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Citation: 2005TCC65
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Date: 20050118
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Docket: 2003-1672(IT)G
2003-1686(IT)G
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BETWEEN:
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SANDIA MOUNTAIN HOLDINGS INC.
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and ELIZABETH KULLA,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Miller J.
[1] The Respondent brought a motion
for an Order pursuant to section 110 of the Tax Court of
Canada Rules (General Procedure) as follows:
(a) directing the Appellants to
satisfy certain undertakings given by them at their examination
for discovery where the answers given were incomplete,
non-responsive or otherwise ambiguous, as set out in Schedule
"A" hereto;
(b) directing the Appellants to answer
certain questions that they refused or failed to answer at their
examination for discovery (including questions taken under
advisement but subsequently refused) as set out in Schedule
"B" hereto;
(c) directing the Appellants to
re-attend at their own expense a continuation of the examination
for discovery to answer all proper questions that the Appellants
previously refused or failed to answer, and to also answer any
proper questions arising from those answers;
(d) directing the Appellants to
re-attend at their own expense a continuation of the examination
for discovery to answer further questions relating to matters in
issue in the within appeals; and
(e) directing the Appellants to
pay forthwith the costs of this motion, costs thrown away and the
costs of the continuation of the examination for discovery.
[2] Schedule "A" and
Schedule "B" referred to in the Motion are attached to
these Reasons. Before addressing each of the undertakings and
refusals, it is helpful to briefly identify the issues in these
two appeals, and provide some background. In the Sandia Mountain
Holdings Inc. ("Sandia") appeal there are three
issues:
(i) Did Sandia underreport
income in the years 1993 to 1999? This issue arises due to the
admitted practice of Sandia in receiving payments throughout a
year from a related company, The Shield & Sword Inns Limited
("Shield"), which it identified on receipt as rent, but
then year-end adjusting entries were made to identify a lesser
amount as the actual rent payment. Sandia alleges the difference
was a loan from Shield to Sandia (the "excess
amounts").
(ii) Did Sandia incur interest
expenses ("interest expense") in 1994 to 1998,
disallowed by the Minister?
(iii) Can the Minister reassess
Sandia's 1993 to 1997 taxation years beyond the normal
reassessment period?
(iv) Is Sandia liable for penalties
pursuant to subsections 162(1) and 163(1) or (2) of the Income
Tax Act?
[3] In the Elizabeth Kulla
("Ms. Kulla") appeal the issues are:
(i) Did Ms. Kulla receive
taxable benefits from Sandia in the 1991 to 1999 taxation years
equivalent to the sum of the excess amounts and interest
expenses?
(ii) Can the Minister reassess
Ms. Kulla's 1991 to 1996 taxation years beyond the normal
reassessment period?
(iii) Is Ms. Kulla liable for
penalties pursuant to section 163(2) of the Income Tax
Act?
[4] The Parties set aside two days in
June, 2005, for examinations for discovery. The Respondent took
two full days to examine Ms. Kulla, who appeared on her own
behalf and as the representative of Sandia. Mr. Fitzsimmons,
acting for the Appellants, took two and one-half hours one
evening to examine the Respondent's witness.
[5] The following is a transcript of
the last few exchanges between counsel on the conclusion of Ms.
Kulla's examination:[1]
Mr.
Fitzsimmons:
Do not answer that question.
Mr. Sood:
Why not?
Mr.
Fitzsimmons:
I've stated the reasons why we're not answering any
questions about the Notices of Objection. It's
irrelevant.
Mr.
Sood:
I'm asking her whether at any point in time she took the
position that the amounts designated as economic recovery were
bad debts. Mrs. Kulla, I'd like an answer.
Mr.
Fitzsimmons:
I've instructed the witness not to answer. You have our
position. Please don't belabour the point, please don't
harass the witness. We've taken the position. If you disagree
with that, there is an appropriate remedy for it, but we're
not answering any questions about the Notices of Objection.
Mr.
Sood:
Mr. Fitzsimmons, I can't help but feel that throughout this
discovery, the Appellant has resisted answering proper questions
that have been put to her, that we have now reached an impasse. I
do not propose to continue wasting time. Instead, what I am going
to do is I'm going to adjourn this discovery and you and I
will either come to terms as to the continuation of this
discovery or we will seek some other recourse.
Mr.
Fitzsimmons:
If you have any other proper questions, I encourage you to ask
them, but as far as I'm concerned, this discovery is
over.
Mr.
Sood:
Mr. Fitzsimmons, I do have questions. I am not going to continue
to waste my time. Instead, I am adjourning this discovery at this
point.
Mr.
Fitzsimmons:
We respectfully disagree on that. The Appellant's position is
that you have had two full days of opportunity to examine and she
will not voluntarily reattend. With that, I think we've
stated our respective positions and I would like to proceed now
with my examination of Mr. Maciel. Thank you.
Mr.
Sood:
Thank you.
[6] In reviewing the second day of Ms.
Kulla's examination, it is clear that her counsel, Mr.
Fitzsimmons, interjected on a continuous basis and often provided
the answers himself. Mr. Sood, for the Respondent, maintains
these interruptions precluded the Respondent from obtaining a
full and fair examination. The Respondent relies on Rule
108 to seek directions from the Court to continue the
examination. Mr. Sood advised he got through about 80% of the
questions he intended to ask Ms. Kulla.
[7] On August 30, 2004, the Parties
exchanged letters purporting to fulfil their respective
undertakings. The Appellants served and filed Notices of Motion
returnable December 14, 2004, seeking orders, firstly requiring
the Respondent to fulfil one undertaking, and secondly, striking
portions of the Amended Replies. The Respondent served and filed
Notices of Motion for this application on December 8, 2004.
[8] All the applications were heard on
December 14 and 15, 2004. I dismissed the Appellants' motion
to strike portions of the Amended Replies on
December 15.
Appellants' Position
[9] The Appellants provided a number
of written points of argument in response to the Respondent's
application. As they are not lengthy I will reproduce them:
1. Tax
litigation differs from ordinary litigation in that the Minister
has the statutory right to examine a taxpayer's records at
any time and has typically exercised that right in depth when
auditing a taxpayer, well before the taxpayer commences a tax
appeal. Ordinary litigants have no such right to examine their
adversaries' records before commencing litigation. The
Minister's need for discovery to obtain information from a
taxpayer is therefore narrower than an ordinary litigant's
need for discovery. This difference should be borne in mind, it
is submitted, when considering the proper and fair scope of the
Minister's right to examine a taxpayer for discovery.
2. A
fortiori where the Minister has audited the taxpayer and
obtained information which sufficed, in the Minister's
opinion, to warrant the imposition of penalties. The Minister
ought not to be permitted, in the guise of conducting a
discovery, to compel a taxpayer to search for and provide
information to buttress the Minister's decision to penalize
the taxpayer, it is submitted.
3. A cardinal
rule of discovery is that questions are permissible only if
relevant to issues pleaded. The Court will not compel a witness
to answer a question which is clearly irrelevant.
Jacksonv. Belzburg, [1981] 6 W.W.R. 273 (BCCA)
Baxter v. The Queen, 2004 TCC 636, per Bowman, A.C.J.
4. Generally,
the scope of relevance is wide, but not so wide as to permit a
fishing expedition.
Baxter v. The Queen, supra, at p. 6.
5. It is
improper in a discovery examination to ask a witness what facts
she will rely on to prove an allegation in her pleadings or to
disprove an allegation in the other party's pleadings.
Can-Air Services Ltd. v. British Aviation Insurance Co.
(1988) 91 A.R. 258 (Alta C.A.), at p. 3.
Taylorv. Canada [1992] 1 F.C. 316 (FCTD) per
Jerome, A.C.J. at para. 15.
6. It is
improper to ask a witness for a view on a matter of opinion or on
a question of law.
Baxter v. The Queen, supra, at p. 6.
7. An
examining party is not entitled to an expression of opinion of
the party being examined or of her counsel regarding the use to
be made of a document produced by the party being examined.
Smithkline Beecham Animal Health Inc. v. Canada
[2001] T.C.J. No. 86, per Bonner T.C.J. at para. 11.
8. The
Minister's discovery questions should be limited to matters
which are not already within the Minister's knowledge, it is
submitted. A taxpayer should not be put to the trouble and
expense of assembling information the Minister already has, it is
submitted.
Andres Wines v. T.G. Bright & Co. Ltd. (1979) 41
C.P.R. (2d) 113 (FCTD), Per Walsh J., at p. 118.
Respondent's Position
[10] The Respondent's position is that
simply because Canada Revenue Agency (CRA) had dealings with the
Appellants prior to the involvement of the Department of Justice,
the scope of the discovery should not be limited, as none of that
information was provided under oath and none of it is part of the
record. Also, clearly the CRA auditor cannot introduce the
Appellants' books and records.
[11] With respect to the Appellants'
position that it is improper through examination to require a
compulsory self-investigation by the Appellants to determine
facts that might support the imposition of penalties by the
Minister of National Revenue (the Minister), the Respondent
relies on Rule 95 which reads:
95(1) A person examined for discovery shall
answer, to the best of that person's knowledge, information
and belief, any proper question relating to any matter in
issue in the proceeding or to any matter made discoverable by
subsection (3) and no question may be objected to on the
ground that,
(a) the
information sought is evidence or hearsay,
(b) the
question constitutes cross-examination, unless the question is
directed solely to the credibility of the witness, or
(c) the
question constitutes cross-examination on the affidavit of
documents of the party being examined.
(2) Prior to the
examination for discovery, the person to be examined shall make
all reasonable inquiries regarding the matters in issue from all
of the party's officers, servants, agents and employees, past
or present, either within or outside Canada and, if necessary,
the person being examined for discovery may be required to become
better informed and for that purpose the examination may be
adjourned.
(Emphasis added)
[12] Penalties are a "matter in
issue" and regardless of who has the burden of proof, facts
surrounding that matter are still examinable.
[13] It was the Respondent's position
that the taxpayer has superior access to the facts and if the
Appellants deny the Minister's assumption of facts, it is
proper for the Respondent to examine the witness on what facts
support such denial, regardless of whether it relates to a
penalty.
[14] With respect to relevance, the
Respondent cites Justice Bowman's summary in Baxter v. The
Queen[2]
of the appropriate principles:
From these and other authorities referred to by counsel, I can
summarize the principles that should be applied:
(a) Relevancy on discovery must be broadly
and liberally construed and wide latitude should be given;
(b) A motions judge should not second guess
the discretion of counsel by examining minutely each question or
asking counsel for the party being examined to justify each
question or explain its relevancy;
(c) The motions judge should not seek to
impose his or her views of relevancy on the judge who hears the
case by excluding questions that he or she may consider
irrelevant but which, in the context of the evidence as a whole,
the trial judge may consider relevant;
(d) Patently irrelevant or abusive questions
or questions designed to embarrass or harass the witness or delay
the case should not be permitted.
[15] With respect to the appropriateness of
asking a witness what facts she will rely on to prove or disprove
an allegation in the pleadings, the Appellants relied on
Can-Air Services Ltd. v. British Aviation Insurance Co.
(1988)[3] from the Alberta Court of Appeal to support
the position that such questions are improper. The Respondent
pointed out that in the 2000 Ontario decision in Six Nations
of the Grand RiverBand of Indians v Attorney
General of Canada et al.,[4] Justice Campbell stated:
As for the Can-Air decision of the Alberta Court of
Appeal, which is not binding upon us, it was based on rules of
procedure different from our own, and involved the determination
of issues quite different from those before us. In
Can-Air, the court held that a party could not ask
on discovery, "On what facts do you rely in support of the
allegations at paragraph 'X' of the statement of
claim?" That kind of question is commonplace in discoveries
in Ontario. Therefore, the decision in Can-Air is of little
assistance on the issue before us. We note that the Alberta Court
of Appeal said that it would require a fortune-teller to know
what legal position a party would take at trial. Counsel for the
Attorney General agreed that in this case it would require a
fortune-teller to foresee what legal position the Attorney
General for Canada would take at trial. We do not consider that
to be a position in keeping with our Rules of Civil
Procedure.
[16] Further in SmithKline Beacham Animal
Health Inc. v. Canada,[5] in a decision of Justice Bonner of this Court, he
cited with approval Justice Hugessen in Montana Band v.
Canada:[6]
The jurisprudence is divided as to "compendious" or
"reliance" questions; in Can-Air Services Ltd. v.
British Aviation Insurance Co., 91
A.R. 258, it was said to be improper to ask a witness what
evidence he had in support of an allegation or how it was to be
proved at trial. Such reliance questions do not ask for facts
that the witness knows or can learn but rather require the
witness to play the part of a lawyer and to select which facts
can be relied on to prove a given allegation.
On the other hand, many experienced trial judges take a
broader view. Thus in Rubinoff v. Newton, [1967] 1
O.R. 402, Haines J. said:
The line of demarcation between disclosure of facts on which a
party relies and the evidence in support of the fact may at times
be very fine, and when it occurs, the resolution must be fact
disclosure. And I can think of no more simple and direct question
than, "On what facts do you rely?" ... The opposite
party is entitled to know the facts on which the acts of
negligence or recovery are alleged but not the evidence to
support it. To deny such facts would be to refuse the very
purpose of discovery which is to learn the facts, or often
equally more important, the absence of facts, pertaining to each
and every allegation in the pleadings.
Likewise in Brennan v. J. Posluns & Co. Ltd., [1959]
O.R. 22, McRuer C.J. ordered a witness to state the
facts relied on in support of an allegation. In his view a
question of this sort asks not so much for a conclusion of law by
a witness as for the facts behind such conclusion. Where the
witness is a party who is asserting that conclusion it is
reasonable to ask for the facts supporting it.
In my view, the proper approach is to be flexible. Clearly the
kinds of questions which were aptly criticized in Can-Air,
supra, ..., can easily become abusive. On the other hand, a
too rigid adherence to the rules therein laid down is likely to
frustrate the very purpose of examination on discovery. While it
is not proper to ask a witness what evidence he or she has to
support an allegation, it seems to me to be quite a different
thing to ask what facts are known to the party being discovered
which underlie a particular allegation in the pleadings. While
the answer may have a certain element of law in it, it remains in
essence a question of fact. Questions of this sort may be
essential to a discovery for the purposes of properly defining
the issues and avoiding surprise; if the pleadings do not state
the facts upon which an allegation is based then the party in
whose name that pleading is filed may be required to do so."
(emphasis added)
[17] The Respondent also relied upon Six
Nations to argue that it is proper to ask questions regarding
the Parties' legal position.
Canada has pleaded many issues of law or issues of mixed fact
and law. This is perfectly appropriate in a case of this nature.
Some of these issues are stated vaguely. Canada takes the
position that there is no mechanism under the Rules by which the
plaintiff can compel Canada to confirm or clarify its legal
position in respect of any issue of law prior to trial, that
position is not consistent with the policy underlying the Rules
which is to encourage full and frank disclosure prior to trial so
as to minimize costs and expedite the just resolution of claims.
Further, it is not an interpretation of the Rules which is in
accordance with their plain and ordinary meaning.
...
Canada's argument, that the lay person produced for
discovery on behalf of the defendant is unable to answer
questions that call for legal conclusions, is without merit. The
Rules contemplate that the person being discovered should inform
herself as to issues raised (rule 31.06(1) and rule 35.02(1)) and
is not expected to have personal knowledge of every issue. There
is also specific provision for questions being answered by legal
counsel (rule 31.08). Likewise, there is no problem created by
the fact that the person being discovered is under oath. She is
not required to swear to the truth of the law, but merely to
state what the defendant's current legal position is. If that
position changes, she is required to advise the plaintiff, as
would be the case for any others on discovery
[18] Justice Campbell reached this
conclusion partially based on his interpretation of the term
"matter" meaning something more than just
"facts". As the Rule 95 refers to examination of
any "matter in issue", the Respondent finds Justice
Campbell's reasoning particularly pertinent.
Analysis
[19] It is clear the Parties have taken
significantly different views on what are proper questions on
discovery. The following is my view of the appropriate
principles:
(i) Relevancy: I concur
with Justice Bowman's summary cited earlier (see paragraph
14);
(ii) Limited scope of
examination in tax cases involving penalties: The shifting of
the onus to the Respondent does not impact on the scope of proper
questions on examination for discovery. So, for example, if
misrepresentation is a matter in issue, questions into the
circumstances of the misrepresentation are proper. While
acknowledging that in tax cases, the Respondent has already
received considerable information, I agree with the Respondent
that such information is not part of the record and has not been
obtained in the more formal environment of questions on
examinations for discovery. This is not to suggest a party can
head off on a fishing expedition. Certainly not. Yet I do not
accept that examinations in tax cases are somehow to be limited
in scope, as the Appellants' counsel argues.
(iii) Facts relied on to prove or
disprove allegations: Justice Campbell in Six Nations
confirms that these types of questions are common place in
Ontario, notwithstanding the views of the Alberta Court of Appeal
in Can-Air. Different rules. Justice Hugessen made a
distinction in Montana between improperly asking what
evidence a witness has to support an allegation, and properly
asking what facts were within the witness's knowledge to
underlie a particular allegation. This is a fine distinction. One
approach goes to getting the witness to determine what proof is
required, which would not be proper. The other approach of asking
for facts underlying an allegation is limited solely to
fact-gathering and is proper. Semantics may play too
significant a role in making this distinction, yet the
distinction is real: questions aimed at getting a witness to
confirm that certain facts are proof of certain allegations are
out; questions arrived at getting the witness to divulge relevant
facts in connection with an allegation are in.
(iv) Conclusions of law: I
believe it is proper to ask questions clarifying the other
party's legal position; surely, that is a "matter in
issue in the proceeding". This, however, does not mean
seeking opinion on what the law is: again, perhaps a subtle
distinction. An example may help. In this case, Ms. Kulla pleaded
the receipt of rent payments by Sandia from Shield. On
examination of Ms. Kulla, she put forth the proposition that
there was no lease, but the arrangement was a licensee-at-will.
It would be improper to ask "what is a
licensee-at-will". It would not be improper to
ask what is the arrangement between Sandia and Shield
vis-à-vis the property. It would also not be
improper to confirm that Ms. Kulla's legal position is that
the arrangement was a licensee at will. Had she not pleaded or
put forth at examination the assertion that there was a
licensee-at-will, but simply described the agreement between
Shield and Sandia without drawing any conclusion, then it would
be improper to ask, "What then is the legal nature of this
agreement?"
(v) Limitations on matters already
within the Minister's knowledge: I do not find such
limitations are as far reaching as the Appellants, based on the
decision in Andres Wines Ltd. v. T.G. Bright & Co.[7] suggests.
The proposition from that case is summarized in
paragraph 8:
It appears to me however somewhat abusive of the process for
one party to require the other to expend great time and effort to
obtain information within his "means of knowledge"
which may be useful to the examining party when such information
is also readily available to the examining party who is thus
relieved of having to do the necessary research himself to
produce this evidence as part of his own case at trial, and that
it is preferable, as far as possible, to confine questions on
matters within the "means of knowledge" of the party
being examined to those facts which are within his means of
knowledge, but are not within the means of knowledge of the
examining party, who must therefore get this information from the
party being examined.
I do not interpret this to mean that because a CRA auditor has
obtained information from the Appellants, it is now within the
Respondent's "means of knowledge" and that the
Respondent is precluded from asking for such information on
discovery. That would place an unrealistic limitation on the
Respondent to the point that little, if any, discovery of the
Appellants would be available. If Ms. Kulla was able to provide
information to an auditor, it should not be an onerous task to
produce such information on discovery.
[20] With these general comments as a
backdrop, I now turn to the undertakings and refusals set out in
Schedules "A" and "B".
Undertakings (Schedule "A")
[21] Item 1. Ms. Kulla's response
that the 1992 management fees represent management fees is
non-responsive and should be answered with greater specificity,
as, for example, in answer to undertaking 19. Ms. Kulla's
answer with respect to mortgage interest is adequate.
Item 2. Ms. Kulla's response is inadequate -
details of the transaction should be provided.
Item 3. Resolved.
Item 4. Ms. Kulla's response is adequate as it
relates to income, but inadequate as it relates to expenses.
Details of expenses are unclear and elaboration is required.
Item 5. The undertaking given by Mr. Fitzsimmons was to
provide an explanation of the receivable, note payable and loan
payable. By just identifying the parties, the undertaking is not
answered adequately; details should be provided.
Item 6. Mr. Fitzsimmons agreed to obtain information
requested from Ms. Kulla's accountant.
Item 7. The response is adequate for 1997 to 1999, but
no response was given for 1991 to 1996 on the basis the years
were statute-barred. Whether the years are statute-barred is an
issue. Ms. Kulla is not relieved from answering questions in
relation to those years. Details should be provided for all years
requested.
Item 8. Ms. Kulla has used the best efforts to answer
the questions and no further inquiry is necessary.
Item 9. The undertaking as to how Sandia accounted for
expenses charged to Ms. Kulla's credit card has been answered
adequately. No undertaking was given to specify amounts.
Item 10. Resolved.
Item 11. The first question in Item 11 is adequately
answered. With respect to detailing the amounts, it is not an
answer to say the auditor has that information. Ms. Kulla should
provide such details.
Item 12. Mr. Fitzsimmons denied the facts in paragraph
15(x) of the Amended Reply to the Notice of Appeal which
reads:
15(x) Sandia
initially debited the Appellant's shareholder loan account by
the amount of the expenses paid, but, at year-end, credited the
Appellant's shareholder loan account by an amount a
series of entries equal to the amount of the Economic
Recovery in the 1995, 1995, 1997, 1998 and 1999 taxation years,
effectively eliminating the shareholder loan receivable
previously debited;
Yet when asked on discovery, "Does the Appellant admit
that Sandia initially debited the Appellant's shareholder
loan account by the amount of expenses paid in each of the years
1995, 1996, 1997, 1998 and 1999?", Mr. Fitzsimmons
responded: "We've given an undertaking to advise you of
such amounts, if any." Ms. Kulla should indicate such
amounts, if any.
The undertakings I have identified to be answered, shall be
answered in writing.
Refusals (Schedule "B")
[22] The Appellants' counsel
helpfully divided the Refusals into six categories:
(i) Non-Refusals (items 16, 25, 31, 32,
35 and 40)
(ii) Refusals based on improper
questions of law or opinion (items 19, 20, 33, 47, 36, 39, 41,
44, 45 and 46).
(iii) Fishing expeditions (items 21, 22, 26,
27, 28, 38 and 43).
(iv) Refusals on the basis the Minister
already has the information and that the questions relate to
self-investigation by the Appellants to support the
Respondent's claim of penalties (items 13, 17, 18, 22, 23, 24
and 27).
(v) Irrelevant (items 14, 15, 30, 42, 48 and
49)
(vi) Questions about facts to prove or disprove
allegations (items 34 and 36).
[23] (i)
Non-Refusals.
Item 16. There is no refusal to a specific question.
Item 25. Mr. Fitzsimmons argued these were not refused
as they were answered under the answer for undertaking 28. At the
examination, Mr. Fitzsimmons argued these questions were
irrelevant. I find Mr. Fitzsimmons's answer to
undertaking 28 contained in his letter of August 30, 2004, does
not answer item 25. I further find that Shields' treatment of
payments to Sandia is relevant. This item should be answered.
Items 31 and 32. Mr. Fitzsimmons maintained that
because mortgage documents were part of the Appellants' list
of documents and were also on public record, there was no refusal
with respect to these two questions. I disagree. Examination
should not have one party sending the other off on a scavenger
hunt when the information is readily within their knowledge. Ms.
Kulla should answer the questions.
Item 35. For the same reason as items 31 and 32, Ms.
Kulla should answer the question.
Item 40. Ms. Kulla has already answered this by denying
the allegation.
[24] (ii)
Questions of law or opinion
Items 19 and 20. These are not seeking a conclusion of
law as such, but they are seeking proof of a legal position and
framed as they are, I find them improper.
Items 33 and 47. Asking Ms. Kulla to calculate
penalties is improper. If liability is determined, the penalties
will flow from the trial judge's decision.
Item 36. Ms. Kulla denied any benefit had been
conferred on her. Asking for evidence to support no conferral of
benefit is improperly framed.
Item 39. The request for confirmation of credits to the
shareholder loan account is not seeking a conclusion of law or
accounting opinion - it is simply looking for confirmation of a
fact and should be answered. The latter part of the question that
such credits effectively eliminate the shareholder loan
receivable requires an accounting opinion and is improper to ask
Ms. Kulla.
Items 41 and 44. These are not seeking accounting
opinions but facts only and are to be answered by the
witness.
Items 45 and 46. These are seeking accounting opinions and
are improper.
[25] (iii)
Fishing expeditions
Item 21. Given one issue in the appeal is the nature of
receipts by Sandia from Shield, this is a proper question and
should be answered.
Item 22. The interest earned by Sandia from Shield and
Sweet Emotions Enterprises Ltd. ("SEEL") is a proper
question and is to be answered; however, the balance of the
question relating to any other loans is too broad and irrelevant
and is therefore improper.
Item 26. The matter of Ms. Kulla's personal
expenses paid by Sandia during the relevant years is not overly
broad, but is a proper question and should be answered.
Item 27. Ms. Kulla argues this is not only too broad,
but it is information already held by the Minister. These are
specific questions: they are not a fishing expedition. Whether
the Minister has some or all of the information, it remains
information which only Ms. Kulla has first-hand knowledge. These
questions should be answered.
Item 28. While the question is not overly broad, it
appears to have been answered in the negative by Ms. Kulla during
her examination. Further, there is no allegation by the
Respondent of any direct cash benefits to Ms. Kulla. She
need not respond to this question.
Items 38 and 43. Details of Ms. Kulla's personal
expenses paid by Sandia in 1991, 1992, 1993 and 1994, and how
Sandia accounted for them is not overly broad and must be
provided by Ms. Kulla.
[26] (iv)
Refusals on the basis the Minister already has the information
and that questions require self investigation by the Appellants
to support Respondent's claim for penalties.
Items 13, 17, 18, 22, 23, 24, 27. Based on principles
cited earlier, I find none of these questions improper and should
be answered.
[27] (v) Irrelevancy: (Items 14, 15,
30, 42, 48 and 49)
Items 14 and 15. Sandia alleged in its Notice of Appeal
that it acquired the tavern property from Shield in 1987. This,
combined with the ongoing flow of funds between Sandia and Shield
during the relevant years, leads me to conclude these questions
are relevant. They must be answered.
Item
30. After being advised of the adjusting entries long after
the years in question, Ms. Kulla sought legal advice. I see no
relevance in pursuing what other steps she might have taken at
that stage.
Item
42. Management fees claimed by Sandia for 1992 are relevant.
The 1991 management fees may be, but that is best left to the
trial judge and I am not prepared to exclude this question. Both
parts of this question should therefore be answered.
Items 48 and 49. Both these questions relate to
Sandia's Notice of Objection, which are part of the
Appellants' List of Documents. Mr. Fitzsimmons argued
that what is in the Notice of Objection is irrelevant. Where the
Notice of Objection is produced and it contains a different
explanation of events from the Appellants' positions at
examinations, questions exploring the differences are relevant
and proper. Ms. Kulla is directed to answer these questions.
[28] (vi) Questions about facts to prove
or disprove allegations. (Items 34 and 36)
Item
34. Paragraphs 11 and 12 in Ms. Kulla's Notice of Appeal
state the Minister has disclosed nothing to justify a late
reassessment and therefore there is no justification for such
late reassessments. To ask what facts support no justification is
not only seeking proof of the conclusion of law, but is oblique
and vague. It is not a proper question.
Item
36. The question asks Ms. Kulla to disprove the
Respondent's allegation that Sandia conferred benefits on her
by paying certain expenses. Ms. Kulla denied any benefit was
conferred on her. A general question posed in this manner is
confusing. How was she to know what facts proved a non-conferral.
She need not answer.
Mr. Fitzsimmons did not address items 29 and 37. With respect
to item 29, Ms. Kulla denied the Minister's assumption set
out in paragraph 15(u) of the Respondent's Amended Reply as
not being true. The Respondent asked what are the true facts.
Although this was an awkward way of asking the question, the
Respondent clearly sought information as to why adjusting entries
were made. Later in her examination, Ms. Kulla made it equally
clear she had Mr. Isaacson to prepare returns and statements. No
further response is required.
With respect to item 37, from a review of the transcript, I
fail to see an outright refusal. Ms. Kulla simply does not know
of any authorization to Sandia. No further response is
required.
The Refusals I have identified to be answered, shall be
answered in writing.
[29] It remains to determine if Ms.
Kulla is to be directed to re-attend further examinations for
three purposes:
(a) for follow-up questions on the
answers to Undertakings;
(b) for follow-up questions on the answers to
the Refusals; and
(c) to complete what the Respondent estimates
as the remaining 20% of examination questions.
[30] Rule 110 certainly
contemplates further examinations. Mr. Sood also kept the door
open in his remarks at the adjournment of the examination. I am,
however, concerned, having read the transcript from Ms.
Kulla's two-day examination, that her lack of knowledge of
the accounting side of her business, her admission of not
reviewing relevant documents and her counsel's strategy of
answering on her behalf, objecting, or going off the record are
factors which do not suggest an expedient conclusion to an
already protracted examination. My assessment is that this
witness is unlikely to add more to what the Respondent has
already obtained, especially if she fully answers the
Undertakings and Refusals I have ordered answered. However, I am
not privy to what Mr. Sood referred to as the remaining 20% of
questions he never got to. In that regard, the examination had
not been completed. I do therefore order the resumption of the
examination of Ms. Kulla, though not at her own expense, for the
purpose of answering further questions relating to matters in
issue in the appeals not previously asked.
[31] If, upon receiving the answers to
the Undertakings and Refusals, Mr. Sood is satisfied further
examinations are unnecessary, this would be welcome news. The
issues do not strike me as complex, and further lengthy
examination with the risk of possible further opposing motions
may result in an unnecessary procedural quagmire - a state in
this Court which is, fortunately, rare.
[32] To place some time lines on the
above, I order that Ms. Kulla provides written answers to the
Undertakings and Refusals within 30 days of the date of this
Order, and that the resumption of her examination, if necessary,
be conducted within 60 days of this Order. Undertakings, if any,
from such examination, are to be provided to the Respondent
within two weeks of completion of the examination for
discovery.
[33] While the Respondent has achieved
some success on this motion, it was not total. Costs of the
Appellants' motions are awarded to the Respondent. Costs of
the Respondent's motion are awarded to the Respondent in any
event of the cause on the basis of one-half of the tariff
costs.
Signed at Ottawa, Canada, this 18th day of January, 2005.
Miller J.
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