Special Risks Holdings Inc. v. The Queen, 84 DTC 6054, [1984] CTC 71 (FCTD), aff'd 84 DTC 6215, [1984] CTC 563 (FCA)

Walsh, J:—An application by defendant for an order compelling plaintiff to give full discovery in accordance with the Court of Appeal’s order of December 30, 1982 and providing for further discovery of plaintiff or that the action be dismissed and judgment entered accordingly was heard on December 6, 1983, the trial of the action having been set down for a hearing expected to last one day before another judge on December 7, 1983. Although the motion was duly filed on December 1, 1983, within the minimum delays provided by the Rules of this Court it was evident that if the motion were granted the trial could not proceed. Some 8 or 9 subpoenas had already been issued for the trial. I indicated to counsel for defendant at the hearing that I considered this very belated motion to be an abuse of the process of the Court, for reasons which I will set out, and also that I did not believe it should succeed on the merits and that therefore I would not issue the order sought, but as written reasons should be given, I would keep the matter under advisement for the issuance of these reasons. It had been my intention to adjourn a second motion, which sought adjournment of the hearing as a result of this motion, to the judge who was to hear the trial on the following day in order that he could decide whether he would insist on the trial proceeding on the basis that this present motion, which would have necessitated a delay of the trial had it been granted, had been dismissed. In such an event it is likely that even had he decided to grant the adjournment sought by defendant he would have ordered all costs thrown away be awarded in favour of plaintiff. However I was advised that the judge designated to hear the case had, at the last moment become unavailable due to illness in his family, and, it being evident that no other judge could replace him on such short notice, I dealt with the motion for adjournment which was before me myself. Since the actual cause of the necessary adjournment was not the conduct of defendant in very belatedly seeking further discovery, but rather a matter over which the defendant had no control the motion of adjournment was granted without any order as to costs with a reference to the administrator for fixing another date, since as plaintiff points out it is anxious to proceed with the action, which has already been long delayed.

Turning to the reasons for dismissing defendant’s motion seeking full discovery in accordance with the Court of Appeal’s order of December 30, 1982 and further discovery of plaintiff, a review of the facts is necessary. On May 11, 1982 an order was made in the Trial Division which inter alia on plaintiff’s motion deleted paragraph 8 of plaintiffs statement of claim which read as follows:

In 1976, negotiations for the acquisition of RMC were instituted by Hogg Robinson Group Ltd (herein “Hogg Robinson”) a United Kingdom company which owned shares in the three (3) following subsidiaries: Hogg Robinson Gardner Mountain International Ltd, Growth Enterprises Ltd and Hogg Robinsonn Cappel (Canada) Ltd, a company incorporated under the laws of Canada.

on the ground that said paragraph was merely narrative in nature and added nothing to the issue, and deleting from paragraph 3 of the defence which admitted certain paragraphs of the statement of claim the words “but adds that the plaintiff entered into a scheme described in said paragraphs with the hope and expectation of avoiding tax on the distribution of dividends’’. Defendant had in its motion sought to have plaintiff produce further documents pursuant to Rule 448. This was dismissed with costs.

By judgment of the Court of Appeal dated December 30, 1982 the appeal was dismissed against the portion of the trial judgment which had struck the words referred to from paragraph 3. In the reasons for judgment of the Court of Appeal the Court deals with the requests made in paragraphs (a) and (e) of a letter attached to defendant’s motion explaining why defendant might be entitled to them. At pages 10 and 11 however it goes on to state:

I have dealt specifically with the matters described in the letter of April 1st, 1982 in respect of which, in my view, the appellant is entitled to Rule 448 discovery. However, Rule 448(1) provides for:“. . . a list of documents . . . relating to any matter in question in the cause .. .”. The matters in question or in issue on these pleadings are the allegations of fact contained in Paragraphs 13, 15 and 17 of the Statement of Claim. I think, therefore, that the appellant is entitled to compliance with the provisions of Rule 448(1) in respect of each and every allegation of fact contained in Paragraphs 13, 15 and 17 of the Statement of Claim.

This in my view somewhat limits the general reasoning of the judgment. This is made clear by the actual disposition which is in the following paragraph as follows:

To summarize then the disposition I would propose to make in this appeal: I would dismiss the appeal from subparagraph (b) of the judgment of the Trial Division; I would allow the appeal from subparagraph (c) of the judgment of the Trial Division and order the respondent, pursuant to the provisions of Rule 448(1), within 20 days from the date of judgment in this Court, to make and file and serve on the appellant a list of the documents that are or have been in its possession, custody or power relating to each and every allegation of fact contained in Paragraphs 13, 15 and 17 of the Statement of Claim herein and contemporaneously therewith, to make and file an affidavit verifying such a list in Form 21, and to serve a copy thereof on the appellant.

In dealing with paragraph (b) on which the appeal was dismissed the trial judgment stated:

Paragraph (a) seeks documents relating to negotiations between Hogg Robinson and Plaintiff as to acquisition of Richards, Melling & Co Ltd, and Paragraph (b) seeks documents as to the capital reorganization of that company. Details of the reorganization have already been produced, and any writings or memoranda of any discussions go to motive and are irrelevant.

The appeal judgment therefore recognizes that questions of motive are irrelevant. The allegations in paragraphs 13, 15 and 17 of the statement of claim with respect to which plaintiff was required by the judgment of the Court of Appeal to file a list of documents read as follows:

13. On 20 December 1976, MHR subscribed and purchased 100,000 RMC common shares at a par value of $1.00 thereby acquiring control of RMC.

15. The new class “A”, “B” and “C” shares were not entitled to vote at any of the shareholders’ meetings.

17. RMC’s 100,000 issued par value common shares owned by MHR were disposed of in consideration for 100,000 RCM common shares without par or nominal value.

Pursuant to the order the following documents were produced on January 18, 1983:

1. Certificate of Continuance of Richards, Melling and Company Limited dated 23 December 1976.

2. Copy of Resolution of Richards, Melling and Company Limited dated 20 December 1976, authorizing issuance of 100,000 common shares to Melling Hogg Robinson Limited.

3. Copy of Resolution dated 20 December 1976 from Board of Melling Hogg Robinson Limited, authorizing subscription and purchase of 100,000 common shares of Richards, Melling and Company Limited.

4, Share certificate for 100,000 common shares with a par value of $1.00 of Richards, Melling and Company Limited issued on 20 December 1976.

5. Share certificate for 100,000 common shares of Richards, Melling and Company Limited issued in the name of Melling Hogg Robinson Limited.

6. Copy of Melling Hogg Robinson Limited cheque for $100,000 payable to Richards, Melling and Company Limited.

7. Minute book of Richards, Melling and Company Limited and securities registers (vol 3 and vol 4) for the relevant period, ie, 20 December 1976 to 31 December 1976.

8. Share certificates (Class “A”, Class “B” and Class “C”) held by Special Risks Insurance Agencies Ltd in Richards, Melling and Company Limited.

These appear to me to be a very complete compliance with the allegations of paragraphs 13, 15 and 17 with respect to which the production of documents was ordered, unless defendant is permitted to indulge in a “fishing expedition” or go into [a] motive which has already been rejected, as it must be, as it is well established in law that a taxpayer may so arrange his affairs as to minimize taxation to the extent that it is legally capable of doing so.

Following January 18 defendant took no further steps. If defendant did not consider that the documents listed by plaintiff were in full and complete compliance with the order of the Court of Appeal she could have moved for an order requiring a further list at any time thereafter. Some eight months later, on September 9, 1983, defendant joined with plaintiff in a joint application for a time and place of trial to last not more than one day, pursuant to the Rules of this Court. The dates sought were in early November and were not available. On October 6th, 1983, an order was issued for a hearing to take place on December 7, 1983. No objection was made to this. Defendant indicated that there would be one witness and 14 documents, but on November 25 a request was made for the issue of a regular subpoena, on November 28, four more subpoenas duces tecum and on December 4 two additional subpoenas duces tecum. What is more important is that pursuant to Rule 483 defendant indicated that it had completed an examination for discovery of a representative of plaintiff and that it had had the discovery of plaintiff's documents under rule 447 and 448. The whole purpose of the rule is to ensure that everything is in readiness for trial before joint application is made so that the time of the Court, including the judges, stenographers engaged for the trial, witnesses subpoenaed and Court registrars will not be wasted by setting a case down for trial which will then not proceed as one of the parties is not ready. It is inherent in the good faith application of the Rule that further discoveries or documents will not be sought or further investigations made thereafter, save in preparation for trial, but not of a nature to require postponement of same.

On September 27, 1983 the parties had agreed and advised the Chief Justice that December 7, 1983 would be an acceptable date for trial. An order was issued on October 6, 1983 confirming this date.

Despite this on November 25, 1983, the Department of National Revenue served a requirement pursuant to paragraph 23 l(3)(b) of the Income Tax Act to Clarkson, Gordon and Company requiring them to produce books and records for the working period 1976 to 1979 including all documents, working papers, invoices, statements, correspondence, memoranda and/or any other papers with respect to the abovenamed taxpayer (Hogg Robinson & Capel-Cure (Canada) Ltd) particularly with reference to an investment made by the above taxpayer in all types of shares in Melling Hogg Robinson Limited as stated in Note 5 with respect to the 1977 financial statement. As a result a wide variety of documents were produced, the contents of which it is not necessary to go into here. These documents of another corporation no longer even mentioned the pleadings,* [1] in the trial judgment relating to the production of documents nor in the appeal judgment, and which is not a party to the action, appears to have been clearly in the nature of a “fishing expedition”. Defendant gives a somewhat lame excuse for this, stating that certain answers given by Mr Melling during the course of an examination for discovery in April aroused certain suspicions, as a result of which this was done. Admitting the right defendant in proper circumstances to use paragraph 231(3)(b) as an investigative tool, this was done many months after defendant’s suspicions were allegedly aroused, (and plaintiff contends that there was nothing in the examination for discovery to justify any suspicions) and more than two months after the joint application was made to set the action down for trial, which should have stopped any further investigations, and is certainly an abuse of the Court’s process in that, this very belated investigation led to defendant’s present motion of December 1, the result of which if successful would inevitably have prevented the trial from proceeding.

Plaintiff quite properly objects to the present motion, contending that it is a further last minute attempt to delay the trial of the action, and moreover to introduce material the production of which would certainly be objected to, which is probably irrelevant, and which in any event was not required in order to comply with the precise terms of the order of the Court of Appeal which related only to allegations in paragraphs 13, 15 and 17 of the statement of claim. Rules i of the court must be strictly followed, and the Crown is in no more favoured position than any other litigant in this connection, and no proceeding should be entertained, even if it might be found to have some relevance, when it seeks the introduction of material, which the parties could have sought to introduce many months earlier, and which if granted would have the effect of pre- venting the action from proceeding. For this reason alone therefore the motion is an abuse of the process of the Court and cannot be entertained.

On the merits of the motion, while there may have been some ambiguity with respect to the interpretation of the judgment of the Court of Appeal as a result of which defendant, relying on certain statements in the reasons for judgment, attempts to extend the ambit of it beyond what was ordered in the actual disposition, I do not find, that in any event it would justify the introduction of the additional material defendant now seeks to introduce, which “documents should have been produced pursuant to the order of the Federal Court of Appeal” to use the words of paragraph 6 of the affidavit filed in support of the motion. Moreover another affidavit of counsel for defendant states that an issue of privilege has been raised with respevt to approximately 23 of the documents obtained on November 25, 1983 which is still pending, and that the existence of the recently discovered documents raises the possibility of an amendment to the defence so that defendant was unable to prepare adequately for trial, which is estimated will now take at least two days. If defendant inadequately prepared for trial during the period of nearly a year after plaintiff complied with the order of the Court of Appeal, it is far too late for an attempt to remake the defence at this stage of the proceedings. The action should have gone to trial on the more than ample material already available to defendant.

For all of the above reasons defendant’s motion is dismissed with costs.