payments made by Canderel Ltd.

There is no hardship to the respondent or Mr. Holtz in demanding such production. The documents are relevant because they go to the issues of which method is most accurate and whether the respondent's position has remained consistent. It is possible that Mr. Holtz will provide information which will be of assistance in narrowing the issues at trial. Therefore, the respondent's motion is denied and the subpoena duces tecum is ordered to be redrafted as above.

Motion for further discovery

This notice of motion, filed by the appellant, was dated February 23, 1993. Counsel for the appellant argued that the Crown had recast its case since the completion of discovery and that the parties had gone to discovery on the basis that the Crown assumed that the treatment of tenant inducement payments by the appellant was inconsistent with generally accepted accounting principles. After the January 1993 amendment, it was argued that, the issue had become what was the most accurate method in making the computation. It was submitted that the facts upon which this conclusion was based have not been revealed. It was further submitted that this position is different than the original basis for the assessment and, therefore, the appellant has had no discovery on that issue of fact. Counsel stated that this was not a case where the problem was caused by an error or omission of the appellant.

The Court was cited the case of Albrechtsen v. M.N.R., [1989] 2 W.W.R. 81, 89 D.T.C. 5072 at page 83 (D.T.C. 73) (Man. Q.B.) as approving the dual principle that the purpose of discovery is to procure admissions to facilitate proof at trial and to know the case one has to meet. Discovery, it was argued, was needed in the case at bar to establish the most accurate method to deduct the lease inducement payments and to establish in discovery that there was no basis for the Minister's position, and to show that the method used by the appellant was the most appropriate. Counsel cited M.N.R. v. Huron Steel Fabricators (London) Ltd., [1973] C.T.C. 422, 73 D.T.C. 5347 at pages 426-27 (D.T.C. 5351) (F.C.A.) for the principle that, due to the special nature of the onus in an income tax case, it should not be lightly assumed that there will be nothing in the documents to fulfil either of these functions. He argued that the case stood for the proposition that the taxpayer will be entitled to the production of material where it was relied upon in the assessment. He further cited Weight Watchers International Inc. v. Daniels, [1973] F.C. 346, 9 C.P.R. (2d) 141 at pages 348-49 (C.P.R. 142-43) (T.D.) as endorsing the proposition that a second examination may in some cases be permissible.

He argued that the treatment of the Minister of National Revenue of similarly situated taxpayers was not relevant to an appeal (Oro Del Norte, S.A. v. Canada, [1990] 2 C.T.C. 67, 90 D.T.C. 6373 at page 70 (D.T.C. 6375) (F.C.T.D.)) and did not apply to the case at bar because, in this case, the information was relevant to the issue of whether the Crown consistently accepted this treatment as appropriate.

Analysis

The general tendency of courts to grant discovery must be balanced against the tendency of parties to attempt to engage in fishing expeditions, see: Burnaby Machine & Mill Equipment Ltd. v. Berglund Industrial Supply Co. (1984), 81 C.P.R. (2d) 251 at page 254 (F.C.T.D.). Before compelling an answer to any question on an examination for discovery, the Court must weigh the probability of the usefulness of the answer to the party seeking the information with the time, trouble, expense and difficulty involved in obtaining it (Reading & Bates Construction Co. v. Baker Energy Resources Corp. (1988), 25 F.T.R. 226,24 C.P.R. (3d) 66 at page 230 (C.P.R. 71) (F.C.T.D.). Any documents not relied on in the assessment process are not relevant under Oro Del Norte S.A., supra, because they relate solely to the activities of other taxpayers. Ford Motor Co. of Canada v. M.N.R., [1991] 3 F.C.D. 20 (F.C.T.D.) enunciated a similar proposition.

The nature of this case is such that there is no factual dispute and all pertinent facts are within the knowledge of the appellant. The amendments were not a surprise because the appellant was notified in discovery and, furthermore, the result of the cumulative amendments is that there is a less onerous burden of proof on the appellant. Therefore, a need for further discoveries has not been established.

The issue will be whether the accrual method more accurately represents the income of the taxpayer (West Kootenay Power and Light Co. v. Canada, [1992] 1 C.T.C. 15, 92 D.T.C. 6023 (F.C.A.). Because of the nature of the issue, the primary dispute will be between differences in expert opinion, disclosure of which has taken place under subsection 95(3) of the general procedure. In light of my decision in upholding the subpoena, the need for further examination for discovery has been obviated and it is difficult for this Court to comprehend what, if any, additional relevant information, is expected from further examination for discovery. Therefore, the motion by the appellant for an order pursuant to Rule 93 of the general procedure granting the appellant leave to examine for discovery a representative of the respondent is refused.

Costs will be in the cause.

Application refused.