Her Majesty the Queen and the Minister of National Revenue v. Optical Recordin Corporation (Formerly Carrying on Business as Information Tunnel Research Inc.), [1987] 1 CTC 417

Heald J.: —This is an application by the appellants for an order, pursuant to Rule 1204, to include in the contents of the case on appeal, the affidavit of Fred M. Traer, and exhibits sworn on April 15, 1987 and the affidavit of Barry J. Shea and exhibits sworn on March 18, 1987. In the alternative, the appellants seek an order limiting “ . . . the matter of the appeal to those matters put in issue by the respondent before the learned Trial Judge at the said hearing”.

Subject appeal is from orders of certiorari and prohibition granted by the Trial Division on September 4, 1986 in the following particulars:

(a) the determination by the appellant Minister purporting to assess income tax as owing by the respondent and the document dated June 13, 1985, and headed "Notice of Assessment" and relating to the taxes said to be owing are quashed;

(b) the decision by the appellant Minister to issue a "Requirement to Pay” dated March 18, 1986, pursuant to section 224 of the Income Tax Act and in respect of income tax allegedly owing by the respondent together with the document itself which were delivered to the Royal Bank of Canada are quashed;

(c) a similar decision and a similar document to those in (b) supra, which were delivered to the Canada Permanent Trust are also quashed;

(d) a decision by the appellant Minister to issue a certificate pursuant to section 223 of the Income Tax Act respecting income tax allegedly owing by the respondent together with the instrument itself are quashed; and

(e) the appellant Minister and everyone under his direction and control are prohibited from continuing with collection proceedings or actions against the respondent ” . . . until it is lawful and fair to do — one certain criterion for which being lawful assessment of Part VIII tax actually found and assessed to be owing, upon assessment of tax in regard to applicant's filed return for its taxation year ended February 28, 1986”.

During the argument of this application, it became obvious that the appellants' application herein was not properly the subject of an application to vary the contents of the case on appeal pursuant to Rule 1204,* [1] but should be treated, rather, as an application pursuant to Rule 1102(1)t [2] to receive new evidence.

The affidavit filed in support of this application was sworn by J.S. Gill, the counsel who appeared on behalf of the appellants at the hearing in the Trial Division. Mr. Gill deposes that the conduct of the officials of the appellant Minister in seeking to collect income tax they believed to be owing by the respondent under Part VIII of the Income Tax Act* [3] was not put in issue by the respondent either in the originating notice of motion or in its memorandum of fact and law or at the Trial Division hearing excepting that the respondent did state that it did not file a notice of objection to the notice of assessment dated June 3, 1985 and in issue in this appeal because of its reliance upon certain advice from the taxation officials which was attached to that notice of assessment. In view of these circumstances, Mr. Gill states that he did not consider it necessary to adduce evidence relative to the collection action taken by officials of the Department and referred to supra. He then proceeds in his affidavit to quote portions of the reasons for judgment of the learned motions judge where

(a) it was said that the issues herein raised questions of fundamental administrative illegality, unfair treatment and estoppel (Reasons p. 11); and

(b) the Motions Judge was sharply critical in rather colourful language of the conduct of the appellant Minister's officials insofar as their collection procedures were concerned (Reasons pp. 23, 24 and 25).

The only other matter dealt with in Mr. Gill’s affidavit is a somewhat limited disagreement with the learned motions judge as to the extent of a concession which Mr. Gill made at the hearing relaing to the lack of notice to the respondent relative to the appellant's "change of official attitude".

It was the submission of counsel for the appellants on this application that the learned motions judge, of his own accord, raised a new issue fundamental to his determination of the question of his jurisdiction to deal with this matter pursuant to section 18 of the Federal Court Act. That issue is discussed at page 11 of the reasons of the learned motions judge and is mentioned supra, i.e., questions of fundamental administrative illegality, unfair treatment and estoppel. In the view of counsel for the appellants on this application, his colleague, Mr. Gill, who represented the Minister at the Trial Division hearing could not reasonably have anticipated that these matters would become an issue and the appellants were caught by surprise at the issues discussed and decided adversely to them by the learned motions judge. Accordingly, in his submission, fairness requires that the appellants be given the opportunity to file affidavits on appeal which address these issues. The Traer affidavit containing 15 paragraphs and five exhibits deals with the reasons why, in the view of the Department, the respondent had not established its entitlement at that time to the tax credit provisions of Part VIII of the Income Tax Act. The Shea affidavit containing 13 paragraphs and seven exhibits relates to the views and actions of Revenue Canada from the perspective of collection of and security for the tax. I do not think it is an over-simplification to characterize both affidavits as an attempt to explain and justify the conduct of the officials of Revenue Canada in light of the critical comments of the learned motions judge concerning that conduct.

While the appellants may have been taken by surprise at the so-called "new issue” raised by the learned motions judge, my perusal of the record leads me to conclude that, in view of all the circumstances, it was not reasonable for them to have been surprised. Likewise, I conclude, from the record, that no lack of fairness has been shown. At pages 15 and 16 of the reasons of the learned motions judge, it is apparent that counsel for the appellants were offered a recess during the hearing ”. . .for the purpose of consulting among themselves, or with anyone else, in order to reflect upon their position in regard to the Minister’s lawful authority, if any, to effect his indulgent policy scheme . . . They declined the recess but conferred together at the counsel table and then indicated that they could cite no such authority."

Furthermore, at page 17 of his reasons, the learned motions judge stated:

After the completion of all oral argument, counsel on both sides were invited to submit, in writing, any further thoughts on any of the issues debated in the Court room.

Pursuant to this invitation, counsel for both parties did file further submissions. The preamble to the submissions of the appellants reads, in part:

. . . the Respondents wish to make submissions as to whether the Minister's offer in writing . . . , accompanying the assessment, to withhold collection action upon certain conditions being satisfied and the subsequent conduct of the Minister has so prejudiced the Applicant as to entitle it to some relief.

The supplemental submissions then proceed in the next six pages to deal, inter alia, With these two issues, namely the illegality of the Minister's actions and the unfairness of the subsequent conduct of his officials. These are the same two basic issues which are addressed in the Traer and Shea affidavits.

I think also that these appellants should have been alerted to the basis for the attack on the Minister's actions by a careful perusal of the grounds of attack set out in the originating notice of motion. At page three thereof, six grounds of attack are enumerated. Paragraphs (a) and (d) are directly relevant to the “surprise issue" herein complained of. They read:

(a) That the Respondent acted without or in excess of his jurisdiction in issuing a Notice of Assessment;

(d) That the collection proceedings taken by the Respondent amount to unreasonable seizure of the assets of the Applicant contrary to sections 7, 8 and 52 of the Charter of Rights and Freedoms;

In my view, and with the utmost respect to counsel, any reasonable knowledge of the relevant jurisprudence, particularly the contemporary Charter jurisprudence, would suggest the nature of the attack to be made on the Minister's actions, notwithstanding the broad nature of grounds (a) and (d) supra.

Finally, a perusal of the Adamson affidavit and the cross-examination thereon reinforce my belief that the so-called "surprise issue" could have been deduced from that material with reasonable diligence. I think also that much of the material sought to be added to the case by way of the Traer and Shea affidavits is already contained in the Adamson affidavit and the cross- examination thereon, which already form part of the case on appeal.

The discretion conferred upon this Court pursuant to Rule 1102(1) is to be exercised only on special grounds. The often cited decision of the Ontario Court of Appeal in the Mercer case* [4] is authority for the view that such a discretion should be exercised only if the Court is satisfied that the evidence was not discoverable before the end of the trail by reasonable diligence and that the evidence is wholly creditable and practically conclusive on an issue in the action. I conclude, for the reasons expressed supra, that the circumstances here present do not meet any of the tests enunciated in Mercer. I think the "surprise issue" sought to be addressed could and should have been anticipated by the appellants. In any event, after it was raised by the learned motions judge, the appellants were given at least two different opportunities thereafter to meet the issue, once during the trial through the recess offer and once after the trial with the filing of supplementary submissions. In so far as the credibility of the evidence sought to be added is concerned, and in so far as its conclusive nature is concerned, it is not possible at this juncture to reach a concluded opinion thereon. If the affidavits were added to the case, leave to cross-examine might also be sought and granted, and thereafter, reply affidavits (in respect of which cross-examinations might also be sought and granted) might well be filed. Only after this lengthy and time consuming process would it be possible to form an opinion as to credibility and conclusivity. Hence, I am satisfied that, on these facts, none of the Mercer tests have been satisfied. Accordingly, and for all of the foregoing reasons, I conclude that the appellants have not established the special grounds necessary to warrant the Court granting the within application.

The application is therefore dismissed with costs in any event of the cause.

Application dismissed.