The decision in Fio Corporation v. The Queen, 2014 TCC 58 is an interesting and recent example in which the Minister’s attempt to gain exemption from well-established and long standing rules of litigation was met with censure from the court. In Fio, the rule in question was the rule of implied undertaking that is engaged in the discovery process.
The implied undertaking rule is fundamental to fairness in litigation and the leading Supreme Court of Canada decision of Juman v. Doucette, 2008 SCC 8 left no doubt about the existence, scope or importance of the rule. In brief, the rule provides that documentary or oral information obtained by a party through the disclosure or discovery process in the course of litigation is received by that party pursuant to an implied undertaking. This undertaking forbids use of the information by the party outside of the litigation and the implied undertaking remains in force “unless and until the scope of the undertaking is varied by a court order or other judicial order or a situation of immediate and serious danger emerges.” (Juman, para.4)
As described in Juman (at para.24-26) the purpose of the rule is to ensure full and complete candour in discovery, and to balance privacy interests with the “public interest in getting at the truth in a civil action.” “The answers and documents are compelled by statute for the purpose of the civil action and the law thus requires that the invasion of privacy should generally be limited to the level of disclosure necessary to satisfy that purpose”.
In Fio, the Minister reassessed the Appellant/taxpayer for 2007 and 2008. A Notice of Appeal was filed and the Appellant provided various documents to the Minister as part of the discovery process. The Minister subsequently reassessed the Appellant and admittedly did so, in part, on the basis of the documents that the Appellant had provided.
The Appellant argued that the Minister had breached the implied undertaking and, as a result, should be prohibited from using the information and subject to sanction through a significant award of costs. In response, and perhaps surprisingly, the Minister argued that she is not a “normal litigant” and therefore not subject to the implied undertaking rule. (para.24) In addition, the Minister argued that s.241 of the ITA is a “complete code” governing how taxpayer’s information can be used this overrides the implied undertaking. (para.27)
Both of these arguments were rejected. To begin, the Court held (para.48): “I cannot accept an argument that provides more favourable treatment to one of the parties before the Court.” Therefore, the Respondent “like all parties, is subject to the implied undertaking rule.” (para.50)
It follows that if the Respondent wanted to use the documents for purposes outside of the litigation, it was required to apply to the court to vary the implied undertaking. Finally, and with respect to the application of s.241, the court found that the statutory scheme which prohibits the use of taxpayer information “does not override common law rules, such as the implied undertaking rule.” (para.58)
These conclusions of the court are certainly important for confirming that the Minister is not a “special litigant” who is not bound the rules. However, the court’s analysis of remedy is equally and, perhaps more important.
The Appellant applied to have the assessment vacated on the basis of the Respondent’s improper conduct. In its consideration of this application, the court in Fio observed that as the tax court is “the only superior court that has jurisdiction to vacate an assessment” (para.68), and an assessment may be vacated “if it is found not to be valid or if it is found not to be correct” (para.68) In addition, and more interestingly, “the Court may vacate an assessment under its implied jurisdiction to control its own process and ensure proper functioning as a court of law.” (para.69) (Emphasis added)
Therefore, on the basis that the Tax Court “is both a superior court and a statutory court… any statutory limits placed on the Tax Court’s jurisdiction when disposing of an appeal of an assessment (or reassessment) do not apply in respect of a breach of an implied undertaking.” (para.71) As a superior court which has jurisdiction to control its own process, “the Court may vacate an assessment if it believes it is the appropriate remedy for the breach of an undertaking to the Court.” (para.71)
In the result, the court found that the use of the documents by the Minister amounted to an abuse of process and the Appellant was awarded costs in the amount of $25,000. The court also prohibited the Minister from making use of the documents, but the court did not vacate the assessment, giving the Minister an opportunity to attempt to continue the litigation without the benefit of the documents.
Law does and must continue to evolve and the evolution is propelled, at least in part, through novel arguments that are advanced by either party in litigation. However, there is perhaps a distinction between novel argument and argument that attempts to rewrite the law in favour of one of the parties.
Courts oversee and control the processes before them and in so doing, courts have, and must have the jurisdiction to regulate the conduct of the parties. When appropriate, courts must also grant remedy based upon improper conduct. In Fio, the court has now clarified and confirmed that the Tax Court has jurisdiction to grant remedy for unfair, illegal or improper conduct by the Minister.