Tax Court of Canada Judgments

Date 2000302

Dockets: 91-1811-IT-G; 92-1567-IT-G

BETWEEN:

Dr. BERNARD C. SHERMAN,

Appellant/Applicant on the motion

and

HER MAJESTY THE QUEEN,

Respondent/Respondent on the motion.

Bowie. JTCC

Appearances

Counsel for the Appellant/Applicant: D.H Jack

Counsel for the Respondent: Susan Tataryn

Counsel for Albert Title, Peter Browning Lonny Rosen

and Orenstein & Partners:

Order

Upon motion made by the Appellant, Dr. Bernard C. Sherman, for Orders permitting the use of documents initially obtained in non-party discovery examinations of Albert Title and Peter Browning, on behalf of Orenstein & Partners, chartered accountants, in these proceedings (“the documents”) in a separate proceeding commenced by Dr. Bernard C. Sherman in the Ontario Court of Justice, Court File No. 96-CU-116411, (“the Ontario Court action”) in which Albert Title, Peter Browning and Orenstein & Partners have been named as Defendants;

And upon reading the affidavit of Jennifer Pink sworn the 8^th day of February, 2000, together with the exhibits attached thereto;

And upon hearing counsel for the Appellant, counsel for the Respondent, and counsel representing Albert Title, Peter Browning and Orenstein & Partners, and it appearing that the motion is not opposed by the Respondent, Albert Title, Peter Browning or Orenstein & Partners;

IT IS HEREBY ORDERED THAT the Appellant/Applicant is relieved of the implied undertaking to the Court in respect of the documents to the extent necessary for the proper conduct of the Ontario Court action.

There shall be no Order as to costs.

Signed at Ottawa, Ontario, this 10th day of March, 2000.

"E.A. Bowie"

J.T.C.C.

Date: 20000310

Docket: 91-1811(IT)G

92-1567(IT)G

BETWEEN:

Dr. BERNARD C. SHERMAN,

Appellant/Applicant on the motion

and

HER MAJESTY THE QUEEN,

Respondent/Respondent on the motion

REASONS FOR ORDER

Bowie J.T.C.C.

[1] Dr. Sherman appealed to this Court from his assessments for income tax for the taxation years 1985, 1986, 1987 and 1988. The appeals were settled in 1996, and Notices of Discontinuance were filed, but not before Orders had been made permitting the examination for discovery of a firm of chartered accountants, Orenstein & Partners, represented by two of its partners, Albert Title and Peter Browning. Orenstein & Partners were the accountants for two limited partnerships in which the Appellant had made substantial investments as a limited partner. The only other partner was Overseas Credit and Guaranty Corporation (OCGC), the general partner. A number of documents (which for convenience I shall refer to simply as "the documents") were produced from the files of Orenstein & Partners during the course of the examinations of Mr. Title and Mr. Browning. Dr. Sherman has begun proceedings in what is now the Superior Court of Ontario, and he wishes to use those documents in support of his case. The present motions are brought to obtain Orders permitting that.

[2] It has long been settled under English law,[1] and more recently in most of the provincial superior courts[2] and the Federal Court of Canada,[3] that documents whose production is compelled in the course of litigation are taken by the party to whom they are produced subject to an implied undertaking of that party and its counsel that they will be used only for the proper conduct of the litigation in which they were produced. Subject to certain well-defined exceptions, any other use of the documents by the party receiving them may either be enjoined or punished as a contempt.[4] The same rule applies to information obtained orally in the course of an examination for discovery.

[3] I am not aware of a case in which the question has arisen whether the implied undertaking rule applies to documents or other information produced in the course of a proceeding before this Court. The existence of the rule was recognized by Bowman J., as he then was, in The Promex Group Inc. v. The Queen.[5] He was dealing there, however, with documents produced and ordered to be kept sealed, in proceedings in the Ontario Court, where the implied undertaking rule had been established as part of the law of Ontario by the judgment of the Ontario Court of Appeal in Goodman v. Rossi, and subsequently codified.[6] I am in no doubt, however, that the rule should be applied in this Court in the same way that it has developed in other jurisdictions, in order to protect the same public interests in privacy and the integrity of the litigation process.[7] The documents are, therefore, subject to an implied undertaking which outlives the discontinuance of the appeals.

[4] As these appeals were discontinued following the settlement between the parties, the documents have never been put into evidence, or otherwise produced in open Court. Without the consent of the producing party, then, the documents may only be used in the Ontario action if this Court makes an Order relieving Dr. Sherman and his counsel of the implied undertaking. On these motions, the party moving has the burden of showing that the prejudice he will suffer if he is not permitted to put the documents to use in the Ontario action outweighs the prejudice that the producing party, Orenstein & Partners, will suffer if he is permitted to use them in that action.[8]

[5] The only evidence before me on these motions is the affidavit of Jennifer Pink. Paragraphs 5 to 12 of that affidavit read as follows:

5. I am informed by D.H. Jack, counsel for Dr. Bernard Sherman in the Ontario Proceeding, and verily believe, that the Documents from the Tax Court Actions are highly relevant to and essential for the proper conduct of the Ontario Proceeding, as they relate to Orenstein and Partners' activity while acting as accountants for the limited partnership, and the information which was available to them in that capacity.

6. I am further advised by D.H. Jack, and verily I believe, that Mr. Jack has requested from the counsel for the Defendants, Nina Perfetto, a number of documents from Orenstein & Partners, and that Ms. Perfetto has refused to produce same on that basis that Orenstein & Partners no longer has the documents in their possession.

7. I am further informed by D.H. Jack, and I verily believe, that the position taken by Ms. Perfetto in the Ontario Proceeding is that the Defendants will not resist a motion to have the documents in question produced from the Tax Court Actions. Mr. Jack has advised me, and I verily believe, that Ms. Perfetto, on behalf of the Defendants, has specifically stated that the Defendants would not be opposing a motion to obtain court approval to use documents from the Tax Court Actions in the Ontario Proceeding.

8. I am further informed by D.H. Jack, and I verily believe, that in the Ontario Proceeding it was the position of Orenstein & Partners that Revenue Canada, as it then was, had taken possession of the Documents upon completion of the third party examinations for discovery of Title and Browning on behalf of Orenstein & Partners.

9. I am further advised by D.H. Jack, and I verily believe, that the documents from the Tax Court Actions, which actions were conducted by David C. Nathanson of McDonald & Hayden, on behalf of Dr. Sherman, have been kept segregated in the offices of McDonald & Hayden, and have not to date been used in the Ontario Proceeding, although they are available for such use should this Honourable Court so permit.

10. OCGC is no longer in existence. Its Certificate of Incorporation/Amalgamation was cancelled under section 240(3) of the Business Corporations Act, 1982, by an order dated March 18, 1991. Now produced and shown to me and marked as Exhibit "C" to this my Affidavit is a true copy of a Notice of Dissolution of OCGC, dated April 2, 1991. Consequently, OCGC can no longer provide the relevant documents for use in the Ontario Proceeding. As Orenstein & Partners no longer has possession of the Documents, the only apparent source is the segregated documents, referred to above, kept by McDonald & Hayden.

11. I am unaware of any prejudice which could be suffered by OCGC were the requested order to be made, as OCGC is no longer in existence. Further, I am unaware of any prejudice which could be suffered by the Canada Customs & Revenue Agency (previously Revenue Canada) if the order sought by the Applicant were granted, as their action against Dr. Bernard Sherman was fully settled on June 13, 1996.

12. The principals of OCGC, Einar Bellfield & Osvaldo Minchella, were convicted of fraud in the Ontario Superior Court of Justice on December 9, 1999. Now produced and shown to me and marked as Exhibit "D" to this my Affidavit is a true copy of the Indictment of Einar Bellfield and Osvaldo Minchella, dated December 9, 1999. The fraud conviction related to OCGC being a sham operation and not the business it purported to be.

[6] Paragraphs 5 through 9 of that affidavit consist of statements made by the affiant on the basis of information supplied to her by Mr. Jack, who appeared as counsel for the Applicant on this motion. Those paragraphs are crucial to the application. It has been held time and again that a member of the bar ought not to appear as witness and as counsel in the same proceeding.[9] The same rule applies whether the evidence is given orally in Court or by affidavit,[10] and in the case of an affidavit it applies where the affiant recites information obtained from the lawyer who later appears as counsel on the motion.[11] An exception may be made where the contents of the affidavit are not in dispute.[12]

[7] Mr. Rosen who appeared before me on behalf of Orenstein & Partners and Mr. Title and Mr. Browning, and Ms. Tataryn who appeared for the Crown, were invited either to consent to the Order sought or, alternatively, to agree to treat the affidavit of Jennifer Pink as an agreed statement of facts for the purposes of the motion. They both declined to do either. However, neither of them took issue with any part of the affidavit, and there was no cross-examination on it. Nor was any affidavit filed by either of them, either to controvert or to add to the facts deposed to by Ms. Pink. In these circumstances no issue of credibility could possibly arise, and so I accepted the affidavit as being an accurate statement of the facts, and permitted the motion to proceed with Mr. Jack as counsel. However, I wish to make it quite clear that I did so only because the only parties who could have an interest in these documents were represented before the Court, and by their counsel they tacitly accepted that the facts were fully and accurately stated. Had they not done so, I would have adjourned the hearing of the motion to permit Mr. Jack to make his own affidavit in support of it, and to engage other counsel to appear.

[8] The evidence of the prejudice which Dr. Sherman would suffer if he is not permitted to use the documents in support of the Ontario action is far from overwhelming. However, Orenstein & Partners and Mr. Title and Mr. Browning have not challenged the statement that the documents are highly relevant to and essential for the proper conduct of that action. Nor have they asserted that they might be prejudiced in any way if I were to make the Order sought. Moreover, my examination of the pleadings in these appeals and those in the Ontario action tends to confirm that the documents would be relevant to that proceeding. An Order will therefore go to relieve Dr. Sherman and his counsel of their implied undertaking in respect of the documents, to the extent necessary for the proper conduct of the Ontario action. There will be no Order as to costs.

Signed at Ottawa, Canada, this 10th day of March, 2000.

"E.A. Bowie"

J.T.C.C.

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