Paul D Bowlen v. Her Majesty the Queen, [1977] CTC 531, 77 DTC 5433

The Associate Chief Justice:—In this action, three separate applications have been made on behalf of the Crown for orders under Rule 464(1) requiring persons who are not parties to the action to produce and permit the inspection and copying of documents. In the first two applications, what is sought is the production of documents which are referred to in the notice of motion as being in the possession not of the persons against whom the orders are sought but of others. In the third, the applicant seeks an order requiring the production of documents referred to as being in the possession of the persons against whom the order is sought and documents in the possession of another person.

The proceeding is an appeal from income tax assessments for the years 1963 to 1970. The central issue is whether three transactions carried Out on May 9, 1963, in one of which the plaintiff transferred a portfolio of investments to Hambeldon Estates Limited, a Bahamian corporation, for $6,891,647.59, were shams and whether the income from the investments continued to be, in the years in question, in substance and in fact income of the defendant.

Rule 464 consists of three paragraphs following the title “Discovery and Inspection from Person not a Party’’. It is found among a number of rules dealing with discovery and inspection but despite the title its provision is not one for ordering discovery. It is limited to production and inspection. Paragraph (1) reads as follows:

Rule 464. (1) When a document is in the possession of a person not a party to the action and the production of such document at a trial might be compelled, the Court may at the instance of any party, on notice to such person and to the other parties to the action, direct the production and inspection thereof, and may give directions respecting the preparation of a certified copy which may be used for all purposes in lieu of the original.

The other two paragraphs are concerned with documents in the possession of the Crown and are not involved in the present applications.

It will be observed that the rule applies only "When a document is in the possession of a person not a party to the action and the production of such document at a trial might be compelled”. It was submitted that the use of the single word "possession” indicates that the application of the rule is narrower than that of Rules 448, 451 and 453 to 456, under which a party may be required to discover documents that are or have been in his "custody, possession or power” and to produce such of them as are in his "custody, possession or power.” On the face of it, this appears to be so but, on reflection, I doubt that there is much difference, at least in so far as the right to production is concerned. However, it is not necessary to decide the point. What is involved is simply the meaning of "possession” in Rule 464. No case was cited in which the meaning is discussed and, in the absence of any expression of opinion on it, I think it means what is referred to as "legal possession” by Lord Cottenham in Reid v Langlois (1849), 1 Mac & G 627 at 636; 41 ER 1408 at 1411, when he said:

In one sense it [the document] is in his possession; but when possession for the purpose of production is spoken of, that is to say a right and power to deal with it, actual corporeal possession is not meant, but legal possession in respect of which the party is authorized to deal with the property in question.

The word plainly includes the situation where the owner of a document has physical possession of it. It includes as well, in my view, the situation where the document is not physically in the possession of its owner but is in the possession or custody of an agent or bailee from whom the owner is entitled to obtain it. I do not think. however, that it includes bare custody or possession held by one who does not own the document for, as I see it, the purpose of the notice of the application required by the rule to be given to the person in possession is to give the person entitled to it an opportunity to object to its production and that purpose would not be served if a mere custodian without title were the only person entitled to be heard.

The purpose of Rule 464 and the jurisprudence on comparable rules in Ontario and British Columbia were recently reviewed by Smith, DJ in an earlier application in this case.* [1] Smith, DJ points out that in those provinces there has been some relaxation in recent cases of the Strict limitations placed on the rule by earlier cases which in general restricted it to production of specific documents for the purpose of simplifying the procuring of evidence for use at the trial and prevented its use aS a means of obtaining discovery from persons not parties to the proceedings.

Smith, DJ, applying the more recent authorities, ordered the Royal Bank of Canada

. . . through its proper officers, to arrange for the production to and to permit the inspection by officers of the defendant of all ledgers, records, memoranda, correspondence, documents and other records in the possession of the Royal Bank of Canada with respect to Paul D Bowlen, the plaintiff herein, Regent Tower Estates Limited, Hambeldon Estates Limited and Bowlen Investments Ltd, wheresoever found, including, without restricting the generality of the foregoing, the documents, 319 in number, set out in Schedule A to the Notice of Motion herein, which documents were sent, received, prepared or originated by the Royal Bank of Canada, its agents or servants in the course of carrying on its business.

Many of the documents referred to were in New York and were produced there under arrangements between the Crown and the bank. But production was not given of documents said to be in the possession of The Royal Bank of Canada Trust Corporation (now The Royal Bank and Trust Company), a New York bank, the shares of which are owned by the Royal Bank of Canada and which is incorporated and Organized under the law of New York and carries on its business there.

The first of the applications is directed to obtaining production of these documents. It seeks an order

A. Directing the Royal Bank of Canada to comply with the Order of the Honourable Mr Justice C Rhodes Smith dated August 19, 1976, by producing, and allowing officers of the Defendant to inspect, all ledgers, records, reports, memoranda, correspondence or documents with respect to Regent Tower Estates Limited, Hambeldon Estates Limited, Paul Dennis Bowlen and Bowlen Investments Limited, in the possession of the Royal Bank of Canada Trust Corporation; or

B. In the alternative, an Order pursuant to Rule 464 of the Rules of this Honourable Court, directing the Royal Bank of Canada to produce and allow officers of the Defendant to inspect all ledgers, records, reports, memoranda, correspondence or documents with respect to Regent Tower Estates Limited, Hambeldon Estates Limited, Paul Dennis Bowlen and Bowlen Investments Limited in the possession of the Royal Bank of Canada Trust Corporation

The defendant’s first submission was that the production of the documents referred to was included in what the order required the Royal Bank to produce. It was conceded, however, that they were not included in the 319 listed documents referred to in the order and it does not appear to me that they can be regarded as embraced by the expression “in the possession of the Royal Bank of Canada” in the order. I should add that, if I were of the opinion that the documents were in the possession of the Royal Bank within the meaning of the order, I would regard procedure by an application for a second order to the same person for their production as open to question.

The defendant’s principal submission was that because The Royal Bank and Trust Company is a wholly-owned subsidiary of the Royal Bank and, as a direction by it to the company would probably be respected, documents in the possession of the company should be considered to be in the possession of the Royal Bank within the mean- ing of the rule and, accordingly, the Royal Bank should be ordered to produce them. Counsel conceded that this went further than any of the jurisprudence on the scope of the rule. In his submission, the order of Smith, DJ went further than most jurisprudence in requiring production of documents not physically situated in Canada and in not requiring specific identification of the documents of which production was ordered and he sought to further expand the scope of the rule by interpreting it as applying to documents in the possession of a corporation controlled by the person against whom the order is sought.

In my opinion, the submission is not sustainable. The notice of motion describes the documents sought as being in the possession of The Royal Bank and Trust Company. Though that bank is a wholly- owned subsidiary of the Royal Bank, it is not the Royal Bank but a separate corporation established under the law of another country and carrying on its operation there. The documents sought are not shown to be the property of the Royal Bank. Nor has it been established that The Royal Bank and Trust Company holds them in trust for or as agent of the Royal Bank. Indeed, such evidence as there is of what the documents are suggests that they belong to The Royal Bank and Trust Company or its customers rather than to the Royal Bank. I do not think, therefore, that they can be considered to be in the possession of the Royal Bank within the meaning of the rule.

Counsel referred to Dallas v Dallas, 24 DLR (2d) 746, but that was a case on discovery by a party to the proceedings and the document was in his possession. The case, in my view, is not of assistance in the present situation.

The application, therefore, fails and it will be dismissed with costs.

In the second of the three applications, what is sought is an order directing the Royal Bank of Canada and the National Westminster Bank Ltd

. . . to produce and allow officers of the Defendant to inspect all ledgers, records, correspondence, memoranda, reports or documents with respect to

1. Certain trusts, namely the Arvella Regis Bowlen Trust, the Patrick Dennis Bowlen Trust, the Mary Elizabeth Bowlen Trust, the John Michael Bowlen Trust and the William Alexander Bowlen Trust;

2. Regent Tower Estates Limited:

3. Hambeldon Estates Limited; and

4. Bowlen Investments Ltd

in the possession of the Trust Corporation of the Bahamas Limited or its agents or servants. . . .

When filed, the application was also directed against the Montreal Trust Company and the Imperial Life Assurance Company of Canada but the application was not pursued against them as in the meantime they had disposed of certain shareholdings which they had held in a Bahamian bank known as Roywest Banking Corporation Limited. The principal shareholders of that bank are Royal Bank International Limited, a Bahamian company owned, as to 100% of its shares, by the Royal Bank of Canada, and the National Westminster Bank Limited, the two owning between them some five-sixths of the issued shares. Roywest Banking Corporation Limited owns 99.99% of the issued shares of Trust Corporation of the Bahamas, a Bahamian company carrying on in the Bahamas the business of a trust company. It was said that this company controls the portfolio of investments sold by the plaintiff Bowlen to Hambeldon Estates Limited in one of the impugned transactions and has documents relevant to the issue in this action and that, since the Royal Bank and the National Westminster Bank combined have the effective ownership between them of the Trust Corporation of the Bahamas, they have effectively in their possession all the documents in the de facto possession of the trust company and should be ordered to produce them.

Counsel freely conceded that no such order has heretofore been granted but submitted that, as a matter of reasonableness, the Royal and National Westminster banks should be ordered to produce the documents held by a company they control. The implications of making such an order against a majority shareholder or a combination of shareholders holding together a majority of the shares of a company are far-reaching enough to make counsel’s suggestion of the reasonableness of it questionable. In my opinion, the application is more tenuous than the first and fails for the like reasons. It is accordingly unnecessary for me to consider or express any opinion on the objection raised by counsel for the National Westminster Bank Limited that his client is not present in Canada.

The application will be dismissed with costs.

The remaining application seeks an order

A. Directing Arvella Regis Bowlen, Patrick Dennis Bowlen, Mary Elizabeth Jager née Bowlen, William Alexander Bowlen and John Michael Bowlen to produce and allow the officers of the Defendant to inspect all ledgers, records, reports, memoranda, correspondence or documents with respect to Regent Tower Estates Limited, Hambeldon Estates Limited and the Trust Corporation of the Bahamas in their possession, or in the possession of the Trust Corporation of the Bahamas Limited, its agents or servants; and

B. Directing the preparation of certified copies thereof.

The affidavit filed in support of this application discloses that the named individuals are the beneficiaries of trusts of which Trust Corporation of the Bahamas Limited is the trustee, that the property of the trust in each case consists of shares of Regent Tower Estates Limited, a Bahamian corporation, which is the beneficiary of a trust, of which Trust Corporation of the Bahamas is trustee, of the shares of Hambeldon Estates Limited which owns the portfolio of investments sold to it by the plaintiff in the transactions of May 9, 1963. The final paragraph of the affidavit reads as follows:

THAT I am of the opinion that there are in the possession, custody and power of Arvella Regis Bowlen, Patrick Dennis Bowlen, Mary Elizabeth Jager née Bowlen, William Alexander Bowlen, John Michael Bowlen, the Trust Corporation of the Bahamas, Regent Tower Estates Limited, Hambeldon Estates Limited, and/or their agents or servants, documents which may be relevant to the action herein.

It will be observed that in the notice of motion the named individuals and Trust Corporation of the Bahamas are lumped together and production of “ledgers, records, reports, memoranda, correspondence or documents’’ in the possession of any of them is sought. Which sorts of documents are claimed to be in the possession of the individuals and which in the possession of the corporation are not specified.

In so far as the application seeks an order requiring the named individuals to produce “ledgers, records, reports, memoranda, correspondence or documents’’ in the possession of Trust Corporation of the Bahamas, the application, in my opinion, fails, except with respect to documents, if any, which may be in the physical custody or possession of the company but which are the property of the named individuals, on the simple ground that the individuals may not be required under Rule 464 to produce documents which are not in their possession.

With respect to documents in the possession of the named individuals, within the meaning of Rule 464, it was stated by their counsel that they have received reports from the trustee, ie Trust Corporation of the Bahamas, and that they had no objection to an order being made that such reports and all other documents received by them from Trust Corporation of the Bahamas relating to their relationship to Regent Tower Estates Limited and Hambeldon Estates Limited be produced. Apart from such reports and documents, however, it is not, in my opinion, apparent from the material before me that they have in their possession relevant “ledgers, records, reports, memoranda, correspondence or documents” respecting the three corporations named in the notice of motion.

In Rhoades v Occidental Life Insurance Company of California, [1973] 3 WWR 625, McFarlane, JA described the limits of what may be ordered under the corresponding British Columbia rule as follows:

I agree that when considering an application under the Rule the court or judge should not permit it to be used for the mere purpose of obtaining discovery from a person not a party. This would be a “fishing expedition’’, ie, an attempt to discover whether or not that person is in possession of a document, the production of which might be compellable at trial and if so, the nature of the document. The reason why a fishing expedition is not permissible is that the Rule envisages an application being made with respect to a particular document and an order for the production and inspection of that document. It must therefore be shown to the court or judge that such a document is in the possession of a person who is not a party to the action before an order can be made for the production of the document by him. I do not, however, think that the description of the document sought must be so specific that it could be picked out from among any number of other documents.

In my opinion, what is sought in the present application is the discovery of documents of persons who are not parties. What is asked for is not limited to specific documents and it is not limited to documents shown to be in the possession of the persons against whom the order is sought. It is not even limited to documents shown to be in existence.

In the result, an order will be made for production by the named individuals of the reports and documents above mentioned which they have received from Trust Corporation of the Bahamas. In other respects, the application will be dismissed. The named individuals will be entitled to their costs of the application. As between the parties to the action, the costs of the application will be costs in the cause.