GLP NT Corporation (Formerly Varitech Investors Corporation) v. The Queen

GLP NT Corporation (Formerly Varitech Investors Corporation) v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2004-12-13 Neutral citation 2004 TCC 738 File numbers 2002-1002(IT)G Judges and Taxing Officers Leslie M. Little Subjects Income Tax Act Decision Content Docket: 2002-1002(IT)G BETWEEN: GLP NT CORPORATION (Formerly Varitech Investors Corporation), Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Motion heard on November 1 and 2, 2004 at Vancouver, British Columbia Before: The Honourable Justice L.M. Little Appearances: Counsel for the Appellant: Joel A. Nitikman Counsel for the Respondent: David Jacyk Thomas Torrie ORDER Whereas the Appellant filed a Notice of Appeal to the Court in connection with Notices of Reassessment issued by the Minister of National Revenue for the Appellant's 1994 and 1995 taxation years; And whereas counsel for the Appellant and counsel for the Respondent each filed a Notice of Motion with the Court requesting that the Court order that the parties being examined for discovery provide answers to the questions that were asked at the examination for discovery; And upon hearing the parties on November 1 and 2, 2004 this Court orders as follows: 1. Re: Respondent's Notice of Motion Mr. Myhal (the Appellant's representative) shall provide answers to the following questions: May 19, 2004 Questions numbered 35, 51, 85, 101, 116-123, 133 and Requests 281, 284, 286, 287, 289, 377, 455, 559; June 23, 2004 Questions 122, 123 and Requests 253 and 286 and Undertakings 19, 20, 21. 2. Re: Hees' Financial Statements Mr. Myhal is Ordered to answer the following questions: 504, 512, 621-2, 625-7, 645, 646 and Requests 721, 734, 738 and Request No. 29. 3. Re: Dexleigh Mr. Myhal is Ordered to answer the following questions: 134-137 and Request 314. 4. Re: The Appellant's Articles of Incorporation With respect to the questions asked concerning the Appellant's Articles of Incorporation Mr. Myhal is not compelled to answer these questions. 5. Re: Hathaway Valuation With respect to the Hathaway Valuation Mr. Myhal is not compelled to answer the following questions: Requests 2, 7 and 540; Questions 36 and 38. 6. Re: Appellant's Notice of Motion (a) Mr. MacGibbon (the Respondent's representative) is not compelled to answer Questions 296, 602, 717 and 849; (b) The Respondent is not required to amend its Reply to the Notice of Appeal. Signed at Vancouver, British Columbia, this 13th day of December 2004. "L.M. Little" Little J. Citation: 2004TCC738 Date: 20041213 Docket: 2002-1002(IT)G BETWEEN: GLP NT CORPORATION (Formerly Varitech Investors Corporation), Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR ORDER Little J. [1] Notices of Reassessment (the "Reassessments") were issued by the Minister of National Revenue (the "Minister") for the Appellant's 1994 and 1995 taxation years. [2] The Reassessments were issued by the Minister under section 191.1 of Part VI.I of the Income Tax Act (the "Act"). [3] Section 191.1 of the Act imposes a special tax on certain dividends declared by a corporation. However, a Mutual Fund Corporation as defined in subsection 131(8) of the Act is considered to be a "financial intermediary corporation" under subsection 191(1) of the Act and section 191.1 provides that dividends from a financial intermediary corporation are exempt from tax. [4] In order to qualify as a Mutual Fund Corporation the Corporation must satisfy a specified test at the time that the dividends are declared. The specified test that must be met is that the fair market value of the issued common shares of the Corporation must not exceed five per cent of the fair market value of the Corporation's total share capital. This test has been referred to as the "95 per cent test". [5] On April 1, 1993 the Appellant redeemed 2,399,900 preferred shares for some $59,997,500.00 in cash. [6] As a result of the redemption of the 2,399,900 preferred shares the Minister determined that the Appellant no longer qualified as a Mutual Fund Corporation and therefore the dividends declared by the Appellant lost their tax exempt status. [7] The Reassessments issued by the Minister imposed tax under Part VI.I of the Act in the amount of $11,902,611.00 in respect of dividends declared in the 1994 and 1995 taxation years. [8] The Appellant filed Notices of Appeal to the Reassessments in which it maintained that it met the 95 per cent test and therefore the dividends were exempt from tax. [9] Following the close of pleadings both parties produced lists of documents and examinations for discovery were conducted. The Appellant's nominee for the examination for discovery was Mr. George Myhal. The Respondent's nominee for the examination for discovery was Mr. Gordon MacGibbon. [10] An examination for discovery of Mr. Myhal was held in Toronto on May 18, 2004 and was continued in Vancouver on June 23 and 24, 2004. The examination of Mr. Myhal has been adjourned. During the examination Mr. Myhal refused to answer certain questions. [11] An examination for discovery of Mr. MacGibbon was held in Toronto on May 18, 2004. During the examination Mr. MacGibbon refused to answer certain questions. [12] On October 19, 2004 counsel for the Respondent filed a Notice of Motion with the Court requesting that the Court Order that Mr. Myhal provide a response to various questions that were asked at the examination for discovery. [13] On October 19, 2004 counsel for the Appellant filed a Notice of Motion with the Court requesting that the Court order that Mr. MacGibbon answer various questions that were asked at the examination for discovery and that the Court order that portions of the Respondent's Reply be deleted. A. Respondent's Notice of Motion: [14] During the hearing of the Motion counsel for the Respondent suggested that the questions which Mr. Myhal refused to answer on the examination for discovery may be broken down into the following Categories: Category I - Questions related to the Appellant's connections with the Edper Group, or the Hees Edper Group, the Edper Brascan Group and other related or affiliated companies. Category II - The Financial Statements of Hees International Bankcorp. Inc. ("Hees") for the 1994 and 1995 fiscal periods. Category III - Questions related to the Appellant's connection with Dexleigh Corporation. Category IV - Terms of the Appellant's Articles of Association. Category V - Questions involving the Hathaway Valuation. ISSUE [15] Should Mr. Myhal be compelled to answer the specific questions that were asked at the examination for discovery by counsel for the Respondent? ANALYSIS [16] The Tax Court of Canada Rules (General Procedure) contain rules regarding an examination for discovery. The main provisions relating to the issues in this application read as follows: DISCOVERY OF DOCUMENTS List of Documents (Full Disclosure) 82. (1) The parties may agree or, in the absence of agreement, either party may apply to the Court for a judgment directing that each party shall file and serve on each other party a list of all the documents which are or have been in that party's possession, control or power relating to any matter in question between or among them in the appeal. EXAMINATION FOR DISCOVERY General 92. An examination for discovery may take the form of an oral examination or, at the option of the examining party, an examination by written questions and answers, but the examining party is not entitled to subject a person to both forms of examination except with leave of the Court. [...] Scope of Examination 95. (1) A person examined for discovery shall answer, to the best of that person's knowledge, information and belief, any proper question relating to any matter in issue in the proceeding or to any matter made discoverable by subsection (3) and no question may be objected to on the ground that, (a) the information sought is evidence of heresay, (b) the question constitutes cross-examination, unless the question is directed solely to the credibility of the witness, or (c) the question constitutes cross-examination on the affidavit of documents of the party being examined. (2) Prior to the examination for discovery, the person to be examined shall make all reasonable inquiries regarding the matters in issue from all of the party's officers, servants, agents and employees, past or present, either within or outside Canada and, if necessary, the person being examined for discovery may be required to become better informed and for that purpose the examination may be adjourned. (3) A party may on an examination for discovery obtain disclosure of the findings, opinions and conclusions of an expert engaged by or on behalf of the party being examined that relate to a matter in issue in the proceeding including the expert's name and address, but the party being examined need not disclose the information or the name and address of the expert where, (a) the findings, opinions and conclusions of the expert relating to any matter in issue in the appeal were made or formed in preparation for contemplated or pending litigation and for no other purpose, and (b) the party being examined undertakes not to call the expert as a witness at the hearing. (4) A party may on an examination for discovery obtain disclosure of the names and addresses of persons who might reasonably be expected to have knowledge of transactions or occurrences in issue in the proceeding, unless the Court orders otherwise. [17] In 569437 Ontario Inc. v. Canada, [1994] T.C.J. No. 531 Judge Christie of the Tax Court of Canada said: [5] ... it is noted that subsection 95(1) of the Tax Court of Canada Rules (General Procedure) requires that a person examined for discovery shall answer, to the best of that person's knowledge, information and belief, any proper question relating to any matter in issue in the proceedings. [18] In Sydney Steel Corp. v. The Queen, [1992] 2 F.C. 193 Mr. Justice MacKay of the Federal Court, Trial Division said at page 147: Counsel for the parties are essentially agreed that the standard for propriety of a question asked in discovery is less strict than the test for admissibility of evidence at trial and the appropriate standard is whether the information solicited by question may be relevant to the matters which at the discovery stage are at issue, on the basis of the pleadings filed by the parties. [19] In Baxter v. The Queen, [2004] T.C.J. No. 564 Associate Chief Justice Bowman quoted from the decision of Hugessen J. in Montana Band v. Canada, [2000] 1 F.C. 267 and said at paragraph 12: The general purpose of examination for discovery is to render the trial process fairer and more efficient by allowing each party to inform itself fully prior to trial of the precise nature of all other parties' positions so as to define fully the issues between them. It is in the interest of justice that each party should be as well informed as possible about the positions of the other parties and should not be put at a disadvantage by being taken by surprise at trial. Category I [20] During the examination for discovery of Mr. Myhal held on May 19, 2004 counsel for the Respondent asked Mr. Myhal the following questions: Schedule 1 - Connections between Various Companies Question 35 - Would the companies listed on the Edper Group pamphlet be part of the Edper Group at the time that you had a position as an officer of Hees? Question 51 - Is there common control with respect to all of those companies? Question 85 - Are Hees, Noranda, Trilon Financial Corporation, Great Lakes Power Inc. listed in the pamphlet because they are controlled by the Edper Group? Question 101 - Was Noranda Inc. controlled by the Edper Group? Question 116 - 123 - Did Edper Group Limited control Hees International Bancorp? Request 133 - Undertake to advise whether Edper Group Limited had de jure control over Hees International Bancorp? Question 135 - Are you aware of any other arrangements or agreements by which the Edper Group had defacto controlling interest? Question 142 - Are there any arrangements or agreements which effectively gave the Edper Group defacto controlling interest? Request 161 - Undertake to advise whether or not Edper Group exercised control over Great Lakes Power Inc. Request 281 - Undertake to advise whether or not Brascan Limited held 49% voting interest in Great Lakes Holdings Inc. during the relevant tax period. Request 284 - Undertake to advise whether or not Great Lakes Holdings Inc. held 46% voting interest in Great Lakes Power Inc. during the relevant tax period. Request 286 - Undertake to advise whether or not Hees held 49% voting interest in Brascan Limited during the relevant tax period. Request 287 - Undertake to advise whether or not Hees held 49% voting interest in Great Lakes Holdings Inc. during the relevant tax period; whether or not Brascan Limited and Hees held 50% ownership in Braspower Holdings Inc. during the relevant tax period; and whether or not Braspower Holdings Inc. held 46.2% voting interest in Great Lakes Power Inc. during the relevant tax period. Request 289 - Undertake to advise whether or not Brascan Limited and Hees controlled Great Lakes Power Inc. indirectly during the relevant tax period. Request 377 - Undertake to make reasonable inquiries and advise whether or not Great Lakes Group Inc. or Trilon Financial Corp., had preferred shares in Varitech. Request 455 - Undertake to make reasonable inquiries and advise whether or not Hees owned, or held an interest in, Dexleigh in the period between 1988 to 1995. Request 559 - Undertake to advise whether or not Hees or any company of the Hees Edper Group have any control, other than by virtue of shareholdings, over the decisions of Noranda Inc., Brascan Ltd., Brascan Holdings, Dexleigh Corporation, Great Lake Holdings Inc., Trilon Financial Corporation and Great Lakes Power Inc. June 23 Questions 122 & 123 - Was your experience and work with Hees and Trilon and as president of Varitech, a contributing factor to your appointment as a director of Noranda? Request 253 - Undertake to make reasonable inquiries and advise whether or not it was Hees or an affiliate of Hees that invested in the preferred shares of Northstar Investment Corporation, and if so when the investment took place, for what period of time, and the extent of the investment. Request 286 - Undertake to speak to Ian Cockwell and determine what period of time he was a director of Canadian Northstar Corporation. Requests for Undertakings #19, 20, 21 listed in Appellant's letter of October 19, 2004: - Note: These questions have been partially answered. #19 Undertaking to make inquiries to determine if Hees or any affiliate company owned preferred shares of Northstar Investment Corporation. #20 Undertaking to make inquiries to determine if any employees of Hees or subsidiaries or affiliate of Hees were employed by a company that own preferred shares of Northstar Investment Corporation. #21 Undertaking to make inquiries to determine if Hees or any affiliate company owned preferred shares of Canadian Northstar Corporation. [21] Counsel for the Respondent argued that the Minister wishes to explore the extent of the relationship or connections between all of the companies involved in this case as common shareholders and preferred shareholders of the Appellant, as guarantors of the Appellant and as companies in which the Appellant invested, and particularly the connections to one another and to the Edper Group. [22] In support of his argument counsel for the Respondent made the following points in his Motion Brief: Established Connections amongst Varitech and the Edper Group 20. Varitech has been identified by Mr. Myhal in previous unrelated proceedings as a company which was an affiliate of the Edper Group of companies. The Affidavit of Mr. Myhal sworn August 8, 1995 in a proceeding Ontario Court File B209/95 (Affidavit of CJ, Ex. B). 21. An information brochure produced by the Appellant in this case identifies the following companies as being part of the Edper Group: Hees; Great Lakes Power Inc.; Noranda Inc; Trilon Financial Corporation; Brascan Limited; Carena Developments Ltd. All of these companies have some form of connection with this case (Affidavit of CJ, Ex. D). 22. As an example of the relevance of Varitech connections with companies considered to be in the Edper Group of Companies, the Appellant itself outlined the general relationships in a letter written by its solicitors, Tory and Tory Deslauriers & Binnington to the auditor Gordon MacKibbon. The letter comments that both the Hathaway valuation and the Revenue Canada valuation of the shares of Varitech "reflect the association with Varitech and the Edper Group of companies and applied discounts by reason of the financial uncertainties relating to these companies in the eyes of the financial markets...." (Affidavit of CJ, Ex. F). . . . 39. With respect to the first element, despite the relevance of the connections of the various companies to the issue in this case, the Appellant has failed to express a clear reason why Mr. Myhal should be permitted to evade the requirement of answering relevant questions based on knowledge. 40. With respect to the second component, the Appellant appears to suggest that it is not required to make inquiries of "third parties" with respect to the various connections between these companies and their officers. It is however incumbent on the Appellant to make relevant inquiries with former officers of Veritech and of people within companies identified as being within the same affiliated group. [23] Counsel for the Appellant raised a number of reasons in an attempt to establish that Mr. Myhal was not required to provide answers to the questions outlined above. Counsel for the Appellant suggested that the information was not relevant and that the Appellant did not control the various companies referred to by counsel for the Respondent. [24] In his submission on the Respondent's Motion counsel for the Appellant said: 5. In short, while there may have been some common directorships between Veritech and other companies, there is no evidence that during the relevant taxation years that Veritech controlled these other companies, or that these other companies controlled Veritech, but more importantly, there is no evidence that GLP NT (as it is now known) has any control over any of those companies or that they have any control over it at this time. 6. In short, paragraphs 19 and 40 of the Respondent's Brief are wrong - Veritech during the relevant taxation year had no affiliates but more importantly, there is no evidence that it has any affiliates at this time ... [25] Counsel for the Appellant and counsel for the Respondent each referred to comments contained in Crestbrook Forest Industries v. The Queen, (1993) 3 F.C.R. 251 in support of their respective position. In Crestbrook the Federal Court of Appeal made the following comment: In the appropriate circumstances, this Court does have the power to require the sort of answers sought by the Crown here. But this Court will only do so in special situations where it is shown as a prerequisite that it is in the interests of the administration of justice to look behind the sanctity of the corporate identity. [26] I do not agree with the narrow view adopted by counsel for the Appellant and I accept, in general, the arguments raised by counsel for the Respondent. [27] In my view the so-called "Edper Group of Companies" are so connected and interrelated with the Appellant that "in the interest of justice" the Appellant's witness should be compelled to answer the majority of the questions outlined above. [28] In reaching my conclusion I have determined that the information requested by counsel for the Respondent could be relevant in establishing the Respondent's position or in disposing of the position adopted by the Appellant. If Mr. Myhal did not provide answers to these questions the appeal would amount to a "trial by ambush" which a Court will not permit. (See Elders Grain Co. v. Ralph Misener, 2000 F.C.J. No. 1862.) [29] However I do not agree that Mr. Myhal should be compelled to answer the following questions: Questions 135, 142 and 161. I have concluded that Mr. Myhal should not be compelled to answer these questions because questions involving "de facto control" or whether one company "exercised control" over another company require a legal conclusion. Category II [30] During the examination for discovery Mr. Myhal was asked a series of questions regarding the Financial Statements of Hees International Bancorp Ltd. "Hees". [31] Counsel for the Appellant instructed Mr. Myhal not to answer any question concerning the Financial Statements of Hees. [32] The Appellant stated at paragraph 3.27 of its Notice of Appeal that Hees (which later became Great Lakes Power Inc.) provided the Appellant with standby financial facilities in the amount of $150,000,000.00 to ensure that any retraction of the Appellant's preferred shares could be met. [33] It should be noted that Appellant's counsel included the Financial Statements of Hees in its List of Documents. [34] It should also be noted that Hees was the promoter and sponsor of the Appellant and both the Appellant and Hees were part of the Edper Group. [35] In addition, Mr. Myhal is currently a Director and Chief Operating Officer of Brascan Corporation which as a result of an amalgamation effectively includes Hees. [36] In his Motion Brief counsel for the Respondent said: 59. Despite having produced the Hees financial statements, and asserting in both its pleadings and a Notice to Admit that Hees was able to meet its obligations to Veritech, the Appellant refused to answer questions regarding items in those financial statements which may challenge Hees' financial ability to meet such obligations. It is apparent that the Appellant would likely be able to answer this question by seeking the response from Hees. 60. Mr. Myhal is currently a Director and Chief Operating Officer of Brascan Corporation which by amalgamation effectively includes Hees (Affidavit of CJ, Ex. G, p. 11, Affidavit of JH, Ex. B. 61. In the circumstances, the refusals in this category suggest an intention to conduct a trial by ambush. The purpose of the rules for discovery is to avoid trial by ambush, which the Court should not permit. See Elders Grain Co. v. Ralph Misener, [2000] F.C.J. No. 1862. [37] I agree with the submission made by counsel for the Respondent. In my opinion Mr. Myhal should be compelled to answer the questions relating to the Financial Statements of Hees. Category III [38] The following questions were asked of Mr. Myhal re Dexleigh Corporation: Schedule 3 - Dexleigh (June 23) Question/Request 134-137 - Undertaking to make inquiries, including inquiries within Dexleigh, Edper Investments or other Edper group companies to determine why Dexleigh sold its shares in Varitech to Edper Investments Limited. Request 314 - Undertaking to make inquiries, including inquiries with Bruce Flatt to advise if and when he was an officer of Dexleigh Corporation. [39] Counsel for the Appellant instructed Mr. Myhal not to answer these questions. [40] It should be noted that Mr. Myhal is an officer of Dexleigh Corporation and Dexleigh Corporation appears to have owned, at one time, senior preferred shares of the Appellant. Dexleigh Corporation also owned shares in other companies that were part of the Edper Group of companies. [41] In my opinion Mr. Myhal should be compelled to answer these questions. Category IV - Terms of the Appellant's Articles of Incorporation. [42] Counsel for the Respondent asked the following questions of Mr. Myhal during the examination for discovery held on June 24, 2004: Question 42 - Notwithstanding the features built into the different classes of shares, was there the possibility that the value of the common shares could increase at a higher level than the value of the junior or senior shares and therefore a potential that the value of the common shares could exceed the five per cent threshold? Request 69 - When clause 7 was included in the articles, was it designed to provide that if one of these two classes, the junior or common shares, were to be subdivided, consolidated, converted, exchanged or otherwise changed, that the other share class would have to be subdivided, consolidated, converted, exchanged or otherwise in the same proportion. Counsel for the Respondent argued that: 72. The rights and obligations of each class of shares are necessarily relevant to the valuation of each class of shares. There are two questions in this category for which answers were refused. Counsel noted that: 73. Question 69 from the Examination on June 24, 2004 asked Mr. Myhal for the reason why Varitech included a particular provision of the articles of incorporation (Affidavit of CJ, Ex. X). 74. A consideration of the nature or effect of a contract or the right and obligations flowing therefrom necessarily involves applying legal rule and principles, an exercise in construing the document and is not a factual question. . . . 77. The second question in this category, Question 42 simply asks if there was the possibility that the value of the common shares could increase at a higher level than the value of the junior or senior shares, notwithstanding the presence of a particular clause. Again there is no issue of legal interpretation involved in such a question (Affidavit of CJ, Ex. W). [43] I do not believe that Mr. Myhal should be compelled to answer these questions because the answers to these questions require a legal interpretation of the various provisions in the Articles of Incorporation. Furthermore, question No. 42 is a question that could only be answered by a person who is qualified to provide an opinion on the value of securities. Category V - The Hathaway Valuation Schedule 5 in the Respondent's Motion Brief reads as follows: Schedule 5 - Hathaway Valuation (from May 19 and June 23) Request 540 - Provide all material related to Brascan Holdings, Noranda Inc., Dexleigh Corporation, Great Lakes Holdings and HIL Corporation that was provided by the Appellant and/or obtained by the Hathaway Corporation in valuing the shares of Varitech (And provide the annual and quarterly reports that Hathaway relied on-added on June 23). Request 2 - Undertaking to provide information relating to Brascan Holding, Noranda Inc., Dexleigh Corporation, Great Lakes Holdings and HIL Corporation for the year 1992 through 1995 including: -any auditor's working papers; any documents dealing with the features of the securities of those companies; any brokerage reports; any annual or interim financial statements; any analyst or management information; any structural documents or internal management documents (including emails, memos or analysis); any tax strategy documents; any information relating to any valuation exercises, reports, memorandums regarding those companies; details and information regarding the conditions of the preferred shares in these companies and their rights, restrictions, or conditions regarding retraction; any other agreements regarding the exercise of those rights; any corporate documents relating to the issuance of dividends and any annual reports. Question 38 - Provide any previous reports that Hathaway provided, any drafts and any notes taken by Hathaway with respect to the valuation. Request 7 - Undertaking to make inquiries, including inquiries within the Edper Group companies to determine other instances where Hathaway provided services to Hees or any other Edper Group company. Question 36 - What amount did the Appellant pay Hathaway Corporation for the valuation of the shares of Varitech? In his Motion Brief counsel for the Respondent said: 80. By Request 540 the Appellant gave an undertaking to provide all information that was provided to Hathaway (Affidavit of CJ, Ex. G). It is apparent by the written responses of Mr. Myhal that inquiries were not made with other Edper Group companies who may have provided information directly to Hathaway (Affidavit of JH, Ex. A. p. 2-3, Responses #9-11). 81. The valuation of the shares is a key issue in this case. The Appellant has not undertaken not to call any person from Hathaway as an expert witness. Since the report has already been disclosed as part of the Appeals process (and not pursuant to Rule 95 or the expert rules for disclosure of reports), the Respondent is entitled to explore precisely what information Hathaway relied on in coming to its opinion, particularly if they were provided with access directly to information in the hands of the Edper Group companies. 82. Hathaway has been used by other Edper Group companies for other jobs. It is telling that prior to the objection of counsel, Mr. Myhal indicated that he was able to make inquiries within the Edper Group as to who in the Edper Group had used the services of Hathaway in the past (Affidavit of CJ, Ex. H. p. 9). This demonstrates that there was the ability to obtain such information within the Edper Group. 83. Further, by Request 2 (June 23), the Respondent has requested a significant amount of information regarding the five Edper Group companies that Varitech invested in during the tax period referred to in the Hathaway valuation: Dexleigh Corp; Noranda Inc.; Great Lakes Holdings; Brascan Holdings and HIL Corporation. 84. The Appellant has retained a second expert to provide a valuation. It would be expected that this expert will be provided with significant access to information of the five Edper Group companies in which Varitech held private issues. Mr. Myhal is in fact a director of two of these companies, Dexleigh and Noranda Inc. 85. In the circumstances, the refusal to make inquiries within the Edper Group companies to determine what information Hathaway was provided with in preparing its opinion, and the refusal to provide full access to information to the five Edper Group companies suggests an intention to conduct a trial by ambush. The purpose of the rules for discovery is to avoid trial by ambush which the Court should not permit. Previous Hathaway Drafts 86. The Appellant was asked to provide previous drafts of the Hathaway valuation. As the report itself has been disclosed and included on the List of Documents, any privilege attaching to the report and connected documents has been waived and no privilege can attach to any drafts. Traskv Canada Life Assurance Co., 2002 B.C.J. No. 2823(S.C.)(Q.L.), 2002 BCSC 1741, paras. 69 & 72 (BA, Tab 12) Browne (Litigation Guardian of) v Lavery, [2002] O.J. No. 564 (Ont. C.J.) (Q.L.) (BA, Tab 4). 87. The Hathaway valuation was disclosed by the Appellant during the audit/assessment stage, and not pursuant to Rule 95 or Rule 145 for disclosure of reports. As such, there is a waiver of privilege as the Appellant would have been aware of the privilege, has voluntarily evinced an intention to waive it and has not been compelled to disclose the privileged material by any statutory requirement. S & K Processors Ltd. v Campbell Avenue Herring Producers Ltd., [1983] B.C.J. No. 1499 (S.C.) (Q.L.) (BA, Tab 10). 88. Further, and irrespective of any privilege issues, this undertaking was accepted by the Appellant and it appears the Appellant is attempting to retract it (Affidavit of JH, Ex. F, p. 16). A party cannot withdraw an undertaking unless the opposing party releases it. Towne v. Miller, [2001] O.J. No. 4241 (Ont. C.J.) (Q.L.) (BA, Tab 11). Other Requests Re Hathaway 89. Request 7 of June 23 was for an undertaking to make inquiries to determine other instances where Hathaway provided services to Hees or any other Edper Group company. Mr. Myhal initially confirmed that he was able to make inquiries within the Edper Group as to who in the Edper Group had used the services of Hathaway in the past (Affidavit of CJ, Ex. H, p. 9). 90. Question 36 of the Examination on June 23, 2004 asked Mr. Myhal for the amount the Appellant paid Hathaway Corporation for a valuation of the shares of Varitech (Affidavit of CJ, Ex. V). [44] In commenting on the request for information on the Hathaway Valuation, including drafts and information provided to the valuator, counsel for the Appellant said that the Appellant has waived privilege over the main report but has not waived privilege over the draft reports. Counsel for the Respondent also referred to Rule 95(3) of the Tax Court of Canada Rules, (General Procedure) which reads as follows: 95. (3) A party may on an examination for discovery obtain disclosure of the findings, opinions and conclusions of an expert engaged by or on behalf of the party being examined that relate to a matter in issue in the proceeding including the expert's name and address, but the party being examined need not disclose the information or the name and address of the expert where, (a) the findings, opinions and conclusions of the expert relating to any matter in issue in the appeal were made or formed in preparation for contemplated or pending litigation and for no other purpose, and (b) the party being examined undertakes not to call the expert as a witness at the hearing. [45] Category V I have carefully considered this situation and I have concluded that the Appellant should not be compelled to provide the draft reports and other documents that were requested in connection with the Hathaway Valuation. In reaching my conclusion on this issue I have reviewed the decision of the British Columbia Supreme Court in Vancouver Community College v. Phillip Barratt, 20 B.C.L.R. (2d.) 289. At pages 296 and 297 the Court said: So long as the expert remains in the role of a confidential advisor, there are sound reasons for maintaining privilege over documents in his possession. Once he becomes a witness, however, his role is substantially changed. His opinions and their foundation are no longer private advice for the party who retained him. He offers his professional opinion for the assistance of the court in its search for the truth. The witness is no longer in the camp of a partisan. He testifies in an objective way to assist the court in understanding scientific, technical or complex matters within the scope of his professional expertise. He is presented to the court as truthful, reliable, knowledgeable and qualified. ... It seems to me that in holding out the witness's opinion as trustworthy, the party calling him impliedly waives any privilege that previously protected the expert's papers from production. This position was adopted by Madam Justice Reed of the Federal Court in Jesionowski v. Gorechi, [1999] 1 F.C.R. 36. [46] I have therefore concluded that the Appellant's witness does not have to answer the following questions in Schedule 5: Request 540 Request 2 Question 38 Request 7 Question 36 [47] Before concluding my remarks on the Hathaway valuation I must determine whether counsel for the Appellant (Mr. Nitikman) made a commitment to provide drafts. Question 38 reads as follows: Q. Can you undertake to make proper search and enquiries, and if you discover, to provide any copies? Mr. Nitikman said: "A. We'll give the undertaking to look for them. As to providing copies, we'll have to take that under advisement, depending on what it is and whether we believe you're entitled to it. Q. Okay. A. But we'll certainly undertake to look for them. Q. All right. And the balance of the undertaking you'll take under advisement? A. Yes. [48] Counsel for the Respondent has argued that counsel for the Appellant made a commitment to provide copies of drafts. [49] In my opinion when you look carefully at the answers counsel for the Appellant gave an undertaking to look for drafts. However, as to providing copies of the drafts counsel for the Appellant said: We'll have to take that under advisement, depending on what it is and whether we believe you're entitled to it. In my opinion Mr. Nikitman did not make a commitment to provide copies of drafts to the Respondent. Category I [50] I Order that the Appellant provide answers to the following questions that were asked in the examinations for discovery. Examination of George Myhal May 19, 2004: Questions numbered 35, 51, 85, 101, 116-123, Request 133 and Requests numbered 281, 284, 286, 287, 289, 377, 455, 559. On the Examination of Mr. Myhal on June 23, 2004. Questions 122, 123, Requests 253 and 286 and Undertakings numbered 19, 20 and 21. Category II [51] With respect to Hees' Financial Statements Mr. Myhal is Ordered to answer the following questions: 504, 512, 621-2, 625-7, 645, 646 and Requests 721, 734, 738 and number 29. Category III [52] With respect to the questions asked concerning Dexleigh Corporation, Mr. Myhal is ordered to answer Questions 134-37 and Request 314. Category IV [53] With respect to the Appellant's Articles of Incorporation, Mr. Myhal is not compelled to answer these questions. Category V [54] With respect to the Hathaway Valuation Mr. Myhal is not compelled to answer the following questions or requests: Request 7 Request 540 Request 2 (Note: In reviewing the Respondent's Notice of Motion I have confined my conclusions to the questions and comments as outlined by counsel for the Respondent in Schedule 1-5 in the Motion Brief dated November 1, 2004.) B. Appellant's Notice of Motion: Question No. 296 [55] In Question number 296 the Appellant asked the Respondent to review certain of Hees' financial information including Hees' income tax returns, audited financial statements, etc. and confirm that the amounts shown as "dividends paid" for Hees' 1993, 1994 and 1995 years and the Appellant were accurate. [56] Counsel for the Respondent refused to do so on the basis that "they are not about to conduct an audit of Hees and cannot be compelled to do so. [57] Counsel for the Appellant said that the Minister should be able to access T-5 Slips and determine the total of the dividends paid by Hees and the Appellant for each year. [58] In my opinion the Respondent is not required to provide this information to the Appellant. [59] In the Notice of Motion filed with the Court on October 19, 2004 counsel for the Appellant requested that the Court compel Mr. MacGibbon to answer the following question: Question No. 602 Q. I would like you to undertake to ask Mr. Demarco whether the values shown in Tab 76 on each of the dates for those private group issues represents his opinion of the actual fair market value of those shares on that date. And if the answer is no, I would like you to ask him for his opinion on what the actual fair market value of those shares were on each of the sales. [60] Counsel for the Respondent said: I think we can give the first part of the undertaking. We will take the second part of the undertaking under advisement. Because, again, I think it is seeking an opinion that hasn't been given. [61] In his submission counsel for the Appellant said: 11. Veritech says that if the Crown admits that a valuation is required of the private company shares, and if the Crown admits that Demarco's valuation at cost was not in fact their fair market value, then the Crown must say what the actual fair market value was. The Crown cannot say "yes we are supposed to value those shares, and yes we admit we didn't value those shares correctly, but we won't tell you what the actual value is." In fact Demarco himself has suggested that the actual value of the private company shares is 25% - 35% less than cost. . . . All Veritech is asking Demarco to do is confirm that this is in fact the discount to be applied in determining the actual value of the private shares. [62] Counsel for the Respondent maintains that the Appellant is not entitled to the information requested. Counsel for the Respondent said: They're asking him to go do something else and tell us what your result is. That's clearly outside the parameters of discovery. [63] I agree with the position adopted by counsel for the Respondent. I do not believe that Mr. MacGibbon should be compelled to answer these questions. Question No. 717 [64] Counsel for the Appellant asked Mr. MacGibbon the following question: Given what we have gone through today, that the company had enough money to retract all the senior shares, do you still believe it is reasonable to assume that the fair market value of the senior shares, at the very most is $21.50. Counsel for the Respondent: You are taking a back door run at what has already been told to you about the Crown's position in this case, that the values were not less than a certain amount. . . . We have told you what the Crown's position is, so that question is improper. [65] I agree with the position adopted by counsel for the Respondent on this issue. I also note that these questions are questions that would be asked of a witness who is qualified to provide an expert opinion on share valuations. Mr. MacGibbon is not qualified to answer this question. Question No. 849 [66] Counsel for the Appellant asked the following question: Q. I would like you to ask Mr. Demarco if ... he believes that a timing discount should have been assigned to the common shares and, if so, how much that timing discount should be. [67] In my opinion Mr. MacGibbon should not be compelled to answer this question. [68] In his Notice of Motion counsel for the Appellant requested that the Court strike out the word "purported" in the second last sentence of paragraph 9 and the entire last sentence of paragraph 9 of the Reply to Notice of Appeal. [69] The last two sentences of paragraph 9 of the Respondent's reply read as follows: 9. ... However, he states for further clarification that this range of percentages of the fair market values of the various classes of shares was based on the assumption that the Junior Participating Shares were to share in the retained earnings balance based on their purported legal entitlements. The Minister also assumed that if the Junior Shares were not to share in the retained earnings balance based on their purported legal entitlements, then the percentage of the fair market value of the Common Shares on the Dividend Payment Dates in relation to the fair market value of all issued shares was as follows: . . . (The Reply then outlines the fair market value of Common Shares as a percentage of total fair market value of all Shares at particular dates when dividends were paid.) [70] With respect to the Motion to strike the word "purported", counsel for the Appellant suggested that the word "purported" was intended to mean the participation right did not actually exist. [71] Counsel for the Respondent said in his Motion Brief for the Appellant's Motion: 5. Rule 53 provides that a pleading can be struck if it is scandalous, frivolous, vexatious, an abuse of process or if it may prejudice or delay the fair hearing of the trial. Pleadings are struck only in plain and obvious cases. 6. The Rule does not contemplate striking a pleading based on an admission at discovery. There is nothing requiring a party to amend their pleadings as their case develops, unless it chooses to do so. . . . 9. In making this motion, the Appellant alleges that an admission has already been made at discovery. Even if that is so, there is neither any reason nor precedent to require an amendment to the pleadings. The only apparent purpose for the motion to strike is to force the Respondent to make an admission that it has not already made, or to attempt to crystallize an inaccurate characterization of the nature of the admission made. This is not permissible. [72] I agree with the position adopted by counsel for the Respondent and I deny the Appellant's Motion to strike any portion of the Respondent's pleadings. [73] Since success is mixed, I Order that the costs shall be in the cause. Signed at Vancouver, British Columbia, this 13th day of December 2004. "L.M. Little" Little J. CITATION: 2004TCC738 COURT FILE NO.: 2002-1002(IT)G STYLE OF CAUSE: GLP NT Corporation (Formerly Varitech Investors Corporation) and Her Majesty the Queen PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: November 1 and 2, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice L.M. Little DATE OF JUDGMENT: December 13, 2004 APPEARANCES: Counsel for the Appellant: Joel A. Nitikman Counsel for the Respondent: David Jacyk Thomas Torrie COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada