HLP Solutions Inc. in Tax Court Canada (court order re CRA expert witness) February 2015

Citation: 2015 TCC 41

2012-671(IT)G

BETWEEN:

HLP SOLUTION INC.,

APPELLANT,

and

HER MAJESTY THE QUEEN,

RESPONDENT.

TRANSCRIPT

OF REASONS FOR ORDER

[OFFICIAL ENGLISH TRANSLATION]

Let the attached certified copy of the Reasons for Order delivered orally from

the bench at Ottawa, Ontario, on January 12, 2015, with minor corrections

made to improve style and clarity, be filed.

“Johanne D’Auray”

D’Auray J.

Signed at Montreal, Quebec, this 18th day of February 2015.

Translation certified true

on this 16th day of July 2015.

Erich Klein, Revisor

Citation: 2015 TCC 41

Docket: 2012-671(IT)G

TAX COURT OF CANADA

BETWEEN:

HLP SOLUTION INC.,

Appellant,

-and –

HER MAJESTY THE QUEEN,

Respondent

[OFFICIAL ENGLISH TRANSLATION]

REASONS DELIVERED ORALLY BY TELECONFERENCE

BY JUSTICE JOHANNE D’AURAY

at the Tax Court of Canada,

200 Kent Street, Ottawa, Ontario,

on Monday, January 12, 2015, at 2:00 p.m.

APPEARANCES:

Julie Patenaude Counsel for the appellant

Nathalie Lessard Counsel for the respondent

Also present:

Estelle Lagacé Registrar

Antoinette Forcione Court Reporter

A.S.A.P. Reporting Services Inc. © 2015

200 Elgin Street, Suite 1105 333 Bay Street, Suite 900

Ottawa, Ontario K2P 1L5 Toronto, Ontario M5H 2T4

(613) 564-2727 (416) 861-8720

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Ottawa, Ontario

—The hearing began on Monday, January 12, 2015,

at 2:00 p.m.

THE REGISTRAR: This teleconference of the Tax

Court of Canada in Ottawa has now commenced.

The Honourable Justice Johanne D’Auray is

presiding.

Docket number 2012-671(IT)G between HLP Solution

Inc. and Her Majesty the Queen.

Appearing for the appellant is Julie Patenaude,

and for the respondent, Nathalie Lessard.

Please identify yourselves when you address the

Court.

Madam Justice.

JUSTICE D’AURAY: So, good afternoon. In this

matter, I will render orally my decision regarding the

qualification of the respondent’s expert evidence. I heard the

motion in Montreal on December 8, 2014.

So, paragraph 1.

[1] The appellant, HLP Solution Inc., is

claiming tax credits for scientific research and experimental

development (SR&ED) for the taxation year ending on June 30,

2009, with respect to the following two projects:

Project 1: mobile synchronization software;

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Project 2: parallel mail collector.

[2] The Minister of National Revenue (the

Minister) disallowed the SR&ED tax credits claimed by the

appellant for part of Project 1 and all of Project 2. The

appellant filed a Notice of Objection. Since it did not receive

a response from the Canada Revenue Agency (CRA) to its

objection, the appellant filed an appeal with this Court.

[3] At the hearing, the appellant informed me

that it would be challenging the qualification of the

respondent’s expert witness, Ms. Rosu. I therefore held a voir

dire to determine whether Ms. Rosu could testify as an expert in

the present appeal.

[4] Ms. Rosu has been working as a research

and technology advisor (RTA) for the CRA since February 2009.

She has a DSc in computer science from the University of Geneva.

She has also worked for various private companies in the field

of computer science.

[5] At the audit stage, Ms. Rosu prepared the

technical review report in which Project 1 was found to be

partially eligible for an SR&ED credit. However, Project 2 was

not recognized as an SR&ED project, and therefore no credit was

granted.

Appellant’s position

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[6] The appellant does not dispute Ms. Rosu’s

expertise. Nor does it have any quarrel with the fact that

Ms. Rosu is employed by the CRA as an RTA.

[7] However, the appellant submits that

Ms. Rosu does not have the necessary impartiality to testify as

an expert witness in this appeal. It argues that Ms. Rosu was

involved in this file at every stage:

– She wrote the technical review report,

that is, the scientific report used in making the assessment at

issue.

– She wrote an addendum, that is, a reply to

the appellant’s comments on her technical review report. The

addendum confirms Ms. Rosu’s initial position, the one she took

in her technical review report.

– She attended all the meetings with the

appellant regarding the projects at issue.

[8] After receiving the addendum, the

appellant asked Mr. Filion, Ms. Rosu’s deputy director, to do a

second administrative review of its projects. The correspondence

filed on the record reveals that there was some uneasiness

between Ms. Rosu and the appellant. The appellant submitted that

Ms. Rosu did not understand the projects carried out by the

appellant and alleged that Ms. Rosu had acted in bad faith

towards the appellant.

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[9] Mr. Filion therefore asked Ted Wierzbica,

an information technology specialist at the CRA, to get involved

in the administrative review. In collaboration with Ms. Rosu,

Mr. Wierzbica prepared a questionnaire to be completed by the

appellant. The purpose of the questionnaire was to determine

whether there were any technological uncertainties associated

with the projects.

[10] The appellant argues that Ms. Rosu’s

continued involvement at the audit stage means that Ms. Rosu

does not have the necessary impartiality to testify as an expert

witness.

[11] In this regard, the appellant submits that

the opinions expressed by Ms. Rosu at the audit stage are

reflected in her expert report filed with this Court. The

appellant alleges that, in some instances, Ms. Rosu reproduced

word for word in her expert report certain paragraphs from her

technical review report. Moreover, according to the appellant,

at some places in her expert report, Ms. Rosu confused her role

as an RTA for the CRA and her role as an expert witness. The

appellant submits that, in both her expert report and her

rebuttal report, Ms. Rosu defends the opinion she gave at the

audit stage.

[12] The appellant therefore argues that, given

Ms. Rosu’s involvement and the opinions she expressed regarding

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the appellant’s two SR&ED projects, she could hardly change her

opinion and thus did not have the necessary impartiality to act

as an expert witness in this appeal.

Respondent’s position

[13] The respondent for her part submits that

it is rare for a court to refuse to hear the testimony of an

expert witness. There must be clear evidence of bias, of which

there is none in this appeal.

[14] The respondent also argues that Ms. Rosu

is an expert and that it is in this capacity that her opinion is

sought by the CRA, whether it be at the audit stage, the

objection stage or in an appeal before this court. In this

regard, she argues that Ms. Rosu has undertaken to respect the

Code of Conduct for Expert Witnesses under the rules of this

Court.

[15] According to the respondent, this Court

must hear the whole of the expert’s testimony to determine

whether an expert witness has become an advocate for his or her

client’s position. This should not be done when determining

whether the expert may testify.

[16] Ms. Rosu testified that she started afresh

in preparing the expert report filed with this Court. In light

of the facts she had gathered during the audit, she performed a

new review of the literature and did searches on the Internet,

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including user forums, in order to ensure that she had not

missed anything.

[17] Thus, during this new research. Ms. Rosu

noticed that the activities she had accepted as being SR&ED for

Project 1 were standard practice; she had therefore made a

mistake at the audit stage when she accepted part of Project 1

as being SR&ED. According to the respondent, this proves that

the expert analyzed anew the appellant’s SR&ED projects and that

if she had found literature in the appellant’s favour, she would

have reversed her opinion and granted the appellant SR&ED

credits. In this regard, she lays emphasis on Ms. Rosu’s

testimony.

[18] Consequently, the respondent argues that

Ms. Rosu is a qualified, impartial expert who is seeking the

truth and who will not mislead the Court. She should therefore

be qualified as an expert witness in this case.

Applicable law and analysis

[19] First, I would like to mention that an

expert witness’s main role is to assist the Court in assessing

evidence on scientific or technical matters.

[20] The Code of Conduct for Expert Witnesses

is to the same effect. Under the heading General Duty to the

Court, the first two sections of the Code read as follows:

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1. An expert witness has an overriding duty

to assist the Court impartially on matters relevant to his or

her area of expertise.

2. This duty overrides any duty to a party to the

proceeding, including the person retaining the expert witness.

An expert witness must be independent and objective and must not

be an advocate for a party.

[21] It is therefore important to bear in mind

that the expert witness’s main duty is to assist the Court.

[22] The leading case on the admission of

expert evidence is the Supreme Court of Canada’s decision in R.

v. Mohan, [1994] 2 S.C.R. 9, in which Justice Sopinka sets out

the following criteria for determining whether expert evidence

should be admitted.

(a) relevance;

(b) necessity in assisting the trier of fact;

(c) the absence of any exclusionary rule;

(d) a properly qualified expert.

[23] Only the relevance criterion is being

questioned by the appellant in this appeal. I will therefore

limit my analysis to that criterion.

[24] At paragraph 18, Justice Sopinka explains

what he means by relevance:

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Relevance is a threshold

requirement for the admission of expert evidence

as with all other evidence. Relevance is a matter

to be decided by a judge as [a] question of law.

Although prima facie admissible if so related to a

fact in issue that it tends to establish it, that

does not end the inquiry. This merely determines

the logical relevance of the evidence.

Justice Sopinka goes on to say:

Other considerations enter into the

decision as to admissibility. This further inquiry

may be described as a cost benefit analysis, that

is “whether its value is worth what it costs.” See

McCormick on Evidence (3rd ed. 1984), at p. 544.

Cost in this context is not used in its

traditional economic sense but rather in terms of

its impact on the trial process. Evidence that is

otherwise logically relevant may be excluded on

this basis, if its probative value is overborne by

its prejudicial effect, if it involves an

inordinate amount of time which is not

commensurate with its value or if it is misleading

in the sense that its effect on the trier of fact,

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particularly a jury, is out of proportion to its

reliability.

He then continues:

While frequently considered as an

aspect of legal relevance, the exclusion of

logically relevant evidence on these grounds is

more properly regarded as a general exclusionary

rule (see Morris v. The Queen, [1983] 2 S.C.R.

190).

He further states:

Whether it is treated as an aspect

of relevance or an exclusionary rule, the effect

is the same. The reliability versus effect factor

has special significance in assessing the

admissibility of expert evidence.

[25] According to Mohan, therefore, the judge,

when analyzing relevance, must first make sure that the evidence

is related to the fact in issue that this evidence is intended

to establish. In other words, the evidence must be relevant to

the facts in issue. This is what Justice Sopinka calls the

logical relevance of evidence.

[26] Second, still with respect to relevance,

Justice Sopinka states that the judge must perform a cost-

benefit analysis in order to determine whether the value of the

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testimony is worth what it costs, not in the economic sense but

rather in the sense of its impact on the trial process.

[27] Furthermore, in the decision of the Court

of Appeal for Ontario in R. v. Abbey, [2009] O.J. No. 3534, 246

C.C.C. (3d) 301, Justice Doherty applies the Mohan criteria, but

distinguishes between the preconditions to admissibility dealt

with in Mohan, that is, the four criteria, and the judge’s

exercise of the gatekeeper function, which consists of weighing

the benefits or the probative value of evidence against the cost

or the prejudice associated with admitting this evidence.

According to Mohan, this step is performed when the judge is

conducting the analysis of the relevance criterion.

[28] Justice Doherty changes the order of the

analysis of the criteria set out in Mohan. After analyzing the

four Mohan criteria, he moves on to the second stage, where the

judge must take on the role of gatekeeper, which requires the

judge to exercise his discretion, that is, to perform a cost-

benefit analysis. In this regard, he writes as follows:

Using these criteria, I suggest a two-step

process for determining admissibility. First, the

party proffering the evidence must demonstrate the

existence of certain preconditions to the

admissibility of expert evidence. For example,

that party must show that the proposed witness is

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qualified to give the relevant opinion. Second,

the trial judge must decide whether expert

evidence that meets the preconditions to

admissibility is sufficiently beneficial to the

trial process to warrant its admission despite the

potential harm to the trial process that may flow

from the admission of the expert evidence.

Justice Doherty adds:

It is helpful to distinguish

between what I describe as the preconditions to

admissibility of expert opinion evidence and the

performance of the “gatekeeper” function because

the two are very different. The inquiry into

compliance with the preconditions to admissibility

is a rules-based analysis that will yield “yes” or

“no” answers. Evidence that does not meet all of

the preconditions to admissibility must be

excluded and the trial judge need not address the

more difficult and subtle considerations that

arise in the “gatekeeper” phase of the

admissibility inquiry.

The “gatekeeper” inquiry does not

involve the application of bright line rules, but

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instead requires an exercise of judicial

discretion…. This cost-benefit analysis is

case-specific…. Different trial judges,

properly applying the relevant principles in the

exercise of their discretion, could in some

situations come to different conclusions on

admissibility.

[29] It is apparent from these two decisions

that the judge must perform an analysis to determine the cost

and the benefit of the expert evidence. If the judge finds that

the probative value and the reliability of the expert evidence

is likely to have little or no probative value, the judge may,

in the exercise of his or her discretion, disqualify the expert

at the expert qualification stage.

[30] Justice Doherty explains that each case is

different, and whether an expert should be disqualified at the

qualification stage or not will depend on the outcome of the

voir dire or, if there is no voir dire, on the evidence

presented at the hearing at the time of the expert qualification

inquiry.

[31] In the present appeal, I determined on the

voir dire that Ms. Rosu did not have the necessary impartiality

to testify. In weighing the probative value of her testimony

against the cost of that testimony in terms of its impact on the

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trial process, I decided that it was preferable to disqualify

Ms. Rosu at the qualification stage.

[32] The following reasons led me to this

conclusion:

– Ms. Rosu was involved at every stage of

the file.

– Ms. Rosu delivered the opinion (the

technical review report) that served as the basis for the

assessment.

– Following the appellant’s representations,

Ms. Rosu also wrote an addendum to her technical review report,

in which she still upheld the same position.

– She also participated in every meeting

with the appellant as the CRA’s representative.

[33] In my view, it is very difficult for a

person who has been involved at every stage of a file to have

the necessary detachment to give a new opinion that will

disregard that person’s previous opinions.

[34] Indeed, during the voir dire, she stated

that it is difficult to change one’s opinion if the facts do not

change. Is that not the very difficulty that faces a person who

has been involved at every stage of a file and who has given

opinions at the various stages of that file?

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[35] Moreover, at different places in her

report, Ms. Rosu confused her role as an RTA with that as an

expert witness. For example, at page 6 of her rebuttal report,

Ms. Rosu refers in the following terms to the requests she made

during the audit:

[TRANSLATION]

I failed to find any comments

formulating assumptions in the documents produced

with the version control software that were

provided by the company. Despite our requests, I

never received copies of tests to document the

experiments. In that context it is difficult for

me to conclude that the procedure adopted complied

with the scientific method.

The answer is no.

[36] Furthermore, there are indications in the

expert report that Ms. Rosu lacks detachment.

[37] For example, she describes in detail all

the work she did on this file as an RTA, the meetings she had

with the appellant and the requests for documents made to the

appellant during the audit; while not determinative in itself,

this is unusual.

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[38] In some parts of her export report,

Ms. Rosu reproduces word for word paragraphs from her technical

review report.

[39] Furthermore, in her expert report Ms. Rosu

uses the pronoun “nous” (“we”), “nous” being the CRA. In this

regard, she noted during the voir dire that it was sometimes

difficult to hide the fact that she worked for the CRA. She

stated, and I quote: [TRANSLATION] “Of course, I have a file that

was prepared by the CRA and requests that were made by the CRA.”

She concluded, however, that the “nous” was a question of style.

[40] In my opinion, these examples and her

constant involvement in the file only serve to demonstrate that

there was a blurring of the distinction between Ms. Rosu’s role

as an expert witness and her role as an RTA.

[41] In Les Abeilles Service de Conditionnement

Inc. c. La Reine, 2014 CCI 313 (Les Abeilles), the respondent’s

expert had, as in the present case, drafted the technical review

report leading to the assessment. During the process of

qualifying the respondent’s expert, counsel for Les Abeilles

objected to that witness’s testimony. She asked that the expert

be disqualified, arguing that he did not have the necessary

impartiality.

[42] Justice Jorré took the objection of

counsel for Les Abeilles under advisement. After hearing the

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testimony of the respondent’s expert, he indicated that, in

light of the conclusion he had reached, he did not have to rule

on the objection made by counsel for Les Abeilles concerning the

admissibility of the testimony of the respondent’s expert.

[43] Justice Jorré concluded, however, that the

respondent’s expert was not impartial and he refused to accept

his testimony as that of an expert witness, but he did accept it

as that of a fact witness.

[44] According to Justice Jorré, it was clear

that the respondent’s expert had confused his role as an expert

witness for the Court and his role as an RTA. The judge also

made the following observation in footnote 36:

[TRANSLATION]

The serious difficulties I have

with the testimony of the respondent’s expert,

which I express below, illustrate the dangers of

having the scientific advisor at the audit stage

testify as an expert witness.

[45] In Gagné v. The Queen, [2002] T.C.J.

No. 61, 2002 CanLII 53, Judge Tardif, in a case involving the

fair market value of an immovable property, stated the following

with regard to the testimony of the respondent’s expert:

… His involvement in the case

from the start of the audits disqualified him or,

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at the very least, discredited the value of his

work.

[46] The respondent referred me to the line of

authorities that treats bias as a question of probative value

rather than as one of admissibility. In the decisions that were

provided to me, and which I examined, dealing with tax matters,

the judges of this Court gave little or no probative value to

the testimony of the respondent’s experts when these experts had

been involved at the audit stage. Consequently, in these cases,

the Court did not have the benefit of the testimony of the

expert produced by the respondent.

[47] Moreover, in the decisions in which the

judges chose to treat bias as a question of probative value

rather than as one of admissibility, it is unclear whether a

voir dire on the admissibility of the expert’s evidence was

held.

[48] The cost-benefit analysis I have done in

fulfilling in this case my gatekeeper role under Abbey or under

the relevance criterion in Mohan shows that the probative value

of the testimony of the respondent’s expert is likely to be so

low that the testimony would have no impact on the issues. Thus,

the testimony would be of no assistance to the Court.

[49] It is important to note that I am not

disqualifying Ms. Rosu because she is employed by the CRA. I

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understand the distinction between independence and

impartiality. An expert witness does not have to be independent.

[50] I also wish to point out that I do not

question Ms. Rosu’s competence. She simply found herself in a

difficult position.

[51] As I gave the appellant time to allow its

expert to write an expert report including the facts on which he

relied following the respondent’s objection, I am giving the

respondent the opportunity to submit a new expert report.

I would like the parties to decide on the

submission date for the expert report, bearing in mind the late

April hearing dates.

[52] Costs will be in the cause.

Translation certified true

on this 16th day of July 2015.

Erich Klein, Revisor