Rule 14 Motions Near Death

(As originally published in Canadian Tax Highlights, June 2006)

After about two years of uncertainty, Ontario sales tax practitioners now have some judicial guidance on the practical availability of motions under rule 14 of the Ontario Rules of Civil Procedure to resolve complex retail sales tax disputes.

Under the Ontario Retail Sales Tax Act, an appeal lies to the Ontario Superior Court of Justice for a sales tax matter disputed by a taxpayer. Historically, however, RST appeals must proceed by way of action in that court, which requires full legal procedures such as disclosure and examinations for discovery; if not settled, the RST appeal culminates in a full trial of the issue with oral evidence from witnesses. The rule 14 approach contemplates only the filing of affidavits and a circumscribed hearing of the issue based on those affidavits; the motions route is meant to determine questions of law only. Previous judicial decisions confirmed that the rule 14 motion process may be used, but some practitioners suggested that the rule 14 process, like any application process, contemplates situations where it is unlikely that any material facts are in dispute. Thus, practically speaking, in circumstances where the parties have not agreed on significant facts, it may be difficult to get through the motion process without being forced into a full trial. The recent decision of the Ontario Superior Court of Justice in Bell Canada v. Ontario (Minister of Finance) (2006 CanLII 12301) appears to confirm this concern.

Bell Canada involved the difficult RST question of whether, as the minister suggested, Bell's use of its network lines and circuits was a consumption of telecommunication services as a user (that is, for its own benefit) and therefore subject to RST. Bell claimed that the use of network lines and circuits was part of its overall operations, effectively what it provided to its customers, and a use on which RST had already been charged. Bell brought an application under rule 14 to decide the issue. The preliminary issue for the court was whether the case ought to be heard as an application or determined by a trial of issue: the court could convert the application into an action in the court under rule 38.10. (The parties had skirmished before on this issue in both this court and the Divisional Court; the Crown attempted to stop the process prematurely.) The court recognized that the issue raised by Bell could be described in simple terms, but that the "resolution of the issue involves a review of more complicated facts and statutory provisions."

The court first noted that one of the difficulties in dealing with the application under rule 14 was that the parties were not even in agreement about the question(s) that the court was being asked. Bell essentially framed the question as whether it was a consumer or user acquiring or receiving a taxable service at a sale in Ontario; the Crown asked a series of questions, including whether Bell was a producer of telecommunications and telecommunication services in the course of its business. The ultimate position of the Crown was that the factual findings sought by Bell to underpin its legal position could not be made on the evidence adduced by Bell in its application materials. Bell relied heavily on certain internal ministry documents, which the ministry said were for internal purposes only and did not represent agreed fact: the information had been provided by Bell and simply recited in the documents for internal discussion purposes and was not adopted or admitted by the ministry.

Ultimately, the court concluded that the "factual input necessary for the decision in this matter . . . properly should not be resolved on the basis of transcript evidence": a trial of the issue was required to determine all of the facts. The court reviewed the complex legislative provisions at issue (including fundamental definitional terms such as "consumer," "user," and "sale") and concluded that "[a] review of the numerous volumes of the Application Record, which include transcripts of cross-examinations on affidavits, reports and other documents, further emphasizes the nature of the differing positions of the Minister and Bell." In the court's view of the rule 14 process, a "party who utilizes [it] to obtain declaratory relief has to satisfy the Court on all the evidence that the relief sought is appropriate." In this case, Bell must discharge the evidentiary onus, and the court was "unable to conclude on the material and submissions before [it] that the onus on Bell has been met" because there were facts in dispute. "A trial is necessary where the resolution of a factual dispute involves matters of credibility or where the factual issues are sufficiently complex that to do justice to the positions of the parties, at least some oral evidence is required." However, because dismissing the motion might imply that Bell was taxable, the court ruled that material facts in dispute were best determined at a trial and so directed the matter.

It is hard to disagree with the Crown's position that significant questions and facts were in dispute. The rejection of information from internal ministry documentation suggested that Bell could not bootstrap on its own unsworn and untested statements. Although the questions raised by each party went to the same general point of whether Bell's actions with respect to network lines and circuits triggered tax, they were sufficiently different to pose a problem for the court under rule 14. Bell is a roadmap for any future rule 14 applications. A Crown counsel who wishes to avoid the process may simply demonstrate the complexity of the facts and issues before the court. Practically speaking, that sort of strategy is not easily countered by a taxpayer, who then has the onus of demonstrating that the facts and issues are not in dispute.

The court may also have been attempting to throw some cold water on the rule 14 process for complex RST appeals. The court observed that "[i]f this matter had proceeded in the manner envisaged under the RSTA, the onus would be on the Minister to justify an assessment against Bell under the Statute," and that it "might well be that the Minister could fail to discharge the onus under that process" and therefore may have had an interest in defeating the taxpayer under rule 14 in lieu of a trial. In order to avoid the possible implication that Bell was subject to tax, the court did not simply dismiss the application but instead directed that the matter be sent to trial.

Although the rule 14 process was more expedient, in this case the court questioned its cost efficiency. Taxpayers should address this question with their counsel in any contemplated rule 14 applications. Rule 14 procedures were intended to save time and money; but if the process fails, the matter must proceed to a full trial in any event. Bell Canada stands as a practical hurdle for taxpayers in Ontario looking to avail themselves of the rule 14 process to attack RST assessments when material facts are in dispute.

Authors:

Robert G. Kreklewetz and Vern Vipul
Millar Kreklewetz LLP, Toronto

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