General Motors Acceptance Corp. Of Canada Ltd. v. R., [1999] 3 CTC 2069

Bell T.C.J.:

This motion commenced with a request for an abridgement of time for serving and filing an amended Notice of Motion and the Order described below. The time will be so abridged.

The Respondent made a motion for an Order pursuant to section 110 of the Tax Court of Canada Rules (General Procedure) (“Rules”):

(a) that the nominee of the Appellant, Williams James Watson, re-attend at the Appellant’s expense to answer those questions which he failed to answer on his examination for discovery held on September 16 and 17, 1998 and March 12, 1999, namely: questions 130, 580, 583, 948, 1030, 1032, 1033, 1062, 1226, 1293, 1323 and 1326 and any further questions arising from the answers;

(b) that the Appellant be directed to pay forthwith the costs of the Motion, any costs thrown away, and the costs of any continuation of the examination;

(C) such further or other Order as this Honourable Court may deem just.

At the hearing of this motion Respondent’s counsel advised that the Respondent had reduced its quest for answers on examination for discovery to three questions only, namely, questions 1030, 1032 and 1062. These questions relate to Appellant’s statement in paragraph 6 of its Answer that:

GM ACC is not, and was not in the years in question, in the business of making loans to retail purchasers of motor vehicles and did not make such loans.

The relevant portions of those questions are as follows:

1030: Mr. Shipley: So that in computing its 20(1)(/) reserve, the Appellant takes the position that it has loaned monies in respect to these contracts?

1032: Mr. Shipley: In order to claim the 20(1 )(/) reserve, the Appellant must accept if its claiming those reserves honestly and forthrightly that particular characterization.

1062.: Mr. Shipley: In regard to paragraph 6 of the reply (sic) [answer] the answer to the reply to the Notice of Appeal you had provided me an advisement respecting the claiming of 20(1 )(/) reserves. Further to that advisement I would like an answer as to on what basis that reserve would be claimed if the allegations in paragraph 6 to the answer are accurate allegations.

Appellant’s counsel said that he would take those questions “under advisement”.

Respondent’s counsel submitted that whether the Appellant loaned money to customers was “at the heart of the dispute”. He said that the Appellant’s claim under paragraph 20(1)(/) of the Income Tax Act (“Act”) was consistent with it being in the money lending business. That section provides for the deduction of a reserve in a reasonable amount in respect of doubtful debts that have been included in income for the current or a preceding year and an amount in respect of doubtful loans of a taxpayer whose ordinary business included the lending of money made in the ordinary course of business.

Respondent’s counsel seeks to establish that the Appellant was in the business of lending money or would not have claimed such reserve. Counsel submitted that the Respondent was entitled to an explanation as to whether the Appellant made a representation of fact founded on its understanding that it was lending money to customers, supporting a claim for such reserve. If not, counsel seeks an explanation as to why that is an appropriate claim by the Appellant. Counsel then stated the principles of the discovery process in support of his claim.

Appellant’s counsel, Al Meghji (“Meghji”) said that the Respondent was seeking an explanation as to the Appellant’s interpretation of this section “that is not in dispute here”. He said that the reserve deduction had been allowed and that the Appellant was entitled to claim the reserve with respect to contracts it purchased. Meghji objected to responding to the questions on the basis that it called for an analysis of a section of the Income Tax Act and was not based on a factual enquiry. He said:

It’s just dressed up as a factual enquiry.

In Turta v. Canadian Pacific Railway (1951), 2 W.W.R. (N.S.) 628 (Alta. T.D.), the Supreme Court of Alberta said, at 6231:

There are, of course, limits to the extent of any examination; if the questions asked do not relate either to the existence or non-existence of facts directly in issue nor to facts the existence or non-existence of which is relevant to the existence of facts directly in issue, then the questions are not permissible because of their irrelevancy, or if the questions asked are, in effect, questions of law, the answer to which is for the court rather than for the witness, the questions are likewise not permissible....

In Can-Air Services Ltd. v. British Aviation Insurance Co. (1988), 91 A.R. 258 (Alta. C.A.), Côté, J.A. said at page 260:

Another fundamental role is that an examination for discovery may seek only facts, not law: Turta v. Canadian Pacific Railway (1951), 2 W.W.R. (N.S.) 628 (Alta. T.D.), 631-2; cf. Curlett v. Can. Fire Ins. Co., [1938] 3 W.W.R. 357 (Alta.).

He also said at page 261 :

In my view, the question" upon what facts do you rely for paragraph X of your pleading?” is always improper.

That is similar to question 1062 posed by Respondent’s counsel, namely...

...on What basis could it make such a claim in light of its allegations in paragraph 6 of its answer that it had no loans in the course of its business?

This question is based on an interpretation of the law, namely, paragraph 20(1 )(/) of the Act as construed by the Appellant.

Further, these questions raise the issue of a reserve for doubtful debts which is not in issue or even pleaded in this case. [1] Meghji stated that the claim had been allowed by the Respondent, saying:

This question is being raised with respect to an issue that’s dead. We are basically being asked to explain something in a statute-barred return. We shouldn’t have to do that in a discovery process because the Department of Justice thinks we should.

I agree with the Appellant.

Accordingly, the Respondent’s motion is dismissed with costs.

Motion dismissed.