The Queen v. Capitol Life Insurance Co., 86 DTC 6164, [1986] 1 CTC 388 (FCA)

Mahoney, J.:—This is an appeal from a decision of the Trial Division, [1984] C.T.C. 141; 84 D.T.C. 6087, which found that the respondent, a nonresident of Canada, had not carried on business in Canada in 1976 and that, therefore, it was not taxable under the Income Tax Act. In view of that finding, the learned trial judge did not have to consider whether the respondent's 1976 commercial profits were exempt from tax by virtue of the Canada - United States of America Tax Convention Act, 1943, S.C. 1943, c. 21. The further question of the allocation of those commercial profits between Canada and the United States was not put in issue.

The respondent was, in 1976, an insurance company, incorporated in Colorado, licensed in Canada under the Foreign Insurance Companies Act, R.S.C. 1970, c. 1-16, and licensed in all provinces except Newfoundland and Prince Edward Island. Although licensed, it made a conscious, documented decision not to open offices, appoint sales agents or otherwise solicit business in Canada. It was among the 600-odd companies subsidiary of Gulf & Western Industries Inc. Six of those subsidiaries, including Associates Acceptance Company Limited, hereafter "Associates", were Canadian companies. The respondent had issued five group contracts of insurance under which Canadian residents were insured prior to the end of 1976. Three of these were characterized by the trial judge as "life and health employeremployee policies" issued to affiliated companies insuring their employees and those of their subsidiaries. The circumstances of these three policies were not specifically raised by the appellant in support of this appeal and they will not be specifically referred to again. The other two policies were creditor's group policies issued to Associates.

Policy GR-67-205 applied to loans made by Associates which were not secured by real estate mortgages. The borrower had the option of coverage by this policy to a limit of $20,000 in case of death and $250 per month while disabled by sickness or injury from earning income. All benefits were payable to Associates on account of the loan. The cost of the insurance was recovered from the borrower by a separate charge identified in the loan application. Policy GA-67-267 applied to real estate secured loans. The limits were the same. The coverage was not optional nor the charge separate and identifiable. No doubt, in the end, the borrower, not Associates, paid.

Aside from the basic proposition that the learned trial judge erred in his findings of fact, to which I shall return, two errors of law are asserted. First, the learned trial judge is said to have erred in excluding certain evidence which the appellant sought to introduce. Secondly, he is said to have erred in receiving and relying on certain opinion evidence as to the law of Colorado.

The evidence said to have been wrongly excluded was all relevant to the appellant’s contention that Associates was the respondent's agent in the sale of insurance to its borrowers. The first category, Exhibits D-218 to D-223 inclusive, was copies of “loan sets”, the documents used by Associates' lending officers in dealing with loan applications. They had been obtained from Associates by Revenue Canada personnel in 1979 and had been put to the officer designated by the respondent during the course of his examination for discovery. The second category of evidence excluded was answers provided to fulfil undertakings given on behalf of the respondent during the examination for discovery. Again, the information for these answers was obtained from Associates, not the respondent and it related to the loan sets. The third category of evidence excluded was the officer's answers to questions as to Associates’ practices in dealing with the charges to borrowers for insurance coverage and payment of premiums to the respondent.

The examination for discovery had proceeded on the usual basis that the officer produced would obtain information as might be requested and that his answers would be binding on the respondent. The evidence was excluded by the learned trial judge on the basis that it was hearsay in so far as the respondent and the officer were concerned although no objection had been taken to providing it during the discovery. The learned trial judge did offer the appellant the opportunity to call a witness from Associates who might have testified first-hand as to its documents and practices, but that offer was declined.

In my respectful opinion, the learned trial judge erred in excluding the evidence in the circumstances. A party examining a corporate officer on discovery is entitled, at least in the absence of objection taken at the time, to proceed to trial on the basis that relevant information obtained from an affiliated corporation is within the knowledge of the corporate party and will not be objected to or rejected as hearsay at trial. To maintain the fiction of an impenetrable corporate veil inhibiting the flow of authentic information between affiliated companies would be to ignore commercial reality, c.f. Monarch Marketing Systems v. Esselt Meto, [1984] 1 F.C. 641.

That said, the error does not, in my opinion, provide a ground for reversing the judgment below. The documents and answers excluded were all before this Court on appeal. Exhibit D-238, which was admitted, is a loan set for use in Nova Scotia. Exhibit D-238 appears to contain all of the information contained in Exhibits D-218 to 223 upon which appellant’s counsel said he wished to rely. Nothing in the answers excluded proves, or adds significantly to the evidence that was admitted tending to prove, that Associates was acting on behalf of the respondent, as opposed to acting on its own behalf, in dealing with the borrowers or the charges to the borrowers for coverage. The appellant was not, in my view, prejudiced by the exclusion of the evidence. The result would not have been otherwise.

The other error in law alleged is that expert evidence as to the law of Colorado was admitted. The expert witness, a Colorado attorney, was accepted as an expert as to Colorado law without objection. The statement of his evidence in chief, duly filed and served pursuant to Rule 482, stated the following conclusions:

(a) A Colorado court, presented with this case, would apply Colorado substantive law in addressing the legal issues raised in this case;

(b) An Indiana court, presented with this case, would apply Colorado substantive law in addressing the legal issues raised in this case;

(c) Under Colorado law, Associates Acceptance Company Limited (“Associates”) was the “insured” party under Group Policy No. 67-205 (including all addendums and amendments) and under Group Policy No. 67-269 (including all addendums and amendments) issued by The Capitol Life Insurance Company (“Capitol”) to Associates;

(d) Under Colorado law, the borrowers of Associates had no rights or claims against Capitol arising out of or under these Group Policies; and

(e) Under Colorado law, no agency relationship existed between Capitol and Associates with respect to these Group Policies or in connection with any transactions relating to these Policies.

A letter of opinion, stating the facts and assumptions upon which the conclusions were based, appending the Colorado statute and citing numerous decisions of United States courts was exhibited to the statement.

I would say, immediately and parenthetically, that the attorney was not qualified as an expert as to Indiana law and was not qualified to express the opinion in paragraph (b). Nothing turns on that.

The learned trial judge did not rely on the opinion expressed in paragraph (a) in concluding that the applicable law was the law of Colorado. That conclusion was based on his consideration of the law of Canada and the facts he found on the evidence. See page 152 (D.T.C. 6096) and following of the reports previously cited. He relied on paragraph (a) only for the conclusion that a Colorado court, hearing the case, would apply the substantive law of Colorado.

The appellant’s argument, then, is principally directed to the conclusions expressed in paragraphs (c), (d) and (e). As I understand that argument, because the courts of Colorado had not decided the precise questions upon which the witness expressed his opinion, his conclusions were not evidence as to the fact of what was the law of Colorado but merely his opinion as to what it would be if the Colorado courts were to decide them.

The appellant relies on a decision of the Ontario Court of Appeal, Westgate v. Harris (1929), 64 O.R. 358; [1929] 4 D.L.R. 643, per Hodgins, J.A., at 364 (D.L.R. 647):

I think that evidence of the kind I have quoted is wanting in legal precision and lacks any reference to authority on the question at issue, and that the opinion expressed is quite beside the mark, being based not on Canadian law but on that of the United States, and attempts to usurp the function of the trial Judge. The "opinion" of a lawyer alone does not prove the law — he must be in a position to testify that such is in fact the law.

[My emphasis.]

The appellant completely ignores the significance of the word “alone” in the last sentence. As is plain from what precedes the last sentence and the recitation of the evidence in issue, which I have not found it necessary to set out, the witness in that case, in the course of oral examination, expressed a conclusion without reasons or authorities supporting it. In context, the court has said no more than what is trite law: the weight to be given expert evidence is a matter for the trier of fact and an expert's conclusion which is not appropriately explained and supported may properly be given no weight at all. A lawyer's bare opinion, without supporting and explanatory references to legislation and decisions, is no more likely to prove foreign law to the satisfaction of the court than, for example, the bare opinion of a land appraiser, without reference to comparable properties and transactions, will satisfy it as to the value of a parcel of land.

It is unfortunate that, taken out of its factual context, the last sentence has drawn Wigmore's pejorative attention, vide. Wigmore on Evidence, 2nd Edition, Vol. VII, para. 1953, p. 104, footnote 1. It would, indeed, be astonishing if foreign law could not be established as a matter of fact by the opinion of a qualified lawyer. Westgate v. Harris is not authority for that proposition. The learned trial judge did not err in accepting the expert evidence as to the law of Colorado.

The appellant’s attack on the judgment of the learned trial judge consisted of a selective review of the evidence with a view to persuading us that he had erred in his material findings of fact. The respondent, in kind, sought to demonstrate that the evidence did support the findings. It is true that there is no evident issue of credibility here and that we are probably in as good a position as the trial judge to make the necessary findings of fact. An appellate court is not, however, even in that circumstance, entitled to substitute its views for those of the trial judge simply because it would have concluded differently; the appellate court must conclude that he was wrong.

I am not persuaded that the learned trial judge erred in his findings of fact based on the evidence nor that he overlooked any evidence material to his decision. In my opinion, he correctly applied the law to the facts.

I would dismiss this appeal with costs.

Appeal dismissed.