In these reasons, Justice Graham describes elements of good pleading. One surprising comment was this:
[4] … The Minister may not rely upon assumptions of fact when reassessing a statute barred period.
The minister has the burden to prove that the taxpayer made a negligent misrepresentation justifying a late reassessment. For that purpose, the minister cannot rely on assumptions but must prove the facts supporting its claim of negligence. But once that negligent misrepresentation is proved, why can’t the Crown rely on assumptions? Justice Graham may have made an overly broad statement here, when summarizing his earlier decision in the proceeding. .
Another interesting point was this: Commonly, the Crown will claim that it cannot respond to a point because doing so requires it to disclose confidential information about other taxpayers. It relies on a section in both the Income Tax Act and the GST law.
[28] The information that LBL seeks to have the Respondent admit or deny clearly involves the private tax information of a number of other taxpayers. Section 295 of the Excise Tax Act prevents the Minister from disclosing confidential information about taxpayers. However, paragraph 295(4)(b) provides an exception to that rule for disclosures in the course of legal proceedings relating to the administration or enforcement of the Act. This does not, however, mean that there is no limit on the confidential information that the Minister may disclose in the context of litigation. While paragraph 295(4)(b) does not state so explicitly, it is fair to conclude that the exception is subject to the qualification that the information disclosed must be relevant to the litigation in question. The Minister has a duty to Canadians not to disclose confidential information unnecessarily. Accordingly, if the Minister believes that she would otherwise be required to disclose irrelevant confidential information she should bring a motion to strike the relevant portion of the notice of appeal.
In this next point, the court says that the Crown must prove a negligent misrepresentation of facts not of law. This is a point that is a little subtle but may be significant in some cases:
[38] … In order to open a statute barred year, a taxpayer must have made a misrepresentation of fact, not a misrepresentation of mixed fact and law. A difference of opinion as to whether the steps that LBL took successfully transferred ownership of the tobacco products to the MacNaughtons would therefore be insufficient to open up the periods in question.
Next, it is common to plead alternative arguments but, the court says, it’s not proper to plead alternative facts:
[50] This paragraph should be struck for a number of different reasons. Firstly, I fail to see how one can plead a statement of fact in the alternative. Either a fact is true or it is not. There may be alternative legal conclusions arising from a given set of facts but there cannot be alternative facts.
But why should the Crown be prohibited from pleading alternative facts? In the normal case, the Crown may plead assumptions of fact (which the taxpayer must disprove) but also plead alternative facts which it must prove. Perhaps this comment should be confined to cases where the Crown cannot plead assumptions?
[51] Secondly, the Respondent clearly has no evidentiary foundation for this assertion. If she did she would not be unsure whether it was an agreement to be an agent or an agreement to be a trustee nor would she be unsure whether the agreement was between the MacNaughtons and LBL or the MacNaughtons and the Third Party Purchasers. She would also have been able to respond to LBL’s demands for particulars. The Respondent appears to be hoping to use the discovery process to engage in a fishing expedition on this point.
[52] Finally, given that the Respondent has no evidence of the existence of an agreement, what the Respondent is really pleading is that the MacNaughtons were agents or trustees. Whether someone is an agent or a trustee is a question of mixed fact and law and thus should not be pled as a fact.
Because Justice Graham decided the agency argument was improper, he forbade pleading an argument based on that conclusion in the Reasons section. There’s logic to that view but it’s not clear why it matters much whether an unjustifiable reason is given in the Reasons or Argument section of a pleading.
See LBL Holdings Limited v. The Queen, 2015 TCC 115 (Graham)