BETWEEN:
ANNELORE ARSTALL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
(Delivered orally by
conference call on May 20, 2014, in Ottawa, Ontario.)
Bocock J.
[1]
These are oral reasons for an Order delivered
this May 20, 2014, from written notes arising from the hearing of a motion
brought in appeal 2011-3077(IT)G between Annelore Arstall and Her Majesty
The Queen which motion was heard at Vancouver, British Columbia on the 25th
day of April, 2014.
[2]
The Respondent brings this contested motion to
further amend the Reply to add additional assumptions of fact, concordant
additional statutory provisions and grounds to be relied upon. There is one
housekeeping amendment to the Reply which is unopposed and accordingly, will be
reflected separately in the Order when issued. The factual basis for the
requested amendments is a handwritten auditor’s report (the “Auditor’s Report”)
purportedly emanating from an audit conducted for the taxation years 1985 through
1987 and recently discovered in September 2012.
[3]
The Court uses the phrase “recently discovered
in September 2012” both advisedly and relatively. While it is improbable this
is the longest running reassessment in Canadian tax history it is nonetheless
well aged; the mists of time accompanying its age surround it and breathe life
to the Appellant’s opposition to this request to amend the Reply. Not
surprisingly then, the factual history and documentary record to the
reassessment of this taxpayer is lengthy, complicated and frequently murky. The
appeal challenges a section 160 non-arms length transferee assessment and also
challenges the underlying assessment of the transferor spouse (the “Spouse”).
The year in question concerns the Spouse’s 1987 taxation year (the “Appeal
Year”) arising from a reassessment of the Spouse in 2004 (the “2004
Reassessment”).
[4]
Initial pleadings were exchanged in late 2011.
Further amended pleadings were exchanged in the early part of 2012 at which
time the Appellant expanded her challenge of the Spouse’s 2004 Reassessment.
During a four day period in late September of 2012, 25 years following the
relevant taxation year the pace of litigation accelerated dramatically. In the
run up to examinations for discovery, a representative of the Respondent, one
Mr. Folstad, conducted a search for the Auditor’s Report after he was alerted
by a reference in certain related documents.
[5]
As of September 24, 2012, no Auditor’s Report
was found as reflected in an email confirming non-existence. Two days later,
during discovery preparation with Respondent’s counsel, Mr. Folstad had
discovered the “Auditor’s Report”. At discoveries, the Auditor’s Report was
produced, identified by Mr. Folstad and became an exhibit to the examinations
for discovery as witnesses the transcript. Discoveries were adjourned by the
Appellant pending compliance with undertakings. The pace slowed again somewhat.
Two related appeals were ultimately settled. Moreover, Respondent’s counsel
advised in June 2013 that the Respondent intended to amend its reply in the
present appeal by relying upon information contained in the Auditor’s Report.
By November 2013, settlement discussions were abandoned, the motion was served
in January of 2014 and the matter now sits in the present time and is the
subject of this motion.
[6]
In support of the motion, the Respondent filed
one substantive factual affidavit of a legal secretary employed at Respondent
counsel’s office (the “Secretary‘s Affidavit”). The Secretary’s Affidavit
references all of the above–noted events and appends the purported email,
discovery transcript of Mr. Folstad, other correspondence and the hand written
Auditor’s Report. Generically, the affiant asserts the boiler plate preamble of
personal knowledge, or where stated, based upon information and belief.
[7]
Respondent’s Counsel asserts that the request
for the amendments to the Reply, given the unavoidable, recent discovery of the
Auditor’s Report, is required to appropriately reflect the Minister’s impetus,
theory and basis for the reassessment process undertaken with respect to the
Spouse’s tax liability. The amendments to the Reply will more fully establish,
reveal and expand the case which the Appellant must meet: the authority used is
Her Majesty the Queen v. Anchor Pointe Energy Ltd., 2007 FCA 188, at
paragraph 29. Further, no prejudice exists regarding delay, given the already
prolonged history and the Appellant’s concession on that point. Further, the
amendments per se qualify because the case is not beyond doubt, their
inclusion assists in placing the real issues in dispute before the Court and
there is no injustice or prejudice in their inclusion which cannot otherwise be
compensated for in costs: reference is made to Camoplast Inc. v. Soucy
International Inc., 27 CPR (4th) 411, at paragraphs 15, 16 and 17.
[8]
In opposing the motion, Appellant’s counsel
agrees there is no prejudice, but the concessions end there. In the first line
of attack, the Appellant challenges the amendments as improper assumptions of
fact because they are either conclusions of law or commingled and uncoupled
statements of mixed fact and law; generally outlined and precluded as factual
assumption under the authority of Canadian Imperial Bank of Commerce v.
Canada, 2013 FCA 122, at paragraphs 92 and 93 (“CIBC”). These
impugned subparagraphs in the proposed amended Reply contain the following
offending phrases:
[…] paragraph 24(ee) reads as follows:
at all material times, the Spouse acted
in concert with Pioneer Metals and did not deal at arms length with Pioneer
Metals;
[…]
Proposed paragraph 24(hh) reads as
follows:
the Spouse held shares of Pioneer Metals
and shares of “Maverick” as inventory and traded them as a business on account
of income;
[9]
In response to this assertion, Respondent’s
counsel concedes that subparagraphs (kk) and (mm) are conclusions of law. They
shall be struck. With respect to the phrases “acting in concert”, “did not deal
at arms-length”, “inventory” and as a “business on account of income,”
Respondent’s counsel says the utilization of these legal terms shorten
pleadings and preclude expansive pleadings of fact which unduly lengthen and
complicate pleadings. While this may be true, the Federal Court of Appeal in CIBC
thinks otherwise. The Court commends paragraph 93 to the Respondent. Similarly
to the Federal Court of Appeal, this Court thinks it is not a difficult task to
expand the elemental factual underpinnings of these terms of art or convenience
and thereby lay bare the primary factual assumptions relied upon. It may
lengthen the paragraph slightly, but the enhancements of clarity, simplicity
and understanding would outweigh the increase in verbiage. It will also reveal
whether elemental factual assumptions existed for such conclusive and
commingled pronouncements, also in compliance with paragraph 93 of CIBC.
The present paragraphs are therefore not to form part of the amended Reply as
they presently stand.
[10]
With respect to the second assault of the
proposed amendments to the Reply, the Appellant takes a more generic approach
to the quality and substance of the evidence proffered to show why the Reply
was not correctly pleaded initially and how the proposed amendments will not correct
the omission: the test enunciated in Labow v. Her Majesty the Queen,
2008 TCC 511. The Appellant argues that the numerous representations that no
further documents existed prior to the late discovery of the Auditor’s Report
require the Respondent to provide evidence showing why it was missed twice.
Quite apart from this two hump hurdle, the evidence itself is insufficient to
surmount even one: namely, there is no affiant with personal knowledge; no
authenticating testimony of the Auditor’s Report; the liberal use of hearsay
when better and compliant evidence was available from others; the use of
discovery evidence on a motion; and, the deficiency of the affiant availing
herself of confirming statements. Lastly, the Appellant argues there is no
evidence proving that the information contained in the Auditor’s Report is
connected to the assumptions now sought since neither the affiant nor the
referred to Mr. Folstad are factually indicated to have been involved in the
audit or reassessment or, more logically, to have reviewed and referenced the Auditor’s
Report regarding the tax liability of the Spouse in the context of the
amendments sought.
[11]
The Respondent in reply states that hearsay
evidence is permitted on motions and the Secretary’s Affidavit is admissible,
reliable and uncontroverted. Further, if facts deposed within the affidavit are
challenged, cross-examination should have occurred on those points. The
contents of the Auditor’s Report and Mr. Folstad’s discovery of same were more
properly dealt with at examinations for discovery and were not pursued. The
Auditor’s Report was occasioned by the Spouse’s own request. Moreover, the
opposition to the amendments is a strategic litigation ploy of the Appellant,
who in reality will be helped by the expansion of the factual assumptions in
the Reply.
[12]
The Court is prepared to accept that the passage
of time affords some leniency to the Respondent with respect to the following:
a)
the proposed amendments to the Reply, on the
basis of the Auditor’s Report, were brought as soon as circumstances permitted
because previous Replies pre-dated the discovery of the Auditor’s Report;
b)
the affidavit, while far from optimal, is
sufficient to establish the circumstances surrounding the discovery of the
Auditor’s Report, its likely authenticity (to be further proved at trial) and
the justification for the previous representations regarding no further
documentation; and,
c)
the probable existence of the Auditor’s Report
at the time of the spouse’s underlying reassessment which is the subject of the
appeal.
Accordingly, the Court
is prepared to make such related findings of fact.
[13]
However, the test for allowing an amendment to a
pleading well after the close of pleadings and examinations for discovery is a
different matter than a motion to strike certain paragraphs in pleadings. To
gain the Court’s discretion to add the paragraphs, the Respondent must not only
establish the prima facie factual existence of the document, the reasons
for its late revelation and its likely authenticity, but the Respondent must
link these findings, by evidence given by someone, as a justification for the
amendment: reference is made to Goldman Holdings Ltd. v. Her Majesty the
Queen, 2011 TCC 250.
[14]
The Court knows that the Respondent’s discovery
of the Auditor’s Report causes a yearning to amend the Reply. This is the
reason for the motion. However, the Court must ask itself: where is the
evidence before the Court that the Auditor’s Report contains facts, assertions
or analysis which demonstrates that these proposed amendments will remedy the
previous error or deficiency? The Secretary’s Affidavit, which is the only
evidence before the Court (which has been given its highest and best value as
evidence) contains not one reference, general, specific, hearsay or
speculative, as to why the contents of the Auditor’s Report constitute the
factual basis for the fresh assumptions now sought. The same is true of Mr.
Folstad’s transcript from examinations for discovery referenced in the
Secretary’s Affidavit. As well, there is no other document referenced, nor more
importantly facts within such a document, which justify the amendments on the
basis that same will remedy the deficiency or omission.
[15]
More is required than simply proving a dated
document was recently discovered. The Court cannot assume the nexus between the
Auditor’s Report and the sought amendments in the absence of some or even any
factual statement that it contains certain statements which were not previously
in the Respondent’s file when drafting the previous Replies, that is: what were
the additional historical facts which underpinned the relevant reassessment and
are now revealed by the discovery? The mere existence of the Auditor’s Report
does not do this. The assumptions, facts and details contained within it may.
Someone needs to tell to the Court under oath the brief nature of those facts,
briefly why they differ from or enhance those in the present Reply and why they
will enhance the Reply to accurately reflect the historical underpinnings of
the assessment. Counsel could then argue the amendments connected to the
Auditor’s Report will remedy the deficiency. In the absence of evidence of such
a linkage, how can the Court find that the Auditor’s Report contains facts
which assist in the “determination of the real questions in controversy between
the parties” (Camoplast at paragraph 16)?
[16]
Given the leniency the Court has shown in regard
to the Secretary’s Affidavit, even a few, cursory factual statements to that
effect may have sufficed. In the absence of any, there is no evidence that the
discovery of the Auditor’s Report per se allowed the revelation of
additional facts and assumptions justifying the proposed amendments to the
Reply. The Court cannot make that linkage in the absence of such evidence and
related representations.
[17]
Therefore the motion to amend the Reply at this
post discovery stage of the appeal is dismissed pro tem save for the
conceded housekeeping amendment to correct a typographical error. There is no
evidence before the Court that the lately discovered Auditor’s Report contains assumptions
or facts connected to the 2004 Reassessment and that their additions will
correct or remedy the original deficiencies or omissions in the Reply. The
Reply, if so amended, may become much more fulsomely reflective and consistent
with the Auditor’s Report. At present, there is simply no evidence hinting or
suggesting this would be the case. As such, this hurdle has not been
surmounted.
[18]
Since this motion is dismissed because of a
deficiency or absence of evidence, logically, it is arguably without prejudice
to the Respondent bringing the motion again with the fresh evidence missing
from this motion. That right is not to be decided at this time.
[19]
As to costs, the Court notes the following
factors laid down in the guiding principles under Rule 147 which cause
the Court to award costs to the Appellant (the responding party on this motion)
beyond the Tariff:
a)
the Appellant was successful on all grounds;
b)
this motion is material to the case the
Appellant must meet and therefore the amounts in issue are for the Appellant
personally significant;
c)
the volume of work appears to relatively
routine, along with the complexity of the issues; and,
d)
with respect to conduct, a number of the
pleadings were inappropriate statements of law and should have been struck by
consent of the Respondent prior to the motion. While the Court is somewhat
sympathetic of the time pressures of modern law practice and information
retrieval at the CRA, one is left with the feeling that greater lead time in
the searching of files, preparation by counsel and clients in anticipation of
discoveries (which after all led to the very late discovery of the Auditor’s
Report) and the preparation, review and analysis of motion materials prior to
service and filing would have prevented these contested proceedings or at least
their extent and unsatisfactory result.
[20]
All considered, the Respondent shall pay costs
to the Appellant on the basis of full disbursements and the Appellant’s
solicitor and client costs within 30 days of receipt of Appellant’s counsel’s
Bill of Costs. The Court notes that even had the Respondent fully won today’s
motion, a compelling argument may have been marshalled by the Appellant that
costs should not have been awarded to the Respondent or even awarded to the
Appellant, in any event, given the nature and facts surrounding the motion in
the first instance. On that basis, as well, the award of costs is justifiable.
Signed at Ottawa, Ontario, this 4th day of June 2014.
“R.S.
Bocock”
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