Crestbrook Forest Industries Ltd. v. Her Majesty the Queen, [1991] 2 CTC 195, 91 DTC 5521

Joyal, J.: —In these proceedings relating to an income tax appeal, the plaintiff taxpayer seeks an order from this Court for the production by the defendant of certain confidential documents in its possession.

These documents were filed by a large constituency of Canadian pulp and newsprint companies in response to a request by Revenue Canada which had commissioned T.M. Thomson & Associates Ltd. of Victoria, B.C., to make a survey of pulp and newsprint pricing discounts and commissions in that industry. This required the companies to make a voluntary disclosure of very confidential and sensitive information on their individual policies relating to discounts and commissions. To secure their collaboration, both the T.M. Thomson people and Revenue Canada had to assure the participants that the information would be protected by the strictest confidentiality.

It was on that basis that the information was voluntarily disclosed. It was analyzed by T.M. Thomson and its report, hereinafter referred to as the Thomson Report, was produced in July of 1987. The Report is a summary of the data accumulated relevant to its field of enquiry and establishes a “reasonable range" of arm's length pulp and newsprint discounts and commissions.

The Thomson Report would not have caused any rumblings were it not for the action taken by Revenue Canada in reassessing the plaintiff for the years 1984, 1985 and 1986 on the grounds that the plaintiff's discount allowed to its customers was in excess of reasonable pulp sales discounts in that industry and such excess should be added back to the plaintiff's income for those years. The plaintiff then appealed to this Court.

It became clear on the exchange of pleadings between the parties arid on discovery of the Crown's witness, Mr. H. M. Becker, that the Crown's reassessment was on the assumption that a reasonable pulp sales discount was much lower than the one allowed by the plaintiff and further, that support for the assumption was derived from the Thomson Report to which I have referred.

An "edited" version of the Report was produced but the Crown properly objected to full production of all the supporting documents on the grounds that it contained third party information obtained on condition of confidentiality. The Crown took the position that unless such third parties consented to the production, it would only do so pursuant to an order of this Court.

On December 3 and on December 7, 1990, in Vancouver, pursuant to a notice of motion filed on November 20, the plaintiff duly applied for an order of production of the documents. At that hearing, which was held before me, counsel for a number of pulp and newsprint companies intervened and opposed the granting of the order. A couple of other companies did not oppose it.

After hearing the parties on various issues, it was suggested by the Court that further discussions take place between plaintiff and the intervenors. The plaintiff agreed to withdraw its motion and I issued an order accordingly.

A new notice of motion returnable January 21, 1991 was filed by the plaintiff and it came on for hearing before Walsh, D. J. Again, a number of counsel appeared and several representations were made. If I interpret properly the abstract of that hearing, however, there seemed to have developed some kind of consensus where the documents might grudgingly be allowed to be produced subject to strict and detailed confidentiality conditions. It was therefore left to plaintiff's counsel to draft an appropriate order which would be circulated to the intervenors for their approval.

Unfortunately that process bogged down as specific terms and expressions in the draft order were inserted or deleted by all who had a hand in it. Consensus could not be achieved. And so the matter came on again before the Court for judicial determination.

Certain it is that on the facts of the case, there is no dispute. All parties agree that the information for which discovery is sought was submitted by the several pulp and paper companies under an undertaking of confidentiality. The Crown concedes this and says that, in the circumstances, in no way will it produce that information without an order of this Court. For the rest, the Crown leaves it to the plaintiff and the several intervenors to battle it out.

The position taken by those intervenors who have taken a strong position against disclosure is that such would be a breach of confidence which would seriously impair their competitive positions. In analyzing Court decisions in such cases, counsel refers to a number of cases where a distinction was made between the disclosure of confidential information imposed by law and of information voluntarily given. For example, in M.N.R. v. Huron Steel Fabricators (London) Ltd., [1973] F.C. 808; [1973] C.T.C. 422; 73 D.T.C. 5347, the Crown had resisted the disclosure of tax returns and financial statements of another company which had been used in assessing Huron Steel. The Court found that, on balance, the public interest asserted by the Crown was outweighed by the public interest in the proper administration of justice.

On the onus which a challenge to a tax assessment imposes on a taxpayer, Thurlow, J., at page 812, said as follows:

The onus which the income tax law places on a taxpayer to demolish the assumed facts upon which the taxation rests is not so easily discharged in most cases as to permit counsel or anyone else lightly to assume or to accept that nothing is to be found in the documents upon which an assessment is based that will either aid the establishment of the taxpayer's case or help to destroy the Minister’s assumptions and when, as here, the Minister’s assumptions have admittedly been based on the returns in question it seems to me to be manifest both that the need of the respondents for production of these returns is made out, an impression which to my mind is reinforced by my examination of the returns, and that a very strong public interest in keeping them from production would be required to outweigh the public interest in the proper administration of justice which would be served by their production.

Counsel for the intervenors suggests that another line is taken when the information is voluntarily provided to the Crown under strict confidential cover. Counsel cites two cases from this Court, Electrohome Limited v. Deputy Minister of National Revenue for Customs and Excise, No. T-2726-85, January 31, 1986, which followed the position of the Court taken in Vanguard Coatings and Chemicals Ltd. v. M.N.R., [1986] 2 C.T.C. 139, 431; 86 D.T.C. 6342, 6552. In the latter case, Rouleau, J. had this to say:

In this case the applicants maintain that they are being treated unfairly by virtue of the Deputy Minister’s refusal to provide them with the confidential information as requested. That argument must fail. The applicants have failed to provide this Court with any evidence of unfair treatment; they have failed to produce any evidence to indicate that the Deputy Minister may have used or been provided with incorrect information in his investigations. In effect, the applicants have failed to provide any reason as to why I should reverse the decision of the Deputy Minister except that they want the confidential information in order to ensure that the Deputy Minister has correctly fulfilled his statutory duty in determining normal value, export price and the resultant margin of dumping. In my view, the applicants have no statutory nor common law right to the confidential information nor do they have the right to force the Deputy Minister to solicit their assistance in the performance of his statutory duty. I am not satisfied that the Deputy Minister's refusal to disclose the confidential information in his possession is a breach of any common law duty of fairness.

On the factual situation facing the Court, counsel for the intervenors conclude that disclosure would undermine the willingness of members of an industry in supplying proprietary information if there is a perceived risk of prejudicing their competitive position. Further, the requirements imposed on the Crown to apply properly the rules relating to reasonable commissions, discounts and fair pricing generally under the Income Tax Act would be frustrated if the voluntary participation of the members of a particular industry was thus inhibited.

There is more case law on this subject. In AMP of Canada Ltd. v. The Queen, [1987] 1 C.T.C. 256; 87 D.T.C. 5157, the case for the Crown hinged on comparisons it had made between the profits of the taxpayer and those of its competitors. The taxpayer then applied for the production of the competitors' financial statements to which one of the competitors, a private company, objected. Collier, J. ruled that the taxpayer had brought himself within the principle set down in the Huron Steel case, supra, and, subject to conditions of confidentiality, ordered the production.

The disclosure of confidential information has of course been the subject of debate under other federal statutes. Under the Canadian International Trade Tribunal Act, R.S.C. 1965, c. 47 (4th Supp.), when dealing with alleged dumping practices, a complainant must of necessity provide proprietary information to the tribunal and this information would normally become available to all other complainants who are in competition with him. This poses a dilemma to all the complainants. They cannot make their case without disclosure and they cannot disclose without risk to their competitive positions. The way out of this impasse, under section 45 of the Act, is to limit access to such information to counsel for the parties on their filing with the tribunal their solemn undertaking not to disclose to anyone else. Disclosure, however, cannot be made in any event to any person who is a director, officer or employee of a complainant.

The same kind of conflict arises under the Access to Information Act, S.C. 1980-81-82-83 c. 111, Sch I. In Maislin Industries Ltd. v. Minister for Industry, Trade and Commerce, 10 D.L.R. (4th) 417, the Associate Chief Justice of this Court faced the first third party review of disclosure under subsection 44(1) of the Act and discussed at length the balancing act which must be maintained and the various statutory formulae to achieve it. His Lordship noted particularly the provisions of subsection 2(1) of the Act which says:

2.(1) The purpose of this Act is to extend the present laws of Canada to provide a right of access to information in records under the control of a government institution in accordance with the principles that government information should be available to the public, that necessary exceptions to the right of access should be limited and specific and that decisions on the disclosure of government information should be reviewed independently of government.

It is therefore only by exception that disclosure will be refused and the field of exception is covered by subsection 20(1) of the Act which states:

20.(1) Subject to this section, the head of a government institution shall refuse to disclose any record under this Act that contains

(a) trade secrets of a third party;

(b) financial, commercial, scientific or technical information that is confidential information supplied to a government institution by a third party and is treated consistently in a confidential manner by the third party;

(c) information the disclosure of which could reasonably be expected to result in material financial loss or gain to, or could reasonably be expected to prejudice the competitive position of a third party; or

(d) information the disclosure of which could reasonably be expected to interfere with contractual or other negotiations of a third party.

The statute also provides that any unresolved issue through the normal processes of the Act may be the subject of a complaint before the Federal Court under section 41. Further, section 47 instructs the Court to take every reasonable precaution, including ex parte representation and in camera hearings to avoid disclosure while the merits are debated.

It was under this wide statutory umbrella that the Associate Chief Justice could state at page 419 of the Maislin decision:

Since this is the first motion of this nature, there were several procedural questions to be resolved, and I heard counsel at some length on the matter of directions, including in camera hearings, burden of proof and cross examination on affidavits filed.

On the subject of closed hearings, proceedings in our courts must take place in full public view and in the presence of all parties. Exceptions to this principle occur from time to time, but must be kept to the minimum of absolute necessity. Even then, directions should be such as to safeguard the public interest in the administration of justice, and the rights of any parties not permitted to participate. In applications under these access to information statutes, the issue is confidentiality, and obviously to conduct them in public view pre-empts the final decision. For the present, therefore, there does not seem to be any alternative but to restrict attendance to counsel for the parties.

A similar dilemma arises with the question of access to the disputed documents by counsel (in this case for Hunter). Obviously, counsel cannot be expected to argue intelligently on the nature of a document he has not seen, yet to provide unrestricted access could predetermine the central issue. This determination will vary with the circumstances of each case, but here, having examined the full text of the report, I considered it appropriate to accept counsel's undertaking of nondisclosure, even to his client, and to allow him access to the disputed portion solely for the purpose of argument.

Proceedings involving intellectual property law, as in patent infringement cases, have also provoked innumerable instances where discovery of confidential documents has been debated. The experience shows that such documents have more often been initially examined by the Court and if found relevant to the issues, have been ordered produced but nevertheless with limited access to specified persons and with a confidentiality order against all of them.

Lead counsel for the intervenors at this current hearing, realizing no doubt that the plaintiff had the burden of rebutting the Crown's assumption as to industry averages on commissions and discounts, suggested in argument that it was not open to the Crown to use the Thomson Report in making its assessment. There is an ingenuous submission for which counsel finds support in the case of Slavutych v. Baker, a Supreme Court of Canada decision reported at 55 D.L.R. (3d) 224, where a confidential document provided by a professor with respect to a colleague's rating for tenure, was later used by the institution's authorities to dismiss the same professor. Spence, J., on behalf of the Court, found that no charge could be laid based on that document.

Counsel for the intervenors, by analogy, then urges me to conclude that information provided under the strictest confidence could not later be used as grounds for reassessment against the plaintiff.

Findings

Although the foregoing does not exhaust the field of statutory provisions and judicial comments relating to the disclosure of confidential information, it does, in my view, establish how and under what circumstances confidential information will be disclosed. As noted earlier, a Court faces a veritable impasse in attempting to respect the privacy of confidential information on the one hand and on the other, in finding some means of securing the ends of justice.

In the case before me, the Crown's position in assessing the plaintiff is based on the assumption of what is the industry-wide average of commissions and discounts allowed to buyers. On discovery, the Crown acknowledges that this assumption is based on the Thomson Report. The plaintiff, however, is aware that it has the onus of rebutting the Crown's assumption and claims of course that it cannot do so unless the detailed data on which the conclusions in the Report are reached are made available. The plaintiff wishes to investigate whether or not the analyses made in the Report cover comparables or, as specifically stated in the affidavit evidence, whether "the data used to arrive at the conclusion in the report is comparable to the facts in the plaintiff's case".

There is no doubt that in accordance with contemporary rules governing discovery, such background information, absent the issue of confidentiality, would be produced. In such circumstances, the sole issue remains to balance the needs of the plaintiff to attempt to prove his case with the needs of the intervenors to protect the confidentiality of the information which they have voluntarily submitted.

A review of the case law dealing with discovery of private documents, together with specific provisions in some statutes I have cited dealing with confidentiality processes, indicate clearly to what extent the law has come to terms with this kind of dilemma. It has resolved it in different ways but I can only conclude that, in attempting to secure the ends of justice in the face of the mutually exclusive principles of confidentiality and disclosure, it simply adopted a policy of damage control.

On the facts before me, it is very important to remember the kind of assurances that both the Thomson people and the Crown provided to the intervenors when proprietary information was voluntarily provided. Those undertakings cannot be taken lightly and no doubt, any form of disclosure at this time would create stress among participants should similar cooperation be requested in the future. On the other hand, I should on balance find that the interests of justice, in the light of the narrow manoeuvring room available to a plaintiff in challenging an assessment under the Income Tax Act, require that disclosure be ordered.

Such disclosure, obviously, would be subject to the strictest possible terms of confidentiality and would be in accordance generally with those already circulated to various intervenors subsequent to the January 21, 1991 hearing before Walsh, D.J. and which might have provoked some degree of grudging consent among some of them.

The experience to date is that restricted disclosure and a formal protective order have minimized, if not eliminated, the risk of prejudice. I appreciate that in the eyes of the intervenors, the perceived risk is always there but that is the best a Court can do in all the circumstances of the case.

The January 21, 1991 draft of an order should provide the kind of assurances usually given in similar cases. The plaintiff has requested one change to that draft, namely that disclosure, subject to undertakings, be authorized to two counsel. I see no objection to this but nevertheless, I should limit disclosure to four people, namely two counsel and two expert advisors. This excludes support staff for any of them.

The plaintiff and the Crown are invited to submit a draft order in accordance with the foregoing for my endorsement.

Costs in the cause.

Motion granted.