Judge says Tax Court had jurisdiction to issue interim order, provided fair process
In affirming an interim confidentiality order issued in a tax proceeding, the Federal Court of Appeal found the Tax Court entitled to decide that the respondent’s identified risks justified additional protection during the discovery process.
In Canada v. CAE Inc., 2026 FCA 138, the respondent moved for an interim confidentiality order over certain documents during discovery.
For the respondent’s motion record, the respondent’s head of financial reporting provided an affidavit about the nature and content of the confidential documents and the type of information contained.
The affidavit listed nine “sealed” documents, comprising eight bid books and the financial statements of subsidiaries and joint ventures.
The affidavit referred to the highly competitive and technical nature of the respondent’s industry and to third-party information and confidentiality clauses included in some of the documents, which were considered confidential even within the respondent.
Tax Court’s interim confidentiality order
On Jan. 16, 2025, the Tax Court of Canada granted the respondent’s motion. Thus, the Tax Court issued the requested order in connection with two matters, subject to the trial judge’s future issuance of a permanent confidentiality order.
Federal Court of Appeal affirms confidentiality order
The appellant filed two appeals, which the Federal Court of Appeal consolidated. The parties later discontinued one appeal.
The appeal court dismissed the appeal with costs.
Tax Court jurisdiction
The appeal court ruled that the Tax Court had jurisdiction to issue the interim confidentiality order, even if the Tax Court has rarely issued such an order before a hearing on the merits.
The appeal court saw no legal error in the Tax Court’s reliance on rr. 4(1) and 4(2) of the Tax Court of Canada Rules (General Procedure), SOR/90-688a, and on its implied jurisdiction to control its proceedings to issue the order.
The appeal court held that the order, which was neither overbroad nor based on irrelevant considerations, fell within the Tax Court’s proper and expeditious management of the proceeding.
The appeal court added that the order balanced the respondent’s significant confidentiality concerns, which extended to third-party information, with the appellant’s right to fully access the confidential documents to conduct its discovery process.
Appeal court sees no error
The appeal court found no palpable and overriding error in the Tax Court’s issuance of the interim confidentiality order based on the affidavit and the list of documents the respondent had served and filed without reviewing the confidential documents.
According to the appeal court, the respondent provided evidence detailed enough to enable the Tax Court to appropriately assess its importance and the need for heightened measures to protect confidentiality.
The appeal court determined that the Tax Court:
- correctly identified the implied undertaking rule’s scope, safeguards, and limitations, with reference to the applicable jurisprudence
- committed no error in applying the rule and the conditions for issuing a confidentiality order to the respondent’s evidence
- properly applied the conditions required to issue an interim order to protect confidentiality during discovery despite the rule’s safeguards
No procedural fairness breach found
The appeal court saw no breach of the appellant’s rights to a fair and equitable process. First, the appeal court ruled that the respondent did not breach r. 67 of the Tax Court of Canada Rules in serving only affidavit evidence.
Next, the appeal court held that the Tax Court did not err in observing the respondent’s lack of evidence and in relying on the appellant’s uncontested affidavit evidence.
The appeal court explained that the Tax Court enabled the parties to conduct discovery while ensuring the respondent’s confidentiality and the appellant’s full access to the confidential documents.
The appeal court decided that the appellant received adequate disclosure to know the case it had to meet, such that the process was fair to both sides in the circumstances.
Lastly, the appeal court found no procedural or substantive prejudice to either party and no breach of the open court principle.
Federal Court of Appeal’s previous tax cases
Here are some other recent tax-related decisions by the Federal Court of Appeal.
On May 13, the appeal court dismissed the Crown’s appeal upon finding no grounds to interfere with the Tax Court’s award of enhanced costs of 60 percent of a ferry service provider’s legal fees, primarily based on the Crown’s conduct.
In a taxpayer’s appeal against a reassessment, the appeal court issued a May 11 decision acknowledging that he received incorrect information about his right to object, but finding that this did not give him a substantive right to appeal prohibited by statute.
After allowing the Crown’s appeal, the appeal court made an Apr. 10 decision awarding it one set of costs for a Tax Court proceeding and another set of costs for the subsequent appeal court hearing, to be determined according to the applicable tariffs.
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