Dominion Nickel Investments Ltd. v. The Queen
(January 20, 2015 – 2015 TCC 14, Jorré J.).
Terry K. Lapierre of Davies Ward Phillips Vineberg LLP has been kind enough to provide the following commentary on the Dominion Nicke
l decision (I am indebted to Guy Du Pont, Ad. E., for initiating the collaboration). I took no part in the commentary apart from adding references as I had an indirect involvement with the case.
1. On January 20, 2015, the Tax Court of Canada (the “TCC”) rendered an important decision which reinforced the principle that taxpayers are entitled to obtain wide-ranging documentary disclosure from the CRA during pre-trial discovery and that the CRA is not, as a general rule, entitled to redact information except under particular circumstances.
2. In Dominion Nickel Investments Ltd. v. Her Majesty The Queen
, the TCC illustrates both the raison d’être and practical importance of two crucial procedural and evidentiary features of the pre-trial discovery process: partial disclosure of relevant evidence under Rule 81 and the implied undertaking of confidentiality, the combination of which aim to facilitate candid and complete discovery of relevant evidence, while also seeking balance between discovery rights and privacy concerns. [Rule 81 of the Tax Court of Canada Rules (General Procedure)
, SOR390-688a provides for partial disclosure of the list of documents that a party may rely on at trial.]
3. In a somewhat ironic twist of fate, the decision depicts how, on questions of relevance, actions can sometimes speak louder than words – especially for a motions judge with an understandably limited knowledge of the underlying dispute. It was ultimately the CRA’s Rule 81 list of documents that helped to secure its own defeat by undermining the persuasiveness of the argument of irrelevance it would later submit in its defence to a motion for compelled disclosure.
4. After nearly nine months of deliberations, Justice Gaston Jorré (the “Motions Judge”) ultimately agreed almost entirely with the result sought by the appellant and issued an order accordingly. [Para. 5]
5. In March 2014, the TCC heard oral arguments on a motion (the “Motion”) by Dominion Nickel Investments Ltd. (“Dominion”) for compelled disclosure of unredacted documents in the hands of the Minister of National Revenue (the “CRA”). The Motion was brought in the midst of Dominion’s appeal of a reassessment in which the CRA disallowed a deduction claimed in respect of a charitable donation of $65 million. [The donation was made by a corporation that had been acquired and subsequently wound-up by Dominion, leading it to claim a deduction pursuant to s. 88 of the Income Tax Act, RSC 1985, c. 1 (5th supp.) (the “ITA”). The validity of the charitable donation is under dispute.]
6. Of the documents sought by Dominion, a portion had already been disclosed by the CRA under Rule 81 and were subsequently produced, subject to significant redactions. In fact, many of the documents were entirely redacted, except for a cover sheet on which only the case name “Dominion Nickel Investments Ltd.” appeared. Other documents had simply not been disclosed, nor produced at all by the CRA.
7. Dominion argued the clear relevance of the entirety of the evidence it sought and the absence of any reasonable justification for the redactions, on one hand, and for the refusal to produce documents, on the other. The CRA had little choice but to rebut with the irrelevance of the documents it had refused to produce, as well as the “clear irrelevance” of the information redacted from otherwise relevant documents.
III. THE DECISION
8. Relevance was at the crux of the decision rendered by the Motions Judge. Given that the general rule commands the production of relevant documents in their entirety, subject to permissible redactions of “clearly irrelevant” information, the CRA was expected to justify both the redaction and the non-production of the documents in issue. [O.I. Group of Companies v. Canada (Minister of National Revenue)
, 2006 FCA 234, at para. 22.]
9. For the Motions Judge, “documents that lead to an assessment are relevant” and “a party is entitled to documents that may lead to a train of inquiry that may directly or indirectly advance his case.” [Para. 48] As such, a broad and liberal construction of relevance, commanding wide latitude, is called-for during pre-trial discovery. [Para. 22; citing: HSBC Canada v. The Queen
, 2010 TCC 228, at para. 13.]
10. As one might imagine, it was difficult for the CRA to argue the irrelevance of material evidence it had already disclosed under Rule 81. The production of a document that is redacted in its entirety is incompatible with its prior disclosure as potentially relevant for trial and the Motions Judge did not fail to raise this conflict at the very onset of his reasons. [Para. 12]
11. Affording particular concern to the requirement of proportionality, the Motions Judge was of the view that “partial redactions ought not to be encouraged unless necessary” [Para. 36] and that a two-stage screening process which would facilitate the protection of sensitive information was too cumbersome and unnecessary given the implied undertaking, a fundamental pillar of the dispute resolution process in this country which prohibits the use of information obtained on discovery for any use other than the pursuit of the litigation in which it was obtained. [At footnote 13. For a more complete analysis of the implied undertaking rule, see: Juman v. Doucette
 1 S.C.R. 257.] As such, the Motions Judge had little concern for the immediate use of the information disclosed, recognizing the “need to get on with it” at this stage of the proceedings. [Para. 18]
12. Furthermore, the CRA’s misplaced concern for the application of section 241 ITA only weakened its case. Indeed, the judge determined that it was section 241 ITA – and not “clear irrelevance” of information – that was the driving factor behind much of the redactions under dispute. [Section 241 ITA provides for strict protection of taxpayer information, subject to subsection 241(3)(b) which lifts the protection when evidence is produced in the course of legal proceedings related to the enforcement of administration of the ITA.] Similarly, the Motions Judge found that it was privacy concerns and not irrelevance that motivated the CRA’s decision to refuse production. Just before the hearing of the Motion, the CRA provided Dominion with a revised copy of many documents previously produced where the redactions had been reduced.
13. In response to the CRA’s fear of the potential use at trial of taxpayer information disclosed during discovery, the Motions Judge simply raised the possibility for the parties to negotiate an arrangement to be proposed to the trial court so as to prevent public disclosure where legitimate privacy issues arise, reminding, however, of the high burden to persuade the court that evidence at trial should be kept private. [Footnote 18]