Executive Summary: Key Legal and Evidentiary Issues

• At issue is whether expenses NSPI incurred in 2006–2010 are deductible current expenses (as NSPI now claims) or capital expenditures (as originally reported and maintained by the Crown).

• Two cross-motions arising from the same discovery process were heard together: NSPI sought fuller discovery answers from the Crown, while the Crown sought fuller answers from NSPI plus a replacement nominee.

• Discovery's permissible scope under Rule 95(1) is central, specifically the line between proper factual inquiry and improper requests for legal argument, statutory interpretation, or counsel's work product.

• Whether responses "taken under advisement" amount to refusals, potentially requiring re-attendance at the responding party's expense, recurs throughout the challenged answers.

• Replacing a corporate discovery nominee under Rule 93(2) turns on the Samaroo four-factor test, which the Court applied to substitute Mr. Darryl Jack for Mr. Paul Dandurand.

• Proportionality limited production, as overbroad demands (for example, "any and all working papers... or scribblings") were curtailed even where some underlying information was relevant.

Facts of the case

Nova Scotia Power Inc. (NSPI) appealed reassessments concerning its 2006 to 2010 taxation years. NSPI initially filed its T2 returns treating certain expenses as capital expenditures, claiming capital cost allowance under sections 9 and 13 and paragraphs 18(1)(b) and 20(1)(a) of the Income Tax Act. In 2012, NSPI amended its returns, waived the normal reassessment periods, and reclassified the disputed expenses as current expenses deductible on income account under section 9. The reclassification initiative was conceived and led by Mr. Darryl Jack, an NSPI employee from 2006 to 2018 who later joined NSPI's parent company, Emera Inc., as Senior Director, Corporate Tax. For the 2006 taxation year, NSPI appealed its own objection before the Minister had responded, so the Minister has no assumptions of fact for that year. NSPI's Amended Notice of Appeal states that $181,863,631 of NSPI expenses are in issue. The matter came before Justice Bruce Russell of the Tax Court of Canada on two motions heard January 7 and 8, 2025, with reasons released June 11, 2026: one brought by NSPI (2026 TCC 110) and one by the Crown (2026 TCC 111). Ms. Dawn Brothers was the CRA auditor assigned to the file and the Crown's nominee for discovery; Mr. Paul Dandurand was NSPI's original nominee.

Rules and legal principles at issue

Both motions turned on the Tax Court of Canada Rules (General Procedure). Rule 95(1) requires a party in discovery to answer "any proper question relevant to any matter in issue in the proceeding," while Rule 95(1)(b) precludes questions directed solely to a witness's credibility. The Court drew on discovery principles summarized in Kossow v. R., 2008 TCC 422, including that relevancy on discovery is to be broadly construed but does not permit a "fishing expedition"; that it is proper to ask for facts underlying an allegation but not the evidence supporting it; and that questions probing the mental process of the Minister or seeking counsel's work product are improper. Per Burlington Resources Finance Company v. R., 2017 TCC 144, taking a question "under advisement" amounts to a refusal under Rule 107 and may warrant ordering the responding party to re-attend at its own expense. For the replacement-nominee question, Rule 93(2) permits an examining party dissatisfied with a corporate nominee to apply to name another person, and the Court applied the four-factor test from Samaroo v. Canada Revenue Agency, 2016 BCSC 531: the original representative's responsiveness; efforts taken to become informed; the nature and materiality of the information sought; and the most practical, convenient, and expeditious alternative.

The Court's reasoning and analysis

In the appellant's motion (2026 TCC 110), the Court distinguished proper factual inquiries from improper requests for legal argument. NSPI's questions seeking clarification of the factual assumptions and positions pleaded in the Crown's Second Amended Reply—such as identifying which projects gave rise to the Disputed Expenses, and what was replaced, refurbished, or improved—were held to be proper factual questions the Crown could be compelled to answer, since the Crown's blanket refusals on the basis that the questions sought "legal argument" were unpersuasive where NSPI limited its inquiries to factual applications of the pleadings. Conversely, questions requiring the Crown to explain how section 9 of the Act operates, whether it functions independently of paragraph 18(1)(b), or why a precedent such as Atco Electric was found distinguishable, were held to seek legal reasoning or the nominee's legal opinion and were properly refused. Questions concerning the 2006 taxation year (Q464–468) were properly refused because no reassessment or determination had been made before the appeal was filed, and the Q10(a)–(s) questions about a never-finalized 2006 working paper were properly refused as falling outside the pleaded case. In the respondent's motion (2026 TCC 111), the Court found that Mr. Dandurand, a mechanical engineer who joined NSPI in 2009 and was not involved in the tax filings or reclassification, could not adequately inform himself about the core factual issues. Applying the Samaroo factors, the Court found his responsiveness lacking on questions about NSPI's classification process and the parameters Mr. Jack applied (for example, Q841, Q1036–37, Q1128–1131, Q1841, Q1844), while the materiality of that missing information was high because expense classification lies at the heart of the appeal. Proportionality nonetheless limited the result: overbroad demands such as Q1024 (seeking "any and all working papers or notes, or scribblings") and the unconnected portions of Q1849 and Q2013–2014 were curtailed, and the Court found NSPI's answers to Q913 and Q2013–2014 adequate.

Ruling and overall outcome

Both motions were allowed only in part, and the results were genuinely split between the parties. In 2026 TCC 110, NSPI succeeded in compelling fuller answers to a defined set of questions—Q1394, Q1356, Q1364–66, Q1367–68, Q1378–83, Q1385, Q1386, and Q6 of the December 22, 2022 letter—to be answered within 60 days, with the Crown's nominee to re-attend at the Crown's expense; several of NSPI's other challenged questions, however, were held to have been properly refused. In 2026 TCC 111, the Crown succeeded in having Mr. Darryl Jack of Emera Inc. named as NSPI's replacement nominee under Rule 93(2) to answer Q831, Q841, Q1036–37, Q1128–1131, Q1841, and Q1844, while its requests as to certain questions (including Q913 and parts of Q1849 and Q2013–2014) were denied or limited. Because success was divided in each motion, the Court ordered that costs be in the cause for both, meaning no immediate monetary award was made to either party; the costs of the motions will instead follow the ultimate outcome of the underlying appeal. No specific dollar amount was awarded to either side on these motions.