Citation: 2011 TCC 251
Date: 20110512
Docket: 2007-329(IT)G
BETWEEN:
ROBERT STROTHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
Docket: 2009-2247(IT)G
BETWEEN:
SENTINEL HILL PRODUCTIONS IV CORPORATION,
IN ITS CAPACITY AS DESIGNATED MEMBER OF
SENTINEL HILL NO. 207 LIMITED PARTNERSHIP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
Docket: 2009-2248(IT)G
BETWEEN:
SENTINEL HILL PRODUCTIONS IV CORPORATION,
IN ITS CAPACITY AS DESIGNATED MEMBER OF
SHAAE (2001) MASTER LIMITED PARTNERSHIP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDERS
Rip C.J.
[1]
These are three motions
in respect of appeals under the Income Tax Act by Robert Strother,
Sentinel Hill Productions IV Corporation, in its capacity as designated
member of SHAAE (2001) Master Limited Partnership ("SHAAE") and Sentinel
Hill Productions IV Corporation, in its capacity as designated member of Sentinel
Hill no. 207 Limited Partnership ("Hill No. 207") from
determinations of loss issued by the Minister of National Revenue
("Minister") in respect of their 2001 and 2002 taxation years. The motions
were heard together.
[2]
The appeals relate to
investments in film production limited partnerships which were submitted to the
Rulings Division of the Canada Revenue Agency ("CRA"). The CRA issued
several advance tax rulings which purportedly applied to the particular
appellants, partnerships and other interested persons, including the Master
Limited Partnerships ("MLPs") and the Production Limited Partnerships
("PLPs"). The appellants state that the CRA decided not to honour
these rulings, hence the determinations of loss that do not agree with the
losses calculated by the appellants.
[3]
Each motion is for:
1) An Order pursuant to Rule 53 of the Tax Court of
Canada Rules (General Procedure), ("the Rules") striking
out all or those portions of the Respondent's Replies, which are enclosed in
brackets or, with respect to quotation marks, which are circled.
2) An Order pursuant to Rules 147(1), (3)(i) and 5(c) of
the Rules awarding the Appellant solicitor and client costs with respect
to the Motions.
[4]
The appellants rely on
Rule 53 of the Tax Court of Canada Rules (General Procedure)
("Rules") and complain that numerous portions of the Replies
to the Notices of Appeal ("Replies") are scandalous, frivolous and vexatious
and an abuse of the Court pursuant to Rule 53 in that:
A Re: SHAAE and Hill
No. 207 replies:
(a) the bracketed and circled portions do not conform to the
specifications of Rule 49(1) of the Rules;
(b) the bracketed and circled portion of the Reply are, with
respect to the section titled "Overview", advanced as legal
arguments and not as statements of fact;
(c) the bracketed and circled portion of the Reply advanced as
facts assumed by the Minister in assessing and as further assumptions of fact
are conclusions of law and mixed fact and law;
(d) the portion of the Reply entitled "Summary of Tax Loss
Creation Scheme", paragraphs 2 to 15 inclusive, are neither advanced
as facts which the Minister assumed in assessing as in paragraph 46, nor
as further assumptions of fact as in paragraph 47. As such,
paragraphs 2 to 15 inclusive are simply arguments advanced as fact; and
(e) the bracketed and circled portions of the Reply are
argumentative, inflammatory or inserted to colour the proceedings and to usurp
the function of the Trial Judge.
B Re: Strother
reply:
(a) the bracketed and circled portions do not conform to the
specifications of Rule 49(1) of the Rules;
(b) the bracketed and circled portions of the Reply are, with
respect to the section titled "Overview", advanced as legal arguments
and not as statements of facts;
(c) the bracketed and circled portions of the Reply advanced as
"Facts" and as "Assumptions of Fact", are conclusions of
law or mixed fact and law; and
(d) the bracketed and circled portions of the Reply are
argumentative, inflammatory or inserted to colour the proceedings and to usurp
the function of the Trial Judge.
[5]
The Replies are essentially
identical; the majority of the numbered paragraphs referred to above are the
same in all three Replies, differences are in footnotes.
"Fresh
Step" objection
[6]
The respondent has objected to the
motion of the appellant Strother on the basis his motion is a fresh step.
Rule 8(b) provides that:
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A
motion to attack a proceeding or a step, document or direction in a
proceeding for irregularity shall not be made,
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La
requête qui vise à contester, pour cause d’irrégularité, une instance ou une
mesure prise, un document donné ou une directive rendue dans le cadre de
celle-ci, ne peut être présentée, sauf avec l’autorisation de la Cour :
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…
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…
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(b) if the moving party has
taken any further step in the proceeding after obtaining knowledge of the
irregularity,
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b) si l’auteur de la requête a
pris une autre mesure dans le cadre de l’instance après avoir pris
connaissance de l’irrégularité.
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except
with leave of the Court.
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[7]
The chronology of events leading
to the Strother motion are relevant:
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1. January 19, 2007
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— Notice of Appeal for 1998 and 1999 taxation
years
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2. November 5, 2007
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— Amended Notice of
Appeal
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3. November 9, 2007
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— Further Amended Notice
of Appeal
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4. December 18, 2008
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— Another Further Amended Notice of Appeal
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5. January 19, 2009
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— Reply to the Further Amended Notice of Appeal
dated December 18, 2008.
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6. February 13, 2009
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— Appellant’s Answer to Respondent’s Reply
("The Fresh Step")
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7. February 11, 2010
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— Further Further Amended Notice of Appeal
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8. February 18, 2010
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— Reply to the Further Further Amended Notice of
Appeal dated February 11, 2010.
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9. March 26, 2010
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— Appellant filed and served motion to strike.
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[8]
There are at least two reasons
behind the fresh step rule. The first is to prevent prejudice where it is
unfair to permit a reversal in approach
and the second is based on the idea of an implicit waiver. That is, by proceeding to
the next step the party has waived their right to complain of the irregularity.
If either underlying factor is not present then there are strong grounds to
exercise discretion and grant leave to allow the motion to be heard despite the
fresh step.
[9]
Both parties rely on Bowman A.C.J.’s
(as he then was) statement in Imperial Oil Limited and Inco Limited v The
Queen:
The
"fresh step" rule is one that has been part of the rules of practice
and procedure in Canada and the United Kingdom for many years. There is a great
deal of jurisprudence on what constitutes a fresh step but the rule is based on
the view that if a party pleads over to a pleading this implies a waiver of an
irregularity that might otherwise have been attacked. For two reasons I do not
think that the fresh step rule precludes the respondent from bringing the
motions. First, it is clear that by filing replies to the notices of appeal
the respondent is not waiving her objections to the filing of the notices of
objection and appeal. The replies clearly state the Crown’s objection. Second,
a rather wide ranging attack on the appellant’s right to appeal, including
allegations that that this court has no jurisdiction, that the appeals are
frivolous, vexatious and an abuse of process is hardly an attack on an
irregularity.
[Emphasis added.]
[10]
The appellant makes two arguments
in respect of why leave should be granted for his motion to strike based on Imperial
Oil. First the appellant argues that the conclusions of law and repetitive
pleadings are beyond a mere irregularity. The facts at bar are not the same as
in Imperial Oil. There the issue was whether the appellant was entitled
to appeal from an initial "quick" assessment, where only the
arithmetic was checked, following the expiration of the 90 day period of
confirmation. The Crown’s argument was that a "quick" assessment did
not give rise to a right to object and that it was only after a more thorough
assessment that the taxpayer could object. The central issue was whether the
Tax Court had jurisdiction to hear an appeal from a "quick"
assessment. In that case the fresh step should not prevent the court from making
this legal determination.
[11]
In this matter, counsel states,
the issues in the impugned paragraphs are not determinative of the matter. The
criticism that the Reply contains conclusions of law or repetition is more in
line with irregularities than determinations regarding the right to appeal. It
is not enough that the motion to strike was brought under the heading of frivolous
and vexatious proceedings or an abuse of process to fit within Bowman A.C.J.’s
statement in Imperial Oil. Instead, it must be a substantial attack
against the pleading, an attack against the entire appeal itself, and leave
should not be granted on this basis.
[12]
The appellant’s second argument is
that the respondent will not experience any prejudice as the issues are the
same in the other appeals proceeding along the same timelines. Additionally, no
documents have been exchanged and no discovery has been conducted. The respondent
has not indicated how she would be prejudiced in this situation other than to
say that the fresh step should be considered if a costs decision in the
Strother motion is made. That is, as I understand it, "they shouldn’t be
able to demand costs in regard to Strother when they have taken actions
inconsistent with the present position."
[13]
The parties have both filed new
pleadings since the fresh step, addressing the issues raised in the Answer.
They are effectively still at square one. The respondent and the appellant are
in no different position than if the Answer had been the final pleading. Both
sides are aware that one of the critical issues in all three appeals is the
role of the CRA Rulings and both have given their facts surrounding this issue.
Accordingly, in the circumstances, it is not obvious the respondent will suffer
any prejudice. Leave for the motion is granted.
The Motions
[14]
The requirement as to what a reply
in an income tax appeal should state is found in Rule 49(1) of the Rules:
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Subject to
subsection (1.1), every reply shall state
(a) the
facts that are admitted,
(b) the
facts that are denied,
(c) the
facts of which the respondent has no knowledge and puts in issue,
(d) the
findings or assumptions of fact made by the Minister when making the
assessment,
(e) any
other material fact,
(f) the
issues to be decided,
(g) the
statutory provisions relied on,
(h) the
reasons the respondent intends to rely on, and
(i) the
relief sought.
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Sous réserve
du paragraphe (1.1), la réponse indique :
a) les faits admis;
b) les faits niés;
c) les faits que l’intimée ne connaît pas
et qu’elle n’admet pas;
d) les conclusions ou les hypothèses de
fait sur lesquelles le ministre s’est fondé en établissant sa cotisation;
e) tout autre fait pertinent;
f) les points en litige;
g) les dispositions législatives
invoquées;
h) les moyens sur lesquels l’intimée
entend se fonder;
i) les
conclusions recherchées.
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[15]
Once the respondent has admitted
and denied facts and stated she has no knowledge of certain facts alleged in
the Notice of Appeal and puts these facts in issue, there are only two more
statement of facts for the respondent to plead: the finding or assumptions of
fact made by the Minister when making the assessment, and any other material
fact. All these statements of fact are to be statements of material fact, not
immaterial facts, not statements or principles of law and not statements mixing
fact with law. Subparagraphs f), g) and h) of
Rule 49 accord the respondent opportunity to describe the issues, state
the statutory provisions in play and submit the reasons she is relying on in
this appeal.
[16]
It is poor and improper pleading
when a litigant admits or denies a fact in a pleading but couples the admission
or denial with a conclusion of law or some extraneous comments that add nothing
to the process. The assumptions of fact should be facts the Minister relied on
in assessing and the facts so relied on should be material facts. Otherwise,
why were these facts relied on if they were not material? In Foss v.
The Queen
my colleague Bowie J. explained that:
The purpose of pleadings is to define the issues
between the parties for the purposes of discovery, both documentary and
testamentary, and trial. That requires no more than a statement of the
"precise findings of fact" that underpin the assessment. It is
potentially prejudicial to the appellant to plead more - certainly to plead
more by way of assumptions of fact. The appellant is, of course, entitled to
particulars of the evidence that the Crown intends to lead at trial, but these
are properly obtained on discovery, not disguised as material facts as to which
the Crown at trial may claim a presumption of truth. …
I Mixed fact and law
[17]
The appellants submit that
the ratio of Rothstein J.A. (as he then was) in The Queen v. Anchor
Pointe Energy Ltd.
regarding conclusions of mixed fact and law should be extended to all
paragraphs of the Reply which deal with facts:
[25] I agree that legal statements or conclusions have no place
in the recitation of the Minister’s factual assumptions. The implication is
that the taxpayer has the onus of demolishing the legal statement or conclusion
and, of course, that is not correct. The legal test to be applied is not
subject to proof by the parties as if it was a fact. The parties are to make
their arguments as to the legal test, but it is the Court that has the ultimate
obligation of ruling on questions of law.
[26] However, the assumption in paragraph 10(z) can be
more correctly described as a conclusion of mixed fact and law. A conclusion
that seismic data purchased does not qualify as CEE within the meaning of
paragraph 66.1(6)(a) involves the application of the law to the
facts. Paragraph 66.1(6)(a) sets out the test to be met for a CEE
deduction. Whether the purchase of the seismic data in this case meets that
test involves determining whether or not the facts meet the test. The Minister
may assume the factual components that are being assumed so that the taxpayer
is told exactly what factual assumptions it must demolish in order to succeed.
It is unsatisfactory that the assumed facts be buried in the conclusion of
mixed fact and law.
[18]
In Anchor Pointe
the Court opined that the assumptions of fact be factually clear and the Crown
should not draft the assumptions of fact in such a way as to exacerbate the
appellant's onus of disproving the facts assumed. The appellant does not
require this protection in portions of the Reply where the Crown has the onus
of proof, for example, paragraphs a), b), c) and e)
of Rule 49(1).
[19]
The form of the Reply set
out in Rule 49(1) contemplates the avoidance of commingling facts with law.
Facts are required to be plead first through paragraphs 49(1)(a)(b)(c)
and (e). Rule 49(1)(d) restricts the respondent to pleading
findings of fact or assumptions of fact made by the Minister in assessing;
there are material facts only. Rules 49(1)(f) to (i)
inclusive give the respondent the right to plead matters described in these
Rules. This is similar to the rules of practice in common law provinces,
including Ontario and British
Columbia as well as the
Federal Court which allow the pleading of law if the factual underpinnings have
been pled.
[20]
The respondent argues
that Rule 49 merely sets out what must be included and does not establish a
specific structure. In other words, so long as the requirements of Rule 49
are met, it is possible to intersperse conclusions of law with the facts
throughout. To accept the respondent’s argument would lead to incoherent,
repetitious pleadings as difficult and frustrating as the ones faced with under
this motion.
[21]
It does not require
complex statutory analysis to arrive at the conclusion that a "fact"
means a fact in the legal context. The majority of the Supreme Court of Canada
took a technical interpretation approach to the word "sale" in the Income
Tax Act with Major J. stating:
To apply a “plain meaning” interpretation of the concept of a sale
in the case at bar would assume that the Act operates in a vacuum,
oblivious to the legal characterization of the broader commercial relationships
it affects. It is not a commercial code in addition to a taxation statute.
Previous jurisprudence of this Court has assumed that reference must be given
to the broader commercial law to give meaning to words that, outside of the Act,
are well-defined. …
[22]
In terms of "facts",
this word is in the rules of civil procedure and so should be interpreted in
the legal context with the relevant distinctions between questions of law,
questions of fact and questions of mixed fact and law. The word "facts"
excludes conclusions of law and mixed fact and law.
[23]
The appellants claim
that the disputed bracketed portions of the Replies are actually conclusions of
law or mixed fact and law. However, the respondent states that these are simply
factual assertions.
[24]
It is frequently difficult
to draw the line between a question of fact and a question of law. It is more
difficult when the third category, mixed question of fact and law, is
considered. Iacobucci J. of the Supreme Court of Canada recognized this
problem and stated the following:
… Briefly stated, questions of law are questions about what the
correct legal test is; questions of fact are questions about what actually took
place between the parties; and questions of mixed law and fact are questions
about whether the facts satisfy the legal tests. A simple example will
illustrate these concepts. In the law of tort, the question what "negligence"
means is a question of law. The question whether the defendant did this or that
is a question of fact. And, once it has been decided that the applicable
standard is one of negligence, the question whether the defendant satisfied the
appropriate standard of care is a question of mixed law and fact. I recognize,
however, that the distinction between law on the one hand and mixed law and
fact on the other is difficult. On occasion, what appears to be mixed law and
fact turns out to be law, or vice versa.
a) Arm’s length relationship
[25]
The following portions
of these reasons deal with various words, terms and phrases that the appellants
view as conclusions of law or mixed fact and law. In an effort to make the
reading of these reasons less onerous to the reader, I shall refer to the
portions of the SHAAE Reply which have been bracketed or circled by the
appellants as well as the portion of the Reply in SHAAE that is entitled
"Summary of Tax Loss Creation Scheme", rather than to the same
matters in the Strother and Hill No. 207 appeals.
[26]
A non‑arm's
relationship is a question of fact: Teelucksingh v The Queen. Bowie J.
explained that matters such as:
… assertions as to value, that parties do not act at arm’s length,
that they did not carry on a business, that expenses were not incurred, or were
not incurred for a particular purpose are assertions of fact. Certainly
those facts have legal implications, and some of them use words that are used
in the Act, but they are nevertheless factual assumptions.
[Emphasis added.]
[27]
Accordingly, any
mention of non-arm’s length relationship cannot be struck on the basis of
pleading a conclusion of law. Alternatively, in some cases they can be struck
on the basis of being inappropriate for a definition which is discussed
below.
Bracketed portions not struck
from the Strother appeal:
Paragraphs 24 and 46(llll) – Title, 46(pppp)
– Title, as the statements of a non-arm’s length relationship are not
conclusions of law.
b) Did not carry on business with a
common view to profit
[28]
The Supreme Court of
Canada stated the test for partnership as follows:
… In other words, to ascertain the existence of a partnership the
courts must inquire into whether the objective, documentary evidence and
surrounding facts, including what the parties actually did, are consistent with
a subjective intention to carry on business in common with a view to profit.
Courts must be pragmatic in their approach to the three essential
ingredients of partnership. Whether a partnership has been established in a
particular case will depend on an analysis and weighing of the relevant factors
in the context of all the surrounding circumstances. That the alleged
partnership must be considered in the totality of the circumstances prevents
the mechanical application of a checklist or a test with more precisely defined
parameters.
[Emphasis added.]
[29]
Based on
Iacobucci J.’s reasoning in Southam, the test for a partnership
would be a conclusion of mixed fact and law. What the PLPs and MLPs did or did
not do are questions of fact; what is the test for partnership is a question of
law and whether the facts allow the appellants to satisfy the Backman
test would be a mixed question of fact and law.
[30]
The respondent
therefore is required to extricate the legal components of a conclusion of
mixed fact and law and only plead the facts where the rule requires facts. The
statement that "… did not carry on business with a view to profit"
will be struck when commingled with the facts:
The paragraphs struck from the SHAAE and Hill
No. 207 appeals:
Paragraphs 1(i), (k), (l), 18, 19, 20, 21, 24 and 46(f).
Bracketed portions struck from the Strother appeal:
Paragraphs 1(e),
(f), (g), 18, 20, 29 and 46(h).
c) The allegations of sham, circular transactions
or façade
[31]
The allegations of
sham, circular transactions and facades are also in issue. The test for the
sham doctrine was set forth in Snook v. London West Riding Investments, Ltd.:
... [Sham] means acts done or documents executed by the parties to
the "sham" which are intended by them, to give to third parties or
the Court, the appearance of creating between the parties, legal rights and
obligations different from the actual legal rights and obligations (if any),
which the parties intend to create. … for acts or documents to be a "sham",
with whatever legal consequences follow from this, all the parties thereto
must have a common intention that the acts or documents are not to create the
legal rights and obligations which they give the appearance of creating. …
[Emphasis added.]
[32]
In this case, the facts
are the actual rights and responsibilities as well as what the parties did or
did not do. However, applying the facts to determine whether there was a common
intention to mislead is a conclusion of mixed fact and law as it involves the
applications of the facts to the legal test of sham. Again, the respondent is
required to extricate the facts and mentions of sham, or façade should be
deleted. With respect to this argument, some of the bracketed portions are
struck while some are not as they are factual underpinnings and not
conclusions.
Bracketed portions struck from the SHAAE
and Hill No. 207 appeals.
Paragraphs 19, 22, 24 and 46(c).
Bracketed portions struck from the Strother
appeal:
Paragraphs 20, 22, 26, 29, 46(c) and (q).
Bracketed portions not struck from
the SHAAE and Hill No. 207 appeals:
Paragraphs 46(a), (b) and (ss) are not
struck as they are the factual underpinnings of a sham argument.
Bracketed portions not struck from the Strother
appeal:
Paragraphs 27, 46(a), (b), (o), (dd), (oo), (nnn),
(pppp) and (tttt) are not conclusions of law but factual underpinnings sham.
[33]
The difficult term here
is "circular" and its derivatives. The appellant’s main complaint
with "circular" is that it is colourable and only in oral submissions
did appellants' counsel mention that it could be a legal conclusion. However, "circular"
is a factual conclusion; it is a factual description. Therefore, no portions
containing this word will be struck on this basis alone. The colourability of
these terms, though, will be discussed below.
d) Reasonable expectation of profit
(“REOP”)
[34]
The Supreme Court of
Canada replaced the REOP test for deductibility under section 9 with the
pursuit of profit test in Stewart v. The Queen. It is now a
two part test:
(i) Is the activity of the taxpayer
undertaken in pursuit of profit, or is it a personal endeavour?
(ii) If it is not a personal endeavour, is the
source of the income a business or property?
[35]
The Supreme Court of
Canada went on to say that "[the] overall assessment to be made is whether
or not the taxpayer is carrying on the activity in a commercial manner"
with a reasonable expectation of profit being a factor to consider.
[36]
Therefore, the REOP
test is still a relevant factor to consider when determining whether the
activity was carried on in a commercial manner or alternatively for determining
whether a partnership existed. For example, in Foster v. The Queen, Angers J.
cited no income as one factor in concluding that the partnership was not a
partnership in law in the context of SR&ED tax shelter program.
[37]
Therefore, reference to
REOP is not a conclusion of law and but a fact relied upon by the Minister and
as a result its mention should not be struck.
Bracketed portions not struck
from the SHAAE and Hill No. 207 appeals:
Paragraph 46(aaa).
Bracketed portions not struck
from the Strother appeal:
Paragraph 37.
e) Response to rulings allegations
[38]
Paragraphs 28 through 34 of the
SHAAE appeal and paragraphs 30 through 36 of the Strother appeal are the
respondent’s response to the appellant's allegation that it had received a
favourable ruling in respect of the tax shelter arrangement. The only
conclusion of law in these paragraphs is in paragraph 34 of the SHAAE and paragraph 35
of the Hill No. 207 appeals which state that the appellants do not qualify
for the equitable defense of estoppel.
Bracketed portions struck from the SHAAE and Hill
No. 207 appeals
Only a portion (the last sentence) of each of
paragraph 34 and paragraph 35 is struck from the SHAAE and Hill
No. 207 appeals respectively for this reason.
II Should portions of the replies
be struck for being repetitive or redundant?
[39]
The appellants’
alternative argument to strike is based on the repetition and redundancy of the
Replies. When reading through redundant and repetitive portions of the Replies
it is only a matter of pages before one has the feeling that one of the parties
is trying to beat the other into submission, never mind the judge who is only
just entering the fray. The appellants rely on Mudrick v Mississauga
Oakville Veterinary Emergency Professional Corporation, in which
Master Haberman of the Ontario Superior Court of Justice struck out the
plaintiff’s overview and summary for this very reason. In reaching this
conclusion Master Haberman stated:
The pleading contains a summary, which essentially repeats the
overview. This will be unnecessary when the claim is pleaded properly.
Including the summary and the overview means the same things are repeated three
times in the pleading. They should only be discussed once, in the body of the
claim, where they fall chronologically.
In concluding, she added the following general
comments regarding pleadings in general:
Repetition should be avoided. Superfluous detail should be
eliminated. Editorialized comments should be removed. … This is not “the last
chance” to tell the whole story – it is only an overview of what the case will
be about. …
[40]
Moreover, Bowie J.
cited the following passage from Holmsted and Watson regarding the rule
of pleading:
This is the rule of pleading: all of the other pleading rules
are essentially corollaries or qualifications to this basic rule that the
pleader must state the material facts relied upon for his or her claim or
defence. The rule involves four separate elements: (1) every pleading must
state facts, not mere conclusions of law; (2) it must state material facts and
not include facts which are immaterial; (3) it must state facts and not the
evidence by which they are to be proved; (4) it must state facts concisely in a
summary form.
The fourth requirement is particularly relevant to
this appeal. A repetitive pleading is not concise. It does nothing to help in
understanding the issues.
[41]
Orsborn J. (as he then
was) of the Newfoundland and Labrador Supreme Court, when faced
with repetitive pleadings, explained:
… The pleadings define the case to be made out and to be met, both
factually and legally. Loosely defined and unfocussed pleadings are of no
benefit to the recipient or to the court. They detract from rather than
facilitate the understanding of the legal framework against which the factual
circumstances will be assessed. Unnecessarily verbose and repetitive
pleadings create uncertainty; there is no place for uncertainty when faced
with responding to a claim for redress.
[Emphasis
added.]
[42]
Finally,
P.M. Perell J. of the Ontario Superior Court of Justice cited
repetition as one of his reasons for striking certain paragraphs of a statement
of claim under Rule 25.11 of the Ontario Rules of
Civil Procedure.
I strike out these paragraphs or words on the grounds that they are any
or all of immaterial, embarrassing, argumentative, tautological, redundant,
repetitious, or a pleading of evidence and not a material fact. …
[Emphasis added.]
[43]
The excessive
repetition within each Reply is superfluous and undermines the goals of
conciseness and certainty. The repetitive portions should be struck.
a) Redundancy of Overview and Summary
[44]
The most redundant
portions of the Replies are the Overview and the Summary which effectively
repeat the allegations made in paragraphs 46 and 47. In Gould v The
Queen,
Bowman J. refused to strike an overview which described the overall
"scheme". To Bowman J. it was a relevant fact that charitable
donations were part of a larger pattern involving others. Finally, he allowed
it to remain as it served a function of pleadings; to inform the judge of the
Crown’s position as well as the issues he must decide upon. An overview
can be a welcome addition in pleadings, in particular pleadings in a complex
matter. It gives the reader a bird's eye view of the issue. It can be analogous
to an Executive Summary of a lengthy report so long as it is used as such. That
it may be colourful — as long as it is not overtly one‑sided —
should not unduly concern the opposing party in an appeal before this Court.
There is no jury. The judge can readily discern fact from hyperbole. Ideally,
however, the overview should present a fair description of the issue in appeal.
Inflammatory language in an overview serves mainly to make the litigation less
civil. The overviews in these Replies are allowed to remain. Like in Gould,
these appeals also are concerned with a tax shelter program.
[45]
The same cannot be said
for each Summary. Each repeats the Overview as well as paragraphs 46 and
47 of the Replies. The respondent should choose one or the other. The reader has
already been put on alert as to the central issues in the appeal as well as the
Crown’s position. It is redundant and must be struck in all three appeals as
scandalous, frivolous and vexatious.
The paragraphs struck in
the SHAAE and Hill No. 207 Appeals.
Paragraphs 2-15(Summary), 19, 20, 23,
24.
Bracketed portions struck from the Strother
appeal
Paragraphs 2 through 15 (Summary), 20, 22, 26 and
29.
III Should
portions of the Replies be struck for use of colourable or embellishing language?
[46]
With respect to terms
used for colour or to embellish, the respondent submitted Meditrust
Healthcare Inc v. Shoppers Drug Mart as authority for what is colourable
language. There Molloy J. stated:
… Strong language is not prohibited when appropriate to the context.
… That said, distinguishing between particular words or expressions which are
merely descriptive, as opposed to inflammatory, is largely a subjective
exercise. My own view is that considerable latitude should be given to the
style and language chosen by counsel. The Court should only intervene when the
expressions used are clearly "over the line".
[47]
Justice Molloy then
ruled that the following statements did not cross the line: "fraudulent
intent", "bogus letter", "warning", "threatened",
"vested interest in maintaining dominance", "propagandizing
directly and through surreptitious means", "pervert", "predatory
practice", "poisoning the marketplace", "poisoning the
business of the plaintiff", "modus operandi", and "agent
provocateur in the context of an action for anti-competitive practices".
On the other hand he struck the expression "dirty tricks" as
inflammatory.
[48]
The appellant cited George
v. Harris,
for the position that "… portions of a pleading that are irrelevant,
argumentative or inserted for colour, or that constitute bare allegations
should be struck out as scandalous". However, George v. Harris
dealt with paragraphs of a notice of motion relating to deficiencies in an
affidavit of documents. As such, most of the words related to the conduct of
the defendant in failing to comply with discovery. The following are examples
of words struck: "deliberately avoids disclosing", "used
concealment techniques", "manipulated form and content of affidavit",
"deliberateness of documentary disclosure evasions", "evasions"
and "deliberate gaps".
[49]
The issue here is
whether the word "circular" and its derivatives are over the line.
This is a subjective determination. In this case, the references to circular
transactions do not come close to the offensive terms in Meditrust or George
v. Harris. They are relevant in the context of a tax shelter arrangement
and nothing is scandalous if it is relevant.
As a result no paragraphs are struck based on colourability.
Bracketed portions not struck from the SHAAE
and Hill No. 207 appeals:
Paragraphs 46(j), (p), (q), Page 20 Title
and Page 20 Subheading I, 47(f), (g), (kk), (pp) and (pp)(iv).
Bracketed portions not struck from the Strother
appeal:
Paragraphs 39,
46(l), (p), (r), (s), (t) (v), (v), (zz), (ggg), (hhh), (zzz), (aaaa), (eeee),
(ffff)(f), (llll) – Title.
IV Should the qualifications to the
definitions be struck?
[50]
The respondent has
qualified the definitions portion of its Replies to the point where the
definitions are useless. This practice should be discouraged. It is no use
having a definition unless the opposing party and the trial judge can easily
refer to the definition as well. The practice prevents the other party from
relying upon a standard term when the qualification is in dispute. Moreover, it
prevents the judge from using the standard term before the finding of fact is
made as to the qualification. Definitions are not an explicit requirement under
Rule 49; they are permitted because they simplify the pleadings. Where the
definition introduces a lack of clarity through qualifications, the ability to
include definitions should be curtailed. For example, in Sun Life Assurance
Co. of Canada v. 401700 Ontario Ltd, the Ontario Court (General Division)
held that:
… defined terms and descriptive phrases in a pleading are generally
within the discretion of the party pleading. They are often of assistance to
the smooth flow of the pleading. However, defined terms in a pleading should
not be inflammatory, nor create an unnecessarily repetitive and prejudicial
flavour.
[51]
The qualifications here
are certainly repetitive and done to be inflammatory. These qualifications only
decrease the clarity of pleading. This is not to say that the particular
qualifications have no place in the pleadings, simply that they should be pled
separately from the definitions. As a result, all qualifications are struck.
Bracketed portions of the paragraphs to be struck
in the SHAAE and Hill No. 207 appeals:
Paragraphs 1(i), (k), (l), (o), (r),
(s) and (t).
Bracketed portions of the paragraphs to be struck
from the Strother appeal:
Paragraphs 1(e), (f), (g), (k), (n),
(p)
V Miscellaneous portions in Strother
[52]
Paragraph 50(iii) is not an
allegation of law but merely a purported explanation of the Minister’s
assessment position. It is a self‑serving, useless inclusion in the reply
that adds absolutely nothing to the issues to be decided.
[53]
Footnote to paragraph 43 is
not struck as there is nothing offensive with what is contained therein but I
question if it is necessary to name these appellants in the pleadings.
VI Respondent's agreement to delete quotation
marks
[54]
At trial respondent's
counsel agreed to remove the disputed quotation marks throughout the Reply and
instead place the word "purported" in their place. Therefore the
following portions of the paragraphs are struck with leave to amend:
Bracketed portions struck
from the SHAAE and Hill No. 207 appeals:
Quotation marks contained in
the Overview, paragraphs 22, 36, 41, 46(g), (j), (m), (n), (vv) and (bbb).
Bracketed portions struck from the Strother
appeal:
Quotation marks in paragraphs 38, 39, 40, 41, 42, 46(l), (o), (p), (s), (t)(i),
(t)(ii), (t)(iii), 46(jj), 46(qq), 46(vv), 46(ggg) – Title, 46(iii), 46(nnn),
46(qqq), 46(ssss), 46(uuuu), 46(zzzz), 46(ccccc) and 48.
Conclusion
[55]
Orders in each motion shall be
issued accordingly. The respondent shall have until June 30, 2011 to amend
the portions of the Replies struck and serve and file its Amended Replies. The
appellants shall have 30 days thereafter to serve and file Answers to the
Replies.
[56]
One set of costs shall be awarded
to the appellants. The appellants asked for costs on a solicitor‑client
basis and I invite counsel to make submissions in writing if they cannot agree
on a fixed amount by June 30, 2011.
Signed at Ottawa, Canada, this 12th day of May, 2011.
"Gerald J. Rip"
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