Canada: Federal Court Of Appeal Confirms Duty Of Full Disclosure In Ex Parte Production Applications

In a recent decision of the Federal Court of Appeal (FCA), Canada (National Revenue) v. RBC Life Insurance Company, 2013 FCA 50, the FCA confirmed that government officials must be fully transparent with the court when they apply for ex parte for production orders, including with regard to the extent of inconvenience and cost associated with compliance with that order.

CASE SUMMARY

The Minister of National Revenue applied ex parte for authorizations under section 231.2 of the Income Tax Act to obtain, among other things, "all information and documents relating to RBC Life Insurance Company's '10-8' plan holders" for a specified period. The respondents applied for review of those authorizations, including seeking production of relevant documents related to the Minister's application, which the Minister twice refused to disclose claiming that the information was either privileged or irrelevant.

Upon review and consideration of the additional disclosure, the Federal Court concluded that the Minister had failed to disclose material facts to the authorizing judges to allow them to properly exercise their discretion in respect of the authorizations. Principally, the Minister did not disclose that the Canada Revenue Agency's GAAR Committee had determined that the 10-8 plans likely complied with the letter, if not the spirit, of the Income Tax Act. The FCA affirmed the Federal Court's decision.

IMPLICATIONS FOR COMPETITION ACT PRODUCTION ORDERS

The RBC Life decision has direct implications on the application of section 11 of the Competition Act, which, like the provision in issue in RBC Life, allows the Commissioner of Competition to obtain production orders, on an ex parte basis, where the Commissioner has commenced an inquiry and establishes that the respondent has, or is likely to have, information relevant to that inquiry. The decision confirms the significant burden on the Commissioner to fully disclose all material facts in his application and failure to do so could expose the Commissioner to further disclosure obligations under the Federal Courts Rules.

Government officials, including the Commissioner, who seek ex parte production orders are to be held to a "high standard of good faith" to make "full disclosure" to "fully justify" an ex parte order. Indeed, the FCA's decision repeated many of the same conclusions of the Federal Court in Canada (Commissioner of Competition) v. Labatt Brewing Co. et al., 2008 FC 59 (which was cited by the Federal Court in RBC Life), noting that a judge hearing or reviewing the ex parte application is "at the mercy" of the party seeking ex parte relief. The requirement to provide full disclosure allows the judge, acting as an independent and impartial arbiter, to ensure that the respondent's constitutional right to be free from unreasonable searches and seizures is protected.

Both the FCA decision in RBC Life and the Federal Court decision in Labatt acknowledged that the judge hearing an ex parte application has the residual discretion to deny that application even when the party seeking the order can satisfy the statutory criteria. For the court to be able to control its own processes and to guard against abuses, it must be fully informed of all relevant circumstances surrounding the request.

When seeking a section 11 production order, the Commissioner must provide the court with information relevant to the exercise of the court's residual discretion. The FCA's decision in RBC Life supplemented the kinds of information that could be relevant for this exercise, including information previously provided to the Commissioner, the extent of inconvenience and cost on the respondent as a result of the order, any additional motivations or purposes behind the application, and any facts or determinations regarding whether the conduct being investigated complies with the Competition Act.

As the Commissioner recently announced his intention to use section 11 orders in relation to inquiries of non-merger matters, the RBC Life decision will serve as legal guidance when these orders are sought on an ex parte basis.

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