Executive Summary: Key Legal and Evidentiary Issues

• Dispute centers on whether simulator transfers by CAE Inc. to foreign entities result in capital gains or business income.

• Appellant requested an interim confidentiality and sealing order for nine specific financial and contractual documents.

• Respondent argued the motion was premature and unnecessary due to the implied undertaking rule.

• Court analyzed whether the open court principle applies during pre-trial discovery and document disclosure.

• Judge found the implied undertaking rule inadequate to protect CAE’s confidential business data.

• A sealing order was granted for Exhibits AS-1 to AS-9; the request for a permanent order was deferred to trial.

Background and reassessments

CAE Inc., a public corporation listed on the Toronto Stock Exchange, operates in the aviation sector by manufacturing flight simulators used to train pilots in civil, commercial, and military aviation. When these simulators are transferred to foreign subsidiaries or joint ventures, CAE realizes profits or gains.

In 2022, the Minister of National Revenue issued three reassessments against CAE for the 2014, 2015 to 2018, and 2021 taxation years. The core tax issue is whether such simulator transfers are dispositions of capital property that result in capital gains, or whether they generate business income.

Confidentiality motion

CAE filed a motion on September 26, 2024, seeking an interim confidentiality order under sections 4, 16.1, and 65 of the Tax Court of Canada Rules (General Procedure), to protect certain documents during discovery and pre-trial proceedings. The company emphasized the competitive nature of its industry and the sensitive commercial and strategic nature of the information at issue.

The motion covered nine documents (Exhibits AS-1 to AS-9), including contractual and financial materials related to specific investment projects and financial statements of foreign entities, such as CAE Kuala Lumpur SND. BHD. and Asian Aviation Centre of Excellence SDN. BHD., involved in simulator transfers. The motion was supported by the affidavit of Alexandre Stabilé, CAE’s Head of Financial Reporting, who attested to the documents’ confidential nature and potential for harm if disclosed.

Respondent’s position

The Respondent opposed the motion, arguing that it was premature since the documents had not yet been filed in the court record, and that the open court principle did not apply at the discovery stage. The Respondent maintained that the implied undertaking rule already protected the confidentiality of discovery documents and that this rule is binding under Canadian law, including Quebec jurisprudence.

They also emphasized that such a sealing order is unprecedented in Tax Court proceedings and that CAE had not yet filed its list of documents, making the scope of confidentiality unclear.

Legal analysis and outcome

The Court reviewed the legal framework for confidentiality and sealing orders, referencing Sierra Club of Canada v. Canada (Minister of Finance) and Sherman Estate v. Donovan. It acknowledged that section 16.1 of the Tax Court Rules permits confidentiality orders at the time of filing, but relied on sections 4(1) and 4(2) to justify interim relief. The Court found it had jurisdiction under its implied powers, as established in Dow Chemical Canada ULC, to issue a sealing order even before formal filing of the documents.

Justice Smith accepted that the documents had always been treated as confidential, and that their disclosure could cause serious harm to CAE’s commercial interests. While the Court agreed it would have been procedurally preferable for CAE to first file its list of documents, the lack of Respondent evidence rebutting Mr. Stabilé’s affidavit was critical.

A sealing order was therefore granted for Exhibits AS-1 to AS-9. These documents will remain confidential and sealed if filed in the court record, and access is restricted to the parties, their designated representatives, and the Court. The order will remain in force until the day before the hearing on the merits. The motion for a permanent confidentiality order was adjourned sine die to be addressed by the trial judge. Given the parties’ divided success, no costs were awarded..