Date: 20020305
Docket: 2000-717-IT-G
BETWEEN:
GIBRALT CAPITAL CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
_____________________________________________
Counsel for the Appellant: Joel Nitikman
Counsel for the Respondent: Lynn Burch
________________________________________________
Reasonsfor Order
(Delivered orally from the Bench at Ottawa, Ontario, on August 28, 2001)
Mogan J.
[1] This is a motion brought by the Appellant in connection with a Request to Admit which was served on the Respondent pursuant to Rule 130 of the Tax Court of Canada Rules (General Procedure). The first relevant document is the Request to Admit dated March 6, 2001 being a request by the Appellant that the Respondent admit six different items of fact, and also a Request to Admit the authenticity of certain documents.
[2] Under Rule 131, the Respondent had 15 days to respond to the Request to Admit. The second relevant document is the response to the Request dated March 20, 14 days after the date of the Request, and so within the 15-day limit. In that response which would ordinarily speak for itself, the Respondent denies the truth of certain facts in paragraphs 3, 4 and 6; admits the truth of the statements of fact in paragraph 5; and then in the critical area which is the subject of the dispute in this motion today, the Respondent refused to admit the truth of facts in paragraphs 1 and 2 for the following reason: that the information concerning the Westward Inn prior to the purchase by the Appellant is confidential information pursuant to section 241 of the Income Tax Act. The Respondent then went on to accept the authenticity of the two documents named in the Request to Admit.
[3] Therefore, the Respondent did in a timely manner (within the 15 days provided in Rule 131) respond to the various items in the Request to Admit. On or about August 23, the Appellant brought this motion. Specifically, the motion is for an order that paragraphs 1 and 2 of the Request to Admit dated March 6, 2001 have been deemed to be admitted. Those are the first and second items which the Respondent refused to admit and, in the case of one item, on the ground that it was confidential information under section 241 of the Income Tax Act.
[4] The Appellant argues that the Respondent is not permitted to rely on section 241 because the Courts have made it clear (most recently in the decision of George William Harris v. Minister of National Revenue, 2001 DTC 5322) that section 241 is not just to limit the disclosure of taxpayer information but, where there is litigation in good faith between a citizen and the Minister, to permit and perhaps require the Minister to disclose taxpayer information that is relevant to such litigation and necessary for the administration of justice. Those words are mine, they are not necessarily the precise words which appear in section 241. The Appellant says that section 241 has a broader purpose in the administration of justice and, because the Respondent may not rely on it, the facts in items 1 and 2 of the Request to Admit should be deemed to be admitted.
[5] The Respondent argues that, if there was an error in relying on section 241, the remedy is not to deem items 1 and 2 to be admitted but to award costs in accordance with paragraph 151(1)(e) of the General Procedure Rules. Counsel for the Appellant relies on the decision of the British Columbia Court of Appeal in Skillings v. Seasons Development Corporation which held that when a Defendant refused to admit facts for an improper reason, the facts should be deemed to be admitted.
[6] I do not see the Appellant's motion on the basis that I either deny the motion and give the Appellant a remedy in costs when it proves the facts at trial, or allow the motion and find that items 1 and 2 in the Request to Admit are deemed to be admitted. To me, there are a number of alternatives. I was surprised at the delay between the response to the Request to Admit and the date of the motion now before me. When I asked counsel for the Appellant the reason for the delay, he stated that the parties had been engaged for some considerable time negotiating the terms of an agreement as to certain facts which is now signed and will be presented at trial. He also stated, and I accept his statement, that it was his failure to persuade the Respondent to include items 1 and 2 from the Request to Admit in the Agreed Statement of Facts that persuaded him to seek this remedy, admittedly long after receiving the response to the Request to Admit.
[7] I am not inclined to grant this motion for the following reasons: the second item in the Request to Admit, reads as follows:
Provincial had no reasonable expectation of profit from the Westward Inn from the time Provincial acquired an interest in it in 1981 to the time Provincial disposed of it to Shoctor in 1986.
In my view, whether Provincial "had a reasonable expectation of profit" is a conclusion of law based on a whole panorama of evidence. It may be acceptable to request the other party to make that kind of admission but it is not compellable. If the Respondent wanted to make that admission and regard it as not relevant to the main issues in the case, there is nothing wrong with asking the Respondent to do that but, in my view, it is not a compellable fact which the Appellant can expect the Respondent to admit. The Respondent's refusal to admit a conclusion of law is well founded. I do not have any problem with item 2.
[8] Item 1 in the Request to Admit reads as follows:
For no year between 1981 and 1993 inclusive, did the Westward Inn, taken as a separate business or property, actually earn a net profit for either tax or accounting purposes after taking into account interest, capital cost allowance and all other amounts properly deductible.
I conclude that the Respondent erroneously relied on section 241 of the Income Tax Act when responding to item 1. But the remedy is not to deem that item 1 be admitted. The remedy is to pursue the matter in a more timely fashion. When the refusal to admit item 1 was sent from the Respondent to the Appellant, there was an opportunity for the Appellant to seek discovery of the Respondent; to ask questions and compel answers. Perhaps, the Respondent did not have to rely on section 241. If on examination for discovery of the Respondent, the questions were put: "What was the profit and loss situation of the Westward Inn between 1981 and 1993? Can you produce financial statements to show whether it made a profit or not? If so, did it deduct interest on borrowed money?" the Revenue Department may have had to admit that it could not find any records of the corporation beyond a certain date. It may have been impossible for the Respondent to respond to item 1.
[9] In my view, the Respondent's reliance on section 241 was not justifiable in terms of the law but, under Rule 131(3)(b), when the Respondent refused to admit item 1 and set out the reason for the refusal, the Respondent had done all that it was required to do under Rules 130 and 131 if the Respondent believed, in good faith, that its reliance on section 241 was justifiable in law. If it was not justifiable in law, there were avenues where that could have been pursued. I think an examination for discovery of the Respondent and, a motion following discovery requiring answers to specific questions would have been the remedy.
[10] At this point in the proceedings on the eve of trial, I will not grant the motion deeming either item 1 or item 2 in the Request to Admit to be admitted. On the matter of costs, I will leave it as costs in the cause because how do I know how this precise item might be dealt with at trial. I do not know what the parties might do between now and trial or what the Appellant might do to secure an admission or pursue this line of endeavour. Therefore, I will not give costs in any event of the cause but I will grant costs in the cause.
Signed at Ottawa, Canada, this 5th day of March, 2002.
"M.A. Mogan"
J.T.C.C.
COURT FILE NO.: 2000-717(IT)G
STYLE OF CAUSE: Gibralt Capital Corporation and
Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: August 28, 2001
REASONS FOR ORDER BY: The Honourable Judge M.A. Mogan
DATE OF ORDER: August 29, 2001
APPEARANCES:
Counsel for the Appellant: Joel Nitikman
Counsel for the Respondent: Lynn Burch
COUNSEL OF RECORD:
For the Appellant:
Name: Joel Nitikman
Firm: Fraser Milner Casgrain
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada