Executive Summary: Key Legal and Evidentiary Issues

• The main issue was whether transcripts of oral evidence from the prior hearing before Justice Hogan could be admitted as evidence in the new trial after his death.

• The underlying appeal concerns the disallowance of partnership losses claimed by Havilland Holdings Ltd. for the 2016 ($41,148,759) and 2017 ($4,760,317) taxation years.

• The Minister of National Revenue disallowed the losses on the basis that no business had been carried on in common with a view to profit, and alternatively relied on the General Anti-Avoidance Rule (GAAR).

• The Crown argued for use of the prior transcripts for reasons of trial efficiency and fairness, while the Appellant insisted on a new trial with live witness testimony.

• The Court highlighted the importance of the trial judge’s ability to observe witnesses directly for credibility assessments, citing appellate and Supreme Court authority.

• The application by the Crown to admit the prior transcripts as evidence in the new trial was dismissed, with no costs awarded.

Background and facts of the case

The appeal involves Havilland Holdings Ltd., which challenged the disallowance of partnership losses for its 2016 taxation year in the amount of $41,148,759 and its 2017 taxation year in the amount of $4,760,317. The Minister of National Revenue disallowed these losses on the basis that no business had been carried on in common with a view to profit, meaning there was no partnership and therefore no partnership losses to deduct in computing income. At the pleadings stage, the Crown also invoked the General Anti-Avoidance Rule (GAAR) as an alternative basis for defending the assessments at trial.

The trial of the appeal was conducted by the late Justice Hogan in the fall of 2024. His decision was under reserve when he died suddenly in January 2025. Following his death, Chief Justice St-Hilaire convened a conference call with both parties. During the call, the Chief Justice stated that if both parties agreed, a new judge could decide the appeal on the existing record, but if not, a new trial would be ordered. Counsel for the Appellant made it clear that the Appellant wanted a new trial, describing it as “a redo” and a “fresh trial.” The Chief Justice confirmed that a new trial would proceed.

Application for directions and arguments

Justice David E. Spiro was assigned as the judge for the new trial. At the first trial management conference, the Crown applied for directions, requesting that the transcripts of the oral evidence given at the hearing before Justice Hogan be placed before the Court at the new trial and accepted as evidence given by witnesses under oath. The Appellant opposed the application, stating that a new trial with a new judge who hears live witness testimony best preserves fairness for the parties, witnesses, and the Court.

Discussion of policy and procedural considerations

The Court noted that the Federal Court of Appeal has confirmed that the Chief Justice may re-assign the hearing of an appeal to another judge if the original judge has ceased to hold office, as happened upon Justice Hogan’s death. The new trial judge has discretion to determine the process to ensure a fair trial, which may include rendering judgment based on the earlier record or holding an entirely new trial.

The Crown argued that using the transcript would promote trial efficiency by avoiding the need to recall witnesses and would prevent the Appellant from gaining an unfair advantage by knowing the Crown’s questions and arguments in advance. The Court, however, referenced appellate and Supreme Court decisions emphasizing the trial judge’s “overwhelming advantage” in assessing credibility by observing witnesses in real time. The Court also noted that, to the extent facts remain in issue, it would prefer to hear from witnesses directly.

Outcome and conclusion

The Court was satisfied that a new trial would be fair even without admitting the prior transcripts as evidence. If a witness’s evidence at the new trial is inconsistent with their earlier testimony, counsel may impeach the witness’s credibility using the prior statement. The Crown’s application for directions was dismissed without costs. The successful party in this application was Havilland Holdings Ltd., but no monetary amount was ordered or granted at this stage.