In litigation, the discovery process is a truth-seeking exercise to enable parties to narrow the issues, uncover facts, and know the case they must meet at trial. Ahamed v Canada, 2020 FCA 213, a recent decision of the Federal Court of Appeal (FCA), provides clarity on what documents may be produced at discovery in a tax appeal.
The appeal concerned the interpretation of a statutory provision involving tax-free savings accounts (TFSA), which are generally tax-free. At issue was whether the trading activities of the kind carried on by the taxpayer constituted carrying on a business so as to require the payment of tax despite the taxpayer being a TFSA trustee.
As part of the discovery process, the Crown refused production of certain documents requested by the taxpayer. The taxpayer brought a motion to compel the production of these materials. The Tax Court refused to order the productions, and the taxpayer appealed to the FCA.
Publicly Available Documents that are Not-So-Publicly-Available
On appeal, the FCA refused to compel production of documents that were considered to be publicly available. The taxpayer attempted to argue that the documents were not actually publicly available, but the FCA rejected this argument, finding that the documents might be difficult to obtain, but that did not make them not publicly available. Further, the FCA confirmed the Tax Court’s refusal to order a production of documents, since such an order would amount to requiring the Crown to do the taxpayer’s search.
Internal Documents – Relevance is Key
The FCA also refused to compel production of internal Department of Finance documents. These documents were not publicly available, but were also irrelevant to the question of statutory interpretation. The documents were never communicated to the Minister, and were therefore not relevant to ascertaining the Minister’s mental process when assessing the taxpayer’s taxes.
The taxpayer argued that these internal documents are relevant as extrinsic aids to provide insight into the legislative process. The FCA noted that the relevance of such documents in the context of statutory interpretation is quite limited.
Concerning relevance, the FCA confirmed that the question comes down to whether the documents “have an institutional quality such that they could represent the government’s position concerning the legislation at issue. If not, such documents are not relevant” (para 31). That is to say, a document authored by a public servant that may have some connection to a piece of legislation is not relevant, in and of itself. What establishes relevance is whether such document could be said to represent the government’s position regarding the legislation.
Legal Position vs. Legal Argument
Lastly, the FCA confirmed that parties may seek information concerning the other party’s legal position, but may not seek information concerning the other party’s legal arguments. In particular, a party may not use discovery to question an opposing party as to which of the documents on the record will be relied on for which legal arguments. Such questions essentially seek the opponent’s legal argument rather than its legal position.
Comments
Ahamed confirms that while the discovery process in a tax appeal should generally be broadly and liberally construed, it is not without its limitations. A taxpayer facing difficulty in obtaining what are otherwise publicly available documents should not expect much sympathy from the courts. Further, a taxpayer should establish clearly the relevance of any internal government documents, and their connection with the issues or legislation in dispute, that the taxpayer seeks.
