Citation: 2024 TCC 136
Date: 20241024
Docket: 2003-3383(GST)G
BETWEEN:
CAMBRIDGE LEASING LTD.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent;
Docket: 2003-3382(GST)G
AND BETWEEN:
506913 N.B. LTD.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR ORDER
Bocock J.
I. Introduction
[1] As a result of an HST audit by the Canada Revenue Agency (“CRA”
), many collateral legal proceedings in various courts arose: the present appeals concerning HST reassessment and penalties, two directors’ liability assessment appeals, two judicial review proceedings in the Federal Court of Canada, the initiation of criminal proceedings in the New Brunswick Provincial Court, and consequentially, a counter-action for malicious prosecution in the Court of Queen's Bench of New Brunswick.
[2] The Tax Court proceedings contained an embedded CRA theory of misrepresentation and alleged mischaracterizations of transactions for the two Appellant companies, and their active principal directors, officers and/or employees.
[3] Specifically, the CRA reassessed the Appellants on the basis of its audit. Notices of Appeal were filed by the Appellants in the Tax Court of Canada on August 25, 2003. Directors liability assessments were subsequently issued by the CRA against the two principals of the Appellants, based upon so-called “interim”
assessments of the Appellants. On July 8, 2005, criminal charges were filed in the Provincial Court of New Brunswick against one of the Appellants, 506913 N.B. Ltd., doing business as Nautica Motors, and against one of its principals, David Daley.
[4] At settlement, the subsisting amended replies asserted that the Appellants had participated, with others, in transactions that were not “genuine”
, were “fictitious”
, and were evidenced by “contracts of accommodation”
effected with a specific intent to defraud the Minister.
[5] Ultimately, before trial in 2022, the Respondent agreed to vacate all assessments and pay costs to the Appellants; the quantum of those costs in favour of the Appellants was the single item not resolved by that settlement. On June 29, 2022, formal consents to judgment were filed, reserving on the sole issue of costs. Justice Boyle, who acted as a settlement conference judge, signed the judgments and directed that the issue of quantum of costs be determined by a cost motions judge. It is in the context of that cost determination proceeding that this motion arises.
II. Establishing a Record for Cost Determination
[6] Normally a judge determines an award of costs beyond the tariff with the benefit of having observed first-hand the factual, evidential record of a trial. Where the parties settle before trial, agree costs shall be paid, but fail to agree on the quantum of costs, an informational vacuum exists.
[7] The Court identified this dearth of facts and attempted to address it by shaping, after submissions from the parties, a cost determination process. That process involved the filing of affidavits as a faint proxy and pale substitute to the usual trial record. Into this vacuum, the expert report in the form of the contested Eric Kirzner affidavit was filed. The Court had neither anticipated the filing of such expert evidence, in the first instance, nor in the second, the ensuing challenge. To clarify the limited, focused and unique purpose of the affidavit evidence, the Court sought to clarify the ultimate purpose of the affidavit evidence, prior to the voir dire challenging the affidavit, when it stated:
a)the purpose of soliciting the requisite affidavits was to obviate lengthy testimony in chief, and infill [factual] background for the appeals since no trial had occurred;
b)the Court would be guided by the Tax Court of Canada Rules (General Procedure), and specifically Rule 147(3), in order to determine what factors should bear on the relief sought;
c)frequently, parties to even conventional cost disputes place information before the Court to which the Court assigns or gives no weight because [such information is] irrelevant to the factors listed in Rule 147(3); yet such information, opinions and commentary are not subject to voir dire motions;
d)given the discretionary power of the costs motions judge, there is question of whether a preliminary voir dire is effacious, proportional or necessary, especially since the sole discretionary issue is whether, and if so, what quantum of enhanced costs should be awarded.
[8] In any event, the Respondent seeks to exclude the affidavit of Eric Kirzner (the “Kirzner Affidavit”
) because he asserts it is inadmissible. The Court heard oral submissions by video conference on September 20, 2024. This supplemented written representations received from counsel on July 26, 2024 from the Respondent and the Appellants on August 8, 2024.
III. Position of the Parties
Respondent’s Submissions
[9] The following section represents a salient summary of the Respondent’s submission challenging the Kirzner Affidavit containing the expert report, with the order which they were made altered. As such, it must satisfy the requirements for such evidence, or it should be excluded.
Mr. Kirzner’s evidence does not comply with the Rules and Code of Conduct
[10] The only issue in these proceedings is the quantum of costs. The issues addressed in the Kirzner Affidavit are comprised of six questions (the “Six Questions”
) posed and answered.
[11] Those Six Questions are as follows:
a)Can you describe the work you did on this file before the parties agreed to allow the taxpayers’ appeals?
b)In your experience would examinations of the type you carried out have disclosed at least some evidence of widespread impropriety if it existed?
c)Can you describe your understanding of the operations of these two corporations based on you [sic] previous work?
d)Did CRA appear, based on your examinations of the facts, to understand the basic operations of the business of these corporations?
e)CRA alleged that there were “fictitious transactions”
involved. Did your examinations support any of CRA’s conclusions in this regard?
f) CRA originally, prior to agreeing to allow the appeals, alleged financial impropriety against both of the corporations involved in these appeals. Can you, based on your experiences as an academic and as a director of both public and private corporations, explain the impact and severity of allegations of financial impropriety made against a corporation and the management of that corporation?
[12] However, the Respondent asserts the Six Questions were never raised as issues by the parties in any of the costs submissions made to the Court, including the summary submissions. Furthermore, there has never been a written agreement between the parties with respect to the Six Questions, nor has the Appellant sought or been granted permission by the Court to raise these issues.
[13] Further, the Respondent contends that contrary to subsection 3(d) of the Code of Conduct, the report attached to the Kirzner Affidavit does not state the facts and assumptions he relies on in forming his opinion. Instead, the report provides bare opinions unsupported by any facts or assumptions.
[14] Such deficiency compromises the Respondent’s ability to analyze the evidence, prepare for cross-examination, and to properly argue its case.
[15] Fairness requires providing the Respondent with adequate notice of the basis of the opinion, including the facts and assumptions. Such notice prevents “trial by ambush”
and the potential prejudice that may result to the opposing party.
[16] Mr. Kirzner’s failure to include the facts and assumptions he relied on is prejudicial to the Respondent and the proffered report should not be admitted.
[17] As well, contrary to subsection 3(h) of the Code of Conduct, Mr. Kirzner’s report does not contain the interviews, literature and other materials he relies on in support of his opinions.
[18] Paragraphs 31 and 35 of Mr. Kirzner’s report provide a list of the various interviews he conducted. Mr. Kirzner relies on these interviews to form his opinions, and at various points references answers to interview questions in explaining his opinion. However, these interviews have not been produced as part of the report.
[19] Paragraph 34 and Appendix 4 of Mr. Kirzner’s report references various literature and materials relied on in support of his opinion. These materials have not been produced as part of the report for review.
An expert report is required to include any literature or other materials specifically replied on in support of the opinions. All relevant material must be produced as part of the expert report in order to properly cross-examine and contextualize the evidence. The requirement exists not only to avoid prejudice against the opposing party, but also for the benefit of the Court in weighing the expert evidence.
The evidence is not relevant nor necessary
[20] Relevance at this threshold stage refers to logical relevance. Logical relevance is about the relationship between evidence and the fact it is offered to prove. To be logically relevant, the evidence must increase or diminish the probability of the existence of a fact in issue.
[21] Necessary at this stage refers to evidence that provides information outside the experience and knowledge of a judge. Experts are not permitted to usurp the functions of the trier of fact. If, on the proven facts, a judge can form their own conclusions without help, then the opinion of an expert is unnecessary.
[22] The only issue before the Court is the quantum of costs payable to the Appellants. The Respondents asserts this is not an exceptional issue which requires special knowledge outside the experience of the trier of fact. The Appellants merely have to substantiate the legal costs incurred in the course of the litigation.
[23] Furthermore, the Appellants have not specified how the Six Questions posed to Mr. Kirzner, and his evidence in response relate to the issue of costs, nor which facts his evidence seeks to prove.
Mr. Kirzner is not a properly qualified expert
[24] A properly qualified expert is:
a)one that has acquired specialized knowledge in respect of the matters on which he or she undertakes to testify; and;
b)one that is able and willing to fulfill their duty to the Court impartially, and unbiased. The expert’s opinion must be impartial in the sense that it reflects an objective assessment of the questions at hand. It must be unbiased in the sense that it does not unfairly favour one party’s position over another.”
[25] According to the Respondent, Mr. Kirzner does not have any special or peculiar knowledge in respect of the matters he provides his opinion on.
[26] Mr. Kirzner’s self-declared areas of expertise are “investment suitability, asset allocation, risk allocation, taxation of securities, investment product knowledge, corporate governance, valuation of companies, securities brokerage account management, pension fund and endowment fund management, the calculation of investment losses and how investors make decisions.”
[27] None of these areas are applicable in the issue at hand; namely the quantum of enhanced costs.
Appellant’s Submissions
[28] The Appellants’ position is summarized as follows:
(a) The Court has full discretion to give any or all of the information contained in Eric Kirzner’s affidavit the appropriate weight
[29] The sole purpose, as identified by the Court, for soliciting affidavit evidence, including the Kirzner Affidavit, was to obviate lengthy testimony in chief and to infill any evidentiary void with background information which was absent since no trial had occurred. Cross-examination on the affidavit remains available.
[30] The Court must be guided by section 147(3) of the Rules in deciding whether the Kirzner Affidavit is relevant and would be useful to the Court to infill an evidentiary background, as a tool to better appreciate the nature of the evidence that would have been submitted to the Court if in fact a trial had occurred.
[31] The Court has full discretionary power in the context of a costs hearing to give appropriate weight to any factual information contained in the Kirzner Affidavit.
(b) Eric Krizner’s opinion evidence satisfies the Mohan/White Burgess Test
[32] At the second part of the admissibility test, a “trial judge must decide whether expert evidence that meets the preconditions to admissibility is sufficiently beneficial to the trial process to warrant its admission despite the potential harm to the trial process that may flow from the admission of the expert evidence”
.
[33] No trial has occurred. The opinion evidence provided by Eric Kirzner in the Kirzner Affidavit is highly relevant, and sufficiently probative with respect to the factors which must guide the Court in determining the scale and quantum of costs pursuant to Rule 147(3), as laid out in the Rule.
(c) Section 145 of the Rules applies to “evidence at the hearing of an appeal”
[34] Sections 143 through 146 of the Rules deal expressly with the evidence to be proffered at the hearing of tax appeals, not evidentiary matters for which directions have been specifically given by the Court, through the Procedural Orders. Other sections of the Rules deal with evidence on motions, or the rights to discovery, and it is clear from a plain interpretation that Rules 143 through 146 apply specifically to the trial or hearing procedures for tax appeals, and not to interlocutory or post-judgment matters.
(d) Evidentiary inferences
[35] Lastly, the Appellants assert that the Tax Court of Canada has exclusive original jurisdiction in matters arising under the Excise Tax Act and in all matters provided for under that Act. Section 147 of the Rules clearly grants a very broadly discretionary jurisdiction to the Court in the exercise of its power to determine: (1) the amount of the costs of all parties; (2) the allocation of those costs; and (3) the persons required to pay them.
[36] The Respondent has asserted that all “substantive issues”
in dispute in the tax appeals were settled when the Respondent consented to suffer Judgments “in full”
. If that is so, it can only be inferred that the Respondent admitted “in full”
the facts contained in the Appellants’ pleadings.
[37] While the Respondent’s counsel asserts that the Kirzner Affidavit is flawed in some manner because particulars of an alleged sham, of which no evidence exists, were not considered, the Respondent continues to offer no evidence of any kind to support such allegations of impropriety. The withholding of any such evidence, if it existed at all, gives rise to adverse inferences.
IV. Relevant Law to this Motion
Striking an affidavit – the test
[38] Precedential framework exists for the determination of appropriate circumstances to strike an affidavit. These are:
The paramount purpose of an affidavit is to adduce facts relevant to the dispute without gloss or explanation.
The Court may strike affidavits, or portions of them, where:
they are abusive or clearly irrelevant;
where they contain opinion, argument or legal conclusions; or
where the Court is convinced that admissibility would be better resolved at an early stage so as to allow the hearing to proceed in a timely and orderly fashion.[15]
[39] The discretion to strike an affidavit, or part of it, should be exercised sparingly and only in exceptional circumstances. The rationale for setting this high bar is to avoid an inadvertent pre-emptive decision on the merits at an interlocutory stage. Examples of when it is appropriate to strike an affidavit include where a party would be materially prejudiced by not striking it, where not striking an affidavit would impair the orderly hearing of the application, where it is in the interest of justice to do so, or where the issue of admissibility is clear-cut.
Admissibility of expert reports (as affidavits)
[40] Determining the admissibility of expert evidence is itself a two-stage process:
Threshold admissibility: The proposed expert evidence must be logically relevant, necessary to assist the trier of fact, there must not be any other applicable exclusionary rules, and the expert must be properly qualified. The evidence is assessed on a yes/no basis at the threshold stage. The evidence will be relevant if it makes the existence or non-existence of a fact in issue more or less likely than without the evidence, judged as a matter of human experience and logic. The evidence will be reasonably necessary if it is likely outside the ordinary experience and knowledge of the trier of fact.
2. Gatekeeper function: The Court must be satisfied the probative value of admitting the evidence outweighs the potential prejudice, time cost, and risk of confusion of its admission, bearing in mind parties have the right to put forward the most complete evidentiary record consistent with the rules of evidence.
[41] The general ground to strike a factual affidavit because it contains opinion is not applicable to expert opinion evidence. Expert opinion evidence is admissible where it is necessary to provide the trier of fact with the technical or scientific basis upon which to properly assess the evidence presented; if on the proven facts a judge can form his or her own conclusions without help, then the opinion of an expert is unnecessary. If it is not readily apparent that the expert evidence is inadmissible, it may be preferable to determine admissibility when the merits are at issue.
V. Analysis
Should the Court strike Kirzner’s affidavit?
Stage 1 – threshold admissibility
[42] In order for the Kirzner Affidavit’s evidence to meet the test for threshold admissibility:
it must be logically relevant;
necessary to assist the trier of fact;
there must not be any other applicable exclusionary rules; and,
Mr. Kirzner must be properly qualified as an expert in the field of the offered testimony.
[43] The contentious grounds for threshold admissibility at Parts I and II are twofold: necessity and proper qualifications. The case for necessity is whether the Court finds economic and business evidence is necessary, not merely helpful, to form a conclusion on components of Parts I and II of the Application, the threshold requirement is met.
[44] Several challenges were made regarding how relevant Mr. Kirzner’s expertise is to this costs determination. In order for an expert to have sufficient expertise, he or she must have “acquired special or peculiar knowledge through study or experience in respect of the matters on which he or she undertakes to testify.”
If this modest status is achieved, deficiencies in expertise can affect the weight of the expert evidence rather than its admissibility. Mr. Kirzner has extensive experience in finance, business and corporate governance. The Court easily certified him as such. However, the six questions he attempts to answer are not relevant to the cost determination, with the possible exception of the first (work on file before resolution) and third (operations of two Appellant businesses), and only then from a factual perspective. Therefore, the expertise offered is not logically relevant to the ultimate issue before the Court.
[45] Quite apart from the Six Questions, save for the factual underpinnings of questions number 1 (Mr. Kirzner’s role in the pre-settlement litigation) and number 3 (the operations of the two corporations), the following are further cogent reasons for rejecting the expert report in the Kirzner Affidavit:
a)The implicit judgments begged by questions 2, 4, 5 and 6 are determinations to be made by the Court (should it decide such issues are relevant), namely:
impropriety of the Appellants in their business operations (Question #2);
the appreciation/understanding by the CRA of the Appellant’s businesses (Question #4);
validity of the CRA’s assessment justifications (Question #5); and,
consequential reputational loss arising from CRA’s allegations of impropriety (Question #6).
b) The issue of whether Mr. Kirzner’s area of expertise - business management, finance and corporate governance – is critical to inform to his opinions offered on CRA’s assessment history, audit and conclusions regarding HST is questionable. His credentials are impressive, they simply shoot wide of even his intended target: CRA’s tax assessment conduct and procedures in these appeals.
c) Mr. Kirzner’s specific business expertise is not in the area of the wholesale used car market.
d) Certain elements of the report are not well documented: the standard attachment of literature/periodicals relied upon were not attached and the interview notes relied upon were not included in the report.
e) The financial analysis conducted from certain sample transactions appears thinly conducted and the sample is open to questions of bias. For example, only 15 of 990 or 1.5% of transactions were analyzed. Even then, those transactions were selected and provided to Mr. Kirzner by one of the principals of the Appellants; the samples were not randomly selected.
[46] In conclusion, the Court does not require the expert evidence in the Kirzner Affidavit because it is irrelevant or, where not, gravitates to conclusions the Court alone should make should it elect to do so. Further, it remains unclear whether there is the necessary nexus between Mr. Kirzner’s expertise and the rather distant relevant disciplines - HST tax audit, assessment and procedures - topics upon which he seeks to expertly opine. In summary, the expert conclusions are based upon limited data selection and were collected through an influenced sample selection. As such, answers to Questions 2, 4, 5 and 6 are not opinions which the Court can accept.
VI. Conclusion and Cost
Remaining factual elements of the report
[47] The characterization of Mr. Kirzner’s report as expert is rejected by the Court. There remain, however, certain elements of it which may in this unique situation assist the Court factually.
[48] Such a concept was raised by the Court during submissions. Specifically, Mr. Kirzner was retained by the Appellants during the late stages of the active litigation and before settlement. He conducted interviews with the principals of the Appellants. One of those principals, the Court notes the litigation is more than 25 years in the making, recently passed away. Mr. Robert Kay, who is an affiant in the cost determination matter, died in August, 2024. He was not able to be cross-examined. The interview notes reflecting the answers Mr. Kay gave to Mr. Kirzner are of value and they exist. Similarly, Mr. Kirzner’s factual recollection of the late stages of the litigation, given Mr. Kay’s death, may also be useful in the form as the best evidence available.
A further affidavit
[49] On this basis, the Court is willing to give the Appellants a limited, structured opportunity to extract from Mr. Kirzner’s affidavit relevant factual elements and attach certain general information gathered, but not presently before the Court. On that sole basis, the Court will afford the Appellants an opportunity to refashion the following factual elements within Mr. Kirzner’s affidavit to one containing the following facts:
i. a copy of the notes reflecting Mr. Kay’s interview with Mr. Kirzner;
ii. Mr. Kirzner’s recollection of the late litigation history in which he was actively retained and the relevant facts regarding occurrences concerning the litigation prior to settlement; and/or,
iii. Copies of the literature referred to in the present affidavit without opinion, comment or editorializing.
[50] That affidavit is to be served and filed within 45 days.
[51] For procedural fairness, after that, the Respondent may cross-examine and/or file a responsive affidavit.
[52] Beyond and after that, the Court shall further direct in this cost determination process.
VII. Costs
[53] Given the unique and rare nature of this proceeding, and the fact that the matter is ongoing, costs are reserved by the Court until this Court’s disposition of the cost award determination.
Signed at Toronto, Ontario this 24th day of October 2024.
“R.S. Bocock”
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