Glenmaroon Holdings (1986) Ltd. v. R., [1997] 2 CTC 2426

Lamarre Proulx T.C.J.:

This is a motion by the Appellant for an Order striking out the Respondent’s Reply to the Notice of Appeal (the “Reply”), pursuant to paragraph 58(1 )(b) of the Tax Court of Canada Rules (General Procedure) (the “Rules”) and for a judgment allowing the Appellant’s appeal in accordance with the relief sought in the Notice of Appeal, pursuant to section 63 of the Rules.

Paragraph 58(l)(b) of the Rules reads as follows:

(1) A party may apply to the Court,

b) to strike out a pleading because it discloses no reasonable grounds for appeal or for opposing the appeal,

and the Court may grant judgment accordingly,

The grounds relied on by the Minister of National Revenue (the “Minister”) are well stated in the description of the questions at issue at paragraph 7 of the Reply to the Notice of Appeal and they are as follows:

a) whether the transactions described in paragraph 6 above resulted in Bruce Campbell conferring a benefit on Glenmaroon within the meaning of Paragraph 245(2)(a) of the Income Tax Act; and

b) in the alternative, whether the result of the transactions described in paragraph 6 above is that Glenmaroon’s disposition of the VM Depot shares can be considered to have been made under circumstances such that it may reasonably be considered to have artificially or unduly created a loss from the disposition of the VM Depot shares or increase the amount of its loss from such disposition within the meaning of Subsection 55(1) of the Income Tax Act.

It was submitted by the Appellant, on one hand, that in light of the decision of the Federal Court of Appeal in Husky Oil Ltd. v. R., (sub. nom. Canada v. Huskly Oil Ltd.), (sub nom. Husky Oil Ltd. v. Canada) [1995] 1 C.T.C. 460, 95 D.T.C. 5244, that it was not fairly arguable that any benefit was conferred on Glenmaroon pursuant to paragraph 245(2)(a) of the Income Tax Act (the “Act), and on the other hand, that in light, inter alia, of this Court’s Judgment in Nova Corp. of Alberta v. R. [1996] 1 C.T.C. 2164, 95 D.T.C. 599 (T.C.C.) (a decision under appeal) it was not fairly arguable that the result of these transactions could reasonably be considered to have artificially or unduly created or increased a loss.

Among the cases to which Counsel for the Appellant referred to, I find that the most informative on the matter of the application of section 58 of the Rules, is the decision of the Supreme Court of Canada in Hunt v. T & N plcHunt v. Carey, (sub. nom. Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, [1990] 6 W.W.R. 385. I read, at page 970, that a rule like Rule 58 of the Rules is derived from the courts’ power to ensure both that they remain a forum in which genuine legal issues were addressed and that they do not become a vehicle for vexatious actions without legal merit. The rule was not intended to prevent a substantial case from coming forward. Its summary procedure was only to be used where it was apparent that allowing the case to go forward would amount to an abuse of the court’s process. At page 980, Wilson J. adds and I quote:

The test remained whether the outcome of the case was “plain and obvious” or “beyond reasonable doubt”.

In this perspective, Counsel for the Appellant argued that it was beyond reasonable doubt that the grounds raised by the Respondent for opposing the appeal have no chance of success for the reasons given by the Federal Court of Appeal in Husky Oil (supra) that it is not a taxpayer that grants a benefit under the Act, as for example in the present appeal, the benefit of an allowable business investment loss but the Act itself.

Insofar as the use of paragraph 55(2) of the Act as a ground for opposing the appeal, Counsel for the Appellant refers to the decision of this Court in Nova Corporation above mentioned, in favour of the Appellant’s position.

Counsel for the Respondent for his part also submitted that section 58 of the Rules applied only in cases where it was plain and obvious and where the alleged grounds of the pleading had no reasonable chance of success. However, contrary to the view of Counsel for the Appellant, Counsel for the Respondent held strongly that the state of the law respecting the issues

of artificiality in transactions was not plain and obvious: the jurisprudence was still developing and could not be said to be definitively settled.

He referred to the words of Linden J. in Roach v. Canada (Minister of State for Multiculturalism and Culture) [1994] 2 F.C. 406, (sub nom. Roach v. Canada (Minister of State for Multiculturalism and Citizenship)) 164

N.R. 370 (F.C.A.) at pages 420 and 421, which is also an excellent summary of the judiciary views on the matter of the pertinence in striking a pleading on the basis that it does not disclose a reasonable cause of action. They do not differ from those expressed by Wilson J. in Hunt v. Carey, supra.

My analysis of the questions at issue in the present motion is that although the decision of the Federal Court of Appeal in Husky Oil (supra) regarding the interpretation of paragraph 245(2)(a) of the Act may appear difficult to distinguish from the facts in the present appeal it remains however that the matter of artificial transactions is complex and that not all arguments may have been submitted to the Courts. Moreover, it seems that the said decision is the first one on this subject. The matter being complex and the decision being recent, I do not think that it would be prudent for a Court to strike out the ground for opposing the appeal as being superfluous and an abuse of the court process.

As for the decision pertinent to the application of paragraph 55(2) of the Act, it has to be remembered that it is under appeal.

I wish to quote Christie, A.C.J.T.C., in an Order given December 19, 1995, in Carma Developers Ltd. v. R., (1995), [1996] 1 C.T.C. 2985, 96 D.T.C. 1803 (T.C.C.) as his words represent well my thinking on the application of section 58 of the Rules:

In Moriarity et al. v. Slater et al., 67 O.R. (2d) 758, Mr. Justice White said at page 764:

I am of the view that, as in an application under rule 21.01 (l)(b) (of the Ontario Rules of Civil Procedure), that is an application to strike out a pleading on the ground that it discloses no reasonable cause of action, so in an application under rule 21.01 (l)(a) that is an application for the determination before trial of a question of law raised by a pleading, that caution and prudence should govern the exercise of the court’s discretion.

In summary, I am of the opinion that paragraph 58(1 )(a) of the Rules is not intended as an easily accessible alternative to a trial for the disposition of complex and contentious disputes about the rights and liabilities of litigants. It is to be invoked when it is clear that the determination of all or part of a dispute by trial would be essentially redundant. That is not applicable to the appeal at hand. As I said at the hearing I think it would be an error to attempt to dispose of it under paragraph 58(1 )(a).

The motion is therefore dismissed with costs to the Respondent.

Motion dismissed.