Federal Courts Rules

The computation of time for instituting an appeal under the Income Tax Act is made pursuant to that Act and is not affected by the Federal Court Act.

Following a decision against the taxpayer, the trial judge recused himself from considering residual issues (e.g. costs) because of statements made about his judgment and his trial conduct in the taxpayer's factum filed in the Court of Appeal (see s. 247(2).)

The taxpayer moved under Rule 75 to amend its notice of appeal in order to add a new ground of appeal: the trial judge, in responding to the factum in detail, improperly injected himself into the appeal process and compromised its integrity.

Stratas JA allowed the taxpayer's motion. The jurisprudence on Rule 75 deals mainly with trials rather than appeals, but similar principles apply (para. 8):

[T]he Court must understand the nature of the parties' case, assess whether the amendment is relevant to the determination of that case, and, where a new ground of appeal is being asserted, ask whether that ground can possibly succeed.

The motions judge can also refuse amendment if the moving party has been dilatory, or considerations of fairness or prejudice so warrant (para. 10).

The new ground of appeal was novel, and was not obviously lacking merit (para. 11). Fairness reasons also supported the taxpayer's motion (para. 12).

Failure to commence the action through a solicitor as provided by Rule 300(2) was characterized as a mere irregularity, rather than something rendering the proceeding a nullity. The Court exercised its discretion under Rule 302(b) by temporarily staying the action until the plaintiff appointed a solicitor.

Notices should be mailed under "double registration" so that receipt of the envelope can be established by an arrival receipt card.

The applicant, which had already received a tribunal record of more than 1500 pages, as well as 1907 pages under an Access to Information Act request, submitted that it was entitled to additional disclosure under Rule 317 on the basis that it had alleged, in its notice of appeal, that the Minister was biased and that there was a breach of procedural fairness.

In rejecting this request, Webb JA stated (at paras 8, 12-13):

…[W]hile additional disclosure is warranted when there are allegations of a reasonable apprehension of bias or a breach of procedural fairness, this does not allow a person to engage in a fishing expedition in the hopes of discovering some documents to establish the claim.

…[A] bald assertion of bias is not sufficient and cannot support an order for production of documents to allow the appellant to go on a fishing expedition to see if something can be found to support the allegation of bias.

…Counsel for the appellant was unable to identify any document in the voluminous motion record that could support the allegation of bias. It, therefore, seems clear that the appellant was on a fishing expedition.

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If it is sought to challenge the validity of some assessments on the same ground that other assessments, respecting the same taxpayers for different taxation years or related taxpayers for the same taxation years, are being challenged on a motion under Rule 474, the appropriate procedure is to apply to amend pleadings under Rule 420 rather than bringing separate originating notices of motion.

"[T]here is no procedure or rule of practice whereby the court can properly entertain an ex parte motion in writing except by consent of the parties or in accordance with the provisions of Rule 324 or by virtue of the limited, inherent discretion accorded by sub-rule 326(2)(c)."

An application for an order that debts owing to the taxpayer be attached should be made pursuant to Rule 2300 rather than Rule 324.

A motion should not be disposed of under Rule 324 where it is clear that the "many inaccuracies in the application and supporting material, including [a] draft judgment which cannot be granted in the form sought without further supporting information, are not susceptible of ready and expeditious solution by correspondence."

An affidavit which referred to "the search and seizure made by the servants of the defendants (the whole as appears in the statement of claim filed in this case and attached hereto, to have effect as if stated at length)" did not have the effect of transmuting allegations in the statement of claim into sworn statements.

A proceeding pursuant to ss.232(4) and (5) was final in nature, and portions of a Department employee's affidavit based on information and belief rather than personal knowledge therefore were not admissible. However, even if information and belief were admissible, the requirements of that part of Rule 332(1) were not met by bald statements that "as a result of my inquiries" certain factual conclusions had been reached without specifying the source of the information.

It was found that because the applicants alleged that a Revenue Canada officer knew more than he stated in his information and since they wished to cross-examine him on all matters leading up to the application for the search warrants, they wished to proceed on a fishing expedition. An application to cross-examine was denied.

The applicant participated in a widely-marketed gifting tax shelter in 2013. CRA put on hold the assessment of all 2013 returns claiming a credit under the gifting tax shelter in which the taxpayer participated, along with three others until it had audited those tax shelters.

The applicant was unsuccessful in having a class action certified for all the resident participants in the four tax shelters who had filed 2013 returns, not provided a waiver to the Minister and who had not been assessed based on their returns not having been assessed with due dispatch.

The exclusion of taxpayers assessed before the hearing was "illogical or arbitrary" as they "share[d] the same interest in the resolution of the common issue" (para. 57): Rule 334.1.6(1)(b). Furthermore, unanswered questions about possible third-party funding of the applicant raised "concerns about the person who is actually controlling the litigation" (para. 76) and there were deficiencies in the applicant's litigation plan including three alternative described methods for notification of other class members, and the specification of an hourly rate for counsel which was insufficient for individual class members to determine the monthly amounts payable by them (paras. 81, 83): Rule 334.16(1)(e).

A judgment is a separate document which should contain "within its four corners the terms of the judgment sought without resort to extrinsic material." A consent judgment was interpreted without regard to the minutes of settlement.

A judgment, which reduced the calculated amount of a s. 163(1) penalty on the basis that the calculated amount did not take into account an instalment payment which previously had been made, was corrected after considering an affidavit which demonstrated that the instalment payment had indeed been credited in the year it was paid prior to the addition of penalties.

"[W]hen the material facts are clearly admitted and the result of the application of the law to them is not in doubt so that it is apparent that a plaintiff is entitled ex debito justicia to the relief which he claims in the action or that a defendant is entitled to judgment dismissing the action against him, as the case may be, a motion under Rule 341 is an appropriate procedure to obtain such relief immediately in lieu of allowing the action to proceed to trial which in the end can have no other result."

Where a party is seeking a lump sum for costs in lieu of the amounts provided by the tariff, counsel would normally have the obligation of showing to the Court what the tariff amounts would have been. In addition, if it is alleged that an unusual volume of work was done, an affidavit should be filed to support this allegation.

"[S]olicitor and client costs should be reserved for situations in which a party causes litigation to be necessary by irresponsibility or intransigence."

It was determined that the taxpayers were substantially successful in an action concerned with the V-Day values of lands, by comparing the final results with the values contained in the Minister's assessments (and pleadings). Since the federal court proceedings were a trial de novo, it was irrelevant that the taxpayers had fared even better before the Tax Review Board. Therefore, they were entitled to costs.

A trial judge has no authority to award costs against a successful plaintiff where what is being punished by this award is not the conduct of the lawsuit, but conduct which occurred prior to the commencement of the litigation.

"The normal rule is that a successful party is entitled to costs on a party and party basis in accordance with the prescribed tariff. The length or complexity of a case or the volume of work required in connection therewith are not sufficient factors by themselves to warrant a special direction as to costs under Ruler 344(7)".

The plaintiff was unable to establish that the action had been a test case, and the volume of preparatory work performed in this case did not by itself justify an order for increased costs.

Where an intricate and difficult question of the valuation of shares was involved, a reasonable fee for services may be allowed respecting the plaintiff's valuation expert even thought the reasons for judgment indicated a preference for the valuation approach of the defendant's expert. It is best that such costs be moved for promptly.

Stratas JA allowed the taxpayer to amend its notice of appeal to raise a complaint about the trial judge improperly commenting on its factum (see summary under Federal Court Rule 75). Regarding the 29-page draft memorandum that the taxpayer submitted with the motion, Stratas JA suggested that the panel would be "best assisted" by no more than 20. He stated (at paras. 23-24):

Unnecessarily lengthy, diffuse submissions are like an unpacked, fluffy snowball. …

Structures that lead to repetition, over-elaboration of arguments, block quotations, and rhetorical flourishes make submissions diffuse. Simple but strategic structures, arguments presented only once and compactly, tight writing that arranges clinical details in a persuasive way, and short snippets from authorities only where necessary make submissions highly focused. The former dissipates the force of the argument; the latter concentrates it.

The appellant (“Iris”) appealed an order of the Federal Court (2020 FC 1133), dismissing its request for mandamus to compel the release of $21.85 million in GST/HST tax refunds which it had claimed for the January and February 2020 reporting periods pending the conclusion of an on-going audit and assessment.

At the outset of the hearing of the appeal, the Minister moved for an order to dismiss the appeal as moot, and sought leave under Rule 351 to file the affidavit of a CRA official that Iris’ net tax for those reporting periods had been assessed and there was no net tax refund owing. In finding that this affidavit was admissible (and before dismissing the appeal on the grounds of mootness), Rennie JA stated (at para. 6):

The affidavit meets the test for admitting fresh evidence on appeal set out ... [in] Palmer … [1980] 1 S.C.R. 759 … . The evidence could not have been adduced at trial, it is relevant in that it bears on a decisive or potentially decisive issue on appeal, is credible, and could reasonably be expected to have affected the result in the Federal Court.

The Tax Court dismissed the appellant’s motion to amend its reply to the notice of appeal to add an allegation that a loan in issue was a sham, on the grounds that such addition would be unfair as the taxpayer’s principal (Mr Pomeroy) had now died. The appellant now moved under Rule 351 for leave to present fresh evidence, namely, the entirety of the transcript of Mr. Pomeroy’s 2018 discovery, on the basis that it would demonstrate that he had little knowledge of the transactions in question, and therefore he could not have given evidence of importance.

Before allowing the admission of the transcript, Locke JA found (at para. 5) that the four tests enunciated in Coady (2019 FCA 102) were satisfied, other than the first:

[T]he party seeking to adduce fresh evidence [must] establish that the evidence: (1) could not have been adduced at trial with the exercise of due diligence; (2) is relevant in that it bears on a decisive or potentially decisive issue on appeal; (3) is credible in the sense that it is reasonably capable of belief; and (4) is such that, if believed, could reasonably have affected the result in the court below… .

Regarding the failure to satisfy the first test, Locke JA noted that the Crown did not become aware of the relevance of the additional evidence until six days before the hearing of the Tax Court motion, at which point there was no established procedure for introducing such evidence – but nonetheless found (at para. 14) that he was “not convinced that the appellant could not have sought, and possibly obtained, leave to put the evidence before the Tax Court.”

In nonetheless allowing the new evidence, he stated (at paras. 21, 24):

… I am conscious that the motion before the Tax Court was an interlocutory matter, and the respondent’s opportunity to adduce this evidence was limited because of the absence of a clear procedural mechanism for doing so. Leave might have been sought at, or shortly before, the hearing before the Tax Court to adduce the New Evidence, but such a request would have been irregular and might well have been unsuccessful.

On balance, and having regard for the limited opportunity the respondent had for putting forward the New Evidence before the Tax Court, I find that the interests of justice require that the Court exercise its discretion to admit the New Evidence.

Where the substance of allegations in a request for relief is that there have been acts constituting contempt of court, then the procedures set out in Rule 355 must be followed.

Rule 401 is available to test the jurisdiction of the Court ratione materiae as well as ratione personae.

When the pleader states the material facts, he need not state the legal result. Since the appellant had pleaded the whole of an agreement, she was not precluded from raising in court the argument that the agreement was unenforceable by virtue of the Statute of Frauds.

For a purchase to be subject to the doctrine of secondary intention, "'The purchaser must have in his mind at the moment of purchase the possibility of reselling as an operating motivation for the acquisition.'" The Crown fully satisfied the requirement of pleading secondary intention, by stating in its Statement of Claim that: "'An operating motive for the acquisition of the properties ... was for the resale of same at a profit.'"

The Crown was precluded from contending for the first time, at the end of trial, that s. 12(1)(a) was applicable to reimbursements of capital costs of pipelines, where there had been a failure to plead s. 12(1)(a) together with facts that would disclose why that provision of the Income Tax Act was applicable.

"[W]hen a cause of action is to be supported on the basis of a statutory provision, it is elementary that the facts necessary to make the provision applicable be pleaded (preferably with a direct reference to the provision) so that the opposing party may decide what position to take with regard thereto ... [I]t is no mere 'technicality', but a matter of elementary justice to abstain, in the absence of very special circumstances, from drawing inferences from evidence adduced in respect of certain issues in order to make findings of fact that were not in issue during the course of the trial."

Paragraph 15 of the Statement of Claim, which was admitted in the Defence, alleged that the plaintiff made a loan to a second company ("Paper") of $10,000,000 secured by a promissory note. The defendant thereby conceded that the relationship between the plaintiff and Paper was that of lender and borrower. The defendant's contention that s. 56(2) which does not apply to loans, should govern this transaction accordingly failed.

A motion to strike pursuant to Rule 419(1)(a) "should not be used when there are arguable questions of fact or law; it is only appropriate to grant such a motion when it is clear beyond all reasonable doubt, from the fact of the pleadings, that the plaintiff's claim can not succeed."

The Crown would have been precluded from advancing in the Federal Court of Appeal for the first time at argument that a portion of the damages award was an eligible capital amount.

The Minister reassessed the taxpayer on the ground that the taxpayer was precluded from reporting losses under s. 28(1) because he has not engaged in the business of farming. Collier J. dismissed a motion brought by the Crown to amend its Statement of Claim by deleting a statement that the Minister had assumed in assessing the taxpayer that the taxpayer was not engaged in the business of farming, and by inserting a new assumption that the taxpayer's chief source of income was neither farming, nor a combination of farming and other income (which was relevant to the Minister's claim that the deduction of farming losses by the taxpayer was restricted by s. 31(1)). Collier J. stated that to allow the motion would "be tantamount to allowing the Minister to appeal his own assessment, a notion which has been specifically been rejected by the courts" (p. 6286) and added (p. 6286):

"The proposed amended statement of claim restricts the plaintiff's pleadings to a different issue than the one which formed the basis of the assessment. Despite the fact that the defendant is not taken by surprise by this issue, the plaintiff is bound by its assessment and should not be permitted to change it at this late stage."

"The scope and intendment of the Rule is clearly to the effect that any pre-trial amendment shall be allowed where necessary for the purpose of determining the real question in controversy between the parties, but upon terms designed to protect the parties with respect to discovery and preparation for trial". An amendment was allowed where there was nothing to indicate that the amendment could cause serious prejudice to the other side, and any inconvenience occasioned thereby could be compensated by costs.

The failure of the Minister to identify s. 67 in his re-assessment, in his pleadings or in his examination for discovery is a basis for disallowing an employee's travelling costs precluded the Minsiter from later invoking s. 67.

The grant of judgment in default of defence is discretionary.

The remedy of dismissing an action for lack of prosecution is a very drastic one and an action should be dismissed for procedural reasons only in the clearest of cases. Here, the two circumstances that saved the action (which had been commenced in 1977) were (1) that the prejudice to the defence which resulted from the delay related to the issue of damages, and the issues of liability and damages could be tried separately (counsel having said that he could go to trial on the question of liability by December 1987), and (2) the plaintiff had recently retained new counsel and there was reason to accept the theory that the previous delays were due to the difficulties the plaintiffs had with their former counsel.

Where the issue, as revealed by the pleadings, in an action was whether corporation 1 was controlled at the relevant time by the respondent or by corporation 2, it should be ordered that the following documents be listed as "relating to any matter in question in the cause": (1) documents relating to negotiations between the respondent and corporation 3 as to the acquisition of corporation 1's shares, it being assumed for this purpose that there had been transactions between the respondent, corporation 3 and corporation 2 concerning corporation 1's shares; and (2) documents and agreements between corporation 3 and the respondent respecting control of corporation 2.

In an action where the issue was whether a corporation controlled by an unidentified non-resident shareholders had realized a gain on the disposition of real estate on income or capital account, and where the plaintiff pleaded that in the year in which the company wished to sell its holdings its principal shareholder could not come to Canada, the Crown was entitled to disclosure of the identity of such shareholders.

The Ontario case law, to the effect that a former employee may not be examined unless he resigned expressly for the purpose of avoiding examination, is applicable.

The Court ordered the examination for discovery of a departmental officer of the Ministry of National Revenue who prepared an appraisal which was a major factor in the Department's position on the V-Day value of the taxpayer's real estate.

The plaintiff's officer was under an obligation to make reasonable inquiries of related parties. Where such inquiries had been made and had been met by a refusal to provide any assistance or information, no order for further examination under Rule 465(19) was made.

Questions by the plaintiff taxpayer, to a valuator who had been retained by the Minister to value shares, concerning the details of the valuation performed by him were permitted. (The defendant objected because the valuator's answers tended to disprove the defendant's contentions as to the valuation day value of the shares in question).

An application under Rule 465(19) for a second discovery was premature because it was launched prior to the completion of the original discovery under Rule 465(1)(b).

The Federal Court does not have the authority to compel an individual non-resident who is not a party to the action to submit to examination for discovery.

Rule 465(19) "is not limited to the re-examination of a witness already examined for discovery, nor apparently to an employee or agent of a party." The taxpayer, who had purchased a 1/88 interest in a movie limited partnership in respect of which some of his capital cost allowance claims had been disallowed, stated on examination for discovery that he was unable to answer the questions of the Crown concerning the potential profitability of the films which the limited partnership had purchased, and Walsh, J., ordered that the movie promoter ("Shosteck") who had sold the films be examined for discovery. Walsh J. stated:

"[I]t would appear that Shosteck is in possession of highly pertinent information which the plaintiff Lipper cannot or will not provide and that his examination for discovery may be very useful in giving necessary factual information to assist in the final determination of the issues. While not a party to the action he is hardly a disinterested third party, and his examination is not in the nature of a fishing expedition."

"An interim and interlocutory injunction pursuant to Rule 469 can only be sought in an action, that is aproceeding commenced by Statement of Claim", and a Court file that was opened by the filing of a s. 223 certificate is not an action. Nonetheless, an order staying indefinately the sale of goods seized under a writ of fi fa was granted.

"Rule 474 can only be used where (1) all the essential facts are admitted, (2) the question is one of law and (3) the decision to be rendered is likely to finally dispose of the matter or at least a substantial part of the action. The procedure is only appropriate where there is consensus between the parties and the Court on the need for preliminary determination."

A valuation report was sufficiently detailed since it would have permitted a court, in the absence of dispute, to adopt it and derive guidance from it in determining the valuation question in issue.

"It is inherent in the good faith application of the Rule that further discoveries of documents will not be sought or further investigations made thereafter, save in preparation for trial, but not of a nature to require postponement of same." A motion for further discovery that was filed only 6 days before the day that had been set for trial, and which consequently would have delayed the trial if successful, was dismissed as being an abuse of the process of the Court.

The discretion to receive evidence "should be exercised only if the Court is satisfied that the evidence was not discoverable before the end of trial by reasonable diligence and that the evidence is wholly creditable and practically conclusive on an issue in the action".

On appeal the Crown was precluded from raising for the first time in the action an argument that capital cost reimbursements were income in the hands of the taxpayer, because the Court of Appeal was not satisfied beyond a reasonable doubt that all the requisite evidence that might bear on this argument had been adduced at trial to enable the taxpayer to rebut this argument. In fact, counsel for the taxpayer stated that if he had understood from the pleadings that this argument would be raised, he would have called expert accounting evidence to support his client's treatment of the reimbursements as contributed capital.

A discontinuance is valid and operative, at the latest, at the time of service of the notice of discontinuance.

It was determined that it was not desirable to separate the principal action, which concerned amounts due under the Excise Tax Act, from the counterclaim, which was devoted to damages for the seizing of the defendant's assets in an attempt to secure payment of the amount assessed and penalty, since to do so would require duplication of some of the evidence.

At common law, as well as under the Rules, a sheriff may not seize book or other unsecured debts under a writ of fi. fa.

Rule 2400 is intra vires the regulatory power conferred on judges of the Federal Court by s. 46 of the Federal Court Act.