Executive Summary: Key Legal and Evidentiary Issues

• Central to the motion was whether Nova Scotia Power's discovery nominee, Mr. Paul Dandurand, could adequately inform himself about the factual basis for the company's reclassification of disputed expenses.

• Whether the Crown could compel a replacement nominee, Mr. Darryl Jack, under Tax Court of Canada (General Procedure) Rule 93(2) was the principal question for decision.

• At issue was the scope of examination for discovery under Rule 95(1), specifically whether NSPI's internal criteria and process for classifying expenses were relevant and discoverable.

• Proportionality constrained several requests, since some questions sought overbroad production, such as all "scribblings" or cost details for projects regardless of connection to the pleadings.

• Sufficiency of NSPI's written undertakings and third-person answers, rather than direct oral evidence from a knowledgeable witness, was contested across the 14 questions in dispute.

• Underlying the procedural fight was the appeal's core dispute: whether the expenses should be treated as current expenses or as capital expenditures under the Income Tax Act.

Facts of the case

Nova Scotia Power Inc. (NSPI) is the appellant in a Tax Court of Canada appeal (docket 2019-4307(IT)G) concerning its 2006-2010 taxation years. The underlying appeal turns on whether certain expenses should be classified as current expenses, as NSPI now claims, or remain capital expenditures, as NSPI originally reported and as the respondent Crown (and the Minister of National Revenue) maintains. NSPI initially filed treating the disputed expenses as capital, claiming capital cost allowance. In 2012 it amended its T2 returns, waiving the normal reassessment periods, to reclassify the expenses as currently deductible under section 9 of the Act. That reclassification was initiated and led by Mr. Darryl Jack, an NSPI employee from 2006 to 2018 who later became Senior Director, Corporate Tax at NSPI's parent company, Emera Inc. NSPI's Amended Notice of Appeal puts $181,863,631 of expenses in issue.

This decision is not the appeal itself but the Crown's motion arising from examinations for discovery. NSPI's nominee was Mr. Paul Dandurand, a mechanical engineer who joined NSPI in 2009 and serves as its senior manager of asset management operations and capital planning. He had not been involved in NSPI's tax filings or in the reclassification of expenses, and prepared for discovery mainly by reviewing corporate records and speaking with colleagues, including Mr. Jack. The Crown's motion had two parts: to compel responsive answers to 14 identified discovery questions, and to name Mr. Jack as a replacement nominee for NSPI.

Statutory provisions and procedural rules at issue

The classification dispute engages sections 9 and 13 and paragraphs 18(1)(b) and 20(1)(a) of the Income Tax Act. The motion itself turned on the Tax Court of Canada (General Procedure) Rules. The first part of the motion was framed under Rules 107 and 110, seeking re-attendance for responsive answers. The second part relied on Rule 93(2), which governs who may be examined and provides that "a party to be examined, other than an individual or the Crown, shall select a knowledgeable current or former officer, director, member or employee … but, if the examining party is not satisfied with that person, the examining party may apply to the Court to name some other person." Rule 95(1) defines the scope of discovery by reference to relevance, and Rule 95(2) requires a nominee to take reasonable steps to become informed. The Court drew its governing test from Samaroo v. Canada Revenue Agency, 2016 BCSC 531, which asks whether the first representative can satisfactorily inform himself, assessed through four factors: the representative's responsiveness; the steps taken to become informed; the nature and materiality of the evidence sought; and the most practical, convenient and expeditious alternative.

The court's reasoning and analysis

Justice Russell worked through the 14 questions individually before applying the Samaroo framework. He found that the questions probing NSPI's internal criteria and process for classifying expenses (Q831, Q841, Q1036-1037, Q1128-1131, Q1841 and Q1844) fell within the scope of discovery under Rule 95(1), because the factual basis for the reclassification is central to the appeal. Relying on Morguard Corp. and Samaroo, he held that a discovery nominee must be informed of relevant matters and able to explain the factual basis of the corporation's position, and he rejected NSPI's objection that its internal classification process was irrelevant. At the same time, proportionality barred overbroad requests, such as Q1024's demand for "any and all working papers or notes, or scribblings," and the parts of Q1849 that reached every project in the capital expenditure plans irrespective of any connection to the pleaded amounts.

On the replacement nominee, the Court found that Mr. Dandurand had no personal knowledge of the relatively complex reclassification, could not adequately inform himself, and deferred to Mr. Jack, who had conceived and led the program. Applying the four Samaroo factors, and citing authorities including Ashton, General Motors Acceptance Corp., Standard Mortgage Investment Corp., Morguard Corp., CUV Ventures Corp. and Whistler Blackcomb Holdings, Russell J. concluded that naming Mr. Jack was the most practical and effective step to advance discovery. He noted that an examination must at least have commenced and been found unsatisfactory, and that the examining party must first seek clarifications or undertakings, before a replacement can be ordered. He found Mr. Dandurand's answer to Q913 (a confirmation about a T2 return) clear and complete, and treated Q1024 as properly resisted because its request was overbroad, while narrowing Q1849 to confirmation and production tied to the pleaded paragraphs 38 and 39.

Ruling and outcome

The Court allowed the respondent Crown's motion in part, naming Mr. Darryl Jack as the replacement person to be examined for NSPI under Rule 93(2) and requiring him to answer the identified questions, plus any proper follow-up questions, with the further examination to be carried out within 60 days. The motion was refused for the questions the Court considered already adequately answered and was narrowed where requests were overbroad. The Crown, as the moving party, obtained its principal relief - the appointment of a better-informed nominee. No damages or fixed monetary sum were at stake in this procedural motion; the Court ordered costs "in the cause," so no specific amount was awarded in this decision. The $181,863,631 figure reflects the expenses in issue in the underlying appeal, not any sum granted on this motion.