INTRODUCTION

As a general rule, it would be contrary to the goals of pretrial documentary discovery if parties were permitted to completely redact the documents they disclosed. This issue was recently addressed in Dominion Nickel Investments Ltd. v. R. ("Dominion") where Justice Jorré confirmed that information could only be redacted where it was "clearly irrelevant" to the issues under dispute.¹

THE CASE

In Dominion Nickel, Dominion appealed the Canada Revenue Agency's ("CRA") decision to disallow a charitable donation deduction of $65 million. Dominion brought a motion to compel the CRA to disclose information it redacted in part and in full on several documents, and to compel production of nondisclosed documents during pre-trial discovery pursuant to Rule 81 of the Tax Court Rules (the "Rules").²The documents that were entirely redacted contained a cover sheet that displayed the case name.

The CRA defended the motion for production by arguing that the redacted information and non-disclosed documents were irrelevant to the tax appeal and, in addition, should not be disclosed in order to protect privacy.

The motions judge compelled disclosure of much of the redacted information, along with some of the non-disclosed documents.

Some information remained redacted as Justice Jorré stated it was "clearly irrelevant" to the tax appeal, such as:

• a) Business numbers, social insurance numbers, corporation numbers and the like;
• b) Dates of birth;
• c) Marital status;
• d) Documents covered by solicitor-client privilege;
• e) Tax information not related to the particular issue, such as deductions for other expenses; and
• f) Bank statements showing the balance of law firm trust accounts.³

THE LAW

Rule 81 requires parties to produce a list of the documents of which the party has knowledge at that time that might be relied on at trial. Generally, where a document is relevant, it will have to be produced in its entirety. Only those portions that are "clearly irrelevant" can be redacted. This principle applies equally to all parties to a tax dispute.

Justice Jorré reviewed the law on relevancy and confirmed that the scope of pre-trial discovery is wide in that:

Relevancy on discovery must be broadly and liberally construed and wide latitude should be given...[d] ocuments that lead to an assessment are relevant...[a] party is entitled to documents that may lead to a train of inquiry that may directly or indirectly advance his case... partial redactions ought not to be encouraged unless necessary.⁴

The CRA unsuccessfully argued that section 241 of the Income Tax Act("ITA") precluded it from disclosing the information it redacted.⁵While the implementation of section 241 clearly signifies Parliament's intent to protect privacy in income tax matters, that objective is balanced against the need to disclose information during "any legal proceeding relating to the administration or enforcement of" the ITA as contemplated by subsection 241(3)(b). Additionally, the Court raised the implied undertaking rule, which provides that information obtained on discovery may only be used for the purpose of the action in the course of which it was obtained (to limit further disclosure of information), and would help safeguard privacy interests.

For the foregoing reasons, the Court did not agree with the CRA's emphasis on privacy concerns considering the available safeguards and rules to balance between the need to protect privacy and to ensure the efficient and just resolution of tax matters.

ANALYSIS

There appears to be an inconsistency between the act of disclosing a document on a list of the evidence that will be relied on at trial under Rule 81 and the subsequent act of entirely redacting a listed document. Listing a document pursuant to Rule 81 necessarily implies that the document and the contents therein are relevant to the issues in dispute — otherwise, the document would not be disclosed as one to be relied on at trial. It is especially difficult to then argue that a document listed pursuant to Rule 81 be entirely redacted on the basis that the information contained therein is "clearly irrelevant". In fact, the Court held that even where redacted information was likely not useful to the appeal, it was still not considered "clearly irrelevant" such as to justify its redaction. It was because of this that the CRA faced an uphill battle in persuading the motions judge that the redacted documents, especially the entirely redacted ones, should remain that way.

The resolution of evidentiary and procedural issues involves the balancing of a number of competing interests, as in this case between the right to privacy and the right to efficient resolution of matters. It would contrary to the purpose of Rule 81, which is to reduce the cost of litigation by eliminating the necessity of producing all relevant documents automatically, if there were more restrictions on disclosure. The courts could experience an influx of litigation over whether a document or piece of information contained in a document is relevant or not. Dominion Nickelreaffirms that the relevancy threshold under Rule 81 is, practically speaking, low and that this is counterbalanced by existing safeguards that help to protect the information disclosed.

Nora Kharouba is a Student-at-law at Miller Thomson LLP (2015).

Footnotes

1. Dominion Nickel Investments Ltd. v R., 2015 TCC 14 [Dominion Nickel].
2. Tax Court of Canada Rules (General Procedure), SOR/90-688a [the Rules].
3. Supra, note 1 at para. 51.
4. Supra, note 1 at paras. 22, 15, 36.
5. Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

Originally published by Taxes & Wealth Management, March 2015 | Issue 8-1."

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