Executive Summary: Key Legal and Evidentiary Issues

• The motion addressed whether RF Securities Clearing LP had provided complete and proper answers to written discovery questions under the Tax Court of Canada Rules.
   
• Relevancy on discovery was treated as broad, while proportionality was found to be a secondary consideration rather than a threshold barrier.
   
• Several questions sought the factual basis underlying the Appellant's position, which the Court distinguished from improperly seeking counsel's work product or trial evidence.
   
• Rule 95(2) required the Appellant to make reasonable enquiries of past and present employees, even though the relevant business division had been sold and its staff had departed.
   
• Disclosure obligations under Rule 81 were held to be narrower than under Rule 82, limiting the Appellant's obligation to list documents in its possession or control.
   
• Costs of the motion were awarded to the Respondent in accordance with the applicable Tariff.
   

Facts of the case

RF Securities Clearing LP, formerly known as GMP Securities LP, appealed reassessments issued by the Minister of National Revenue for the 2014 to 2016 reporting periods, in which the Minister increased the Appellant's net tax on the basis that it should have collected GST/HST on fees earned from 19 clients. The reassessed GST/HST amounts were $1,183,781 for 2014, $414,373 for 2015, and $36,300 for 2016. The underlying dispute concerns whether the Appellant's services to these clients were a "taxable supply" or an exempt "financial service" under the Excise Tax Act. Before that underlying appeal could be heard, the Respondent brought a motion to compel RF Securities Clearing LP to provide complete, further, and better answers to written discovery questions, along with any resulting follow-up questions. The parties had conducted three rounds of written discovery between December 2023 and September 2024. During that process, the Appellant advised that it would no longer pursue the appeal with respect to seven clients — Concordia Healthcare Corp., Fortress Minerals, Jameson Bank, New Look Eyewear, Novus Energy, Petroamerica Oil Corp., and Whitecap Resources Inc. — referred to in the decision as the Excluded Clients.

Policy terms or contractual clauses at issue

The appeal turns on Part IX of the Excise Tax Act, and specifically on the definition of "financial service" in section 123, including the exclusionary language in paragraph (p) governing advisory services. On the motion itself, the Court applied Rules 95(1) and 95(2) of the Tax Court of Canada Rules (General Procedure), which set out the scope of proper discovery questions and the obligation to make reasonable enquiries of past and present officers, servants, agents, and employees. Rule 93(2), governing selection of the person to be examined, and Rules 81, 82, 85(3), and 105(2), governing document disclosure and production, were also central. The Appellant relied on retainer or engagement letters and on internal "Lead Sheets" summarizing each client transaction, arguing that its disclosure obligations under Rule 81 were limited to documents it had knowledge of at the relevant time, consistent with the Federal Court of Appeal's reasoning in 3488063 Canada Inc. v. The Queen.

Reasoning and analysis

Justice Smith organized the 41 disputed questions into twelve groups and applied the discovery principles summarized in Kossow v. The Queen and Burlington Resources Finance Company v. The Queen, namely that relevancy is broad and proportionality should not operate as a shield against otherwise proper questions. The Court repeatedly distinguished between properly asking a witness what facts support an allegation and improperly asking what evidence the witness holds to prove it, following Sloan v. The King. On this basis, the Court found several of the Appellant's responses vague, non-responsive, or improperly deflected to prior document productions, particularly where the Appellant simply referred to previously disclosed materials without addressing the specific question asked. Because the business unit responsible for the services at issue had been sold in December 2019 and its employees had departed, the Court held that Rule 95(2) still required the Appellant to make reasonable enquiries of former employees before relying on an inability to answer. At the same time, the Court agreed with the Appellant that certain groups of questions — those addressed at paragraphs 29(c) through 38(c) and 30(a) through 38(b) — had already been substantially answered through prior responses and were unnecessarily repetitive, so no further response was required for those groups. The Court also accepted the Appellant's concession regarding the seven Excluded Clients, finding no need for further answers on questions tied specifically to those clients, including Question 35(b) concerning Whitecap Resources' $10,000.00 success fee.

Ruling and overall outcome

The Respondent was largely successful on the motion. The Court ordered RF Securities Clearing LP to provide further and better answers on most of the disputed questions, including identifying who prepared engagement letters for the remaining 12 clients, producing outstanding documents or a representative sample with an explanation of any omissions, making further enquiries of past and present employees under Rule 95(2), and providing fuller descriptions of the "financial and strategic advisory services" rendered to certain clients. The Appellant succeeded only on the discrete groups of questions found to be repetitive of earlier answers, and on matters tied to the Excluded Clients, where no further response was required. The Court ordered that the Respondent is entitled to its costs of the motion in accordance with the applicable Tariff; the decision does not state a specific dollar figure for those costs, so the monetary amount awarded is Not Specified.