Executive Summary: Key Legal and Evidentiary Issues

• The Respondent (the Crown) brought a motion to compel Gabrijel Culig to answer four undertakings (1, 2, 18, and 19) made during examination for discovery, which the Appellants' counsel later refused to fulfill.

• Central to the underlying appeal is whether the Appellants' dispositions of four properties in 2018 and 2021 were on account of income or capital, along with the applicability of penalties under subsection 163(2) of the Income Tax Act.

• Counsel for the Appellants initially undertook to answer the disputed questions but resiled from those undertakings five business days before the court-ordered deadline, citing irrelevance and overbreadth.

• Jurisprudence confirms that undertakings constitute an unequivocal, binding promise, and a party cannot unilaterally withdraw from them without leave of the Court.

• All four undertakings were found to fall within the broad scope of relevance, as both parties' pleadings placed the Appellants' general experience with real estate properties squarely in issue.

• Costs of the motion were awarded to the Respondent in any event of the cause, given the Appellants' failure to comply with their own undertakings by the original July 4, 2025 deadline.

The property dispositions and the tax dispute

Gabrijel Culig and Bozena Culig, a married couple, disposed of four real properties in the 2018 and 2021 taxation years. The Minister of National Revenue reassessed the Appellants, taking the position that the gains from these property dispositions were on account of income rather than capital. The reassessments also included penalties pursuant to subsection 163(2) of the Income Tax Act. The Appellants appealed these reassessments to the Tax Court of Canada, filing under docket numbers 2024-1803(IT)G for Gabrijel Culig and 2024-1804(IT)G for Bozena Culig. In their Notice of Appeal, the Appellants asserted a history of compliance and argued that their conduct in relation to the subject properties should be viewed in the context of their general means of dealing with properties.

The examination for discovery and the undertakings

A timetable order dated November 20, 2024 set the litigation schedule, including a deadline of July 4, 2025 for answering undertakings. The Respondent examined Bozena Culig on May 20, 2025 and Gabrijel Culig on May 21, 2025. During Mr. Culig's examination, counsel for the Appellants undertook to answer four questions: the amount of monthly mortgage payments for a property at 7403-203B Street Langley (Undertaking 1), the number of rental properties owned by the Appellants (Undertaking 2), a list of properties held by the Appellants' two numbered companies between 2010 and 2021 (Undertaking 18), and copies of mortgage documents for those corporate-held properties over the same period (Undertaking 19). On June 26, 2025, the Appellants delivered answers but refused to respond to these four undertakings, citing lack of relevance and overbreadth.

The Respondent's efforts and the motion

On August 1, 2025, the Respondent asked the Appellants to reconsider the refusals, directing them to specific paragraphs of the Notice of Appeal that demonstrated the relevance of the questions. Counsel for the Appellants initially indicated she would seek reconsidered responses from Mr. Culig, and a joint request was filed to extend the court-ordered deadlines. However, on September 2, 2025, the Court Registry advised that a formal motion was required. The Respondent subsequently brought a motion to compel answers to the four undertakings and to amend the timetable order.

The Appellants' arguments against compliance

The Appellants opposed the motion on several grounds. They argued that the information fell into two categories: documents lacking a connection to the facts at issue or the relevant tax years, and documents belonging to corporate taxpayers that were not part of the audit, were not reassessed, and were non-parties to the appeals. The Appellants further contended that the Respondent was at fault for not moving to extend the deadline before July 4, 2025, relying on sections 70 and 8 of the Tax Court of Canada Rules (General Procedure). They also asserted that the information was unnecessary because the auditor could have obtained it during the audit process. The Appellants asked the Court to dismiss the motion and grant judgment in their favour.

The Court's analysis on the binding nature of undertakings

Justice Jenna Clark, presiding over the motion heard on January 29, 2026 in Vancouver, conducted a thorough analysis of the law surrounding undertakings. Drawing on decisions such as Alexander v Canada, Bathurst Machine Shop Ltd. v R, Stack v Canada, Towne v Miller, and Triteq Lock & Security, LLC v Minus Forty Technologies Corp., the Court affirmed that undertakings constitute an unequivocal promise that must be strictly and scrupulously fulfilled. Permitting parties to unilaterally resile from undertakings would introduce uncertainty into the discovery process. The Court noted that counsel for the Appellants had multiple options available at the time of the examination — they could have sought clarification on relevance, taken the question under advisement, or refused to answer — but instead chose to promise to provide the information.

The relevance determination

Even setting aside the binding nature of the undertakings, the Court independently assessed whether the four questions were proper. Applying the broad test of relevance articulated by the Federal Court of Appeal in Canada v Lehigh Cement Limited, the Court concluded that all four questions fell within the scope of relevance as framed by the pleadings. Both parties had put in issue the Appellants' general experience with real estate, and the Appellants themselves had pleaded that their conduct regarding the subject properties was "further bolstered when viewed as against the Appellant's means of dealing with properties in general." The Court also rejected the Appellants' argument that the information need not be provided because it could have been obtained during the audit, citing Sandia Mountain v The Queen and Gaudreau v The King for the principle that discovery in tax cases is not limited by prior audit opportunities.

The ruling and outcome

In her Order dated February 18, 2026, Justice Clark ruled in favour of the Respondent (His Majesty the King). Gabrijel Culig was ordered to provide answers to undertakings 1, 2, 18, and 19 no later than March 20, 2026. The parties were directed to file, by April 30, 2026, either a joint application to fix a hearing date, a request for a settlement conference, or a letter confirming anticipated settlement. One set of costs of the motion was awarded to the Respondent in any event of the cause, as the Appellants' failure to honour their own undertakings by the original July 4, 2025 deadline necessitated the motion. No specific monetary amount for costs was determined in the Order.