R.D. LAING QUEEN’S BENCH FOR SASKATCHEWAN Citation: 2007 SKQB 355 Date: 2007 10 03 Docket: Q.B. 577/2004 Judicial Centre: Regina BETWEEN: HUSKY OIL OPERATIONS LIMITED and HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF SASKATCHEWAN AS REPRESENTED BY THE MINISTER OF FINANCE FOR SASKATCHEWAN and SANJEL CORPORATION, TRICAN WELL SERVICE LTD., BJ SERVICES COMPANY CANADA THIRD PARTIES Counsel: H. George McKenzie, Q.C. Kurt Wintermute for the plaintiff Linda A. Christensen for the defendant Laurie A. Goldbach for the third parties FIAT BALL J. October 3, 2007 [1] The plaintiff applies for orders requiring the defendant and third parties to answer questions and respond to undertakings arising from the examinations for discovery in this action. The plaintiffs also apply for orders requiring the third parties to provide further and better disclosure of documents in their power, possession or control, including documents over which a claim for privilege is asserted, and to identify the basis for such claim. [2] The plaintiff carries on the business of oil and gas exploration and development in Saskatchewan and elsewhere in Canada. In the course of its business the plaintiff engages contractors to drill oil and gas wells. The plaintiff also engages cementing services contractors, including the third party contractors (herein “Sanjel”, “Trican” and “BJ Services” respectively), to cement casing in the well bores. This is done by mixing dry cement with additives and water into slurry which is then injected around the casing in the well bore using high pressure pumps. [3] The plaintiff claims that between January 1, 1996 and February 28, 2001 the third party contractors collected and remitted provincial sales tax (PST) to the defendant in respect of cement supplied and used by the third parties in the performance of their well cementing services. The plaintiff says that pursuant to the governing legislation it was not liable to pay the PST because the cement was supplied, used and installed into the real property of the plaintiff. The plaintiff seeks judgment against the defendant for the amount paid. [4] During the period for which the claim is made the governing legislation was The Education and Health Tax Act, R.S.S. 1978, c. E-3, as replaced by The Provincial Sales Tax Act, S.S. 2000, c. P-34.1. Subsections 5(1), (2) and (6) of the former The Education and Health Tax Act were identical to ss. 5(1), (2) and (6) of The Provincial Sales Tax Act (the “Act”) which provide: 5(1) Subject to subsections (9), (18), (20) and (21), every consumer of tangible personal property, purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the consumption of the property and such tax shall be computed at the rate of 5% of the value of the property to be consumed. (2) Subject to subsections (9), (18), (20) and (21), every user of tangible personal property purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the use of the property, and such tax shall be computed at the rate of 5% of the value of the property to be used. (6) Subject to the regulations, where contractor or manufacturer enters into contract for the supply and installation of tangible personal property and during the carrying out of the contract consumes or uses tangible personal property produced, fabricated, processed, printed or imprinted by him the contractor or manufacturer shall be deemed to be consumer or user of the tangible personal property and to have purchased the tangible personal property at retail sale in the province at the time of consumption or use at value that includes the total cost of the tangible personal property together with the total cost of its production, fabrication, processing, printing or imprinting to the time of such consumption or use. [5] It is common ground that the cement supplied by the third party contractors constituted “tangible personal property” (TPP) for the purposes of s. of the Act. The plaintiffs plead that the third party contractors are deemed to be the consumer or user of the cement and that there was no sale of TPP by the third parties to the plaintiff for the purposes of the Act. [6] An amended statement of defence filed by the defendant pleads in part: 6. In reply to paragraphs 16-20 of the Claim, the Government of Saskatchewan says that the contracts entered into between the Plaintiff and the Contractors provided for the distinct sale of both services, and tangible personal property as that term is defined in The Provincial Sales Tax Act, and that this was the intention of the Plaintiff and the Contractors in entering into the contracts. The Government of Saskatchewan specifically pleads that the contracts between the Plaintiff and the Contractors consist of more than the document referred to in the Plaintiff’s Reply to the Government of Saskatchewan’s Demand for Particulars. The Government of Saskatchewan specifically pleads that the contracts referred to in the Plaintiff’s Reply to the Demand for Particulars are ambiguous, and that the true and full intention of the Plaintiff and the Contractors is not contained exclusively in the terms and conditions of those contracts. The Defendant specifically pleads that other documents outside the contracts referred to in the Reply to the Demand for Particulars form part of those contracts and set out additional terms and/or set out the intentions of the Plaintiff and the Contractors in entering into the contracts. And as such, the Contractors properly levied and collected tax from the Plaintiff on the sale of the tangible personal property pursuant to section of The Provincial Sales Tax Act. [7] By notice of third party claim the defendant pleads that if it is liable to refund the PST to the plaintiff that was collected and levied in error by the third parties, then the defendant is entitled to payment of PST from the third parties on the cement consumed in the performance of their contracts with the plaintiff. [8] The third parties deny all allegations made by the plaintiff and the defendant as third party claimant and specifically deny that the plaintiff is entitled to judgment in any amount against the defendant. THE EXAMINATIONS FOR DISCOVERY [9] Examinations for Discovery have been held by all parties. The plaintiff has conducted examinations for discovery of Robert Dobson, the proper officer of the defendant (the “Dobson Examination”); of John Edward Wilson, the proper officer of BJ Services (the “Wilson Examination”); of Michael Grant Kelly, the proper officer of Trican (the “Kelly Examination”); and of Andreas Manfred Wienecke, the proper officer of Sanjel, (the “Wienecke Examination”). During the course of the examinations for discovery counsel for the plaintiff asked certain questions which the proper officers of the third parties refused to answer. The plaintiff applies for orders requiring the third parties to provide complete answers to those questions. It has been agreed that if such answers are ordered they will be provided in written form with leave to the plaintiff to reconvene examinations for discovery as may be necessary. [10] As well, during the examinations for discovery the defendant and third parties gave undertakings to respond to certain questions. Most of those undertakings have been satisfied; however, the plaintiff says that there have been no responses to some of the undertakings and that number of the responses to other undertakings have been evasive or incomplete. The defendant and third parties say they are not obligated to provide any responses, or any further responses, to certain undertakings at this time or at all. Accordingly, the plaintiff applies for orders requiring them to provide full and complete responses to undertakings as discussed below. THE QUEEN’S BENCH RULES OF COURT [11] The following Queen’s Bench Rules are relevant to the plaintiff’s application for further and better disclosure of documents: 212(1) Parties to an action shall, within ten days after statement of defence has been filed, and without notice, serve on each opposite party statement as to the documents which are or have been in his possession or power relating to any matter in question in the action. (2) The statement mentioned in subrule (1) shall be made in Form 15 and shall be signed by the solicitor of the party making discovery or by the party himself if he sues or defends in person and the statement shall clearly state: (a) the documents in the possession, custody or control of such party which he is ready and willing to produce but not including the pleadings and proceedings in the action; (b) the documents which have been, but are not, at the time of making the statement, in the possession, custody or control of such party, the nature of such documents, and when they were last in his possession, custody or control, and where they are likely to be found; (c) the documents which are in the possession, custody or control of such party and which he objects to produce, the general nature of such documents (which shall be identified with reasonable certainty) and the specific grounds upon which he objects to produce the same. (3) If any such party has no documents to disclose or which should be disclosed, the said statement shall so state. 215(1) If any party: (a) neglects, refuses or objects to make discovery of documents as required by Rule 212; or (c) has filed and served statement pursuant to Rule 212 which statement is not satisfactory to party entitled to be served with same; or (c) shall in such statement so filed and served have made claim to privilege in respect of documents referred to therein then the party so desiring production may apply to the court for an order requiring the other party to make production of documents or for further or better production or for inspection or determining whether documents in respect of which privilege is claimed are in fact privileged and upon such application the court may make an order for production or inspection in such manner as may be just. (2) If upon such application any privilege is claimed for any document the court may inspect such document for the purpose of deciding as to the validity of the claim for privilege and to consider all relevant evidence which may be adduced tending to establish or destroy such claim for privilege. [12] Rule 212 imposes upon each of the parties to an action duty to disclose all relevant documents in manner that identifies them sufficiently to enable the receiving party to understand what is being disclosed and to prepare for trial. See: Fishbach and Moore Canada Ltd. v. Noranda Mines Ltd., Potash Division (1973), 1973 CanLII 928 (SK QB), 73 Sask. R. 308 (Sask. Q.B.); Saskatchewan Trustco (Liquidation) v. Coopers and Lybrand 2001 SKQB (CanLII); (2001), 204 Sask. R. 29 (Sask. Q.B.). [13] While the Rules of Court do not mandate specific language for identifying documents, the disclosing party must use format that will enable other parties to understand what the documents listed are about and how to identify them in the future. Where party claims that documents need not be disclosed because they are privileged, they must provide description of those documents sufficient to enable the party receiving the statement to assess and challenge the claim of privilege. [14] The following Queen’s Bench Rules are relevant to the plaintiff’s application for orders requiring the defendant and third parties to answer questions put and respond to undertakings given at the examinations for discovery: 222 Subject to Part Forty-Eight, any party to an action or issue may, without order, be orally examined for discovery before the trial touching the matters in issue in the action by any party adverse in interest, and may be compelled to attend and testify in the same manner, upon the same terms with respect to conduct money and otherwise, and subject to the same rules of examination as witness except as hereinafter provided. 231 Anyone refusing or neglecting to attend at the time and place appointed for his examination or refusing to be sworn or to answer any lawful question put to him by any party entitled to do so or his counsel or solicitor or having undertaken at the examination to answer at later date any lawful question put to him fails to do so within reasonable time after the examination shall be deemed guilty of contempt of court and proceedings may be taken forthwith to commit him for contempt. He shall be liable if plaintiff to have his action dismissed, and if defendant to have his defence, if any, struck out and to be placed in the same position as if he had not defended. If the party so neglecting or refusing is an officer or servant of corporation the corporation itself shall be liable if plaintiff to have its action dismissed, and if defendant to have its defence, if any, struck out and to be placed in the same position as if it had not defended; and in either case the party examining may apply to the court to that effect and an order may be made accordingly. 232(1) If any one under examination objects to any question or questions put to him the examiner shall take down the question or questions so put and the objection of the witness to the question or questions. (2) The examiner shall file the questions and objections mentioned in subrule (1) with the local registrar in whose office the proceedings are pending. (3) The court shall decide the validity of any objections. [15] The “broad relevance test” applies to both disclosure of documents and questions put at examinations for discovery. See: Cominco Ltd. v. Phillips Cables Ltd. et al. (1987), 1987 CanLII 200 (SK CA), 54 Sask. R. 134 (Sask. C.A.) and Steier v. University Hospital (1998) 1988 CanLII 215 (SK CA), 67 Sask. R. 81 (Sask. C.A.). In Cominco Ltd., supra, Cameron J.A. in describing the “broad relevance test” under Rule 222 stated at paras. 12-14, as follows: [12] As has been said time and again, the purpose of the rule is twofold: (i) to allow the parties to ascertain if the plaintiff has good cause of action, or the defendant such defence as would render further litigation useless: Carney v. Carney (1913), 1913 CanLII 137 (SK CA), W.W.R. 849 (Sask. S.C.); and (ii) to enable the parties to secure from one another such admissions as will advance one’s own cause or weaken that of one’s opponent: Collins v. Belgian Dry Cleaners, Dryers and Furriers Limited (1951), W.W.R. (N.S.) 341 (Sask. C.A.). In that way, neither will be taken by surprise at trial, or be required, beyond adducing the admissions, to prove undisputed facts. [13] It has also been said repeatedly that discovery has wide scope that while relevance imposes some broad limits, issues of admissibility and weight have little if anything to do with the matter: Mount Hope v. Findlay, 1919 CanLII 231 (SK QB), [1919] W.W.R. 397 (Sask. K.B.); R. and Minister of Highways v. W.C. Wells Construction Ltd. (1970), 1969 CanLII 578 (SK QB), 72 W.W.R. (N.S.) 121 (Sask. Q.B.), Tucker, J.); Massey Ferguson Industries Ltd. et al. v. Government of Saskatchewan et al. [1975-77] Sask. D. (Practice-Examination for Discovery) (Q.B.) (Walker, L.M.), affirmed [1975-77] Sask. D. (Practice Examination for Discovery) (Q.B.) (Sirois, J.) [14] As for the scope, generally, of discovery, reference may usefully be had to Czuy v. Mitchell, 1976 ALTASCAD 161 (CanLII), [1976] W.W.R. 676; A.R. 434 (Alta. C.A.). Haddad, J.A., after an extensive review of the authorities, including Mount Hope v. Findlay, supra, and Harvie v. C.P.R., 1927 CanLII 173 (SK CA), [1928] W.W.R. 187 (Sask. C.A.), said at p. 683: “In my view then, it is the scope of the examination for discovery with which we are concerned in this appeal. Wide latitude is permitted. The examination may be searching and exploratory. Questions on discovery are relevant so long as they touch ‘the matters in question’ and fall within bounds that are reasonable. If the questions asked are relevant to the matters in issue or can possibly affect the issues between the parties if they are questions which may be permitted on cross-examination then they must be answered.” In that same case Prowse, J.A., at p. 679, noted that on applications respecting the propriety of questions on discovery the court “. will not conduct minute examination of each question to determine its relevancy. In my view, court, in ruling on such applications, should not unduly restrict an examination by excluding questions broadly related to the issues when it appears that their relevance may well be resolved by other evidence not before the court on the application.” [16] In Garrett et al. v. Cameco Corp. et al. (2000), 2000 SKQB 329 (CanLII), 197 Sask. R. 115 (Sask. Q.B.), Laing J. (as he then was) succinctly summarized the purposes of the “broad relevance test” at para. [6] The examination for discovery rules have number of purposes to serve in our adversarial litigation procedure. These include; the obtaining of admissions, obtaining facts that will lead to lines of inquiry, knowing the case to be met, avoiding being taken by surprise at trial, and defining the issues in the law suit. APPLICATION FOR ORDERS AGAINST THE DEFENDANT [17] During the Dobson Examination the plaintiff asked Mr. Dobson for statement of the defendant’s position with respect to three matters: when the alleged sale of TPP from the third parties to the plaintiff took place; when title to the TPP passed from the third parties to the plaintiff; and, when the incidence of PST arose on those transactions. The plaintiff says that Mr. Dobson gave variety of inconsistent answers which, considered as whole, were evasive and unresponsive. [18] Shortly before this motion was heard the defendant filed an affidavit sworn by Mr. Dobson in which he stated that the sale of TPP “would have taken place when the TPP was delivered to the well site” and further that title to the TPP “would have transferred at the well site prior to the TPP being mixed and installed into the well bore”. The plaintiff accepts those answers and seeks no further order with respect to this aspect of its application. [19] However, the plaintiff does seek orders requiring the defendant to fully respond to two undertakings given during the Dobson Examination. One was listed as undertaking #10; the other as undertaking #11. [20] Undertaking #10 and the defendant’s response stated: Undertakings #10 Provide specific references in the documents referred to in the contracts relied upon in support of the assertion that there is separate contract for the distinct sale of tangible personal property. Response: The Defendant was not party to the contracts between the Plaintiff and the Third Parties which are at issue in this Action. The Defendant has no direct or personal knowledge of those transactions. The Plaintiff in this undertaking is essentially calling for the Defendant’s legal arguments on the interpretation of the contacts. The Defendant has not yet finalized its legal arguments as to the way in which the contracts should be interpreted as the discovery process is not yet complete. The Defendant has specifically pled that the contracts provide for the sale of cementing materials, and the Defendant maintains this position. The Defendant will provide its legal arguments to the Plaintiff and the Third Parties on its interpretation of the contacts both at the pre-trial and the trial. [21] Undertaking #11 and the defendant’s response stated: Undertakings #11 Provide the references to the provisions in the contract that are considered to be ambiguous in terms of the question of whether or not there is sale of taxable personal property. Response: This undertaking is essentially calling for the Defendant’s legal argument on ambiguity in the contracts. The Defendant has not yet finalized its legal arguments on ambiguity as the discovery process is not yet complete. Ambiguity was specifically pled in the Amended Statement of Defence in response to the Plaintiff’s claim that the Defendant’s original Defence was not broad enough to allow discovery on the intention of the parties in entering into the contracts. The Defendant did not think the amendment was necessary but made the amendment anyway to make it abundantly clear that the intention of the parties in entering into the transactions was an issue open for exploration at discovery. The Defendant will provide its legal arguments on ambiguity to the Plaintiff and the Third Parties both at the pre-trial and trial. [22] During the Dobson Examination counsel for the defendant proposed to disclose the defendant’s positions with respect to undertakings #10 and #11 prior to the pre-trial conference. Although counsel for the plaintiff did not object to the proposal at that time, orders are requested requiring the defendant to respond to both undertakings now so that, if necessary, Mr. Dobson can be examined further on the responses. [23] The defendant replies that it is not obligated to provide responses to these undertakings prior to the completion of examinations for discovery of all parties; that it is premature to require responses to be provided at this time; and that counsel for the plaintiff agreed to accept replies after the examinations for discovery were concluded. The defendant proposes providing responses to the two undertakings “within 90 days of the conclusion of the discovery process”. [24] party to litigation cannot decline to answer questions on an examination for discovery that are intended to elicit the facts on which that party has based its pleading. party is required to divulge the facts that it has now or admit that it has none if such is the case. That principle is in keeping with the “broad relevance test” which requires party to answer all questions asked on discovery that are relevant to the matters in issue. [25] Both of the undertakings given by the defendant were directly related to positions taken in the statement of defence. The defendant is obligated to provide its responses to the undertakings before the examination for discovery of its proper officer is concluded so that, if necessary, he can be further examined on the responses. If the defendant revises the position set forth in its initial response based on after acquired information, it may supplement its initial response. [26] Accordingly, the defendant shall provide the plaintiff with responses to undertakings #10 and #11 within 30 days. If the position of the defendant as set forth in those responses changes as result of after acquired information, the defendant shall so inform the plaintiff by way of supplemental responses within 90 days following the completion of the defendant’s examinations for discovery of the third parties. If it is necessary for the plaintiff to further examine for discovery on the defendant’s responses or supplemental responses, the defendant’s proper officer shall attend such examination at the defendant’s cost on date and at place to be agreed upon by the parties or as determined by the court. There will be no further order as to costs. APPLICATION FOR ORDERS AGAINST THE THIRD PARTIES [27] Two matters apply to all of the third parties. One relates to the Petroleum Services Association of Canada (“PSAC”) which is an organization of contractors engaged in the service sector of the oil and gas industry. The other relates to third party application for Federal Manufacturing and Processing tax credits (“M&P tax credits”). [28] The third parties are members of PSAC and participate in its affairs. Discussions have taken place between and among PSAC and its members, including representatives of the third parties, with respect to the liability of cementing services contractors and their customers to pay PST to the defendant. [29] Discussions and correspondence have also taken place between PSAC and the defendant regarding the PST issue. Two letters written by PSAC to the defendant regarding the PST issue are of particular interest to the plaintiff. One was dated October 17, 2000; the other September 27, 2001. [30] In the letter dated October 17, 2000, PSAC enclosed Commentary in response to draft PST information bulletin prepared by the defendant. In that Commentary, PSAC questioned why cementing services contractors would not be exempt from paying PST on the cost of materials used in providing their services, stating in part: Why are contract services such as cementing not included in this list for exempt services? The services, including drilling and perforating, are real property contracts where the contractor uses or consumes materials in providing these services. [31] In the letter to the defendant dated September 27, 2001, PSAC stated: With regard to the issue of Saskatchewan PST on well cementing and servicing contracts, would like to reply to your request for comments on the commercial nature of these contracts, as referred to in your letter to the Petroleum Services Association of Canada (PSAC) of July 20, 2001. The well servicing industry typically characterizes these commercial relationships in manner consistent with that articulated in the following federal court cases: Halliburton Services Ltd. v. R., (1985) C.T.C. 52, 85 D.T.C., 5336 (Fed. T.D.) Nowsco Well Service Ltd. v. Canada (sub nom. R. v. Nowsco Well Service Ltd.) 90 D.T.C. 6312, (1990) C.T.C. 416 In this regard, our members have indicated that they will continue to bill these contracts as separate sale of materials and separate sale of labour services for the installation of the materials on real property. We will support any legislative framework, which clarifies these relationships for Saskatchewan PST in manner consistent with the findings of the above-mentioned court cases. [32] The third parties have disclosed PSAC documents in their possession relating to the Saskatchewan PST issue, but have not disclosed PSAC documents in their power or control. Although they have acknowledged that they intend to claim litigation privilege over certain PSAC documents, they have not identified the documents they object to disclose. Accordingly, the plaintiff applies for orders requiring each of the third parties to provide detailed list of documents in their control, including PSAC documents relating to the tax issue in this action, and to identify documents which they object to produce by reason of claim of privilege. [33] The plaintiff says that the third party contractors pay reduced rate of income tax on manufacturing and processing profits. The plaintiff refers to Canada Revenue Agency Interpretation Bulletin IT-145R, dated January 6, 2004 (“Canadian Manufacturing and Processing Profits Reduced Rate of Corporate Tax”) which states that the reduced rate of corporate income tax applies only to income from manufacturing or processing activities of goods for sale and not to income arising from the supply of goods through contracts for work and materials. [34] The plaintiff contends that the third parties claim M&P tax credits in respect of income earned on the processing of cement and materials at the well site. The plaintiffs submit that the third party claims to M&P tax credits are incompatible with their claim that cement is sold to the plaintiff upon its delivery to the well site and before any manufacturing or processing occurs. The plaintiff seeks additional information regarding third party claims to M&P tax credits, as more fully set out below. [35] The plaintiff applies for variety of other orders against the third parties. Some of the proposed orders would apply to all three of the third parties; others to one third party. The specific orders applied for in relation to each of the third parties will be addressed one at time. 1. Orders Applied For Against BJ Services: [36] The plaintiff applies for orders requiring BJ Services: a) To answer questions asked during the Wilson Examination about PSAC documentation related to the PST issue; and b) To provide detailed list of documents in its possession or power which it objects to produce including, in particular, documents “between or among” members of PSAC relating to the PST issue over which claim of privilege is asserted, and the basis for such privilege with respect to each document. [37] BJ Services acknowledges that it is member of PSAC; that its representatives have participated in PSAC affairs by way of membership on the PSAC board and committees; and that PSAC has engaged in correspondence and meetings with the defendant concerning the PST issue. [38] BJ Services acknowledged during the Wilson Examination that it is aware of documents in the possession of PSAC relating to the PST issue. Counsel for BJ Services was then asked to provide an undertaking “to, on the best efforts basis, obtain from PSAC copies of minutes of any meetings, correspondence, memoranda, e-mails, copies of e-mails and similar documentation which are in the possession of PSAC relating to the Saskatchewan sales tax issue”. BJ Services refused to give that undertaking. [39] The plaintiff submits that as PSAC member BJ Services will have control over copies of all PSAC documents relating to the PST issue and as such must disclose and produce those documents. The plaintiff says that the documents may disclose the reasons why the third parties have taken the positions they have regarding the nature of their cementing services contracts with the plaintiff and other customers. [40] Counsel for BJ Services responds that “PSAC is not party to the action”; that “PSAC does not make commitments on behalf of BJ Services”; that “PSAC is not mentioned in the pleadings”; and that the plaintiff “has not established how it is that any of PSAC’s documents are specifically related to the practices of [BJ Services] with regard to provincial sales tax in Saskatchewan or their business relationship with Husky”. [41] Rule 212(1) requires disclosure of documents in the “possession” or “power” of the litigant. Documents that are not in the possession of the litigant must be disclosed if they are or were within litigants power. If the litigant has sufficient control over the document to obtain it from the party who has possession, then the document is within the power of the litigant. [42] The material filed on this motion satisfies me that PSAC documents relating to the PST issue are at least broadly relevant to the issues and that BJ Services likely has the power to obtain and produce them. The fact that BJ Services may intend to claim a litigation privilege over the documents, or that PSAC may not produce them, does not relieve BJ Services of the obligation to disclose their existence. (See Spencer v. Canada (Attorney General) 2000 SKCA 96 (CanLII); [2001] W.W.R. 476 (Sask. C.A.) at paragraph 18; R. v. Popowich (1996), 1996 CanLII 5034 (SK CA), 144 Sask. R. 166 (Sask. C.A.) at paragraph 17). [43] Accordingly, BJ Services must exert its best efforts to disclose and produce all relevant PSAC documents. If BJ Services is unable to produce copies of relevant PSAC documents after exerting its best efforts to obtain them, it shall inform counsel for the plaintiff, who may then take alternate steps to access them. [44] If BJ Services objects to producing any relevant PSAC documents within its control, it must identify the general nature of such documents and the specific grounds of the objection in accordance with the requirements of Queen’s Bench Rule 212(2)(c). The identification of documents in this case must include, the name of the sender, the date, and the names of all recipients. The date of each document must be provided to permit an assessment of whether it was prepared in contemplation of litigation, while the names of recipients will be important in determining whether litigation privilege has been waived. [45] In summary, BJ Services shall answer the questions asked during the Wilson Examination about PSAC documentation related to the PST issues. BJ Services shall also provide further and better disclosure of documents within 30 days by providing a detailed list of documents referred to in the second part of the first schedule of its statement as to documents. The list shall include, in particular, list of documents in the possession of PSAC or its members that are in the control of BJ Services and relate to the PST issue. If a claim for privilege is asserted over such documents, BJ Services shall identify the basis of such claim, the date of the documents, the name of the sender and the names of the recipients. c) To answer questions asked during the Wilson Examination which dealt with M&P tax credits claimed by BJ Services; [46] Mr. Dobson stated during the Dobson Examination that representatives of the third parties informed him they had intentionally structured their transactions as separate sale of manufactured goods in order to obtain M&P tax credits. This means that they have likely reported income derived from the sale of cement as manufacturing and processing income. The plaintiff submits that third party contractor claims to the M&P tax credits were inconsistent with, and affect the credibility of, their claims in this litigation that sale of TPP to the plaintiff occurred at the well site separately from the provision of services. [47] have earlier referred to two letters written by PSAC to the defendant dated October 17, 2000 and September 27, 2001, respectively. In the letter dated September 27, 2001, reproduced at paragraph 31 above, PSAC stated that its members characterize their commercial relationships “in manner consistent with that articulated in Halliburton Services Ltd. v. R., (1985) C.T.C. 52, 85 D.T.C. 5336 (Fed. T.D.) and Nowsco Well Service Ltd. v. Canada (sum nom. R. v. Nowsco Well Service Ltd.) 90 D.T.C. 6312, (1990) C.T.C. 416". [48] In Halliburton, the Federal Court, Trial Division held that profits received by an oilfield contractor from the processing of specialized products could be treated as manufacturing and processing income entitled to M&P tax credits. In Nowsco the Federal Court of Appeal held that an oilfield contractor providing on-site cementing and well stimulation services did not enter into pure service contracts, but processed goods to the customer’s specification which were then utilized in performing specialized services for those customers. The court stated that the contractor was, therefore, processing goods for sale and that it was inappropriate to make distinction between contracts for the sale of goods and for the sale of services. As such, the contractor was entitled to claim M&P tax credits. [49] During the Wilson Examination, counsel for the plaintiff asked the following questions relating to the period 1996 to 2001, being the period for which the plaintiff claims entitlement to refund of PST: 1750 Q. MR. McKENZIE: So my first question is, does BJ claim the federal Manufacturing Processing Tax Credit in respect of its oil well or well cementing activities? 1751 Q. MR. McKENZIE: If it does claim that credit, is BJ’s claim based on the fact that the slurry, which it makes at the wellhead, is good which has been manufactured or processed in Canada for sale? 1752 Q. MR. McKENZIE: If that is not the basis upon which BJ is making its claim with respect to the Manufacturing Processing Tax Credit, what is the good in respect of which BJ is claiming the Manufacturing Processing Tax Credit? 1753 Q. MR. McKENZIE: Does BJ include in the numerator of the equation that’s provided for in calculating the entitlement to the Federal Manufacturing Processing Tax Credit, does BJ include the labour and equipment at the well site at the well head in the calculation of its manufacturing and processing labour and manufacturing and processing capital? 1754 Q. MR. McKENZIE: In claiming the Federal Manufacturing Processing Tax Credit, does BJ take the position that the materials delivered to the well site to enable it to perform the cementing of the well belong to BJ right up until the point they are installed in the well? [50] Counsel for BJ Services objected to each of the above questions and Mr. Wilson declined to answer them. In response to this motion, counsel for BJ Services argues that the M&P tax credit relates to tax on income, while PST is tax on property. Claims for M&P tax credits are “not material to the pleadings” and “not relevant to determining liability for PST”. [51] If the third parties have characterized what occurs under their contracts with the plaintiff in one manner for the purposes of claiming M&P tax credits and in different manner for the purpose of avoiding liability for PST, it may be broadly relevant to this litigation. Specifically, if the third parties claim and receive M&P tax credits on the basis that mixing, blending and pumping of the cement slurry at the well site constitutes manufacturing or processing of goods for sale in Canada, the plaintiff may argue that the position taken for M&P tax credit purposes is inconsistent with the contention that the cement (that is, the TPP for PST purposes) is sold separately to the plaintiff at the well site before the slurry is produced. Similarly, if the third parties have included the cost of the cement in their claims for the federal M&P tax credit, it may be broadly relevant to the interpretation of provisions in the cementing services contracts which the defendant and the third parties plead are ambiguous. [52] It will be for the trial judge to determine how, if at all, the evidence is significant. For these reasons BJ Services must answer the questions 1750 to 1754 inclusive asked during the Wilson Examination with respect to M&P tax credits. d) To provide response to undertaking #30 given during the Wilson Examination, which was to advise if BJ Services “takes any issue with” the statement in the second paragraph of the letter dated September 27, 2001 written by PSAC to the defendant. [53] Although BJ Services gave an undertaking during the Wilson Examination to provide the plaintiff with response to undertaking #30, the response provided was: Answer: BJ Services maintains its objection to any questions regarding the Federal Manufacturing and Processing credits as being irrelevant to this action. [54] have decided that the manner in which BJ Services characterized its cementing services contracts for the purpose of claiming M&P tax credits may be broadly relevant to its characterization of the contracts for the purpose of the plaintiff’s liability to pay PST. It follows that BJ Services must provide full and complete answer to undertaking #30 given during the Wilson Examination. e) To provide answers to questions asked during the Wilson Examination with respect to BJ Services’ general denial of the plaintiff’s entitlement to judgment against the defendant; and f) To provide response to undertaking #32 given during the Wilson Examination, which was to “provide summary statement of the basis of the defence”. [55] In its statement of defence to the third party claim, BJ Services generally denied that the plaintiff is entitled to judgment against the defendant. During the course of the Wilson Examination, BJ Services undertook to provide summary statement of the basis of that defence. However, the response to undertaking #32 stated only: Answer: BJ Services will defer to its legal counsel to provide response to this question in due course. [56] Counsel for BJ Services objects to providing response to the undertaking on the basis that it is legal rather than factual question. do not agree. The plaintiff is entitled to know the case it must meet from the third parties. party may raise any point of law in his or her pleading (Queen’s Bench Rule 141) and is required to plead any statute or regulation on which his or her case is founded (Queen’s Bench Rule 142). If the pleadings do not state the facts and legal principles being relied upon by the third parties, then the plaintiff may clarify this on examination for discovery. The fact that the plaintiff did not demand particulars of the third parties’ pleading does not preclude it from exploring the issues during the examinations for discovery. [57] BJ Services is required to answer the questions asked during the Wilson Examination with respect to the general denial of the plaintiff’s claim against the defendant, and to provide summary statement of the basis of the defence in response to undertaking #32. g) To provide answers to questions relating to documentation used by BJ Services in British Columbia. [58] During the course of the Wilson Examination counsel for the plaintiff asked the following questions: Q. 1779: So now let me ask you. Is the documentation used in respect of B.C. Cementing Services the same as the documentation that is used in Saskatchewan? Q. 1780: And am going to ask the next question does BJ charge its customers B.C. sales tax in respect of its B.C. cementing contracts? Q. 1781: If BJ does not charge B.C. sales tax, why not? Q. 1782: Did BJ ever charge B.C. sales tax to its customers in respect of its cementing business in British Columbia? [59] Mr. Wilson declined to answer the above questions on the basis that BJ Services’ practices in other jurisdictions are not broadly relevant to the question of its liability to pay PST in Saskatchewan. agree. Apart from the bare contention that the questions are broadly relevant and should be answered, the plaintiff does not explain how answers to these collateral questions might potentially assist in or relate to the determination of liability for payment of PST in this province. find that BJ Services is not obligated to answer the above questions. h) To provide full and complete replies to undertakings #8, #9, #25 and #26 given during the Wilson Examination. [60] Following the hearing of this motion, counsel for BJ Services informed the court that responses to undertakings #8, #9 and #25 have now been provided to the plaintiff. Accordingly, no further order will be required. [61] BJ Services has not yet responded to undertaking #26, which was: Undertaking #26 Advise if BJ agrees with the statement or takes issue with the statement and advise why: “It has become normal practise in the oil and gas industry for contractors providing reservoir stimulation and cementing services to itemize their charges to the customer and collect tax on the material portion of their service contracts”. “This appears to be [sic] with the other real property contracts where contractor supplies and installs materials for the improvement to real property. The cementing service and well stimulation service contractors are the user and consumer of the materials used or consumed in his performance of the real property contract. These contractors want to be treated the same as any other contractor.” This statement was extracted from the commentary enclosed in PSAC’s letter to the defendant dated October 17, 2001, which has been referred to at paragraph 30 above. BJ Services provided its unqualified undertaking to respond to this undertaking during the Wilson Examination held mid-March 2007, but it has not yet done so. It will be required to provide its written response to undertaking #26 within 30 days. i) Provide complete reply to the following undertaking #23 given during the Wilson Examination, including an income statement for BJ Services Company Canada with the numbers redacted; Undertaking #23 Produce copy of the chart of accounts with the numbers redacted; provide an income statement with the numbers redacted. BJ Services initial response stated: Answer: copy of the Chart of Accounts with the numbers redacted is attached. BJ Services is still considering its response with respect to the request for an income statement. supplementary response stated: Supplementary Answer: The first portion of this question was previously answered. The Chart of Accounts previously provided is the most detailed information available on BJ Services system. That is, BJ Services only reports its gross revenue. Unlike public company, it does not provide income statements Its accounting system can provide various reports based on the input parameters. The Chart of Accounts is, however, the most detailed of those inputs. Thus, all other reports would, necessarily, provide less detailed information. In any event, since Quantum is not an issue at this stage in the proceedings, an income statement is not relevant to the issues in dispute. [62] In its response to subsequent undertaking (#24), BJ Services informed the plaintiff that it in fact separates revenue derived from the sale of cement from revenue derived from the sale of services. Nevertheless, it objects to providing copy of an income statement with the numbers redacted, arguing that it is “unnecessary, inappropriate and redundant”. do not agree. The purpose of the plaintiff’s inquiry is to ascertain if the income statements are formatted in manner that supports the position taken by BJ Services. The plaintiff is not obliged to accept whatever it is told by an adverse party; it is entitled to be shown. [63] BJ Services will be required to fully comply with undertaking #23 by providing an income statement with the numbers redacted. If there is dispute as to the year or years for which the statement is to be provided, either party may apply for further directions. [64] The application for orders requiring BJ Services to answer questions relating to documentation used in British Columbia as set forth in paragraph 58 above is dismissed. All other orders applied for by the plaintiff in relation to BJ Services, including orders for further and better disclosure of documents, are granted on the terms set out above. In addition, to the extent BJ Services is required to provide the plaintiff with complete answers to questions asked or complete responses to undertakings given during the Wilson Examination, each answer and each response shall be in written form and provided to the plaintiff within 30 days. If further examination for discovery is necessary as result of compliance with this decision the proper officer shall attend for examination at the expense of BJ Services at time and location to be agreed upon or determined by the court. 2. Orders Applied For Against Trican Well Service Ltd. [65] The plaintiff applies for orders requiring Trican: a) To disclose non-redacted version of two documents marked as Exhibits D-62 and D-73 respectively during the Kelly Examination. [66] portion of the document marked as Exhibit D-62 (Trican disclosure document number 17) is Trican cement project costing document dated 98/11/24 which relates to Trican’s bid for providing cementing services to the plaintiff. portion of the document marked as Exhibit D-73 (Trican disclosure document number 21) consists of letter to the plaintiff from Trican dated December 4, 1998, enclosing cost estimates for Trican’s “cement service charge”. Although Trican did not apply for an order authorizing disclosure of these bid documents in redacted form, they were disclosed to the plaintiff with the numbers redacted. [67] During the Kelly Examination counsel for the plaintiff inquired into whether the un-redacted documents contained numbers for “cost of sales” and “product”. He attempted to determine if Trican separated set-up costs and charges for cement from the overall cost of the job. He also asked how Trican went through the process of costing job and then making its bid, because the disclosed bid documents did not itemize the costs. [68] Subsequent to the Kelly Examination, counsel for the plaintiff asked for production of non-redacted copy of the documents. Trican’s counsel responded: “. in light of the confidential nature of this business information, the fact that actual dollar values are not in dispute at this stage in the law suit and the fact that you had full opportunity to explore the significance (if any) of this document with Mr. Kelly, we reject your request for the non-redacted version of the document”. [69] The plaintiff submits that non-redacted copies of the documents will enable it to demonstrate whether Trican included charge for services in the charge for materials. In particular, counsel submits that non-redacted copies will demonstrate that Trican included service charges in its charges to the plaintiff for cementing materials charge inconsistent with the defendants position that there is separate sale of materials and separate sale of services. [70] am persuaded that partially non-redacted copies of the documents would be both relevant to the issues raised by the litigation and relevant to understanding the facts. Trican offers no support for its assertion that providing non-redacted copies would disclose sensitive business information. The services were provided in 1998 and the costs are likely to have little relevance to what Trican now charges for cementing services. As well, Trican may disclose the relevant portions of the document (namely, those portions disclosing whether Trican included charge for services in its charges for materials) while leaving the remaining portions redacted. Again, the significance of the disclosed facts will be for the trial judge. [71] For these reasons, Trican shall, within 30 days, disclose to the plaintiff copies of Kelly Examination Exhibits D-62 (Trican disclosure document number 17) and D-73 (Trican disclosure document number 21) which include information relevant to the question of whether Trican included charge for services in its charges for materials levied in providing cementing services to Husky in 1998. If the parties cannot agree on the extent to which additional information must be disclosed, either may apply for further directions. b) To reply to undertaking #21 given during the Kelly Examination by advising the plaintiff of the basis on which Trican denies Husky’s entitlement to the refund of PST claimed in its statement of claim. [72] Having already determined that BJ Services is obligated to outline the basis of its general denial to the plaintiff’s claim, it follows that Trican has the same obligation. Trican shall provide summary of the basis for its general denial on the same terms as those applicable to BJ Services. c) To answer questions asked during the Kelly Examination relating to Trican’s claims for M&P tax credits. [73] During the Kelly Examination counsel for the plaintiff asked the following questions: Q. 548: So in fact Trican does claim the Manufacturing Processing Income Tax Credit in filing its income tax returns? Q. 549: Was it Trican’s position in filing its income tax returns that the mixing, blending, pressurizing and pumping of the cement and additives into slurry, which is installed in the well bore outside the casing to cement the casing, constituted the manufacturing and processing of goods for sale for the purposes of the Manufacturing Processing income tax credit? Q. 550: Did Trican include in the numerator of the equation used in the calculation of the manufacturing and processing revenue for income the labour and the cost of equipment employed at the well site in performing the well cementing services? [74] For the reasons set forth at paragraphs 46 to 51 above, Trican shall provide written answers to questions 548, 549, 550 and 551 asked during the Kelly Examination. d) To answer whether Trican agrees with the statement contained in the second paragraph of the PSAC letter to the defendant dated September 27, 2001. [75] The letter in question is set out in paragraph 31 above and for the reasons already provided in paragraphs 52 to 54, Trican shall provide written response to the question. [76] The orders applied for by the plaintiff in relation to Trican are granted on the terms set out above. In addition, to the extent Trican is required to provide the plaintiff with complete answers to questions asked or complete responses to undertakings given during the Kelly Examination, each answer and each response shall be in written form and provided to the plaintiff within 30 days. If further examination for discovery is necessary as result of compliance with this decision, the proper officer shall attend for examination at the expense of Trican at time and location to be agreed upon or determined by the court. 3. Orders Applied For Against Sanjel Corporation [77] The plaintiff applies for orders requiring the third party, Sanjel: a) To answer questions asked during the Wienecke Examination related to claims made by Sanjel for federal M&P tax credits. [78] The following questions were asked with respect to M&P tax credits: Q. 636 Are you able to describe to me generally how it [federal manufacturing and processing tax credits] works? Q. 637 Would you agree with me that one of the key elements to entitlement to the Manufacturing and Processing Tax Credit is the manufacturing and processing of goods for sale, and that the Manufacturing and Processing of goods alone is not good enough? The goods must be for sale. Do you agree with that? Q. 638 In filing its Federal and Provincial Income Tax Returns for the period 1996 2001, did Sanjel take the position that the mixing, blending, pressurizing, and pumping of the cement and additives into slurry, which is installed in the well bore outside the casing to cement the casing in place, constituted the manufacturing and processing goods for sale for the purposes of the Manufacturing and Processing Income Tax Credit? Q. 639 Did Sanjel include in the numerator of the equation used in calculating the manufacturing and processing revenue for Federal and Provincial income tax purposes the labour and cost of equipment employed at the well site in performing the well cementing services? [79] For the reasons given with respect to BJ Services at paragraphs 46 to 51 above, Sanjel shall provide written answers to the above questions. b) To answer whether or not Sanjel Corporation agrees with the statements contained in the letter written by PSAC to Mr. Dobson dated September 27, 2001. [80] For the reasons given with respect to BJ Services at paragraphs 52 to 54 above, Sanjel shall provide written answer to the question. c) To provide response to the following undertaking #41 given during the Wienecke Examination: Undertaking #41 Advise if there are additional factors that are pleaded relative to the following question: “On what facts is Sanjel relying in asserting that Husky is not entitled to the refund of PST paid in respect of the materials used in cementing services”. [81] The essence of this question is to secure summary statement of Sanjel’s general denial of the plaintiff’s claim to refund of PST paid to the defendant. For the reasons already provided with respect to essentially the same undertakings given by both BJ Services and Trican, there will be an order requiring Sanjel to provide substantive response to this undertaking. [82] The orders applied for by the plaintiff in relation to Sanjel are granted. In addition, Sanjel is required to provide the plaintiff with complete answers to questions asked or complete responses to undertakings given during the Wienecke Examination, each answer and each response shall be in written form and provided to the plaintiff within 30 days. If further examination for discovery is necessary as result of compliance with this decision, the proper officer shall attend for examination at the expense of Sanjel at time and location to be agreed upon or determined by the court. [83] The costs of this application against the defendant will be in the cause. The plaintiff shall be entitled to receive one set of taxable costs only from the third parties, to be divided equally between the third parties and paid by them in any event of the cause.
FIAT: The plaintiff applies for orders requiring the defendant and third parties to answer questions and respond to undertakings arising from the examinations for discovery in this action pursuant to Rules 222, 231 and 232 of the Queen's Bench Rules and an order requiring the third parties to provide further and better disclosure of documents in their power pursuant to Rules 212 and 215. HELD: 1) A party to litigation cannot decline to answer questions on an examination for discovery that are intended to elicit the facts on which that party has based its pleading. A party is required to divulge the facts that it has now or admit that it has none if such is the case. The defendant is obligated to provide its responses to the undertakings before the examination for discovery of its proper officer is concluded so that he can be further examined on the responses. If the position of the defendant as set forth in those responses changes as a result of after acquired information, the defendant shall so inform the plaintiff by way of supplemental responses within 90 days following the completion of the defendant's examinations for discovery of the third parties. If it is necessary for the plaintiff to further examine for discovery on the defendant's responses or supplemental responses, the defendant's proper officer shall attend such examination for discovery. 2) The material filed satisfies the Court that PSAC documents relating to the PST issue are at least broadly relevant to the issues and that BJ Services likely has the power to obtain and produce them. The fact that BJ Services may intend to claim a litigation privilege over the documents, or that PSAC may not produce them, does not relieve BJ Services of the obligation to disclose their existence. BJ Services shall provide further and better disclosure of documents by providing a detailed list of documents referred to in the second part of the second schedule of its statement as to documents. If a claim for privilege is asserted over such documents, BJ Services shall identify the basis of such claim, the date of the documents, the name of the sender and the names of the recipients.