Abeilles Inc. in Tax Court Canada October 2014

Docket: 2011-2054(IT)G

BETWEEN:

LES ABEILLES SERVICE DE

CONDITIONNEMENT INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

Appeal heard on June 18, 19, 20, 26 and July 11, 2013,

at Montréal, Quebec.

Before: The Honourable Justice Gaston Jorré

Appearances:

Counsel for the appellant: Julie Patenaude

Counsel for the respondent: Christina Ham

JUDGMENT

In accordance with the attached Reasons for Judgment, the appeal from the reassessment made under the Income Tax Act for the 2009 taxation year is allowed, with costs, and the matter is referred back to the Minister of National Revenue for reconsideration 2009-01 and 2009-02 and reassessment 1 constitute experimentalon the basisdevelopmentthat projectswithin 2007-01, the meaning 2007-02, of the Act. If the parties are unable to agree on costs by December 19, 2014, I will hear the parties’ submissions at a date to be set by the Registry of the Court.

1 To clarify, the work undertaken as part of these projects is listed in the list of work and tests in Tab 5 of Exhibit

A-1.

Signed at Ottawa, Ontario, this 23rd day of October 2014.

“Gaston Jorré”

Jorré J.

Translation certified true

on this 15th day of June 2015

François Brunet, Revisor

Citation: 2014 TCC 313

Date: 20141023

Docket: 2011-2054(IT)G

BETWEEN:

LES ABEILLES SERVICE DE

CONDITIONNEMENT INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

REASONS FOR JUDGMENT

Jorré J.

Introduction

[1] On January 27, 2011, the Minister of National Revenue issued a reassessment for the 2009 taxation year. The Minister reduced the amount of the scientific research and experimental development tax credit claimed by the appellant for the following projects:

(a) 2007-01: Development of a new assembling process for motors for

dryers (this project started in 2007).

(b) 2007-02: Development of a new assembling process for heating

elements for dryers (this project started in 2007).

(c) 2009-01: Development of a new assembling process for control panels

using pull flow with electronic sequencing.

(d) 2009-02: High-speed synchronization for the application of secondary components on a print component.

[2] The vast majority of expenditures giving rise to the credit claimed are salary expenditures incurred during testing on the production line.

[3] The Minister submits that the activities of the appellant involved no scientific uncertainty, that they were not based on a systematic investigation or search that was carried out in a field of science or technology and that they were merely routine activities with no basic research, no applied research and no experimental development. For these reasons, the Minister claims that he properly disallowed the appellant’s claim.

[4] productionThereefficiencyis no doubtand, thatin theonepurposecase, 1 toofensurethe projectsinnovativein questionproduction. was to increase

[5] The appellant challenges the Minister’s decision and submits that the projects were eligible for the credit claimed.

[6] experimentalSectiondevelopment” 248 of the asIncomefollows: Tax 2 Act defines “scientific research and

“scientific research and experimental development” means systematic investigation or

search that is carried out in a field of science or technology by means of experiment or

analysis and that is

(a) basic research, namely, work undertaken for the advancement of scientific

knowledge without a specific practical application in view,

(b) applied research, namely, work undertaken for the advancement of

scientific knowledge with a specific practical application in view, or

(c) experimental development, namely, work undertaken for the purpose of

achieving technological advancement for the purpose of creating new, or

improving existing, materials, devices, products or processes, including

incremental improvements thereto,

and, in applying this definition in respect of a taxpayer, includes

(d) work undertaken by or on behalf of the taxpayer with respect to engineering,

design, operations research, mathematical analysis, computer programming, data

collection, testing or psychological research, where the work is commensurate with

the needs, and directly in support, of work described in paragraph (a), (b), or (c) that

is undertaken in Canada by or on behalf of the taxpayer,

12 2007-02. As the Act read at the end of 2009.

but does not include work with respect to

(e) market research or sales promotion,

(f) quality control or routine testing of materials, devices, products or

processes,

(g) research in the social sciences or the humanities,

(h) prospecting, exploring or drilling for, or producing, minerals, petroleum or

natural gas,

(i) the commercial production of a new or improved material, device or

product or the commercial use of a new or improved process,

((jk)) styleroutinechanges, data collection; or 3

3 The French version of the text reads as follows:

« activités de recherche scientifique et de développement expérimental » Investigation ou

recherche systématique d’ordre scientifique ou technologique, effectuée par voie

d’expérimentation ou d’analyse, c’est-à-dire:

a) la recherche pure, à savoir les travaux entrepris pour l’avancement de la science sans

aucune application pratique en vue;

b) la recherche appliquée, à savoir les travaux entrepris pour l’avancement de la science avec

application pratique en vue;

c) le développement expérimental, à savoir les travaux entrepris dans l’intérêt du progrès

technologique en vue de la création de nouveaux matériaux, dispositifs, produits ou procédés

ou de l’amélioration, même légère, de ceux qui existent.

Pour l’application de la présente définition à un contribuable, sont compris parmi les activités de

recherche scientifique et de développement expérimental:

d) les travaux entrepris par le contribuable ou pour son compte relativement aux travaux

techniques, à la conception, à la recherche opérationnelle, à l’analyse mathématique, à la

programmation informatique, à la collecte de données, aux essais et à la recherche

psychologique, lorsque ces travaux sont proportionnels aux besoins des travaux visés aux

alinéas a), b) ou c) qui sont entrepris au Canada par le contribuable ou pour son compte et

servent à les appuyer directement.

Ne constituent pas des activités de recherche scientifique et de développement expérimental les

travaux relatifs aux activités suivantes:

e) l’étude du marché et la promotion des ventes;

f) le contrôle de la qualité ou la mise à l’essai normale des matériaux, dispositifs, produits ou

procédés;

g) la recherche dans les sciences sociales ou humaines;

h) la prospection, l’exploration et le forage fait en vue de la découverte de minéraux, de

pétrole ou de gaz naturel et leur production;

i) la production commerciale d’un matériau, d’un dispositif ou d’un produit nouveau ou

amélioré, et l’utilisation commerciale d’un procédé nouveau ou amélioré;

j) les modifications de style;

k) la collecte normale de données.

[7] If we remove those parts which are not relevant to this dispute, the definition reads as follows:

Systematic investigation or search that is carried out in a field of science or

technology by means of experiment or analysis and that is

(a)…

(b) applied research, namely, work undertaken for the advancement of

scientific knowledge with a specific practical application in view, or

(c) experimental development, namely, work undertaken for the purpose of

achieving technological advancement for the purpose of creating new…

devices… or processes, including incremental improvements thereto,

and, in applying this definition in respect of a taxpayer, includes

(d) work undertaken by or on behalf of the taxpayer with respect to engineering,

design, operations research, mathematical analysis, computer programming, data

collection, testing or psychological research, where the work is commensurate with

the needs, and directly in support, of work described in paragraph (a), (b), or (c) that

is undertaken in Canada by or on behalf of the taxpayer,

but does not include work with respect to

(e)…

(f) quality control or routine testing of materials, devices, products or

processes,

(g)…

(h)…

(i) the commercial production of a new or improved material, device or

product or the commercial use of a new or improved process,

(j)…

(k)…

[8] Ultimately, the central isssue is whether the projects in question constitute:

(c) experimental development, namely, work undertaken for the purpose of achievingdevices.. technological. or processes, advancementincluding incrementalfor the purposeimprovementsof creatingthereto, new 4…

[9] At the heart of the controversy is whether it is technological advancement; there is also a significant difference in perspective. The respondent is more likely

4 The corresponding French text is:

c) le développement expérimental, à savoir les travaux entrepris dans l’intérêt du progrès

technologique en vue de la création de nouveaux […] dispositifs […] ou procédés ou de

l’amélioration, même légère, de ceux qui existent.

to look at each test conducted by the appellant in isolation; the appellant takes a broader view of all the tests performed within a project.

[10] I note in passing the context in which the appellant operates. The appellant performs, inter alia, sub-assembly operations for a company that assembles dryers in Montréal. Considering the cost of labour in Montréal, it is an operation that would have easily been relocated elsewhere, such as Mexico or Asia.

[11] The projects at issue are aimed at increasing the efficiency of the appellant’s work obtained without excessive expense, which the appellant could not support while still remaining competitive. Three of those projects are related to the sub- assemblyallows themanufacturingappellant and itsofclientdryers; to avoidit is preciselythe offshoringthis searchof dryerformanufacturing. efficiency which 5

[12] For the reasons that follow, the appeal will be allowed. The facts 6

[13] Serge Caouette is the president and, at the time of the hearing, the sole shareholder of Les Abeilles.

[14] The company was founded in 1987 by Mr. Caouette’s mother. In the early years, the company provided various packaging and printing finishing services to tobacco companies. However, the restrictions on the advertising of tobacco products forced the company to diversify its activities.

[15] While continuing to perform printing finishing activities, the appellant began providing packaging services for businesses operating in the food and cosmetic industries.

[16] The appellant also broadened its activities in the industrial sector. That is when it started the assembly of mechanical components.

5 The Canadian economy stands to gain from having as many companies as possible undertake such efforts. This would 6 The hearingnot onlylastedhelp preventfive daysoffshoring, over the butcoursecouldof alsothreeperhapsdifferentencourageweeks. Therethe opposite, were fivereshoring. witnesses (Serge Caouette,

Martin Gariépy, Steven Kooi, Yves Hamelin and Denis Frayce) and numerous documents filed in evidence.

Mr. Hamelin is the president of the Groupe HLP, which specializes in representing clients in connection with

obtaining credit for scientific research and experimental development. He testified with respect to the audit and

objection. Mr. Frayce, who is Mr. Kooi’s supervisor, testified with respect to the audit. It is not necessary for me to

review their testimonies, which are mostly related to the audit and assessment process.

[17] In essence, its activities involve the assembly of components supplied by the client. Once the sub-assembly is complete, it is sent to the client who inserts it in its [TRANSLATION] “main line” to obtain the end product.

[18] The appellant began development projects in 2002. Its first application for scientific research and experimental development dates back to 2003. Since then, it has made several applications per year.

The projects concerned

[19] For 2009, the appellant made applications to obtain credit for scientific research and experimental development for six projects. Only two were approved. The other four were denied.

Projects related to the sub-assemblies for Mabe/General Electric

[20] Three of the four projects denied were related to the sub-assemblies for Mabe. Mabe manufacturers General Electric dryers. These three projects are as follows:

(a) 2007-01: New assembling process for motors for dryers.

(b) 2007-02: New assembling process for heating elements for dryers.

(c) 2009-01: New assembling process for control panels using pull flow

with electronic sequencing.

[21] The first two projects started in 2007 and were accepted by the Canada Revenue Agency in the years prior to 2009.

[22] The purpose of these projects is not only to increase efficiency, but also to do so while meeting very stringent quality standards.

[23] Mabe has a plant in Montréal which performs assembly operations for General Electric. General Electric holds 49% of the shares of Mabe and initiated the collaboration between Mabe and the appellant, as it was General Electric that requested that certain items be produced at the appellant’s facilities. However, Mabe and the appellant are the ones under contract.

[24] It was in 2004 that discussions began with Mabe to obtain contracts from Mabe and undertake the projects at issue. Mabe benefited from collaborating with

the appellant as the appellant’s projects were aimed at increasing efficiency of production at the appellant’s and at Mabe’s plants.

[25] productionOverline. the 7 Thiscoursetestingof typicallya project, lastsextensiveseveral hours. testing is performed on the

[26] When the appellant does not follow the normal process of production, it is a [TRANSLATION] “deviation” from normal production. There are three types of [TRANSLATION] “deviations”, according to the appellant:

(a) substitution;

(b) change in engineering; and

(c) experimental development.

[27] The controversy here concerns only those tests that represent the last type of deviation.

[28] Prior to performing tests, approval from Mabe is required. 8 An application for tests is made to Mabe and, if Mabe agrees, Mabe submits a document entitled “DSI” providing authorization.

[29] Mabe provides the components used for testing for free and, after testing is completed, disassembled. the 9 sub-assemblies are sent to Mabe which sends them to Mexico to be

[30] Mr. Caouette explained that it was during daily operational meetings that it was decided whether tests would be performed the same day.

[31] During testing, commercial production stops, changes to be tested are installedwas beforeor themodified, test 10 and, the then, test isproductionperformed, startseverythingagain. Mr. is putCaouetteback explainedtogether asthatit

7 In a project, it is not a line in the proper sense of the term; in such cases, it is a [TRANSLATION] “surgeon approach”. 8 During the presentation of the evidence, there was some confusion at times regarding the role of Mabe and General

Electric. It is clear that General Electric, Mabe and the appellant collaborate closely and, in my view, for the

purposes of this case, this does not have any impact in terms of something being done by Mabe rather than by

General 910 TheTranscript, disassembledElectricpageor vice 142, partsversa. linemay 16, bepagesent 144, backlineto the 13. appellantThe first forfourretesting, volumesbutof notthe necessarilytranscript are (transcript, numberedpagefrom 368). page 1

to page 1141; in these notes, I make no reference to Volume V.

when performing a test, an attempt is made to ensure a large number of assemblies, thus allowing an evaluation of quality and cycle time.

[32] There are a series of specific problems that must be resolved to achieve the objective sought and several tests could be required to resolve one particular problem.

[33] Each test relates to a change in process.

[34] If the test is conclusive, or if the series of tests is conclusive, the project will have to be approved by both the appellant and General Electric before it can go to market. Once approved by the appellant, the project goes to the first piece stage. This involves, for example, producing approximately ten sub-assemblies and having them approved by General Electric. Then, the project must pass the pilot [run] A and pilot [run] B stages. Each stage entails providing more parts to Generalparts areElectric, placed inwhichthe dryersmustandthensoldapproveon theproduction. market. 11 During the pilot [run], the

[35] However, the stages that took place after the testing stage are not part of what is at issue here.

[36] recordItoris chronologypossible to ofretracetests. the 12 Mr. stepsCaouetteof the variousexplainedprojectsthat thethroughprojectstherequiredlog, the many hours of work from many individuals. At a minimum, it took as many employees to conduct a test as it did to ensure regular commercial production.

[37] There are also detailed descriptions of the projects and tests produced. 13

Project 2007-01: motors

[38] The appellant’s project had several objectives.

11 The evidence does not reveal the frequency of these approvals by General Electric. It is unknown if, for example,

it was typical to have successfully completed several changes prior to obtaining approval and completing a first

piece 12 Mr. orCaouettewhetherspokean approvalof the request “log”; Iwaswillgenerallycall this thesubmittedrecord ofaftertests. mostThisof therecordsuccessfulcan nottestsonlywerebe foundperformed. in tab 5 of Exhibit 13 See, forA-1, example, but alsoExhibitin the electronicI-1, which, spreadsheetapart fromintheExhibitfirst elevenA-12. pages, only contains such descriptions. There is

no consecutive numbering in Exhibit I-1, but the project and test descriptions are about 1.5 inches, or 3.8 cm, thick.

The same documents are mostly found in tabs 8 and 9 of Exhibit I-2.

[39] This project began in 2007 after the main conveyor was received. The objective was to increase production efficiency, which was measured in terms of the manufacturing time required, and to adapt the conveyor so that it could assemble all families of motors.

[40] Initially, the production of each different type of motor at Mabe was carried outIt tookon quitea differenta longcarousel. time to changeThere wasthe templatesa differentontemplatethe carousel. for each 14 type of motor.

[41] In early 2009, the conveyor was in commercial operation and the appellant builtcarouselsone 15 type) forofallmotor, other typesregularof motors. motors. The appellant still used the carousel (or

[42] assembleForall 2009, the differentthe primarytypesobjectiveof motorsof 16 thison theprojectsame wasproductionto makeline. it possibleIt was alsoto hoped that a motor could be assembled every 9 seconds while meeting the required quality standards of the client, that is, a maximum of 300 sub-assemblies of motors rejected per million sub-assemblies, that is, a maximum of 3 rejects out of 10,000 motors; 14 seconds. at 17 the beginning of the year, the appellant was at approximately

[43] Not only did the appellant want to get rid of assembly carousels, which were less efficient, but the appellant also wanted to be able to change the production model without having to stop the production line so as to be able to quickly change the model of motor at the client’s request.

[44] For these objectives to be met, the following problems had to be addressed:

1415 Transcript, I note that whilepagesit 117 is notandentirely 118. clear from the evidence whether the appellant had a different carousel for each

different type of motor, my conclusion is that this was the case. As I understand the evidence, Mabe initially had six

production lines for dryers (for example [TRANSLATION], “regular”, “international” and “quiet pack”) and each

production line had a different carousel that produced the sub-assemblies of motors: see Transcript, pages 98 and 99.

In the beginning, the appellant started out in the same way for motors other than “regular” motors.

That was also the case for heating elements (2007-02); when Mabe was making them all in its plant, there were

separate lines for the assembly of each type of heating element (see pages 169 and 170 of the Transcript). However,

as I understand Mr. Caouette’s testimony, in 2007, the appellant only started with the assembly of one heating

element used only for the [TRANSLATION] “regular” model; however, in 2007, from the outset, the appellant had

begun an assembly-line production using a type of heating element in mica which was new and which had never

been 1617 ForSee, usedexample, interbefore. alia “quiet, the firstpack” pageand 2, “international”. in Tab 2007-01 of Exhibit I-1.

(a) the adaptation of equipment to the various types of motors (pulley press, jigs, mandrels); (b) the synchronization of equipment.

[45] On the line developed by the company, there is only one motor template for all the families, rather than multiple templates on the carousel. On the new line, no therewhicharemakesno partsit possibleto changeto neverwhenstopa decisionthe line. is 18 made to produce a different model,

[46] At the end of 2009, all families of motors could be assembled on the line. Thecarouselequipmentwas eliminated. was therefore 19 Theadaptedcycle (pulleytime waspress, reducedjigs, mandrels) to approximatelyand the 10 seconds.

[47] Over the course of 2009, as part of this project, 32 tests were conducted. Appendix A to the judgment lists all the tests and certain other work undertaken for the project.

[48] breakdownIn 2009, of hoursthe appellantis providedinvestedin Appendixover 9,000 B person-hoursto the judgment. in this 20 Theproject. expensesThe claimedmaterials. for 21 this project are approximately $137,000 in salaries and $1,300 in

[49] When the appellant began working with avec Mabe/General Electric, they tried to find solutions already available to achieve the required objectives.

[50] The appellant’s agreement with the client provides the appellant access to all knowledge available in the Mabe/General Electric network, but despite all the experience available through the network, no one was able to provide more than generalany moreprinciples; informationno byonespeakinghad specificwith itssolutions. suppliersTheor appellantfrom Webwassearches. unable 22 to find

[51] The appellant itself had to find the necessary solutions to meet the objectives.

18 If I understood Mr. Caouette’s testimony correctly, there was a slight decrease in production at the time of the transition 19 AccordingfromtooneMr. typeCaouette, of motoronceto another. these changes were made, not only could the changes be made quickly, but the different 202122 TheForSee thepagessourcetypessalaries, 158 ofofinformationtomotorssee 162, first 268, couldpageis 365 setbeofandchangedforthTab 3666 inofoftheaboutExhibittheAppendix. Transcript. twentyI-2. times a day; see bottom of page 119 of the Transcript.

Project 2007-02: heating elements

[52] It was in 2005 that discussions with Mabe about this project began. The idea was still to improve the productivity of Mabe’s plant. Indeed, the assembly of the heating elements was done at the time on six production lines. The appellant’s plan was to centralize this production on a single line, while adhering to a cycle time of 7 seconds and a quality standard of less than 300 rejects per million sub- assemblies.

[53] requiredmannerIn (hencecycle 2009, timethenewusemodelsandofdesired “foolproofof heatingqualitydevices” elementsstandard 24). hadstillTotothathadbe addedend, to beit tometwasthe 23 necessary, inline. a safeThe among other things, to address the following problems: too much proximity

between the heating element and the housing, false rejects caused by the test

station, instability caused by concrete dust, uncleaned lubricant deposit formation in the equipment and overall stability.

[54] At the end of 2009, the cycle time was 8.9 seconds and the quality standard had yet to be met. However, the four families of elements could be assembled on the same line and the proximity and false reject problems were solved.

[55] The proximity problem was solved by the use of a cylinder system. This solution was the third of a series of three. The first was manual and required a special tool. The second was hybrid and included a thumb detector.

[56] The false reject problem was caused by the impact between the element and the stop designed to keep the element at the test station. The solution found was to install a linear motion stop that did not cause a shock that would move the element.

[57] To Mr. Caouette’s knowledge, this type of assembly line does not exist elsewhere. Indeed, neither the General Electric network nor the appellant’s suppliers, the Web search or the manufacturer of the heating elements were helpful in identifying a business that performed this type of assembly. Moreover, General Electric and the appellant were the first in America to use the mica heating elements.

2324 TheFoolprooftarget wasdevicessevenensureseconds, thatbutall atthethecomponentsbeginning ofaretheinyeartheirtheproperappellantplaces. wasIfataapproximatelycomponent is 9.6 missing, seconds. or if a

wrong component is installed, the assembly will not work.

[58] 7,500 $110,000 person-hoursIn in 2009, salariestheandin $1,100 thisappellantproject. in materials. conducted 25 The 26 appellant 19 tests claimedand investedapproximatelyover

Project 2009-01: control panels (backguards)

[59] It was in 2009 that Mabe approached the appellant to centralize the assembly of dryer control panels on a single line. The objectives were to develop a system that (i) was capable of producing 174 variations of panels, variations made on the basisorderedofwithin 600 fourpossiblehourscomponents, following the (ii) order; could 27 andachieve (iii) couldthe particularproduce thevariationpanels much faster than Mabe.

[60] approach” To toaccomplishits assemblythis, method. the appellantThis approachappliedconsistedthe [TRANSLATIONof one employee] “surgeon 28 who would put together the components necessary to assemble a given panel model and bring everything to the assembler, who performs his or her work without having to move around, like a surgeon who is provided with the tools required for an operation.

[61] The so-called [TRANSLATION] “surgeon” approach was the appellant’s second choice, as its first choice was too expensive to implement.

[62] Not only was it necessary to validate the idea of the [TRANSLATION] “surgeon approach” applied to the assembly of control panels, but it was also necessary to be able to assemble all models and change from one model to the other within 30 seconds. Here again, the quality standard sought was less than 300 rejects per million sub-assemblies and foolproof devices were necessary.

[63] In March 2009, it became apparent that it was necessary to automate the communication process between the various stakeholders, otherwise further improvements would have been impossible. To do this, new software had to be developed as none of the existing software products met the company’s needs. To that end, the appellant sought the assistance of subcontractor ISG. The following modules were created: order automation module, import/export module for

25 See Exhibit A-12 at the page or tab entitled [TRANSLATION] “Accounting portion” in column J regarding Project 262728 SeeExhibitCalledfirst 2007-02. “waterI-1, pageTabofspider.” 2009-02, Tab 6 of Exhibitfirst page. I-2.

transferring information between the company’s system and the client’s system, survey module showing what the client has to produce, assembly module ensuring that the assembler is provided with the right model, shipping module allowing the client to confirm shipping of orders and know the status of the appellant’s inventory of components.

[64] The appellant did not claim any credits for the “development” of the software, because ISG performed the task.

[65] At the end of 2009, many objectives had yet to be attained. The above- mentioned modules were nonetheless all developed and the [TRANSLATION] “surgeon approach” was validated.

[66] With regard to the problems encountered, a problem of static likely to produce a spark causing the electronic controls to burn out had to be resolved. The problem was solved with grounding placed between the assemblers.

[67] Assembly testing as such was not interrupted by the automation of communication. Tests were still being conducted with respect to the conveyor, templates, etc.

[68] This project continued in 2010.

[69] 9,000 $160,000 person-hoursIn in 2009, salariestheandin appellant $2,600 this project. in materials. conducted 29 The 30 appellant 22 tests claimedand investedapproximatelyover

[70] developedSubsequently, by the appellantMabe/Generalin plants inElectricMexico. attempted 31 to apply the knowledge Project 2009-02: printing finishings (application of secondary components) 32

[71] This is the only project with no connection to Mabe/General Electric. Prior to 2009, the appellant had already established a printing finishing line that made it possible to handle a variety of printing components (magazines, cartons,

29 See Exhibit A-12 at the page or tab entitled [TRANSLATION] “Accounting portion” in column I regarding Project 2009-01. 303132 SeeSee, For example, theinterfirstaliapagea, smallpagesof Tabsample 2686 andof orExhibit 320 a couponof theI-2. Transcript. on a printing component.

advertising inserts) and to add secondary components; there was a suction conveyor and various equipment (a primary feeder, a secondary feeder, a glue applicator, a label maker, two folding modules, etc.).

[72] These operations were all conducted at a nominal rate of 6,000 applications per hour. Individually, the various equipment types could operate much faster than together.

[73] In 2009, the objectives were to (i) increase the speed at which all operations could be conducted together to 11,000 applications per hour; (ii) modify the secondary power supply so as to accommodate larger components; and (iii) add new secondary components.

[74] Among the issues to be addressed to achieve the key objectives were the irregularity in the amount of glue applied to the components, the positioning of a new module generating labels, the elements not detected by the detection module and the synchronization of equipment.

[75] In 2009, the secondary feeder that was modified to accommodate larger components was installed and its stability was confirmed. By the end of the year, the objective of 11,000 applications per hour still had not been reached when all the modules were working together.

[76] Once the testing was completed, the materials were recycled, and not disassembled as in the case of the other projects.

[77] To Mr. Caouette’s knowledge, a Chicago-based company reportedly has similar facilities, but he did not wish to share that knowledge. Mr. Caouette had not been able to find an assembly line already capable of performing the required work. Certain modules, such as the glue application module and the label application module, were purchased “as is” but had to be adapted to the line developed by the appellant. Other modules were entirely developed by the appellant, including the primary feeder, the detection system, the secondary feeder, the modified secondary feeder and the folding modules.

[78] 6,000 $74,000 person-hoursInin 2009, salariestheandin $300 appellantthisinproject. materials. conducted 33 34 The 13 appellanttests andclaimedinvestedapproximatelyclose to Expert evidence 35

[79] The appellant called Martin Gariépy as an expert witness. Mr. Gariépy has a bachelor’s degree in pure mathematics, a master’s degree in aerospace engineering and a doctoral degree in mechanical engineering. He taught some courses at the …cole polytechnique de Montréal and carried out various work related, inter alia, to aerodynamics.

[80] Mr. Gariépy was recognized as an expert.

[81] The respondent called Steven Kooi as an expert witness. Mr. Kooi has a Bachelor of Science in chemical engineering and master’s and doctoral degrees in mechanical engineering. Prior to working for the Canada Revenue Agency, Mr. Kooi had 22 years of varied experience in the industry.

[82] He was a scientific advisor at the audit stage.

[83] The appellant objected to Mr. Kooi’s recognition as an expert witness. The appellant did not challenge Mr. Kooi’s training and experience, but rather his independence. I took the objection under reserve and allowed Mr. Kooi to testify. For reasons that will become apparent below, it is not necessary for me to adress thatratherobjection. than his independence. I note that what 36 is important is the impartiality of the expert witness

33 See Exhibit A-12 at the page or tab entitled [TRANSLATION] “Accounting portion” in column G regarding Project 2009-02. 3435 SeeI willthenowfirstexaminepage oftheTabexpert 6 of ExhibitevidenceI-2. and analyze the first project at issue and will then come back to the other projects. 36 The mere fact of being a Canada Revenue Agency employee is, in and of itself, insufficient to refuse to recognize

someone as an expert. A more in-depth study of all the circumstances is required. The key issue is whether or not the

witness is impartial. See Hospira Healthcare Corporation v. Eli Lilly Canada Inc., 2010 FCA 282, in which the

Federal Court of Appeal stated as follows:

8 While there has been judicial commentary on the desirability of experts being independent of

the parties and impartial in their opinions (see, for example, National Justice Campania Naveria

SA v. Prudential Assurance Co. Ltd. (“The Ikarian Reefer”), [1993] 2 Lloyd’s Rep. 68, at pp. 81-

82), one must distinguish between independence and impartiality. There is a corpus of law dealing

with the question of independence as a bar to the admissibility of an expert’s evidence, as opposed

to a factor to be considered in assessing the weight to be given to that evidence. Those cases are

[84] The findings of the two expert witnesses are that the projects are or are not, scientific research and experimental development within the meaning of the Act. However, subject ofthatanisexperta questionopinion. that 37 mustWhilebe answeredthe old byrulethethatCourtan andopinioncannotis beneverthe admissible when it concerns the very question to be decided by the judge has been discarded for some time now, “the closer an expert opinion comes to opining on thevalue.” ultimate 38 issue in dispute, the more the trial judge must scrutinize its probative

[85] I note that, generally speaking, it would have been useful to have expert evidence that focused more specifically on the current state of practices and knowledge respecting assembly methods and techniques.

[86] I note that Mr. Gariépy’s report is relatively general.

Mr. Kooi’s testimony

[87] I have several difficulties with Mr. Kooi’s testimony and report as an expert witness.

reviewed in United City Properties v. Tong, 2010 BCSC 111. It is not necessary for us to settle

this debate in order to dispose of this case. I would say though, that a review of many of those

cases suggests that that which is being attacked under the name of lack of independence is often,

in fact, lack of impartiality. Lack of impartiality is the mischief which has given rise to the recent

amendments to the Federal Courts Rules, SOR/98-106, to which reference was made by counsel

for Hospira.

9 None of the cases relied upon by Hospira are authority for the proposition that the testimony of a

properly qualified expert may be rejected solely on the basis of the latter’s lack of independence.

Merck &Co v. Apotex Inc., 2004 FC 567, [2004] F.C.J. No. 684, deals with the issue of the

appropriateness of a protective order. No decision was made as to the admission or rejection of

expert evidence. In Biovail Pharmaceuticals Inc. v. Canada (Minister of National Health and

Welfare), 2005 FC 9, [2005] F.C.J. No. 7, the Court, after repeating the often quoted passage from

The Ikarian Reefer, accepted as an expert witness the applicant’s Vice-President, Pharmaceutical

Technology, over the objections of the respondents who questioned his financial interest in the

outcome of the litigation. In Lundbeck Canada Inc. v. Canada (Minister of Health), 2009 FC 146,

[2009] F.C.J. No. 249, the Court rejected a challenge to the qualification of a certain witness as an

expert on the basis that the witness had testified for the same party 20 times in the past 30 years.

The Court accepted his evidence after a reading of his cross-examination disclosed his objectivity.

As the Court of Appeal noted, there is a controversy as to whether partiality is a matter of weight or admissibility;

given my findings below, it is not necessary for me to settle this controversy.

The serious problems I have with the testimony of the respondent’s expert, which I express below, illustrate the

dangers 3738 See, See R. forofv. example, havingJacobsthe, 2014 thescientificbottomABCAofadvisor 172, pagesattestifyparagraph 8 to 23 atoftheExhibit 60; auditI recognizestageA-10 asandthatanparagraphexpertJacobswitness. is 7.5 in ata completelypage 19 of ExhibitdifferentI-3. situation.

[88] My first difficulty is the following. In his testimony and in his report, there is some confusion between his role as a scientific advisor during the audit and that as an expert witness.

[89] As a scientific advisor at the audit stage, it is completely normal that Mr. Kooi would be guided by the Canada Revenue Agency guidelines with respect to scientific research and experimental development, including certain proof of facts standards that the taxpayer is required to establish to satisfy the Agency.

[90] However, his role is different as an expert witness, as it is his personal expertise on such matters as whether there is technological uncertainty. An expert may agree with a recognized authority within a field, but he or she must nevertheless form his or her own opinion.

[91] In his testimony and in his report, there are times when Mr. Kooi often seems to be guided more by the Canada Revenue Agency’s guidelines and policies than his personal expertise.

[92] contemporaneousFor instance, documentationMr. Kooi gaveexistsconsiderableas requiredimportanceby the Agency. to whether 39 Ata degreethe auditof stage, the Agency is at liberty to decide what the taxpayer should normally do to convince it of certain facts.

[93] However, in the course of an expert’s testimony, he or she expresses an opiniondetermineonthethefacts. basis 40 Ifoftherecertainis a facts; controversyit is notaboutthe therolefacts, of theit isexpertfor thewitnesscourt toto decide what the facts are.

[94] Whether contemporaneous documentation exists, or not, and the fact that documents contain, or not, certain information are relevant to the resolution by the Court of controversy about facts. However, the existence of contemporaneous documentation, condition to the recognitionor contemporaneousof scientificdocumentsresearch orwithexperimentalspecific content, development. is not 41 a

39 See, for example, the last paragraph of page 23 of his report (Exhibit I-3) or paragraph 9.4.2 at page 34 of his report. 40 Although there are situations in which an expert may testify to things he or she has personally observed; for

example, a doctor who testifies as an expert upon examining a patient may certainly provide evidence of certain

observations 41 In 116736 madeCanadain theInc. coursev. Canadaof the examination., [1998] TCJThatNo. is 478 not (QL), the caseJudgehere. Archambault explains that contemporary

reports of any testing conducted are potentially very important evidence but not required. He states as follows:

[95] This confusion about roles is also illustrated by a number of references to the requirements of the Canada Revenue Agency, such as [TRANSLATION] “the Agency requiresprecedingthata listtheof 14 analysiselementstakeaboutintooneaccountpage long. the 42 following probative evidence”

38 Essentially, the issue in this appeal is whether a systematic investigation took place. The

scientific advisor to the Minister concluded that it did not because he was not given sufficient

evidence to prove such an investigation had been carried out. Essentially, he was not provided

with adequate reports describing the progress of the R&D projects and more specifically

describing the types of tests performed, the results achieved, etc.

39 Counsel for the Respondent argued that a systematic investigation cannot have taken place in

the absence of detailed reports evidencing step-by-step the investigation carried out by the

Appellant. Here, there is no evidence of calculations having been done in the course of the

investigation. Therefore, in counsel’s view, there was not enough evidence to support the

conclusion that a systematic investigation took place.

40 In my view, contemporary reports showing detailed records of each experiment attempted by a

researcher could constitute evidence of a systematic investigation. Any taxpayer attempting to

convince the Minister that he is entitled to deduct R&D expenditures without such evidence puts

himself in a very precarious position. A taxpayer would be in a similar position when appearing

before this Court to contest the Minister’s refusal to allow the deduction of his R&D expenditures.

41 However, the Act and the Regulations do not require that such written reports be produced in

order for a taxpayer to qualify for the deduction of such expenditures: it is possible to adduce

evidence by way of oral testimony. Whether the Minister or a judge could conclude that the

activities purported to have been carried out by the taxpayer were actually carried out then

becomes a question of credibility.

[Emphasis added.]

See also RIS-Christie Ltd. v. Canada, [1998] FCJ No. 1890 (QL), where the Federal Court of Appeal states:

14 …Although both documentary and viva voce evidence are admissible, the only sure-fire way of

establishing that scientific research was undertaken in a systematic fashion is to adduce

documentary evidence which reveals the logical progression between each test and preceding or

subsequent tests.

15 Thus, it is reasonable to expect a taxpayer to adduce documentary evidence of systematic

research, including testing. If, however, a taxpayer has a plausible explanation for the failure to

adduce such evidence, it is still open to the court to hold that, on a balance of probabilities,

systematic research was undertaken. For example, where research notes are accidentally

destroyed, it should be permissible for the trial judge to infer that systematic research was

conducted, having regard to the totality of the evidence. During oral argument, counsel for the

Minister accepted this proposition, if only because that scenario was inapplicable in the present

case. However, in my view, it should also be permissible to infer that a taxpayer had conducted

systematic research where it is established that such research led to a technological advancement. I

say this because the whole foundation of the scientific research provisions of the Act and

Regulations should not rest solely on the repeatability criteria. Otherwise, repeatability would

negate the validity of all other evidence pertaining to scientific research.

In reviewing the trial decision in RIS-Christie, it is clear that there was a limited documentation that did not meet

all of the Agency’s requirements.

Moreover, I note that in this case part of the documentation is contemporaneous; for example, the pages or tabs

entitled [TRANSLATION] “Chronology 2009″ (a form of log), “Data” and “Perf Dos” in the Excel spreadsheets in

Exhibit A-12 are derived from the appellant’s database, for which the data was collected as activities were being

carried out. Further details about [TRANSLATION] “Data” are provided in note 59 below. I also note that Exhibits A-3 and 42 Mr. A-4 Kooi’sare contemporaneousreport, Exhibit I-3, andpagescontain 17 certainand 18. limitedThe listinformationis duplicatedaboutonthepagesprojects. 24 and 25, 35 and 36, 44 and 45.

See also the two last lines of paragraph 9.6 at page 37 of said Exhibit.

[96] The penultimate conclusion at page 47 of the report 43 is as follows:

[TRANSLATION]

We conclude that the documents adduced by Les Abeilles to support the testing

claimed were not contemporaneous with the testing. Despite the fact that

materials used for the testing were provided by the clients, and not claimed by Les

Abeilles, the materials used and applied in the testing are part of the supporting

documentation required for the progress, evolution and justification of the testing.

Once again, it is a matter of determination of facts and not expertise. 44

[97] I conclude from all of this that Mr. Kooi was not impartial.

[98] Before moving on to my second difficulty, I note that Mr. Kooi’s emphasis onfactualthe absencebasis of theof certainopiniondocumentsexpressed isis. such 45 that it is not always obvious what the

4344 ExhibitIt is surprisingI-3. to read the following in what is supposed to be an expert report [TRANSLATION]: “The information

provided concerning project 2009-02 was false.” See lines 6 and 7 of page 46 of the Respondent’s report (Exhibit

I-3).

This sentence follows a sentence quoted by the appellant appearing in paragraph 1.2.1.1.6 on the first page 5 of the

Tab entitled “2009-02” (Exhibit I-1) which describes test 2305. Although there is an error in the sentence quoted by

Mr. Kooi and, as stated by Mr. Kooi, the appellant mixes up project 2009-02 and the three other projects, I note that

at paragraph 1.2.1.2.6 the appellant only says that the materials were provided by the client. The same is true with

respect to paragraphs 1.2.1.3.6, 1.2.1.4.6, 1.2.1.5.6, 1.2.1.6.6, 1.2.1.7.6, 1.2.1.8.6, 1.2.1.9.6, 1.2.1.10.6, 1.2.1.11.6,

1.2.1.12.6 and 1.2.1.13.6.

Project 2009-02 is the only one that does not involve Mabe/General Electric, and Mr. Caouette’s testimony, which

I accept, was that the materials for project 2009-02 were provided by the client and that everything was sent for

recycling at the end of the test.

I also note that the report’s last conclusion (page 47) is as follows [TRANSLATION]:

The claim for experimental production must meet the criteria outlined in Application Policy

SR&ED 2002-02R2.

45 For example, the third paragraph under “8.4.3” of Mr. Kooi’s report (Exhibit [EmphasisI-3, pagein the 24) original.] states as follows [TRANSLATION]:

For example, in test 2282, the purpose was to validate the addition of pneumatic valve actuators.

Indeed, 56 persons were involved in performing this test and related labour expenditures were

claimed. However, success was achieved after some adjustments. Based on the operation of the

machine on a twenty-four hour basis, there were 627.25 hours of testing corresponding to twenty-

six days of operations. The corresponding supporting documentation was not submitted. We do

not have the means to verify the validity of the activities claimed by these employees in the

project.

When I read this passage, I ask myself the following questions: Does Mr. Kooi accept that test 2282 was

conducted while at the same time questioning the length of the test and the number of persons assigned to the test?

Does the witness question the description of the test found at the bottom of page 10 of Tab 8b of Exhibit I-2? (This

same document is found on page 001365 of Tab 4 of Exhibit A-1. Provided elsewhere in the documents is a similar

page where the description at the bottom of the page is shorter. Pages 56 to 58 also pertain to test 2282 and are

found at Tab 9 of Exhibit I-2.)

[99] Second, in view of contain numerical errors, it is quite clear that, in reaching his conclusions, Mr. Kooi’s perception of part of the context was somewhat flawed.

[100] Specifically, it is clear that in preparing his report, the witness believed that the amount of time claimed for production-line testing was greater than it actually was.

[101] Mr. Kooi’s report regarding project 2007-02, reads, in part:

[TRANSLATION]

In reviewing Table 2, eighteen tests were conducted and between 11 (test 2456)

and 56 persons (test 2282) were involved in said tests. We found that in these two

extreme cases, the estimated time spent on these tests and claimed as

experimental production, based on the machine operating twenty-four-seven, were

11 days and 26 days. The justifications for these lengthy tests, such as test data,

theIt is reportdifficultandforreasonsus to confirmfor continuingthe validitytestingof thefollowingclaim. 46 tests, were not established.

[102] It is apparent from this paragraph that the witness assumed that the two production tests in question, 2456 and 2282, lasted the equivalent of 11 and 26 days, respectively, operating continuously on a 24-hour basis.

[103] In Table 2, there is a summary of all the tests conducted during the year for project 2007-02. Test 2282 is the one with the most number of hours, 627.25 hours. Test 2325 is the one with the least number of hours, 113 hours. That is the equivalent of 4.7 periods of 24 hours, approximately five days.

[104] The total hours in Table 2 is over 6,000 [TRANSLATION] “hours of tests.” It is the equivalent of 250 periods of 24 hours or 250 days.

[105] If that particular production line operated 365 days per year, 24 hours per day, the tests would represent over 68% of the annual operation of the production

In this example, in the context of the title of section 8.4.3 at page 24 of the report, I am inclined to believe that it is

rather the quantum of time that is being questioned. However, if quantum is the issue, it is not clear why this would

have an impact on the characterization of the activity described.

As we will see below, the figures in the paragraphs quoted are incorrect. There were 28 persons involved at

different times of the test and not 56; there were not 28 persons present at the same time. We will also see that the

test did not last 26 twenty-four-hour days, but rather lasted a much shorter period of time, probably about 20% of the

time 46 Mr. indicatedKooi’s report, in the report, ExhibitasI-3, therepagewere 26, 627.25 middle person-hoursparagraph. of work on the test and not 627.25 hours of testing.

line in question. However, if the line 24 hours per day, 5 days per week, it would be the equivalent of close to 100% of the annual operation of the line.

[106] If that were the case, I could see how this would raise doubts from a factual perspective given that it is an operational production line.

[107] This error does not occur only with project 2007-02. In the last paragraph of

page 43 pertaining to project 2009-02, the same type of presumption of fact is

made according to which the 537.5 hours represent a test that lasted 22 days.

[108] 2007-01. In 48 theThereport, total [TthereRANSLATIONis a Table] “hours 1, 47 similarof tests” to Tablein Table 2, 1 pertainingis over 8,000 to projecthours or 330 periods of 24 hours. In the light of how the witness construed the hours of testing, this implies that he understood the claim as being for hours of tests, which is almost the entire use of the production line for the year.

[109] However, in reviewing the evidence, it is clear that it is person-hours of worktests lastedover thefar courseless timeofthantesting, the witnessnot hoursthinks. of operation 49 of the production line. The

474849 ExhibitThereIt is obviousareI-3, similarpagefrom 13 tablestheofevidencetheforreport, projectsthatTableit 2009-01 is person-hours 1. and 2009-02. of work, not hours of testing. I recognize that in the appellant’s documents, there is, inter alia, one page for each test with a description, including the name of the employees who participated in the production and the number of [TRANSLATION] “hours of tests.” Mr. Kooi interpreted [TRANSLATION] “hours of tests” literally. The respondent would have been more precise in describing it as [TRANSLATION] “person-hours of work spent on the test.”

However, it is clear that it is person-hours. If we take for instance project 2009-02, the amount of salaries claimed

is $110,416 (see paragraph 21q) of the Reply to the Notice of Appeal). It is obvious that $110,000 is not enough to

cover over 6,000 hours of operation of the production line when there are several employees. If the employees were

paid only $10 per hour, there would be 11,000 hours of work, which would be equivalent to fewer than two

employees on average per hour of production. The sheets pertaining to each test show that there were a number of

persons involved in each test (see, for example, page 3 of Tab 8b of Exhibit I-2).

Furthermore, spreadsheets are in evidence at Exhibit A-12. At the page or Tab entitled “Data,” there is a list for

each employee who worked over the course of a test: the name or number of the employee, the date, the time of the

test, the start time and the number of hours of work. It is clear from this data that there were still several employees

working over the course of each test, which is not surprising as they production tests.

While I did not perform a detailed analysis, after reviewing the information under “Data” for all the tests of

project 2007-02, I am satisfied that in terms of size, there were typically five employees or more who participated

and worked at the same time during each test of project 2007-02.

For example, for test 2282, already discussed, all this information is provided in lines 3081 to 4242 of “Data”

under “Mic 2007-02” of column M. It is therefore necessary to divide the number of person-hours by a minimum of

five to get an idea of the number of hours of duration of the tests on the production line.

As for the other three projects, when we look at the page or Tab entitled “Data,” it is also clear that several

persons participated in each test.

[110] In the paragraph cited above, the report also says that 56 persons were involved in test 2282. However, the witness corrected that at the beginning of his testimony and indicated that it should have been 28 persons instead of 56.

[111] More generally in Table 2, he corrected the column entitled [TRANSLATION] “Numbergeneral rule, of bepersonsdividedinbyTabletwo. 502;” the number indicated on each line must, as a

[112] I conclude that, in preparing his report, Mr. Kooi’s findings were drawn from, inter alia, a factual basis where the tests pertaining to the four projects in questionof the year. accountedThe evidencefor theshowsprimarythatusetheofteststhelastedfour productionfar less time. lines 51 for the majority

[113] Such a contextual error must necessarily affect one’s opinion. 52

[114] expertForwitness. these 53 reasons, I give very little weight to Mr. Kooi’s testimony as an

[115] However, insofar as Mr. Kooi testified about what he did as a scientific advisor at the audit stage, I accept his testimony, but I note that it is not expert evidence.

[116] The reasons that led Mr. Kooi, as a scientific advisor, to conclude that it was notdatedexperimentalNovember 18, development 2010. 54 are summarized in his technical review report

[117] Except for project 2009-01, Mr. Kooi concluded that there was no technological obstacle, as they were engineering challenges and the solutions were based on current standard engineering practice.

5051 HeWithmadethethepossiblesame correctionexceptioninofTablesproject 1, 32009-02 and 4. where, according to the witness’ reasoning, there were over

170 days, of twenty-four hour duration, of tests. That would be approximately 47% of the line’s use per year if the

lien were operating twenty-four hours per day, 365 days per year. It is highly likely that the 170 days represent over

50%. 52 I note that for part of project 2009-01, Mr. Kooi did not provide an opinion. On page 38 of his report, (Exhibit I-3) in the last paragraph, he stated that part of the project [TRANSLATION] “was uncorroborated.” In his testimony, he explained (pages 870 and 871 of the Transcript) that [TRANSLATION] “uncorroborated” meant that he was unable to provide 53 Insofaranasopinion. he testified about what he did as a scientific advisor at the audit stage, I accept his testimony, but I note that 54 Exhibitit is notI-2, expertTab 7. evidence.

[118] For example, his conclusion regarding project 2007-01 is as follows:

[TRANSLATION]

… we found that tests were conducted to address issues that did not constitute a

technological obstacle. The issues to be addressed for these projects as described

were as follows…: improvements in the hub of the pulley press capable of

working on all types of motors, the alignment of motors, the alignment of pulleys,

improvements in cycle time, the validation and confirmation of the operation of

equipment, etc., are engineering challenges. The solutions applied to address these

issues are based on current standard engineering practice by trial and error. We

conclude that, with respect to this claim, some of the work performed is related to

theand applicationimprovementof ofdevelopedseveral assemblytechnologystations. to a new 55 situation to stabilize the process

[119] The case of project 2009-01 is a little different, as the report concluded that [Tprovided. RANSLATION 56 ] “ the work was uncorroborated” and therefore no opinion was

[120] In reading the report dated November 18, 2010, given the importance Mr. lackKooiof contemporaneousattached to it duringdocuments. his testimony, 57 there is surprisingly no mention of a

A note on the facts and documents

[121] their contentIt is usefulwas notat thisdisputed. point to 58 note that the documents were filed by consent and

[122] Therefore, I assume that the factual descriptions of the projects and tests in theseas welldocumentsas what wascorrectlydone duringreflecttesting. the purpose 59 and accomplishments of the projects

555657 ExhibitExhibitNor wasI-2, I-2, thereTabTab 7, 7, referencereportreport dateddatedto theNovemberNovemberabsence 18, 18, of a 2010, 2010, log orpagepagethe 4. 5 almost (middlecompleteparagraph) absenceand pageof material 6. expenses on the

appellant’s part.

I pause here to note that during his testimony, Mr. Kooi repeatedly attached great importance to the almost

complete absence of material expenses: see, among the many examples, Mr. Kooi’s testimony at pages 904 and 905

of the Transcript. I cannot understand why the fact that the appellant had no material expenses, in circumstances

where the material was supplied by the client, is an indicator that there was no experimental development.

If the Minister does not believe that material was used and that no tests were performed, or if the Minister believes

that it was simply production that was actually sold, he should issue an assessment that is based on such assumptions

of fact and the Court would have to determine what happened. However, that is not the case here; the evidence is

that 58 Inthepreparingmaterialhiswasreportsuppliedon byNovemberthe client. 18, 2010, it is clear that Mr. Kooi consulted, inter alia, all the documents

contained in Tabs 8 and 9 of Exhibit I-2 (see page 2 of the report in Tab 7 of the same Exhibit). Mr. Kooi did not

appear to have had any hesitation in relying on these documents to render his decision in the report.

Mr. Gariépy’s testimony 60

[123] Mr. Gariépy began testifying by providing some definitions. First, he explained what “scientific uncertainty” means. On the one hand, he cited the definition by the Canada Revenue Agency and, on the other hand, he gave his interpretation of the phrase. According to him, there is scientific uncertainty when a specific objective is identified but it is unknown whether and how it will be achieved. He then defined the concept of “systematic investigation.” This means that once the uncertainties have been identified, a literature review will have to be completed to find existing solutions, make hypotheses and perform tests to support orparticulardisproveform. them. 61 He added that the systematic investigation need not assume a

[124] Finally, he explained what “technological advancement” is. It is, based on his understanding of the Agency’s policy, an advancement of the company’s knowledge or processes that is not easily accessible; for example, such an advancementmachine. 62 is not attainable through a literature review or the purchase of a

[125] Then, Mr. Gariépy provided his opinion on the presence of uncertainties in the various projects. With respect to project 2007-01, pertaining to the assembly of motors, Mr. Gariépy was of the view that it was obvious that there were scientific

59 Mr. Kooi stated in his report and testimony that many documents were not contemporaneous. That is correct, but

because the documents were admitted by consent and their content was not questioned, their content remains

detailed evidence of the projects’ accomplishments.

I note that Mr. Kooi testified that no contemporaneous log or logbook was kept; I am unable to understand this

statement, as the page or tab entitled [TRANSLATION] “Chronology 2009″ of the Excel spreadsheet in Exhibit A-12 is a form of “log” kept contemporaneously by the appellant in its database. The content of [TRANSLATION]

“Chronology 2009” may not contain all the information that according to the Agency ought to be in a log, but I do

not see how it can be said that there is no contemporaneous log. Parts of [TRANSLATION] “Chronology 2009″ are

elsewhere in the documentary evidence and the portion relevant to project 2007-01 is reproduced in AppendixA of

these reasons.

I also note that the page or tab entitled “Data” details all the hours worked during testing (name of the employee or

sometimes the employee number instead of the name, date, time of arrival, time of departure, nature of the

employee’s work, for example the project and test number). Moreover, “Data” also appears to include the hours of

work not related to the project. It is data that was recorded contemporaneously in the appellant’s database.

Mr. Caouette explained that each employee had a barcode and that each type of task had a barcode-for example,

there was a barcode for each test. When the employee started work, for example, on test number 1, he or she

scanned his or her personal barcode with a barcode reader and then scanned the barcode for the test; all this was

saved in the appellant’s database.

I have already indicated in a note that Exhibits A-3 and A-4 are contemporaneous documents that contain certain

limited 606162 ITranscript, Transcript, noteinformationthat thepagespageswitnesspertaining 548556 toandmade 552. 557. torepeatedthe projects. references to the documents and definitions of the Agency.

uncertainties in this project. It was unknown, at first, whether the objective of achieving a nine-second cycle time was attainable. The same is true for the basic objective of assembling all motor types on the same line.

[126] As for project 2007-02, regarding heating elements, there were uncertainties with respect to cycle time, rejection rates and the assembly of the various models on the same line.

[127] As for project 2009-01, pertaining to control panels (backguards), Mr. Gariépy stated that the sum total of what was being sought was uncertain. Although lean manufacturing is a known theoretical concept, its practical application requires development.

[128] Finally, project 2009-02, regarding printing finishings, was also uncertain. The fact that each separate element has the potential of achieving the intended objectives does not preclude uncertainty about the overall objective of having everything work together.

[129] Mr. Gariépy stressed the fact that it is necessary to look at the projects [TRANSLATION] “ from the highest level,” that is to say, that it is necessary to look at a project as a whole. To look at every little step would be tantamount to distorting the project. He noted that it is possible that a secondary objective does not represent uncertainty, which does not preclude the validation of the project as a whole. Later in his testimony, Mr. Gariépy stated that, according to his interpretationthe project in itsof theentirety, CanadanotRevenuejust in theAgency’sfiscal yeardirectives, concerned. it is 63 necessary to look at

[130] According to Mr. Gariépy, there is no question that there was a systematic investigation on the appellant’s part. Team meetings were held to determine objectives, accessible solutions were sought in the literature, tests were planned and documented, and conclusions were drawn.

[131] each project. Mr. Gariépy 64 Forthenprojectprovided 2007-01, his opinion (the factaboutof)attainingtechnological 10.9 advancementseconds is anin advancement. The adaptation of the hub, of the pulley press, etc., are advancements.

6364 Transcript, Transcript, pagepages 607. 575 to 583.

[132] As for project 2007-02, numerous advancements were also made. The mere fact of making the assembly process more stable is an advancement.

[133] Project 2009-01 itself is an advancement. A [TRANSLATION] “ new assembly line concept” was developed that did not exist before, at least not in practice. In Mr. Gariépy’s view, a major indicator of the level of advancement was the subsequent technological transfer to Mexico.

[134] As regards project 2009-02, the more than 50% increase in the number of applications per hour by increasing synchronization is a major advancement.

[135] Mr. Gariépy was critical of the report by Mr. Kooi, the respondent’s expert, on the grounds that he looked at the projects far too closely, instead of looking at themunderstandingfrom theof thehighestvariouslevel. projects. He 65 also expressed doubt as to Mr. Kooi’s

[136] Mr. Gariépy then addressed the issue of TRANSLATION] “ current practices” that is often referred to in Mr. Kooi’s report. According to Mr. Gariépy, [TRANSLATION] “ current practices are processes or methods…that are introduced on a regular basis.” Again, his definition is a clear and simple explanation of the CanadaresortingRevenueto currentAgency’spractice if definition. it can help usAccordingachieve ourto objective. him, there 66 is no harm in

[137] In his cross-examination, Mr. Gariépy explained that the fact of completing a project at a lower cost when the technology is available elsewhere, but at a greater cost, can represent an advancement. He then referred to the software developed as part of project 2009-01.

Analysis

[138] The central issue is: Do the four projects in question constitute “experimental development” as defined in the Act?

6566 Transcript, The witnesspagesalso 583 explainedto 586. that the projects completed by the appellant were not arrived at by mere [TRANSLATION] “trial and error,” that there were reasons for wanting to conduct such tests and validate such things

and that it was not enough to make a thousand and one changes to see which would yield the best results (see pages

597 and 598 of the Transcript).

[139] The phrase “experimental development” is defined as follows: 67

… work undertaken for the purpose of achieving technological advancement for

theimprovementspurpose ofthereto, creating 68 new… devices… or processes, including incremental

[140] Thus, the following questions must be answered:

(a) Were the projects undertaken for the purpose of achieving

technological advancement?

(b) Were they undertaken for the purpose of creating new processes,

including incremental improvements?

[141] The case law has developed a number of useful criteria to determine whether or not activities constituted scientific research or experimental development. These criteria, which were listed by Judge Bowman, as he then was, were approved by theCanadaFederal, 69 whereCourttheof Appeal. Court ofTheseAppealcriteriastatesareas follows: summarized in CW Agencies Inc. v.

17 Both sides in front of us relied on the test outlined in Northwest Hydraulic

Consultants Limited v. Her Majesty the Queen, 98 D.T.C. 1839. In that case,

Judge Bowman of the Tax Court outlined five criteria which are useful in

determining whether a particular activity constitutes SRED. Those criteria have

been approved by this Court in RIS-Christie v. Her Majesty the Queen, 99 D.T.C.

5087 at page 5089. The criteria are as follows:

1. Was there a technological risk or uncertainty which could not be removed

by routine engineering or standard procedures?

2. Did the person claiming to be doing SRED formulate hypotheses

specifically aimed at reducing or eliminating that technological

uncertainty?

3. Did the procedure adopted accord with the total discipline of the scientific

method including the formulation testing and modification of hypotheses?

4. Did the process result in a technological advancement?

5. Was a detailed record of the hypotheses tested, and results kept as the

work progressed?

6768 InTheparagraphcorresponding (c) of theFrenchdefinitiontext is ofas “scientificfollows: research and experimental development” of section 248 of the Act.

[…] les travaux entrepris dans l’intérêt du progrès technologique en vue de la création de

nouveaux […] dispositifs […] ou procédés ou de l’amélioration, même légère, de ceux qui

69 2001 FCAexistent. 393.

[142] It must be borne in mind that these crateria are used to help determine whether or not a technological advancement has occurred. The first crateria, technological uncertainty, is one way of dealing with the technological advancement criteria; there can hardly be a technological advancement if one already knows how to achieve the end result; the second and third criteria are, inter alia, one way of ensuring that the work was undertaken for the purpose of achieving technological advancement and that it was not, for example, an advancement achieved by accident rather than work undertaken for the purpose of achieving technological advancement.

[143] The five criteria are not absolute. For example, there is no requirement that the work must result in a technological advancement; if the work was unsuccessful butstill qualify. undertaken 70 for the purpose of achieving technological advancement, it may

[144] I will begin with a review of project 2007-01, motors for dryers.

[145] The evidence is very clear.

[146] There were two objectives at the beginning of the year: first, to increase the production rate for the sub-assembly of motors from every 14 seconds to every 9 seconds. Second, the appellant sought to produce all the different types of motors on the same production line, which, at the beginning of the year, could only produce [TRANSLATION] “regular” motors without having to stop production to change the motor size.

[147] At the end of the year, the appellant reached a production sub-assembly of approximately every ten seconds, an increase of about 40% and the appellant was able to carry out the sub-assembly of all motor sizes on the same line. As a result, not only was there an increase in productivity, but there was also a dramatic increase in the flexibility of production as the appellant was able to change the size of the motors many times per day.

[148] There is no doubt that not only did the appellant seek significant improvements in its production processes, but there were also significant improvements in the production processes of motors.

70 Similarly, with respect to the fifth criteria, while it may be desirable for an appellant to have the best

contemporaneous documentation possible, as this would strengthen his or her case, it is not an absolute requirement

(see paragraph 94 and note 41 above).

[149] Is this technological advancement, or the application of standard procedures or routine engineering, as the respondent contends?

[150] in and Itofisthemselves, true that whena significantreviewingadvancement. individual tests 71 they often do not appear to be,

[151] In argument, the respondent took the position that Mr. Gariépy went too far by looking at project 2007-01 in its entirety from its outset in 2007.

[152] I fully agree that experimental development was required in the year in question. However, this does not mean that one cannot examine the history of a project that began in a previous year by considering whether, in the particular year at issue, “experimental development” was carried out within the meaning of the Act.

[153] not eachFurthermore, test individually. it is important 72 to consider each project globally in the year and

[154] The evidence is very clear that the appellant did not know at first how it would go about increasing the production rate of motors from every 14 seconds to every 9 seconds; nor did it know how it would go about changing the production line to able to produce all motors on the same line.

[155] The appellant had access to the knowledge network of Mabe/General Electric. Mabe/General Electric engineers were only able to provide general principles. The appellant was unable to find a ready-made solution by speaking with its suppliers or by conducting Web searches.

[156] cost-itsThetotalappellantclaim forhadthisto projectcome upwaswithlessitsthanown $239,000. solutions, 73 at relatively modest

[157] I accept, as Mr. Gariépy testified, that there was “systematic investigation”. This can be seen very clearly in the numerous documents produced, including those found in Tabs 8 and 9 of Exhibit I-2. It is clear from these documents that

7172 ForOf course, example, thereon Marchis always 16, 2009, the possibilitythe increaseof ina controversy, the diameter ofnamely, the mainas airto whetherhose. a stage or test is part of an

experimental development project, but in this appeal it has never been suggested that a particular test was not part of

one of the projects. The discussion proceeded on the basis that each project was or was not experimental

development. 73 We do not know the value of the material contribution by Mabe/General Electric.

hypotheses were formulated and that the scientific method was applied. 74 I note that this is also true for the three other projects.

[158] To find solutions, the appellant had to conduct 32 tests and invest over 9,000 person-hours. For each test the appellant had to make necessary changes to the production line and, after the testing, the appellant restored the line to the same state it was in prior to the changes made for the tests. The sub-assemblies were then disassembled.

[159] These were not tests where adjustments were made to a known production process. They entailed a series of changes, some of which helped with the objectives and others that were unsuccessful. There was no certainty of the result, and indeed, the appellant, despite all of its efforts, was unable to achieve its sub-assembly objective of every nine seconds in 2009.

[160] As for the tests that were successful, it was only later, with the approval of Mabe/Generalline. 75 Electric, that the changes were finally put in place on the production

[161] I do not see how, under these circumstances, what the appellant did in 2009 canTherebewasclassifiedtechnologicalas an applicationuncertainty. of 76 standardThese wereproceduresnot standardor routineprocedures. engineering.

[162] At the end of the year, the appellant had a new process that consisted of certain equipment arranged and adjusted in such a specific way so as to henceforth produce more quickly and with greater flexibility.

[163] undertakenThereforis thatno doubtpurpose. that 77 it is technological advancement and that the work was

[164] The situation is rather similar for the other projects.

74757677 TheSeeTheAs forparagraphsecondfirstthecriteriafourthand 34 thirdabove. above. criteria, criteriaas notedlisted earlier, above. although the purpose must be technological advancement, a project may

be unsuccessful. Here, as it turns out, the appellant was successful. As for the fifth criteria, as already stated,

although the Act does not require any particular documentation, adequate documentation is instrumental in helping

an appellant demonstrate that experimental development was carried out. In any event, in the present case, there is

some contemporaneous documentation, and there is also significant evidence before me.

[165] In the case of project 2007-02, in early 2009, the appellant had three objectives: first, to achieve the speed sought-sub-assembly every 7 seconds-but at the beginning of the year it had only achieved 9.6 seconds; second, to achieve the desired quality standard, less than 300 rejects per million; third, to integrate newthat wasmodelsalreadyof heatingin production. elements 78 in addition to the [TRANSLATION] “regular” model

[166] Again, the appellant did not know how it was going to achieve its goals. Information on how to achieve them did not exist elsewhere.

[167] As in the first project, the appellant had to conduct numerous tests to find solutions. Specifically, the appellant conducted 19 tests and invested over 7,500 person-hours in this project. As was the case for the other projects, most of the tests consisted of a significant number of production hours and a significant amount of production. The sub-assemblies produced were disassembled in Mexico as were those produced for the first project.

[168] As part of the project, the appellant undertook a systematic investigation and, at the end of the year, it was partially successful in achieving its objectives. It successfully integrated the new models of heating elements, but it was only partially successful in achieving its objective in relation to assembly time. The appellant 8%. 79 Finally, achievedas forathetimequality, of 8.9 theseconds, goal hadanyetimprovementto be attainedofasslightlyof the endlessofthanthe year.

[169] This came at a rather modest cost of approximately $111,000. 80

[170] Again, I have no doubt that there was technological uncertainty and that it was experimental development within the meaning of the Act.

[171] As for project 2009-01, regarding dryer control panels, it was a very ambitious project that began in 2009. With the [TRANSLATION] “surgeon approach” the appellant wanted to be able to have very flexible production processes while improving productivity when compared to what it originally was at the Mabe/General Electric plant.

78 For safety reasons, it was very important to ensure that the appropriate heating element was used in each sub-assembly. 79 However, a production increase of 8% per hour with the same team represents a real improvement in the cost of production. 80 Plus the contribution of Mabe/General Electric of which the monetary value is unknown.

[172] It is not surprising that this project had significantly more difficulties when one considers how ambitious the objectives were: a system (i) capable of making 174 variations of panels; (ii) ensuring the attainment of the particular variation ordered within four hours of the order being placed; and (iii) while increasing the production rate.

[173] The appellant systematically carried out the project. In late 2009, the appellant validated the [TRANSLATION] “surgeon approach,” but overall it was not successful 9,000 person-hoursin achievingand $163,000 its investedobjectives, in thedespiteproject. 8122 tests, approximately

[174] It is clear that the appellant did not know how it was going to achieve its objectives and that there was technological uncertainty. It was work undertaken for the purpose of achieving technological advancement. The procedures were not standard.

[175] Finally, as for project 2009-02, regarding printing finishings, early in the yearsecondarythe appellant’scomponentsobjectivethat couldwas beto addedincreaseto byprintedovermaterials, 80% the 82 numberenable theof secondary feeder to accommodate larger components and add new secondary components.

[176] The appellant conducted 13 tests and invested over 6,000 person-hours and approximately $74,000.

[177] Again, it is clear that there was technological uncertainty; the appellant did not know at the outset how it was going to achieve its goals and, indeed, it was only partially successful in achieving them-at the end of the year the secondary feeder could accommodate larger components, but the goal of 11,000 applications perknowledgehour hadelsewhere, yet to butbe wasattained. unableTheto doappellantso 83 andtriedthereforeto obtainhad theto developnecessaryits own solutions.

81 Plus, as in the other cases, the material provided by Mabe/General Electric, which, as with the first two projects, then 8283 ElevenSeedisassembledparagraphthousand 77 theapplicationsabove. panels. per hour instead of sixthousand.

Conclusion

[178] In summary, the four projects in question constitute experimental development within the meaning of the Act.

[179] Accordingly, the appeal will be allowed, with costs, and the matter is referredreassessmentbackontothethebasisMinisterthat projectsof National 2007-01, Revenue 2007-02, for 2009-01 reconsiderationand 2009-02 and 84 constitute experimental development within the meaning of the Act.

Signed at Ottawa, Ontario, this 23rd day of October 2014.

“Gaston Jorré”

Jorré J.

Translation certified true

on this 15th day of June 2015

François Brunet, Revisor

84 To clarify, the work undertaken as part of these projects is listed in the list of work and tests in Tab 5 of Exhibit

A-1.

APPENDIX A

Project 2007-011

9-Jan-09 Meeting on planning and roles Discussions with Serge and Sébastien

to determine how to speed up the line

and shut-down dates

12-Jan-09 Universal hub production Installation and validation of a new

testing hub on press no. 2 to produce all

types of pulleys

20-Jan-09 Electronic system recalibration Use two contacts per relay instead of

testing (relay) one on press no. 2 to prevent the

contacts from fusing together and

validation

22-Jan-09 Validation testing of cycles for Test with press no. 2 to validate

pulley press 2 work cycles with different pulleys

2-Feb-09 Validation testing of universal Universal press speed test (16.2

press (9-second cycle target) seconds/9 seconds), need for entire

line to improve cycle time

4-Feb-09 Connection of pulley press 2 Replacement of press no.1 with press

no. 2

9-Feb-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) with press no. 2 (14.2

seconds/9 seconds)

23-Feb-09 Universal hub production Test with actuator positioner on

testing automatic hub

24-Feb-09 Actuator positioner (unsuccessful) Production testing with press no. 2

(universal hub) and actuator positioner

26-Feb-09 Plate positioning test before Motor plate positioning test on work

universal hub template with actuator positioner

9-Mar-09 Universal line validation testing Validation test of modified universal

(9-second cycle target) line (cycle of 13.7 seconds/9 seconds)

1 This table is taken from Exhibit A-12, which contains an Excel spreadsheet by the appellant. It has been slightly

modified to more clearly show which events are tests. Specifically, it is the part related to project 2007-01 of the

page entitled [TRANSLATION] “Chronology 2009.” Table 1 of Mr. Kooi’s report (pages 13 to15) is a list of the same

tests included in the table here except that Table 1 of the report only refers to the tests and not other events, and the

descriptions are those of Mr. Kooi. It should be noted that Mr. Kooi corrected his Table 1 at the beginning of his

testimony. The number of persons involved must be reduced by half or, in some cases, by half, rounded down to the

closest integer. For example, for test 2231 in Table 1, Mr. Kooi indicates 27, but if we look at Exhibit I-1 in Tab

“2007-01” on the page describing 2231, in reviewing the list of names, there are 13 persons and not 27, which is the

total of the two columns, including the last line, which is a description. The page describing 2231 includes in the

first line at the top the date of [TRANSLATION] “September 3, 2009,” and is numbered 26 at the bottom. It is page 26

in the third group of pages numbered in the tab.

16-Mar-09 Calibration of pulley press 2 Recalibration of press no. 2 (increase

in downtime to ensure proper position

of the pulley on the shaft)

16-Mar-09 Recalibration of compressed air Increase in diameter of the main air

system hose to ensure constant flow

16-Mar-09 Validation testing with new Increase in diameter of the main air

calibration hose to ensure constant flow

30-Mar-09 Universal line validation testing Validation test of the universal line

(cycle of 13.2 seconds versus after modifications (cycle of 13.2

9 seconds target) seconds/9 seconds)

13-Apr-09 Universal hub production Production testing with universal

testing hubs

6-May-09 Reconfiguration of magnets for Replacement of magnets for pulley

pulley press 2 press no. 2 with stronger magnets to

prevent the pulleys from falling

8-May-09 Validation testing of the new Test to validate the new magnetic

magnetic configuration configuration

22-Jun-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) after modifications (cycle of 13.0

seconds /9 seconds)

23-Jun-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) after modification of the press (cycle

of 11.3 seconds /9 seconds)

29-Jul-09 Validation testing of the new Validation test no. 2 with the new

magnetic configuration magnetic configuration

20-Aug-09 Connection of pulley press 2 Connection of pulley press no. 2

24-Aug-09 Universal line validation testing Production validation test of the

(9-second cycle target) universal line (cycle of

14.1 seconds/9 seconds)

26-Aug-09 Modification of pulley press 2 Replacement of pneumatic signal

relays that tend to stick with larger

relays

26-Aug-09 Modification of the press program Addition of a condition in

(programmable logic controller programming to prevent a pneumatic

condition) signal conflict

27-Aug-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) after modifications (cycle of 12.3

seconds/9 seconds)

2-Sep-09 Universal line validation testing Validation test no. 2 of the universal

(cycle of 14.0 seconds versus line after modifications (cycle of 14.0

9 seconds target) seconds/9 seconds)

3-Sep-09 Universal hub production Production testing with new

testing universal hubs

9-Sep-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) with new universal hubs (cycle of

27.1 seconds/9 seconds)

14-Sep-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) (cycle of 11.3 seconds/9 seconds)

16-Sep-09 Validation of pulley press cycle Validation of pulley press cycle time

time

17-Sep-09 Validation of pulley press cycle Test to validate the cycle times of

time pulley press no. 2

17-Sep-09 Universal line validation testing Validation test no. 2 of the universal

(9-second cycle target) line (cycle of 10.9 seconds/9 seconds)

18-Sep-09 Calibration of pulley press 2 Pneumatic recalibration of pulley press

no. 2, redefine minimal operating

pressure

21-Sep-09 Universal line validation testing Validation test no. 2 of the universal

(9-second cycle target) line after modification of the press

(cycle of 11.7 seconds/9 seconds)

30-Sep-09 Change in configuration of Addition of universal hub limit

universal hubs detectors

1-Oct-09 Hub configuration validation Test to validate the change in

testing universal hubs

1-Oct-09 Change in universal hub Change in universal hub depth to allow

configurations for the constant manoeuvring of motor

pulleys

6-Oct-09 Universal hub production Production test with deeper hubs

testing (confirmed)

13-Oct-09 Universal hub correction Replacement of the hub with a median

diameter

14-Oct-09 Universal line validation testing Validation test of the universal line.

(9-second cycle target) Validation of the corrected hub,

negative too many Magellan motors

remain blocked. We have

determined that clearance is

probably a factor (cycle of

19.7 seconds/9 seconds).

20-Oct-09 Universal hub correction Universal hub diameter correction

21-Oct-09 Test: validation of the corrected, Validation of the corrected hub,

larger, hub negative too many motors are not

blocked, probably because diameter

too large.

9-Nov-09 Test: validation of the pad to Addition and validation of a rubber

prevent jamming pad on the automatic hub to prevent

jamming

11-Nov-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) after the addition of a rubber pad

(cycle of 10.8 seconds/9 seconds)

13-Nov-09 Universal line validation testing Validation test no. 2 of the universal

(9-second cycle target) line (cycle of 10.2 seconds/9 seconds)

16-Nov-09 Change in universal hub limits Suppression of the air reservoir on the

universal hub

16-Nov-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) after the suppression of the air

reservoir (cycle of 10.7 seconds/

9 seconds)

30-Nov-09 Change in universal hub limits Addition of a flow control valve to

limit the speed of the automatic hub

and vibrations upon release of the

pulley

1-Dec-09 Universal line validation testing Validation test of the universal line

(9-second cycle target) (cycle of 10.0 seconds/9 seconds)

APPENDIX B

Project 2007-011

Employees Hours

Gérard Gorce 589

Jacques Plante 227

Marcel Brossard 267

Sébastien Dufour 0

Serge Caouette 23

Alexandre Quinta 0

Bernard Sallafranque 0

Youssef Houboub 0

David Bourque 0

Production employees 8,261.5

Total 9,367.5

[Marcel Brossard is the appellant’s quality

engineer.]

1 This is also taken from Exhibit A-12, which contains an Excel spreadsheet. Specifically, it is the part related to project 2007-01 of the page or tab entitled [TRANSLATION] “Accounting portion.”

CITATION: 2014 TCC 313

COURT FILE NO.: 2011-2054(IT)G

STYLE OF CAUSE: LES ABEILLES SERVICE DE

CONDITIONNEMENT INC.

v. THE QUEEN

PLACE OF HEARING: Montréal, Quebec

DATE OF HEARING: June 18, 19, 20, 26 and July 11, 2013

REASONS FOR JUDGMENT BY: The Honourable Justice Gaston Jorré

DATE OF JUDGMENT: October 23, 2014

APPEARANCES:

Counsel for the appellant: Julie Patenaude

Counsel for the respondent: Christina Ham

COUNSEL OF RECORD:

For the appellant: Julie Patenaude

Firm: Jean-Philippe Gervais, Lawyer

Montréal, Quebec

For the respondent: William F. Pentney

Deputy Attorney General of Canada

Ottawa, Ontario