Al Meghji, Monica Biringer, Pooja Mihailovich, Mary Paterson
May 19, 2020
Updated: June 5, 2020
For further information on this update or other tax matters, please contact the authors above or any member of our National Tax Group.
With the closure of the Tax Court due to the COVID-19 pandemic, the progress of most proceedings has slowed, while others have been brought to a halt. On May 15, 2020, the Chief Justice of the Tax Court announced the timelines and protocols that the Court expects to follow when it reopens. This Update describes those measures and considers the longer-term implications of the pandemic for litigation in the Tax Court. This Update has been revised to reflect the recent announcement for fast-track settlement conferences to be launched by the Tax Court this Fall to address the backlog created by the cancellations.
Pandemic brings Tax Court proceedings to a halt
Like other courts across the country, the Tax Court of Canada took several steps in response to the pandemic. On March 16, 2020, the Court closed its doors to the public, cancelled approximately 1,000 hearings scheduled up to May 29, 2020, and announced that it would suspend deadlines up to and including 60 days after the Court reopens for business. Although other Canadian courts had similarly restricted operations, some resorted to the use of technology to address outstanding matters, including through video and teleconferencing. The Tax Court could not take such measures.
The Tax Court is not viewed as providing essential services and does not have the technological capability to operate remotely. As a result, it has been closed for business in all respects. The Court will resume operations once the business continuity plan developed by the federal government allows for that to occur.
Meanwhile, parties have been encouraged to proceed, to the extent possible, with litigation steps (such as discoveries, for example) that can be accomplished outside of the Court. In many cases, however, such steps have been put on pause as both the Canada Revenue Agency (CRA) and the Department of Justice (DOJ) have transitioned to working from home.
Expected timeline and protocol for reopening the Tax Court
On May 15, 2020, the Canadian Tax Foundation hosted a webinar with Chief Justice Rossiter of the Tax Court. During that webinar, the Chief Justice shared preliminary observations regarding the process that the Court intends to follow once it reopens.
As the Chief Justice cautioned, that process may have to be revisited as it becomes clear when: (1) Court staff are permitted to return to work; (2) the Court is in a position to open for business; and (3) the Court can hold hearings either virtually or in person.
Highlights of the reopening process include:
- appointing two duty judges at least until the New Year to address the backlog created by the cancellations
- increasing the number of judicial sittings and scheduling them back to back (including throughout the summer, if possible)
- scheduling hearings by region (Western, Central, Québec, Eastern) and only in select cities with the highest volumes (Vancouver, Calgary, Edmonton, Toronto, Hamilton, Ottawa, Montréal, Québec City, and Halifax)
- proceeding with hearings already scheduled for a date after the Court reopens
- giving priority to rescheduling trials that were in progress and other hearings that were adjourned as a result of the pandemic
- dealing with all motions in writing unless the parties request otherwise, in which case they will have to wait for a hearing date
- prioritizing the release of decisions that are currently under reserve (the Chief Justice anticipates a "waterfall" of decisions being released within a month or two of resuming operations)
- seeking statutory amendments extending deadlines by which appeals can be commenced
- reconfiguring all courtrooms to ensure the health and safety of attendees
- holding video conferences and virtual hearings in the future, where possible, for case management conferences, status hearings, applications and motions where there are no witnesses
- digitizing all of the Court's active files, potentially within six months
The Chief Justice advised that there will be no sittings or conference calls during the month of June 2020. The earliest possible date that the Court might be in a position to reopen, assuming all goes according to plan, is July 20, 2020. Even that date depends on a multitude of factors that the Court does not control. For example, all facilities must be assessed for safety and the provinces in which the Court operates must otherwise be open for business.
Litigants with appeals that are underway, and those on the verge of commencing litigation in the Tax Court, may fear that the bottleneck created by the pandemic will have a cascading effect on the system, causing further delay once the Court returns to full service. Although the current crisis has no doubt disrupted court proceedings, there may be a silver lining.
As the Chief Justice explained, the Court is conscious of the financial difficulties being experienced by individuals and businesses. It remains committed to resuming operations as quickly as circumstances will allow. Despite the Court’s best efforts, there will inevitably be delays in getting matters to trial. However, as the Court adapts to new realities, it will consider different methods of operating, potentially resulting in greater efficiencies for all involved.
In this regard, observations by Justice Hogan of the Tax Court at a webinar hosted by the Young IFA Network on May 14, 2020, would suggest that one way to mitigate the anticipated delays might be to more robustly engage the Tax Court’s settlement procedures. The Court has been very effective in facilitating settlements in complex cases and now may be the time for this process to become even more widely used. This would require the co-operation of the Crown, but the government is well aware of the liquidity issues and other constraints that have arisen from the pandemic. It is reasonable to expect, in these difficult times, that the CRA and the DOJ will not oppose such efforts.
For matters that are pre-litigation, there may be opportunities to mitigate against the delays in the court process by actively engaging with the Appeals and Collections Divisions of the CRA. The serious financial stresses caused by the pandemic would argue for Appeals to respond to objections more quickly and to focus on resolving them before litigation. Equally, Collections should be called upon to exercise its discretion to delay collection in the interest of fairness. Inflexibility in such matters at this time would be contrary to the government's overarching policy of supporting taxpayers, financially and otherwise, through this crisis.
Finally, in his presentation, the Chief Justice was optimistic that the Court will return to full functionality in due course. In fact, the Court is determined for that to happen as soon as possible. However, it is no secret that the tax dispute resolution system for complex cases can be slow and expensive, despite the best intentions of the various stakeholders. This crisis has shown the consequences of that system—valuable capital tied up in unresolved tax liabilities and unavailable when needed most. The time is opportune to fundamentally reexamine how the system can be improved to make it more expeditious and responsive to black swan events like this one.
New fast-track settlement conference initiative announced by Tax Court
On June 4, 2020, Chief Justice Rossiter announced an initiative of the Tax Court for fast-track settlement conferences to be launched this Fall.
As explained by the Chief Justice at the beginning of a webinar hosted by the Young IFA Network on settlement conferences, this initiative is being launched to address the backlog created by the cancellations following the closure of the Tax Court on March 16, 2020 due to the COVID-19 pandemic. The Tax Court cancelled approximately 1,000 hearings scheduled up to May 29, 2020, and has since cancelled sittings and conference calls scheduled up to July 17, 2020. This means that the earliest possible date the Court might be in a position to reopen is now July 20, 2020.
The Tax Court is setting up a fast-track settlement conference system for general appeals. This would be a temporary measure to see whether it is effective in facilitating settlements in complex cases and to generally gauge uptake by the parties. The Tax Court will issue a formal Notice to the Profession in late June 2020 with more details, but it is anticipated that parties will be able to submit requests for a fast-track settlement conference on July 20, 2020 with hearing dates beginning in October and November 2020.
The Tax Court is currently considering the following procedure, which may be subject to further refinement and change:
- The parties would jointly submit a written brief to the Court requesting a settlement conference under the new fast-track initiative including references to:
- the pleadings;
- key issues (fact and law);
- key issue of concern;
- the parties’ position on each of the issues and an explanation of why the party is taking that position; and
- the amount of tax in dispute.
- The parties would both sign the brief which would be addressed to the Chief Justice and the Associate Chief Justice.
- The settlement brief would be in the language that the parties want the conference to be conducted in (i.e., French or English).
- A select number of judges will handle all fast-track settlement conferences. Once the written brief is received, it will be assigned to one of these judges on a first in, first assigned basis.
- The judge who is assigned to the file would review the brief and the issues in dispute (with access to the entire file) and determine whether the request is appropriate at that particular point in time. The judge may talk to the parties to help make this determination.
- If the judge determines that the appeal is not appropriate for the settlement process, the parties would be so advised.
- If the appeal is appropriate for the settlement process, the parties would be notified and given dates. The judge would contact parties by phone in advance (similar to a breakout session in a settlement conference) to discuss the file and identify timelines and attendees.
- This settlement initiative will be available in Montreal, Toronto and Vancouver.
- The Settlement Conference judge would not be available to be the trial judge.