Date: 20020521
Docket: A-431-01
Neutral citation: 2002 FCA 205
CORAM: STRAYER J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
CHARLES WEBSTER, and HOWARD KELLOUGH, JAMES HUGHES,
WILLIAM MCDERMOTT, MICHAEL PENMAN, GARY P. SELKE,
ROBERT L. ARMSTRONG, THOMAS KENNEDY, PETER W. HAND,
KENNETH TESLIA, GERALD J. SHORTALL, J. A. WARNER WOODLEY,
A. WARREN MOYSEY, FREDERICK N. BANWELL, STEPHEN BEARG,
TERRY CHAMBERS, PETER JONES, RONALD MATHESON, STEVEN
ROSE, MICHAEL N. KAPLAN, ANTHONY R. MELMAN, IRENE J. DAVID,
ROBERT D. TURNER, GRAHAM TURNER, JAMES RATHBURN, SUSAN
PAUL, W. REAY MACKAY, JOHN M. LANGS, JAMES DAVIE, DOUGLAS
BRADLEY, MICHAEL A. DENEGA, JOHN D. PENNAL, ERIC PERTSCH,
HUGH ALEXANDER ZIMMERMAN, HOWARD WISE, RICCARDO
TRECROCE, SHELDON SHORE, TIMOTHY A. GODFREY, DAVID
FULLER, DONALD H. BORTHWICK, FRASER WRAY, EWOUT
HEERSINK, DAVID A. YULE, RICK H. KESLER, RANDAL HUGHES,
NANCY HARLEY, SUSAN J. GUTTMAN, G. KERRY GRAY, JOSEPH
GILL, GORDON GREEN, JAMES ARCHER SHEE, SUSAN PIELSTICKER,
JOHN WHITESIDE, JOHN HAAG, PAUL GRATIAS, GREGORY C.
BOEHMER, WHITSHED LIMITED, GLORIA GRATIAS, ROBERT EARL
DICKSON, WILLIAM K. ORR, STEWART ASH, DONALD L. LENZ, PETER
E. MURPHY, DAVID M. NEWMAN, JEFFERY A. BARNES, JOHN L.
MCDOUGALL, KRISTIAN NOWERS, LOU QUATTRO, DAVID J. T.
MUNGOVAN, R. IAN NIVEN, IAN NORDHEIMER, R. PAUL SINGLETON,
GERALD W. SCHWARTZ, HEATHER REISMAN, TERRENCE H. YOUNG,
CHARLES PIELSTICKER
Respondents
Heard at Edmonton, Alberta on April 17, 2002.
Judgment delivered at Ottawa, Ontario, on May 21, 2002.
REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.
CONCURRED IN BY: NADON J.A.
DISSENTING REASONS BY: STRAYER J.A.
Date: 20020521
Docket: A-431-01
Neutral citation: 2002 FCA 205
CORAM: STRAYER J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
CHARLES WEBSTER, and HOWARD KELLOUGH, JAMES HUGHES,
WILLIAM MCDERMOTT, MICHAEL PENMAN, GARY P. SELKE,
ROBERT L. ARMSTRONG, THOMAS KENNEDY, PETER W. HAND,
KENNETH TESLIA, GERALD J. SHORTALL, J. A. WARNER WOODLEY,
A. WARREN MOYSEY, FREDERICK N. BANWELL, STEPHEN BEARG,
TERRY CHAMBERS, PETER JONES, RONALD MATHESON, STEVEN
ROSE, MICHAEL N. KAPLAN, ANTHONY R. MELMAN, IRENE J. DAVID,
ROBERT D. TURNER, GRAHAM TURNER, JAMES RATHBURN, SUSAN
PAUL, W. REAY MACKAY, JOHN M. LANGS, JAMES DAVIE, DOUGLAS
BRADLEY, MICHAEL A. DENEGA, JOHN D. PENNAL, ERIC PERTSCH,
HUGH ALEXANDER ZIMMERMAN, HOWARD WISE, RICCARDO
TRECROCE, SHELDON SHORE, TIMOTHY A. GODFREY, DAVID
FULLER, DONALD H. BORTHWICK, FRASER WRAY, EWOUT
HEERSINK, DAVID A. YULE, RICK H. KESLER, RANDAL HUGHES,
NANCY HARLEY, SUSAN J. GUTTMAN, G. KERRY GRAY, JOSEPH
GILL, GORDON GREEN, JAMES ARCHER SHEE, SUSAN PIELSTICKER,
JOHN WHITESIDE, JOHN HAAG, PAUL GRATIAS, GREGORY C.
BOEHMER, WHITSHED LIMITED, GLORIA GRATIAS, ROBERT EARL
DICKSON, WILLIAM K. ORR, STEWART ASH, DONALD L. LENZ, PETER
E. MURPHY, DAVID M. NEWMAN, JEFFERY A. BARNES, JOHN L.
MCDOUGALL, KRISTIAN NOWERS, LOU QUATTRO, DAVID J. T.
MUNGOVAN, R. IAN NIVEN, IAN NORDHEIMER, R. PAUL SINGLETON,
GERALD W. SCHWARTZ, HEATHER REISMAN, TERRENCE H. YOUNG,
CHARLES PIELSTICKER
Respondents
REASONS FOR JUDGMENT
[1] This is an appeal from a judgment of the Tax Court on a motion by the Minister of National Revenue under rule 58(1)(a) of the Tax Court of Canada Rules (General Procedure), S0R/90-688, for the determination of a preliminary question of law. The Motions Judge dismissed the motion.
[2] Rule 58(1)(a) provides:
| 58.(1) A party may apply to the Court, (a) for the determination, before a hearing, of a question of law raised by a pleading in a proceeding where the determination of the question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs, or (b) [...], and the Court may grant judgment accordingly. |
58.(1) Une partie peut demander à la Cour,
a) soit de se prononcer, avant l'audience, sur une question de droit soulevée dans une instance si la décision pourrait régler l'instance en totalité ou en partie, abréger substantiellement l'audience ou résulter en une économie substantielle des frais;
b), [...] et la Cour peut rendre jugement en conséquence. |
[3] Unlike the more usual situation of parties agreeing on facts and jointly requesting the Court to determine a preliminary question of law, in this case the parties are in strong disagreement as to whether this is an appropriate case for a preliminary question of law. The Minister says this is an appropriate case for a rule 58(1)(a) order because the relevant factual underpinning consists only of two documents and that the legal question can be easily isolated. The tax appellants say that there are contested issues of fact material to the legal question and they should not be deprived of an opportunity at a trial to adduce evidence to prove these facts.
[4] The requirements to be satisfied for an order for the determination of a preliminary question of law have been set out in Berneche et al. v. Canada, [1991] 133 N.R. 232, at paragraph 6, (F.C.A.) per Mahoney J.A. I paraphrase them in the context of rule 58(1)(a) of the Tax Court Rules. The Court must be satisfied:
1. that there is no dispute as to any fact material to the question of law to be determined;
2. that what is to be determined is a pure question of law; and
3. that determination of the question may dispose of all or a part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs.
[5] In Berneche, supra, at paragraph 7, Mahoney J.A. noted that the requirement that there be no dispute as to any material fact is often stated in terms of an agreement or admission of facts. However, agreement is not a requirement. The Motions Judge may draw a conclusion that there are no material facts in dispute, and such conclusion might be drawn from the entire pleadings of the respondent on the motion, on the assumption that what has been pleaded is true, much as in the case of a motion to strike a statement of claim as disclosing no reasonable cause of action. (See, for example, Canada (Attorney General) v. Inuit Tapirisat, [1980] 2. S.C.R. 735, at 740.)
[6] However, the preliminary question of law procedure is exceptional. In Windsor Refrigerators Co., Ltd. v. Branch Nominees, Ltd., [1961] 1 All E.R. 277 (C.A.), cited by Létourneau J.A. in Perera v. Canada, [1998] 3 F.C. 381, at paragraph 15 (C.A.), Lord Evershed stated, at page 283:
. . . the course which this matter has taken emphasises as clearly as anyone in my experience the extreme unwisdom- save in very exceptional cases-of adopting this procedure of preliminary issues. My experience has taught me . . . that the short cut so attempted inevitably turns out to be the longest way round.
[7] In this appeal, the Minister argues that the Motions Judge erred in exercising his discretion to dismiss the rule 58(1)(a) motion by focussing on irrelevant considerations and failing to address relevant ones. The irrelevant considerations were:
1. that it was not the place of the Court to tell the tax appellants how to present their case; and
2. that the Crown took a different position in another case - Gregory v. The Queen, [2000] D.T.C. 2027 (T.C.C), reversed The Queen v. Gregory [2000] D.T.C. 6561 (F.C.A.).
[8] The Minister says the relevant considerations which the Motions Judge failed to consider were:
1. whether the question was a pure question of law and whether there were facts material to the question in dispute; and
2. whether the question will be determinative of a matter in dispute.
[9] In principle, I agree with the Minister that if the concern of the Tax Court Judge was that he not dictate to a tax appellant how to proceed with his case, this concern was misplaced. The jurisprudence is clear that, provided there is an application made and the Court is not proceeding ex proprio motu, agreement of the parties as to the facts is not a requirement in order to make an order for determination of a preliminary question of law. It is open to the Judge to conclude that there are no material facts in dispute. If he does so, he may make the order under rule 58(1)(a), even over the objection of one of the parties.
[10] However, in fairness to the Motions Judge, his words cannot be read out of context. At paragraph 13(b) of his reasons, he states:
For reasons that are set out more fully below, it is not the place of this Court to tell an appellant how to present his or her case.
The Motions Judge then provides a number of reasons, including the intention of the tax appellants to adduce evidence, his concern that the issue involves factual considerations, and that he doubted that much time would be saved. Put in this context, I think his comments are intended, not to say that the Court cannot, in any case, tell an appellant how to present his or her case but that, only in the circumstances here, it was not appropriate to do so.
[11] I would also agree with the Minister that because there were facts in dispute in an unrelated case in which an application under rule 58(1)(a) was dismissed, that is not a reason to dismiss the application in this case. On the other hand, it may be that the Motions Judge's reference to the unrelated case was by way of emphasis only - that is, that in the unrelated case, the facts in dispute were minimal in his view, as compared to the facts in dispute in this case.
[12] I turn then to the considerations which the Minister says were relevant and which the Tax Court Judge ignored - whether the question is one of pure law and whether there were facts material to the question in dispute.
[13] The tax appeal arose from the disallowance by the Minister of a deduction claimed for Canadian Exploration Expense as a result of the purchase of seismic data. The point the Minister wanted to have determined before trial was whether the promissory note given as part of the consideration for the purchase of the seismic data constituted a contingent liability of the tax appellants.
[14] Counsel for the Minister explained to this Court that if the liability for the amount represented by the promissory note is contingent, the amount is not deductible as a Canadian Exploration Expense for tax purposes. She says that this question may be determined having regard only to the promissory note and the seismic purchase and sale agreement. Her argument is that whether the liability is or is not contingent is determined solely by interpreting the promissory note and agreement and such interpretation is exclusively a determination of law. She says no other facts that may or may not be in dispute are relevant to this determination.
[15] The Motions Judge made the following findings:
1. "The factual and legal issues are numerous and complex".
2. Although the contingency question may ultimately turn out to be a question of law, "it is a question of law which must necessarily rest on a factual underpinning".
3. The tax appellants intend to adduce expert testimony relative to the meaning of contingent liability within the context of generally accepted accounting principles. While the Minister may be right that this evidence is irrelevant, "I do not propose to say at this preliminary stage that such evidence should be excluded".
4. In any event, it was doubtful much time was likely to be saved.
5. There may be evidence of payments made under the promissory note which may be relevant to the question of contingency.
6. The question cannot be considered in a vacuum and in isolation from a large number of surrounding facts which the Minister has treated as relevant to the assessments.
7. All the cases dealing with contingency have been decided after a full trial. These other cases will have to be considered, reconciled or distinguished. It is hard to distinguish on the facts a case that has no facts.
[16] Counsel for the Minister concedes, as she must, that the first test under a rule 58(1)(a) application is whether the Motions Judge is satisfied that there is no dispute as to any fact material to the question of law to be determined. It is obvious from the findings of the Motions Judge that he was not so satisfied. He found the factual issues numerous and complex. He referred to evidence which the tax appellants intended to adduce which he was unprepared to rule out at a preliminary stage. He found that the Minister had treated facts surrounding the contingency question as relevant in the assumptions in the Minister's Reply to the Notice of Appeal.
[17] These were all relevant considerations and led the Motions Judge to exercise his discretion not to make the order sought by the Minister under rule 58(1)(a).
[18] Nonetheless, the Minister says that the Motions Judge had to go further. The argument is that the Motions Judge had an obligation on a rule 58(1)(a) application to determine what facts are material to the question of law, whether they are in dispute, and, if it is possible to do so, to extricate a pure question of law for preliminary determination. No authorities were cited in support of this proposition and I do not think it is correct in law.
[19] On a rule 58(1)(a) application, the Motions Judge may be able to make a determination of whether there are material facts in dispute and, if there are, to dismiss the motion. However, in complex cases, it may be difficult to do so. Determining in advance what facts may or may not be relevant to the determination of a question of law is often troublesome. A regular practice of judges hearing trials is to admit evidence subject to objection as to relevancy and determine relevancy after hearing all the evidence and arguments.
[20] On a rule 58(1)(a) motion, if the Motions Judge is not satisfied there are no material facts in dispute, the motion must be dismissed. That does not require a positive determination of what facts are or are not relevant or are in dispute. If the Judge is in doubt, he is, by definition, not satisfied and the motion must be dismissed.
[21] The Minister's argument incorrectly seeks to take away from the Motions Judge the discretion conferred upon him under rule 58(1)(a).
[22] In this Court, additional arguments were made as to the proper interpretation of this Court's decision in Wawang Forest Products Ltd. et al. v. Her Majesty the Queen [2001] D.T.C. 5212, and as to why evidence of the valuation of the seismic assets purchased by the tax appellants was relevant to the contingency question. It is unnecessary for me to consider Wawang and whether valuation evidence may be relevant.
[23] However, because, in his dissenting reasons, Strayer J.A. has made a number of references to Wawang, supra, and has expressed why, in his view, factual evidence is irrelevant, I would make some brief comments so that when this matter comes to trial, the Trial Judge will feel unfettered in admitting evidence he considers relevant and in interpreting and applying Wawang, supra, or other jurisprudence as he or she considers appropriate.
[24] In Wawang, supra, the question of contingency was dependent on the terms of certain contracts. In my opinion, the fact that the terms of the contracts were the relevant considerations in Wawang, supra, does not necessarily mean that, in every case, it will only be the terms of the contracts that will be determinative of whether a liability is contingent or absolute. Each case will depend on its own facts.
[25] Referring to the observation in Wawang, supra, that the risk of non-payment does not render a liability contingent, Strayer J.A. says that the realization of revenues or sales proceeds, even if highly probable, would not make a liability absolute. However, as I understand it, it was the Minister's concern that the revenues and proceeds of sale of the seismic assets would be insufficient to satisfy the tax appellants' liability that gave rise to the reassessment. By adducing valuation evidence, they apparently wish to dispel this concern. It may be that whether the liability is contingent or absolute will not turn on valuation evidence and will be based on whether the sale of the seismic assets is or is not within the discretion of the tax appellants if revenues are insufficient to pay their liability. However, I would, at this stage, prefer to leave these considerations to the Trial Judge.
[26] I conclude that, based on relevant considerations, the Motions Judge exercised the discretion conferred upon him under rule 58(1)(a). The appeal should be dismissed with costs and the matter should proceed to trial in the Tax Court.
"Marshall Rothstein"
J.A.
"I agree.
Marc Nadon"
STRAYER J.A. (Dissenting)
[27] I regret that I am unable to concur with my colleagues either in their analysis of the reasons of the motions judge or in their proposed disposition of this appeal. In my view the motions judge erred in principle in the exercise of his discretion under paragraph 58(1)(a) of the Tax Court Rules. This Court should set aside his decision and substitute its own decision that the proposed question of law should be determined under that paragraph.
Role of a Motions Judge Under Paragraph 58(1)(a) of the Tax Court Rules
[28] I of course agree with my colleagues that the criteria to be applied by a motions judge are set out in the Berneche case ((1991) 133 N.R. 232), namely, that the Court must be satisfied: that there is no dispute as to any material fact; that what is involved is a pure question of law; and that the determination of that question may terminate or substantially shorten the trial of the action.
[29] In applying these criteria it is clear from the wording of the rule that it is not necessary that the parties be in agreement on a set of facts in order for the judge to consider seriously the possibility of identifying a pure question of law for prior determination. An application can be made under paragraph 58(1)(a) by any party: it need not be a joint application and it may well be that one of the parties opposes the motion because in its view there are relevant facts in dispute. In such circumstances it is incumbent on the motions judge to consider whether there are any facts in dispute relevant to the determination of the proposed question of law. Nor does the rule exclude determination of a question of law for which there are some necessary "factual underpinnings", where those "factual underpinnings" are present. Finally, I am not aware of any principles of jurisprudence which preclude a frequent litigator from advocating, in one case, the identification of a question of law for prior determination even though in another case, involving other circumstances and other parties, it has opposed the identification of a different question. A motions judge must in each case determine whether an order under paragraph 58(1)(a) is appropriate in the specific case before him.
[30] As I understand it, in pursuit of the objectives of modern court administration, which recognize the need for improving access to justice through inter alia avoiding the unnecessary trial of issues, this rule has an honourable role to play, just as does case management and the enhanced use of summary judgments. I therefore believe it is the responsibility of a motions judge when faced with such a motion to consider carefully whether there are any relevant facts in dispute which require a full trial.
[31] Having in mind these considerations, it is my respectful view that the motions judge here took into account irrelevant considerations and failed to have regard to relevant considerations in exercising his discretion the way he did. These are factors which it is the responsibility of this Court to review, reluctant as we may be generally to interfere with a motions judge's exercise of discretion.
Irrelevant Considerations
[32] In my respectful view the following matters mentioned in the reasons of the motions judge were irrelevant to the matter before him (see Appeal Book 20-25).
[33] He says that although it may turn out that whether liability is contingent will be a question of law "it is a question of law which must necessarily rest upon a factual underpinning". He does not say what kind of factual underpinning would be required, beyond the promissory note and the Seismic Purchase and Sale Agreement, both of which were already before the Court. As I will suggest later, no one has demonstrated what additional facts would be properly considered in giving a legal interpretation as to the nature of the liability created by these instruments in writing.
[34] The motions judge says in several places in effect "it is not the place of this Court to tell an appellant how to present his or her case". With respect, I should have thought that on occasion it is necessary to do that very thing, particularly if an appellant wishes to introduce evidence or pursue an argument which legally has no relevance to the matter under appeal. That indeed is clearly one possible consequence of an order being made under paragraph 58(1)(a) if, contrary to the wishes of one of the parties, it is determined by a motions judge that there is a question of law which can be decided without further evidence being introduced. That certainly does have the effect of telling the unsuccessful party to such a motion that he will have to produce meaningful legal argument, and not a plethora of evidence, for the determination of the question as identified.
[35] A variation of this approach is reflected in the motions judge's reason that to make such an order would be "to usurp the role of the trial judge in excluding evidence upon which the appellants wish to rely". He mentions that the appellants wished to introduce expert accounting evidence. He obviously assumes that such evidence may have some relevance. This is a question which in itself needed serious consideration and again, for the reasons I will state later, I am unable to understand to what such evidence would be relevant. In my view what is a "contingent liability" as a legal concept cannot be determined by general accounting practice. The learned motions judge relies on Time Motors Ltd. v. M.N.R. ((1969) 69 D.T.C. 5149 (S.C.C.)) but this case involved the interpretation of what was then paragraph 12(1)(e) (now 18(1)(e) of the Income Tax Act) which refers to "an amount transferred or credited to a . . . contingent account". The Supreme Court held that the paragraph in question clearly was referring to accounting practice and therefore it was to be construed by the reference to proper accounting practice in the particular business. That was not the issue before the motions judge. Further the motions judge here assumed that a determination as to whether there was a "contingent liability" under the promissory note and the Seismic Purchase and Sale Agreement involved issues "closely connected with all or many of the other issues . . .". In my respectful view when he refers to these issues he assumes, without deciding, that what actually happened in subsequent years after the execution of the documents had some bearing on their legal meaning.
[36] As my colleagues mention, the motions judge accepted the submission on behalf of the taxpayer that the Crown should not advocate the identification of a question of law because in another case (Gregory v. H.M. (2000) 2000 D.T.C. 2027 (T.C.C.) it had argued that the Tax Court should not determine as a preliminary question of law whether the current section 245 of the Income Tax Act, the General Anti-Avoidance Rule ("GAAR") was unconstitutionally void for vagueness. The Tax Court nevertheless ordered the determination of such a preliminary question of law in that case and this was reversed by the Federal Court of Appeal. But in that case this Court followed the quite explicit views of the Supreme Court of Canada in Ontario v. Canadian Pacific Ltd. ([1995] 2 S.C.R. 1031) where it was said that in dealing with a (constitutional) vagueness challenge to a statutory provision the Court must determine whether the law "provides the basis for legal debate and coherent judicial interpretation". It therefore followed that "the first task of the Court is to develop a full interpretive context surrounding the law, since vagueness should only be assessed after the Court has exhausted its interpretive function . . ." (page 1090). This was the clearest directive that to apply the particular constitutional test of "vagueness" a court must satisfy itself, after being possessed of all the facts, that a meaningful interpretation could not be given to the section. For this reason it seems to me also to be an irrelevant consideration that the Crown had opposed the identification of a preliminary question of law in Gregory where a very specialized constitutional issue was involved (having extensive implications for the future application of the constitution and of the statute), but advocated in this case such a preliminary question concerning the mere legal interpretation of a promissory note.
Relevant Considerations Not Taken Into Account
[37] The question which the motions judge was asked to state for prior determination as a question of law was as follows:
Whether the promissory note provided as consideration by the Appellant for the purchase of seismic data from Technical Data Holdings Ltd. is a contingent liability of the Appellant?
This question, it was said by the moving party, would help to resolve the matters in issue in the tax appeal which concern the reassessment of the taxpayer in respect of 1991, 1992 and 1993 taxation years. In respect of each of these years the Minister reassessed the appellant disallowing certain deductions for "Canadian exploration expenses claimed by the taxpayer". In respect of 1992 and 1993 the Minister also disallowed certain deductions in respect of business expenses. It is the position of the Minister that, as these amounts were dependent on the face value of a promissory note it is of fundamental importance to determine whether that note created only a contingent liability: if so it would not qualify in the years for which the expenses were deducted as representing a true expense. The Minister says that "expense" incurred by means of an instrument creating only a contingent liability cannot be a Canadian Exploration Expense within the meaning of subparagraph 66.1(6)(a)(i) in a year when no absolute legal liability was thereby incurred. Further he argues that such expenses are not deductible as business expenses because such deduction is expressly precluded by paragraph 18(1)(e) of the Act which precludes the deduction of "a contingent liability".
[38] In spite of the lengthy submissions of counsel for the taxpayer I can find no basis for determining that the criteria for what is a "contingent liability" are other than legal, once one has available the written instruments under which the liability is created. The Court had before it a promissory note and the related Seismic Purchase and Sale Agreement. Some three months before the learned motions judge dismissed the motion in question, this Court said in Wawang Forest Products Ltd. et al v. H.M. ((2001) 2001 D.T.C. 5212)), the panel consisting of Rothstein, Sharlow and Malone JJ.A., that the correct test for a contingent liability is that stated in Winter and Others v. Inland Revenue Commissioners ([1963] A.C. 235 at 262):
I should define a contingency as an event which may or may not occur and a contingent liability as a liability which depends for its existence upon an event which may or may not happen.
This Court went on to say (at 5216)
Returning to the Winter test, the correct question to ask, in determining whether a legal obligation is contingent at a particular point in time, is whether the legal obligation has come into existence at that time, or whether no obligation will come into existence until the occurrence of an event that may not occur.
And at paragraph 25
The characterization of the holdbacks as absolute or contingent liabilities of the taxpayers depends on the interpretation of the terms of the contracts.
[39] Now, the question which requires determination, by reference to the "terms of the contract" (in this case the promissory note and the Seismic Purchase and Sale Agreement) is whether "at a particular point in time", that is upon execution of the promissory note and agreement, there was an absolute legal obligation to divert, to the vendor of the seismic data, specific sums of revenue or of the sale proceeds which would otherwise be receivable by the maker of the promissory note.
[40] I can only understand the suggestion that factual evidence might assist in the determination of this question if one looks upon the question of "contingency" as one of fact: that is, what are the economic probabilities? This means presumably that if the revenue or market prospects for the data look good in the year in which the deduction is claimed then it is not founded on a contingent liability. Perhaps markets might look less good in another year but by that time what had once been a highly probable liability would have turned into an improbable and thus contingent liability. I can find no authority in the reasons of the motions judge nor in the arguments of the taxpayer here to support such a proposition.
[41] On the other hand I note in Wawang that this Court stated at paragraph 15:
For example, with respect to the uncertainty as to payment, a taxpayer may incur an obligation at a time when it is in financial difficulty, with the result that there is a significant risk of non-payment. But that uncertainty cannot mean that the obligation was never incurred.
If an obligation does not become contingent merely because the debtor probably will not be able to pay, I fail to see how an obligation to pay which is dependent on other facts occurring such as the realization of revenue or sales proceeds, even if shown by evidence to be highly probable, can make the liability absolute. That is, contingency of a legal liability is not dependent on economic probabilities. And this in my respectful view makes evidence of such matters as valuation and revenue irrelevant to the determination of the question which the judge was asked to pose for determination.
Conclusion
[42] For these reasons I would have set aside the decision of the motions judge, and would have approved the question for determination as a question of law on the basis of well-established legal principles.
"B.L. Strayer"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-431-01
STYLE OF CAUSE: THE QUEEN v. CHARLES WEBSTER ET AL
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: April 17, 2002
REASONS FOR JUDGMENT : Rothstein J.A.
CONCURRED IN BY: Nadon J.A.
DISSENTING REASONS BY: Strayer J.A.
DATED: May 21, 2002
APPEARANCES:
Wendy Burnham
Deborah Horowitz FOR THE APPELLANT
Al Meghji
Edward Rowe FOR THE RESPONDENTS
(EXCEPT D. MUNGOVAN)
No One FOR THE RESPONDENT
D. MUNGOVAN
SOLICITORS OF RECORD:
Morris Rosenberg, Attorney General of Canada
Ottawa, Ontario FOR THE APPELLANT
Donahue Ernst & Young LLP
Ottawa, Ontario FOR THE RESPONDENTS
(EXCEPT D. MUNGOVAN)
No One FOR THE RESPONDENT
D. MUNGOVAN