Background
RF Securities Clearing LP (formerly GMP Securities LP) appeals reassessments by the Canada Revenue Agency for the years 2014–2016. The Minister assessed the company for failing to collect GST/HST on approximately $24.5 million in fees charged to 19 clients. The core issue is whether the appellant provided “investment banking, equity research and sales and trading services”—which would constitute an exempt supply of a financial service—or whether it provided taxable financial advisory services with no direct involvement in securities transactions.
During discovery, the Crown served written interrogatories seeking factual details about the services provided to each client, the nature of transactions arranged, and related documentation. The appellant provided responses it characterized as proportionate, often directing the Crown to voluminous document productions or engaging letters without articulating the specific facts underlying its legal positions. The Crown brought a motion to compel more complete answers and fuller production of documents.
The Court’s Holding
Justice Guy R. Smith partially granted the Crown’s motion to compel. The court rejected the appellant’s broad arguments that discovery questions were improper, disproportionate, or sought work product and legal opinion. The court held that questions seeking the factual basis for the appellant’s position—including what services were provided to each client and which documents the appellant prepared—fall squarely within permissible “fact-gathering” discovery and are not impermissible requests for evidence or legal argument.
The court ordered the appellant to: (1) identify who prepared engagement letters for the remaining 12 clients (excluding 7 clients whose appeals are being withdrawn); (2) provide all remaining responsive documents or a representative sample with explanation of what was omitted and why; (3) articulate the factual basis underlying its legal position regarding the predominant nature of supplies for each client; (4) make further enquiries of past and present employees regarding services provided and relevant facts; and (5) provide detailed descriptions of “financial and strategic advisory services” where applicable. The court noted that the appellant’s obligation to make “all reasonable enquiries” under the Tax Court Rules extends to former employees, even though the business unit in question was sold in December 2019 and no original staff remain.
The court dismissed the need for responses regarding the seven “Excluded Clients” for which the appellant is withdrawing its appeal, treating this as an ordinary concession. The Crown was awarded costs.
Key Takeaways
- On discovery, a party must disclose the facts underlying its legal positions and allegations, even if those facts may also serve as trial evidence—the critical distinction is between asking for facts (proper) versus asking what evidence a witness will rely on (improper).
- A party’s obligation to make “all reasonable enquiries” from officers, employees, and agents (past or present) under the Rules cannot be circumvented by claiming business units have been sold or staff have departed; further diligent enquiries are required.
- Proportionality does not shield a party from providing substantive factual responses to relevant discovery questions; relevancy is the key driver, and a motion judge should not second-guess counsel’s judgment about what is relevant to their case.
- Directing the opposing party to “review voluminous documents” or stating “see attached” without articulating the specific facts underlying an allegation is treated as evasive and does not satisfy discovery obligations.
Why It Matters
This decision reinforces the broad scope of examination for discovery in Canadian tax litigation and the distinction between permissible fact-gathering and impermissible requests for trial strategy or legal conclusions. Taxpayers cannot escape discovery obligations by citing the passage of time, business reorganizations, or employee turnover; the nominated discovery deponent and counsel must make meaningful inquiries and provide substantive factual answers rather than relying on document dumps. The decision is particularly significant for complex multi-party tax disputes where the Crown needs to understand precisely what services each taxpayer performed for each client in order to assess the tax character of those services.
The holding also reflects the court’s skepticism of proportionality arguments used as a shield against discovery. While proportionality remains a legitimate consideration—as evidenced by the court’s acceptance of the appellant’s withdrawal of seven lower-value clients—it cannot excuse vague, non-responsive answers to properly framed factual questions at the heart of the dispute.