Date: 19990108
Docket: 97-2864-IT-G
BETWEEN:
GENERAL MOTORS ACCEPTANCE CORPORATION
OF CANADA, LIMITED,
Applicant/Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for order
Bell, J.T.C.C.
[1] The Applicant made a motion seeking an Order pursuant to subsection 93(3) or 93(4) of the Tax Court of Canada Rules (General Procedure) ("Rules") directing the Respondent to make Mr. Donald Frattaroli ("Frattaroli"), or in the alternative, Mr. Robert L. Coker ("Coker") available to be examined on behalf of the Respondent at an examination for discovery.
[2] Rule 93(3) and (4) read as follows:
(3) The Crown, when it is the party to be examined, shall select a knowledgeable officer, servant or employee, nominated by the Deputy Attorney General of Canada, to be examined on behalf of that party, but if the examining party is not satisfied with that person, the examining party may apply to the Court to name some other person.
(4) Where an officer, director or employee of a corporation or of the Crown has been examined, no other officer, director or employee of the corporation or the Crown may be examined without leave of the Court.
[3] Rule 93(2), which provides for the examination, reads as follows:
(2) A party to be examined, other than an individual or the Crown, shall select a knowledgeable officer, director, member or employee, to be examined on behalf of that party, but if the examining party is not satisfied with that person, the examining party may apply to the Court to name some other person.
[4] The grounds for the motion stated in the Applicant's Notice of Motion are:
(i) that there is a substantial issue between the parties as to the basis of the reassessments in issue;
(ii) that Ms. Susan Miyazaki, the Respondent's nominee at an examination for discovery held on September 18, and October 7, 8 and 9, 1998, was not properly informed with respect to the basis of the reassessments in issue; and
(iii) that Messrs. Donald Frattaroli and Robert L. Coker played a central role in the formulation of the basis for and the issuance of the reassessments in issue.
[5] The transcript of the examination for discovery reveals that the official, Susan Miyazaki ("Miyazaki"), a chartered accountant, selected by the Respondent for examination, consulted with nine officials of Revenue Canada,[1] including Robert L. Coker ("Coker") and Donald Frattaroli ("Frattaroli"), in preparation for the examination for discovery.
[6] Counsel asked 1,588 questions during the four days of examination. Approximately 159 questions resulted in undertakings. In substance, there appear to be 92 undertakings, a number of which are general or relate, for example, to procedural matters. Of those undertakings, it appears that the answers to five of the questions were within the particular knowledge of Coker, the answers to ten were within the particular knowledge of Frattaroli and the answers to nine were within knowledge of either Frattaroli or Coker. These undertakings mostly related to activities involving Coker or Frattaroli and/or the GAAR[2] Committee. Sixty-eight undertakings related to review of documents, production of documents, attempts to locate documents, certain policies and procedures, the requirement to consult with named persons, the membership of the GAAR Committee, et cetera. It appears that if either Coker or Frattaroli were examined he would, in respect of these matters need to expend the same effort as Miyazaki.
[7] Appellant's counsel referred to Miyazaki as being "manifestly uninformed". He referred to certain responses by way of explanation by the Respondent as being "manifestly opaque". He referred to the Respondent as being "manifestly unprepared for questions that they should have been prepared for". He further says that anybody who was "half prepared" would know that the Appellant would be interested in whether certain assumptions were made.
[8] The Appellant states in the OUTLINE OF APPELLANT'S ARGUMENT that the Deputy Attorney General:
takes the position that the amounts in issue are properly included in the Appellant's income pursuant to, inter alia, paragraphs 12(a)(c), 12(1)(x) and subsection 56(2) of the Income Tax Act ... and he alleges that the Minister made certain assumptions of fact that ground the application of those provisions. Accordingly, it follows that the Crown's nominee is properly discoverable on whether the assumptions were in fact made and the particular facts and circumstances that led to those assumptions.
[9] Counsel submitted that Miyazaki was not able to answer questions relating to those assumptions. There are, however, a number of responses which were accepted by Appellant's counsel without counsel having pursued those responses with queries which could have resulted in undertakings and may have resulted in responses to its questions. There is no doubt that answers by Respondent's counsel to certain questions were not clear. However, the way of dealing with that is to persist in the posing of questions which could result in undertakings and responses. The failure to provide appropriate answers on those undertakings would constitute support for an application of this nature.
[10] Appellant's counsel also submitted that an examination for discovery should not result in such a series of undertakings that it is reduced to examination by interrogatory. He complained about the inability to answer questions relating to the sections referred to above which were discussed in a meeting, a Revenue Canada hand written memorandum in respect of which is entitled GMAC-TAX AVOIDANCE 1989 & 1990. This handwritten memorandum is described at the end as having been "prepared from Notes and Memory". It is clearly about whether section 245(GAAR) should be applied. Although references to the sections in question were discussed in that memo, section 245 was not in fact used as a basis for the reassessment. It is not reasonable to expect, that GAAR not having been applied, Miyazaki would have devoted much, if any, time to informing herself as to what occurred at that meeting.
[11] Appellant's counsel, in quoting from Newbigging v. Loewen Group Inc., 30 C.P.C. (3d) at 355 and 356, read as follows:
The plaintiff was entitled to expect that PW, as designated proper officer on agreement of the parties, would be adequately informed with respect to the basic and critical issues in the litigation. The obligation to inform oneself prior to examination for discovery arose with the appointment as a proper officer, not upon the posing of a question. PW had an obligation to consult with RL before his examination for discovery began. He did not do so. ...
Undertakings were usually limited to facts and issues arising in an unexpected fashion. Examination for discovery could not be converted into interrogatories by ignoring the obligation of a proper officer to inform himself on a basic and critical issue and consigning that issue, for all practical purposes in its entirety to be dealt with by way of undertakings. An examining party could not be forced to accept the "undertaking" approach in an area critical to the action by the simple expedient of a proper officer failing to inform himself despite ample opportunity to do so. The plaintiff did not receive the discovery to which it was entitled. The plaintiff was entitled to the appointment of an officer who was able to answer the questions at a resumed examination for discovery.
[12] I do not find that Miyazaki failed to inform herself for the examination for discovery in this very complex matter. The evidence indicates that she took pains so to do, having consulted with eight separate Revenue Canada officials for the sole purpose of preparing for the examination.
[13] In this regard, in Rogers v. Bank of Montreal et al, [1986] 1 B.C.L.R. (2d) 132 (B.C.S.C.), McDonald, J. stated at 135:
... the examination for discovery of Mr. Scalf is not yet complete. There is a difference of judicial opinion as to whether or not that is a condition precedent to the granting of leave to examine a second representative of a party.
An overview of the reported decisions leads me to the conclusion that the outcome depends to a substantial degree upon:
(a) the circumstances of the particular case;
(b) the responsiveness of the witness under examination and the degree to which he has taken pains to inform himself;
(c) the nature and materiality of the particular evidence sought to be canvassed with the second representative; and
(d) what appears to be the most practical, convenient and expeditious alternative.
To some degree, the matter is discretionary.
[14] The transcript of the examination for discovery reveals situations such as the answer by Respondent's counsel when she said:
... I would agree that the provisions they relied upon at the audit stage were section 9 and 12(1)(x).
[15] There was no pursuit by Appellant's counsel to determine what was meant by the term "audit" stage and whether it was in fact the reassessment stage. Such pursuit may have resulted in an undertaking which would have produced a different and enlightening response.
[16] Appellant's counsel also referred to the decision of this Court in Backman v. Her Majesty the Queen, dated September 3, 1996. In this case, the Appellant made an application to this Court in advance of the examination for discovery, for the examination of an officer other than that nominated by the Crown. This Court refused that application. After the examination for discovery was completed, Appellant brought another motion for a substitution of the officer for purposes of examination and this motion was granted by this Court. In his reasons for the Order, Beaubier, J. said:
Because there was an earlier motion before the Court in which the Appellant expressed fears that the very thing that happened in the examination for discovery would occur, this motion is fully justified. Moreover, Mr. Turner went into the examination for discovery unprepared, or ignorant. In either case, he and Respondent's counsel had every reason to have him fully prepared. They should have been fully prepared and they weren't.
The examination for discovery was a waste of time. ...
[17] I do not find that to be the situation in this case. The circumstances in that case are markedly different. Miyazaki took steps to inform herself by consultation with other officers of Revenue Canada including those that the Applicant now seeks to examine. Her lack of information respecting the GAAR Committee memorandum, in light of section 245 of the Act not having been applied, should not be interpreted as meaning that she was uninformed. Coker and Frattaroli, the Revenue officers whom the Appellant seeks to examine, were and apparently still are, available to furnish Miyazaki with responses to questions in respect of which undertakings were made. They would similarly be available to inform Miyazaki with respect to undertakings which were not made because questions which could have produced the information sought by the Appellant were not asked.
[18] The Respondent's obligation was to produce a "knowledgeable officer" and it is my conclusion that it did so. It is not surprising, in such a complex case, that questions were posed which required a number of undertakings.
[19] The motion is dismissed with costs to the Respondent.
Signed at Ottawa, Canada this 8th day of January, 1999.
J.T.C.C.