T-2919-74
C. Ralph Lipper (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Walsh J.—Montreal, October 16
and 17, 1978.
Practice — Discovery — Application pursuant to Rule
465(19) to examine individual neither a party to the action nor
an officer or employee of corporation party to the action —
Plaintiff unable to answer questions on discovery, and refused
to answer others on the ground of professional confidence —
Defendant seeks to examine individual said to be able to
answer questions as being promoter to enterprise central to
facts of plaintiffs action — Argued that proposed examina
tion for discovery necessary for defendant to appreciate case to
be met — Whether or not Court should grant order for
examination for discovery — Federal Court Rule 465(19).
Defendant moves pursuant to Rule 465(19) to have a further
examination for discovery of Murray Shostek in his personal
capacity and as an officer of Intermedia Studios Inc., formerly
Potterton Productions Inc., neither Shostek nor the corporation
being parties to the proceedings. At the examination for discov
ery in this action concerning losses incurred as a result of
involvement as a limited partner in a film enterprise, plaintiff
Lipper frequently stated that he was unable to answer ques
tions, such knowledge being that of Shostek, an officer of
Potterton Productions Inc., and the promoter of the enterprise.
Lipper, an attorney, revealed that he represents either
Intermedia or Shostek, and therefore can refuse to answer
certain questions on the ground of professional confidence.
Defendant contends that without an opportunity of examining
Shostek the information required to appreciate the case that
defendant is required to meet cannot be obtained.
Held, the application is allowed. Rule 465(19) is not intend
ed to open the door to a series of discoveries including that of
persons who are not parties to the case nor in the employ of a
party but may merely be important witnesses possessing perti
nent information the details of which the examining party
wishes to ascertain. On the other hand, it is not limited to the
re-examination of a witness already examined for discovery, nor
apparently to an employee or agent of a party. Shostek is in
possession of highly pertinent information which plaintiff
Lipper cannot or will not provide and his examination for
discovery may be very useful in giving necessary factual infor
mation to assist in the final determination of the issues. While
not a party to the action, Shostek is hardly a disinterested third
party and his examination is not in the nature of a fishing
expedition. This is a proper case for the exercise of the Court's
discretion on Rule 465(19).
Frost v. Minister of National Revenue T-2536-72, Gray v.
Minister of National Revenue T-2537-72, Butcher v. Min
ister of National Revenue T-2422-72 [1974] 2 F.C. 689,
referred to. Donald Applicators Ltd. v. Minister of Na
tional Revenue [1966] Ex.C.R. 481, referred to.
APPLICATION.
COUNSEL:
M. Menard for plaintiff.
C. MacNab for defendant.
SOLICITORS:
Verchere & Gauthier, Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for order deliv
ered orally in English by
WALSH J.: Defendant moves to have a further
examination for discovery of Murray Shostek as
an officer of Intermedia Studios Inc., formerly
Potterton Productions Inc., and in his personal
capacity, neither Shostek nor the said corporation
being parties to the proceedings.
The proceedings are an appeal from an income
tax assessment for the 1971 taxation year arising
out of a limited partnership entered into by plain
tiff with a large number of other persons whereby
the limited partnership acquired two motion pic
tures Tiki Tiki and Fleur Bleue from Potterton
Productions Inc. Plaintiff claimed a loss in the
1971 taxation year from his investment being 1/88
share of the total purported loss of the limited
partnership for that year; and this loss was disal
lowed by the Minister who did not accept the
taxpayer's calculation of the total capital cost of
the film, by disallowing certain expenses including
capital cost allowance.
Without going into details of the various trans
actions, which is unnecessary for the purposes of
this motion, it may be said that plaintiff contends
that these films had a reasonable expectation of
profit. (A somewhat similar case is under advise
ment in the Court of Appeal at present.) Plaintiff
relies on paragraph 11(1) (a) of the Income Tax
Act, R.S.C. 1952, c. 148, subsection 1100(1) of the
Income Tax Regulations, C 1955, and Class 18
Schedule B [SOR 66-120] of said Regulations and
contends that the profitability is not a criterion to
be used in determining whether a particular expen-
diture may be deducted. Defendant contends that
the interest of plaintiff in joining the limited part
nership was to avoid payment of tax on his profes
sional and other income and that in fact the lim
ited partnership did not engage in the motion
picture business or any other business, the transac
tions being sham transactions.
At the examination for discovery of Lipper he
frequently stated that he was unable to answer the
questions, such knowledge being that of Murray
Shostek an officer of Potterton Productions Inc.
who arranged the sales of the films, and in fact
according to defendant's counsel was the promoter
of the enterprise, capable of giving particulars of
the delay in distribution of the film Tiki Tiki, its
profit potential, and whether Potterton (now
Intermedia) ever intended to collect the balance
due on the sales. However, Lipper, an attorney,
has now allegedly revealed that he represents
either Intermedia or Shostek and hence can refuse
to answer certain questions on the ground of
professional confidence. Defendant's counsel
therefore contends that without an opportunity of
examining Shostek he cannot get the information
required to appreciate the case which defendant is
required to meet.
Rule 465(19) of the Rules of this Court relating
to discovery reads:
Rule 465. .. .
(19) The Court may, for special reason in an exceptional
case, in its discretion, order a further examination for discovery
after a party or assignor has been examined for discovery under
this Rule.
Clearly this is not intended to open the door to a
series of discoveries including that of persons who
are not parties to the case nor in the employ of a
party but may merely be important witnesses pos
sessing pertinent information the details of which
the examining party wishes to ascertain. On the
other hand it is not limited to the re-examination
of a witness already examined for discovery, nor
apparently to an employee or agent of a party.
Plaintiff directs attention to Rule 464 permitting
an order for the production of a document in the
hands of a third party, and to Rule 465(5) permit
ting the assignor of a patent copyright, or trade
mark to be examined for discovery by any party
adverse to the assignee, as examples of specific
authority in the Rules for bringing in third parties
to produce documents or to be examined for dis
covery and contends that, in the absence of any
such specific provision in Rule 465(19) it cannot
be applied so as to order the examination for
discovery of a third party. Reference was made to
the Ontario case of Guaranty Trust Co. v. Fleming
and Talbot [1947] 1 D.L.R. 184 at page 187
where it was held that since Rule 327 provided for
the examination of an officer or servant of a
corporation which is a party to the action, while no
similar provision is made in the cases of Rule 334
permitting examination of a person for whose ben
efit an action is brought or defended, or Rule 335
where an assignor may be examined in an action
brought by an assignee, it must be assumed that no
such right was intended to be given. Reference was
also made to the Alberta case of Abel v. Stone
(1968) 63 W.W.R. 420 at page 428 where in
reference to Rule 249 of that Province permitting
an order to a third party to produce a document
relating to matters in issue it was held that since
the right was confined to the production of docu
ments it was a fair inference that there was no
intention that a person not a party to the action
should be made a party for the purposes of exami
nation for discovery. Neither Province appears to
have a broadly worded discretionary rule com
pared to Rule 465(19) of this Court however.
There is some authority in this Court for the
application of this Rule to third parties. In a
judgment of Gibson J. dated October 30, 1974 in
Frost v. M.N.R. T-2536-72, Gray v. M.N.R.
T-2537-72, and Butcher v. M.N.R. T-2422-72
[1974] 2 F.C. 689 the motion sought to add a
non-party to the appellants as he too was con
cerned in the allocation of profits between them.
This was refused but an order was issued requiring
him to attend for examination for discovery as a
non-party to be examined by counsel both for
respondent and appellant. The case of Donald
Applicators Ltd. v. M.N.R. [1966] Ex.C.R. 481, a
judgment of Noël J., permitted a second examina
tion of directors of ten appellant companies alleged
to be associated when the manager examined for
discovery could not give the information sought.
This case is authority however only for permitting
examination of a second witness on behalf of the
parties, not for examination of a third party.
Defendant also referred to the Supreme Court case
of In the matter of the Hess Manufacturing Com
pany, Edgar (Liquidator) v. Sloan (Contributory)
(1895) 23 S.C.R. 644 at page 658, which while not
directly in point, held at page 658 that it was the
duty of a vendor selling property to a company
toward which he stood in a fiduciary relationship
to see that the management of the company was in
the hands of a thoroughly independent board of
directors over which he could exert no influence
and which would keep it at arm's length in making
the bargain. Defendant suggests that Shostek, far
from dealing with plaintiff and his associates at
arm's length was the promoter and prime mover of
the entire deal, and therefore, in his knowledge of
the details and purpose of it, is closely associated
with plaintiff, although not a party to nor directly
affected by the present proceedings.
In the case of Bowlen v. The Queen [1977] 1
F.C. 589 at page 594 Smith D.J. of this Court in
commenting on Ontario Rule 349 respecting pro
duction of documents by persons not parties to the
action said, "There has, however, been general
judicial agreement that the Rule is not intended to
authorize obtaining discovery from a stranger to
the action nor engaging in a fishing expedition".
While I fully agree with this, it would appear
that Shostek is in possession of highly pertinent
information which the plaintiff Lipper cannot or
will not provide and that his examination for dis
covery may be very useful in giving necessary
factual information to assist in the final determi
nation of the issues. While not a party to the
action he is hardly a disinterested third party, and
his examination is not in the nature of a fishing
expedition. Needless to say objection can be made
at his examination to any question eliciting an
opinion as to what was in the minds of plaintiff
and his associates, their motivation on a non-
expert opinion as to the likelihood of success of the
movies in question, but proper questions eliciting
factual information which he has in his possession
and Mr. Lipper does not, or is prevented from
revealing for reasons of professional confidentiality
can be asked. This appears to be a proper case for
the exercise of my discretion on the Rule 465(19).
ORDER
Murray Shostek may be examined for discovery
as an officer of Intermedia Studios Inc. formerly
Potterton Productions Inc., in his personal capaci
ty, at a time and place and before a person to be
agreed upon by the parties, and failing agreement
to be determined by the Court, being tendered
travelling expenses if necessary. Costs in the event.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.