2012 TCC 94, 2012 TCC 94

Citation: 2012 TCC 94 2011-5(IT)G BETWEEN: ANDRÉ DROUIN, APPELLANT, AND HER MAJESTY THE QUEEN, RESPONDENT, [OFFICIAL ENGLISH TRANSLATION] TRANSCRIPT OF AMENDED REASONS FOR JUDGMENT Let the attached certified copy of the reasons for the four orders given at the hearing in Montréal, Qu ebec, on February 27, 2012, be filed. I have revised the transcript certified by the official stenographer in order to improve the style and clarity of the reasons, by adding paragraph numbers and accents and correcting typographical errors. __________________ "Paul Bédard"________________ Bédard J. Signed at Ottawa, Ontario, April 10, 2012. Translation certified true on this 3 rd day of June 2014

François Brunet, Revisor AMENDED REASONS FOR ORDER [1] Further to the voir-dire, the Court must determine whether the report and testimony of Michel Gagnon (Gagnon) as anexpert witness specializing in management and franchising are admissible. [2] On December 19, 2011, the respondent served a report on the appellant signed by Gagnon, called [translation]"Counter-expertise to report by Jean-François Ouellet on

Section VI: Granting and operating the franchise" along with a certificate asrequired under Rule 145(1)(

b) of this Court to the effect that it represents evidence that the proposed witness is prepared to give in thematter (“the report”). [3] Gagnon's mandate was essentially to comment on

section VI, [translation] "Granting and operating the franchise" of thereport by Jean-François Ouellet, served on the respondent on December 6, 2011. [4] The respondent is asking this Court to admit as evidence the report and the testimony of Gagnon as an expert witnessspecializing in management and franchising. The appellant objects. The issue [5] Are Gagnon’s report and testimony admissible as evidence? Respondent's submissions [6] I must first note that the respondent's submissions on this subject are rather brief.

In fact, once Gagnon's qualificationswere submitted to the Court, the respondent invoked the admissibility criteria for an expert witness, developed by the Supreme Court ofCanada (SCC) in R. v. Mohan, (SCC), [1994] 2 S.C.R. 9, to justify her position. Appellant's submissions [7] The appellant essentially submits that Gagnon's testimony as an expert witness, as well as his report, are of no use tothe Court and are not admissible pursuant to the criterion of necessity developed by the SCC in Mohan, supra.

Applicable law [8] With regard to the applicable law, I refer once again to the analysis I conducted in my reasons given orally today withrespect to my decision on the inadmissibility as evidence of Denys Goulet’s testimony and report. Application of the law to the facts [9] Our analysis will therefore only focus on the criterion of necessity developed by the SCC in Mohan, supra, since theother criteria are not being challenged in this case.

[10] With regard to the necessity of assisting the trier of fact, the first question is whether the expert provides informationnecessary to appreciate the matters in issue given their technical nature (see R. v. Burns, (SCC), [1994] 1 S.C.R. 656; R.v. Mohan, supra; R. v. Lavallée, [1990] 2 S.C.R. 852; R. v.

Abbey, (SCC), [1982] 2 S.C.R. 24 and Kelliher (Village of) v.Smith, (SCC), [1931] S.C.R. 672). [11] Although necessity means that the evidence must not be simply helpful, it should also not be judged "by too strict astandard" (Mohan, supra, at p. 23). [12] Mohan aims to ensure that the dangers related to expert evidence are not taken lightly. Mere relevance and/orhelpfulness is not sufficient. The question is whether the expert provides information that that is likely outside the ordinary experienceand knowledge of the trier of fact (see R. v.

D.D., 2000 SCC 43 , [2000] 2 S.C.R. 275, at p. 98 and Mohan, supra, at p. 23). [13] In the present case, the appellant submits that a very limited portion of Gagnon's report addresses the specific issue thatOuellet addresses in

section VI of his report, regarding the appellant's decision to contract out operations of his franchise to an agent. [14] As for the other aspects covered in the report, the appellant submits that Gagnon ventures into and makes statements ona number of subjects such as the appellant's investment decision and the benefits of the franchise system from Prospector's point of view,all of which are clearly beyond his mandate and do not contribute to the decision-making process of this Court. [15] However, the appellant draws his conclusions after carefully reading the report.

We are now at the stage of determiningthe admissibility of the proposed testimony and the content of Gagnon's report is not to be considered at this stage of the proceedings.Indeed, an analysis of certain parts of Gagnon's report, whose testimony has not been heard, would not be appropriate to dismiss theentire report. [16] On its face, the report tells us that Gagnon’s mandate was to comment on Ouellet's report regarding

section VI: Grantingand operating the franchise, in relation to the André Drouin case. [17] I must disagree with the hasty conclusions drawn by the appellant and cannot come to the conclusion that Gagnon'stestimony would be useless in the circumstances. It is the court's duty to proceed with a probative analysis of the report, once the experthas been heard on the content of his report. [18] For these reasons, I recognize Gagnon as an expert.

AMENDED REASONS FOR ORDER Bédard J. [1] Further to the voir-dire, the Court must determine whether the report and testimony of Denys Goulet (Goulet) as an expertmandated to comment on the fair market value (FMV) of the franchise (the franchise) acquired by André Drouin (the appellant), tocommercialize solutions developed by Prospector International Networks Inc., its subsidiaries and partners (collectively, Prospector) areadmissible. [1] [2] On December 6, 2011, the respondent served on the appellant a report signed by Goulet called [translation] "Justice Canada– CRA: André Drouin and Her Majesty the Queen - 2011-5(IT)G" with a certificate as required under Rule 145(1)(

b) of this Court to theeffect that it "represents evidence that the proposed witness is prepared to give in the matter". This report, sent on December 6, 2011,was then amended on December 23, 2011 (the report).

[3] The report provided an opinion on the following issue: [translation] Our mission is to carry out the work required to issue a formal opinion on the fair market value of the investment made by André Drouin(hereinafter, the Appellant) by acquiring a franchise and a series of user and distribution licences for a software suite from ProspectorInternational Networks Inc. dated December 28, 2007. [4] The respondent, after Goulet's qualifications were listed, asked this Court to admit his testimony and report in the presentcase as a business valuation expert witness.

Not surprisingly, the appellant strongly objected on the basis of on certain facts revealed oncross-examination, which seem to be at the heart of the present debate and will likely require our attention. Issues First issue [5] Are Goulet’s report and testimony admissible in evidence? Is the Court justified in allowing the admissibility of the reportand testimony of Denys Goulet as a business valuation expert witness? Second issue [6] Can the Court, if it concludes that it is relevant to do so, split the report and authorize Mr. Goulet to testify as an expert ononly part of the report?

Respondent's submissions [7] First, the respondent's submissions are, to say the least, extremely brief. Once Goulet's qualifications, which will be analyzedin detail later, were submitted to the Court, the respondent simply invoked the criteria for admissibility of an expert witness establishedby the Supreme Court of Canada (SCC) in R. v.

Mohan, (SCC), [1994] 2 S.C.R. 9, in support of her position. [8] Again according to the respondent, the training, expertise and work experience of Goulet, as with the mandate that he wasgranted and the specialized field of business valuation, are all factors that sufficiently justify the admission of his testimony as an expert,in the light of the criteria propounded by the SCC in Mohan, supra. The respondent adds that shortcomings and weaknesses in anexpertise only affect the probative value of the expert's testimony and not its admissibility. The following cases were cited in support ofthis argument: R. v.

Marquard, (SCC), [1993] 4 S.C.R. 223, at para. 35; Halford v. Seed Hawk inc., 2006 FCA 275, atpara. 17 and Bouchard v. D'Amours, (QC CA), at paras. 11 and 12. [9] Moreover, the respondent contends that it would be formalistic to dismiss the report of an expert simply because it containsfindings that stray from the given mandate (see Marquard, supra, at para. 37). Appellant's submissions [10] The appellant submits that Goulet's testimony as an expert witness as well as his report on the FMV of the franchise aresimply inadmissible for the following reasons.

[11] The first reason raised by the appellant is about the misrepresentations regarding his qualifications. The appellant first notes that there are some inaccuracies in Goulet's CV.

More specifically, the appellant pointed out inconsistencies, during Goulet's cross- examination, regarding his teaching experience and his involvement as an expert in Jobin and Sports 755 . [12] The appellant reminded the Court that expert witnesses have a well regarded position at a trial and as such are held to a higher standard of diligence and honesty. [13] The second reason raised by the appellant is the lack of relevant expertise. The appellant contends that Goulet cannot be considered an expert witness because of a lack of computer expertise.

Indeed, the appellant argues that Goulet does not have the knowledge required to properly assess the technical and functional qualities of the software being marketed by Prospector with respect to other technological solutions available in 2007. [14] In support of his submission, the appellant reminded the Court that Goulet himself admitted that, in his opinion, to properly assess a business that commercializes new software, it is necessary to be able to correctly identify the characteristics and particularities of that software. [15] The third reason raised by the appellant is inadequate research.

The appellant also contends that the research on which the conclusions noted in Goulet's report are based are clearly inadequate. By his own admission, Goulet did not see the software, nor did he ask to see it. The expertise required to assess the intrinsic qualities of the software and its innovative character was provided by Goulet's colleague, who is not mentioned in his report, or present before the Court. The appellant therefore opines that Goulet was negligent in his obligation under

section 4 of the CICBV practice standard 110, to ensure "a comprehensive review and analysis of the business, its industry and all other relevant factors, adequately corroborated..." [16] The fourth reason raised by the appellant is the usurpation of the Court's jurisdiction.

The appellant argues that even if the author was mandated to give an opinion on the FMV of the franchise, Goulet's report addresses other conclusions that are directly under the exclusive jurisdiction of the Court. [16] [17] When questioned on the subject, Goulet clearly stated that his mandate was not only to assess the fair market value of the franchise acquired by the appellant, but also to probe the reasons that justified the purchase. [18] The fifth reason raised by the appellant is the lack of value of his testimony.

Lastly, the appellant submits that Goulet's testimony and his report are useless in this case. It was admitted that the appellant was always working at arm's length with Prospector. Therefore, the appellant contends that the FMV of the franchise is necessarily the price the appellant paid to acquire it. Moreover, the test under paragraph 20(1)(

a) of the Income Tax Act (ITA) refers to the concept of capital cost and not (the) FMV. [ 19 ] Additionally, the appellant stated that, in his opinion, the FMV has nothing to do with the concept of a sham, which is a result of the parties' intention at the time they entered into a contract and not the FMV of the property in question. Applicable law Role of the expert witness [ 20 ] The fundamental rule is that, opinion evidence is inadmissible. As a starting point, the law is well-settled: opinion evidence is prima facie inadmissible.

It is the sovereign jurisdiction of the trial judge to assess the facts determined at trial and to draw the appropriate inferences and conclusions (see comments by Lord Mansfield in Carter v. Boehm (1766) 3 Burr 1905 , at p. 1918) . [ 21 ] The testimony of an expert is an exception to this fundamental rule in that it allows the expert to conduct his own assessment of the facts and present his own

interpretation to the Court.

[22] As the SCC explained in Kelliher (Village of) v. Smith, (SCC), [1931] S.C.R. 672, at p. 684, "[t]he object ofexpert evidence is to explain the effect of facts of which otherwise no coherent rendering can be given." [23] Since Kelliher, the SCC has repeated many times, in particular in R. v. Lavallée, [1990] 2 S.C.R. 852, at p. 889, that experttestimony is "to assist the fact-finder in drawing inferences in areas where the expert has relevant knowledge or experience beyond thatof the lay person" (see also R. v.

Burns, (SCC), [1994] 1 S.C.R. 656, at p. 866). [24] Thus, it is undeniable that this type of testimony represents a risk to the administration of justice and the courts shouldtherefore not admit it without understanding its value and necessity. The concern that the role of the trier of fact might be usurped hasbeen addressed many times by the SCC, but rarely with as much brevity and eloquence as in R. v. Mohan, supra, where Justice Sopinkaconcludes (at p. 24): There is also a concern inherent in the application of this criterion that experts not be permitted to usurp the functions of the trier of fact.

Too liberal an approach could result in a trial's becoming nothing more than a contest of experts with the trier of fact acting as referee indeciding which expert to accept. [25] The SCC restated this principle in R. v. J.-L.J., 2000 SCC 51 , [2000] 2 S.C.R. 600, and Justice Binnie even grantedthe role of "gatekeeper" to the trier of facts (at pp. 613 and 630): In the course of Mohan and other judgments, the Court has emphasized that the trial judge should take seriously the role of“gatekeeper”.

The admissibility of the expert evidence should be scrutinized at the time it is proffered, and not allowed too easy an entryon the basis that all of the frailties could go at the end of the day to weight rather than admissibility. ...

The trial judge’s discharge of his gatekeeper function in the evaluation of the demands of a full and fair trial record, while avoidingdistortions of the fact-finding exercise through the introduction of inappropriate expert testimony, deserves a high degree of respect. [26] The fact the expert evidence must be assessed in the light of its potential to derail the fact-finding process partially explainswhy its use is governed by strict guidelines (see R. v. Mohan, supra, at p. 24, restated in R. v. DD, 2000 SCC 43 , [2000] 2S.C.R. 275, at p. 298).

Admissibility criteria for expert testimony [27] To make the gatekeeper role easier for the trier of facts, the SCC has propounded a list of criteria that, in this case, must beused to assess the admissibility of the expert opinion. The landmark case regarding the admissibility of expert testimony is, without adoubt, Mohan, supra, decided by the SCC. In this decision, the highest court in the land adopted a four-step test that governs theadmissibility of expert testimony (at p. 20): Admission of expert evidence depends on the application of the following criteria: (

a) relevance; (

b) necessity in assisting the trier of fact; (

c) the absence of any exclusionary rule; (

d) a properly qualified expert. [28] Moreover, each of the four criteria must be met for the Court to allow the testimony of an expert. [29] A cost-benefit analysis is also an essential ingredient of the analysis of the first two criteria, relevance and necessity.

Relevance [30] Evidence is relevant "where it has some tendency as a matter of logic and human experience to make the proposition forwhich it is advanced more likely than that proposition would appear to be in the absence of that evidence" (R. v. J.-L.J., supra, at pp.622-623). As the concept of relevance is a low threshold, Mohan, supra, included a cost-benefit analysis in the relevance requirement todetermine whether its value is worth the cost, with regard to its impact on the trial process (at pp. 20-21) : Relevance is a threshold requirement for the admission of expert evidence as with all other evidence.

Relevance is a matter to bedecided by a judge as question of law. Although prima facie admissible if so related to a fact in issue that it tends to establish it, that doesnot end the inquiry. This merely determines the logical relevance of the evidence. Other considerations enter into the decision as toadmissibility. This further inquiry may be described as a cost benefit analysis, that is "whether its value is worth what it costs." SeeMcCormick on Evidence (3rd ed. 1984), at p. 544. Cost in this context is not used in its traditional economic sense but rather in terms ofits impact on the trial process.

Evidence that is otherwise logically relevant may be excluded on this basis, if its probative value isoverborne by its prejudicial effect, if it involves an inordinate amount of time which is not commensurate with its value or if it ismisleading in the sense that its effect on the trier of fact, particularly a jury, is out of proportion to its reliability. While frequentlyconsidered as an aspect of legal relevance, the exclusion of logically relevant evidence on these grounds is more properly regarded as ageneral exclusionary rule (see Morris v. The Queen, (SCC), [1983] 2 S.C.R. 190).

Whether it is treated as an aspect ofrelevance or an exclusionary rule, the effect is the same. The reliability versus effect factor has special significance in assessing theadmissibility of expert evidence. [31] Additionally, when the trier of fact considers the cost-benefit analysis that could alter the relevance of expert evidence, it isreasonable for him to consider the extent to which the proposed opinion is founded on unproven facts. On this, in R. v. K. (A.), (ON CA), 45 O.R. (3d) 641, Justice Charron stated the following (at paras. 80-81): (

c) Although relevant, is the evidence sufficiently probative to warrant its admission? 80 In other words, the evidence, although relevant, will not be admitted unless its probative value outweighs its prejudicial effect.Both the probative value of the evidence and its potential prejudicial effect will depend on a number of factors. The particular inquiriesthat should be made will depend on the particular facts of the case. The following questions may be useful to consider. The list is by nomeans exhaustive. (

i) To what extent is the opinion founded on proven facts? 81 Although the expert is entitled to take into consideration all possible information in forming his or her opinion, the weightto be given to the opinion will depend on the extent to which the facts upon which the opinion is based are proven: see R. v. Abbey. Necessity in assisting the trier of facts [32] In Mohan, supra, Justice Sopinka concluded that expert testimony must be more than merely helpful.

He stated that, to benecessary, the expert evidence must be necessary "in the sense that it provide information 'which is likely to be outside the experienceand knowledge of a judge or jury'... [T]he evidence must be necessary to enable the trier of fact to appreciate the matters in issue due totheir technical nature" (at p. 23). [33] The expert evidence must therefore assist the trier of facts by providing specific knowledge that the ordinary person does nothave. "Its purpose is not to substitute the expert for the trier of fact.

What is asked of the trier of facts is an informed judgment, not an actof faith" (R. v. J.-L.J., supra, at p. 628). Properly qualified expert [34] Before testifying, an expert witness must be qualified as an expert by the Court in matters on which the opinion is to be given:R. v. Mohan, supra, at p. 25. [35] On this, the law is now well settled: the shortcomings in an expertise affect the value of the testimony and not itsadmissibility: R. v. Marquard, supra, at para.

[36] Additionally, the mere fact that another person could have possibly been more qualified to testify on a particular topicconstitutes another consideration to review when granting the probative weight of expert testimony and not a concern at the admissibilitystage: McLean (Litigation Guardian of) v. Seisel (2004), (ON CA), 182 O.A.C. 122 (C.A.) at p. 140. [37] However, the courts must make a distinction between the situation described above and that in which, for example, an expertwith impressive qualifications does not have particular expertise in the relevant specific field: Vigoren v.

Nystuen, 2006 SKCA 47, 266D.L.R. (4th) 634 (C.A. SK.). Absence of any exclusionary rule [38] Meeting the three criteria above from the test set out in R. v. Mohan will not ensure the admissibility of expert evidence if itfalls afoul of an exclusionary rule, separate and apart from the opinion rule itself. In other words, the expert evidence must not beexcluded under the application of any other rule: R. v. Mohan, supra, at p. 25.

Application of the law to the facts Absence of any exclusionary rule [39] From the start, the fourth criterion from Mohan, supra, regarding the admissibility of an expert witness, the absence of anyexclusionary rule, does not seem to be problematic in the present case. At any rate, counsel for the appellant did not raise anyexclusionary rule distinct from the opinion rule. [40] As a result, it is appropriate to promptly continue our analysis of the third Mohan criterion and to review the qualifications ofthe expert proposed to the Court. A properly qualified expert [41] Mr.

Goulet's CV indicates that he has been active in the field of financial counselling for 20-some years and he currentlyheads the business valuation and legal accounting sector of one of the most important accounting firms in Quebec. In the course of hiscareer, he has carried out or coordinated hundreds of business valuation missions and financial expertise assessments for variouspurposes. He is not only a member of the Canadian Institute of Chartered Business Valuators (CICBV) but has also been on its board ofdirectors since 2006 and its executive committee since 2011.

He is very active within the association of business valuators and isfrequently invited to be a guest speaker by teaching institutions or professional associations. [42] It seems, therefore, that, with regard to business valuation, Goulet definitely has "special knowledge and experience goingbeyond that of the trier of fact" (R. v. Marquard, supra, at para 35). [43] It was brought to the Court's attention that Goulet's business valuation experience in the computing field is limited. In fact, hewas allegedly hired only once as a special advisor to senior management at a major telecommunications company.

The economic fieldsin which he was apparently very active in the past revolved more around food, restaurants, hospitality, forest products, finances,manufacturing and retail. [44] However, I agree with the respondent when she states that an expert witness's shortcomings are relevant to the probative valueto be granted to the expert testimony and are not an element that applies during the inquiry as to admissibility: R. v.

Marquard, supra, atpara 35. [45] As for the inaccuracies in Goulet's CV that the appellant raised during his cross-examination, I am of the view that they werenot made by Goulet for the purpose of establishing his credibility with the Court. I feel that, with regard to his teaching experience,

Goulet simply made small inadvertent errors. I also feel that Goulet sincerely believed that the judge had accepted his opinion in Jobinand Sports 755. Goulet's good faith is not in question and I could not disqualify him as an expert for errors that were, in the end,committed in good faith or inadvertently. [46] I find that Goulet has sufficient expertise to enlighten the trier of fact and his qualifications are sufficient to meet the thirdcriterion of the test established in Mohan, supra.

Relevance Logical relevance [47] Clearly, when the time comes to determine the relevance of an expert witness in the light of Mohan, supra, the first step is toestablish the logical relevance of the evidence, the extent to which this point is related to the fact it is likely attempting to establish. [48] As mentioned above, the appellant submits that Goulet's testimony and report are useless in this case since it was admittedthat, at all times, André Drouin had an arm's length relationship with Prospector and as a result, the FMV of the Franchise is necessarilythe price the appellant paid to acquire it. [49] Moreover, the appellant states that the test at paragraph 20(1)(

a) ITA refers to the concept of capital cost and not the FMV. [50] Nonetheless, the Minister is not questioning the way the tax attributes the taxpayer requested were calculated, such as thecapital cost allowance (CCA). In fact, it is the actual entitlement to these tax attributes that the respondent is challenging and thus themechanics behind the calculation under paragraph 20(1)(

a) ITA would thereby be irrelevant. This case is not about the capital cost usedto calculate the CCA claimed: the issue is whether the appellant actually operated a business. [51] Moreover, the appellant states that he felt the FMV of the assets has nothing to do with the concept of a sham, which isdependent on the parties' intent at the time they entered the contract and not on the underlying FMV of the item in question. [52] However, the SCC in Stubart Investments Limited v.

R., (SCC), [1984] 1 S.C.R. 536 tells us that the elementsrequired for there to be a sham are the following: (1) an intention of the parties to the transaction (2) to create a false impression (3) thattheir rights and obligations are different from their actual legal rights and obligations. [53] In Stubart, the SCC clearly stresses the element of deceit.

In his reasons, Justice Estey explains that this element is the "heartand core of a sham" (at para 53). [54] As a result, an analysis of the franchise the taxpayer acquired showing that its FMV was significantly lower than the pricepaid to obtain it could certainly be logically relevant during the evaluation of one of the fundamental elements of the sham raised by therespondent, namely the parties' intent to deceive.

Cost-benefit analysis [55] However, although the evidence is logically relevant at first glance, the analysis does not end there as other considerationsalso influence the inquiry regarding admissibility. Expert evidence that is otherwise logically relevant still bears the weight of thegeneral requirement that its probative value outweigh its prejudicial effects (see SCC decisions R. v. Mohan, supra; R. v. J.-L.J., supra,and R. v. D.D., supra). This further inquiry may be described as a cost-benefit analysis. [56] As with the other criteria from Mohan, the probative value and prejudicial effect are case specific.

The Mohan analysis

necessarily places great confidence in the trier of fact's ability to carry out his gatekeeper function and this function deserves, as the SCCitself stated, great respect: R. v. J.-L.J., supra, at p. 630. [57] During his cross-examination, Goulet admitted to the Court that he does not personally have any specific computerknowledge.

Strangely, Goulet then indicated that, in his opinion, in order to properly assess a business that markets new software, it isnecessary to be able to properly identify what this software represents, and therefore to understand who the programs are designed forand their inherent level of innovation (see paras 213, 240, 241 and 280 to 290 of the transcript). [58] When he drafted his report, Goulet would therefore have relied on the expertise of Maxime Rousseau, an informationtechnology security specialist from his firm.

However, the name Maxime Rousseau does not appear anywhere in Goulet's report and hewas not present to attest to his knowledge before the Court (see paras 213, 240, 241 and 280 to 290 of the transcript) [59] When the trier of fact considers the cost-benefit analysis that could affect the relevance of expert testimony, it is fullyacceptable for him to examine the extent to which the proposed opinion is based on unproven facts: see K. (A.), supra, at paras 80-81(Justice Charron). In fact, probative value must be determined by reviewing the reliability, significance and persuasiveness of the experttestimony: R. v.

D.D., supra, at p. 295. [60] In a case such as the case at bar, I agree with the observations of Justice Bowie in Petro-Canada v. Canada, 2003 D.T.C. 94(TCC) (partially amended on appeal, but not on this issue (2004 D.T.C. 6329 (FCA); application for leave to appeal denied (337 N.R.397)), which state the following (at paras 103-104): [103] Throughout both the written statement of his evidence and his oral evidence, Mr.

O'Dwyer makes frequent reference to bothfactual material that has been provided to him by "consultants", and also to matters of judgment as to which he had sought opinions fromthose "consultants", and then adopted their judgments as his own. One such instance appears in the passage I have quoted at paragraph100, but it is only one of many. The "consultants" it appears, are two individuals who have been engaged from time to time in, amongother things, advising as to the value of seismic data.

Whatever the level of their expertise might be, they were not at the trial, they didnot give evidence, and counsel for the Appellant had no opportunity to cross-examine them. [104] Opinion witnesses, at least in civil proceedings, have a certain latitude to base their opinions upon information that they havegathered outside the courtroom, and which is not formally proved. It becomes part of the general body of knowledge that contributes tothe expertise of the witness. No such latitude is available in respect of matters of judgment or opinion, however.

The reason that certainwitnesses may express opinions is because they possess knowledge and expertise, acquired through study and experience, that will assistthe Court. They may consult recognized texts and reference materials in formulating and in defending their opinions, but they may notsimply reiterate the opinions of others, with or without attribution. The opinion evidence of Mr.

O'Dwyer in this case is tainted by hiswholesale adoption of the advice of those he consulted, not simply as to the facts of transactions, but as to matters which are primarilymatters of judgment, such as the establishment of a copy price, and the appropriate levels of discount to be applied to large volume sales.However, I know nothing of the qualifications of these consultants, I have had no opportunity to assess their competence, and, mostimportantly, they have not been subject to cross-examination. In my view, their opinions pervade the evidence of Mr.

O'Dwyer to such anextent, and so inextricably, as to destroy any probative value that it might otherwise have. [61] The Federal Court of Appeal did not find any error in this approach. [62] In another decision with a similar factual background as the present case, this Court ruled, per Judge Couture, that it ispossible for a business valuation expert to call upon the expertise of a third party when he cannot personally assess one of the elementsof the asset to be valuated.

He adds, however, that it is essential for this third party to be clearly identified and that his skills be shown tothe Court's satisfaction before it can accord any probative value to the proposed report (see Taylor Estate v. Minister of NationalRevenue, (TCC), [1990] 2 C.T.C. 2304, at paras 36-37): To support and justify his theory of the fair market value of the shares as of October 3, 1981 based on the return or sustainable profit ofthe business method, the witness explained that he also proceeded to determine the break-up value of the business.

However, noadmissible evidence was filed to establish that the market value of the company's assets was correct. The witness merely said that: the market value of the moveable and immoveable property had been determined on the basis of information provided by persons in thefirm and then determined also what was buildings and what was land on the basis of the municipal assessment.

A statement of this kind is not admissible evidence and for this reason I cannot assign any probative value to this feature of the report. Anexpert is permitted to complete his valuation on the basis of a valuation prepared by another expert when among the property to bevalued by him is property that he does not have the requisite skill to value.

Moreover, for a valuation prepared by a second expert to beadmitted as evidence, the qualifications of the second expert must be clearly established to the satisfaction of the Court and also theauthor of the report be at least accessible to the other party so that it may examine or cross-examine him in order to determine whetherhis expert opinion is correct.

Absent testimony from the author, the Court cannot assign any probative value to this valuation. [63] Later, Judge Couture continued his reasoning as follows (at paras 57 and 62) : In preparing a valuation to be used as evidence in court, a valuer may not accept figures that he did not check or take facts for grantedover the correctness of which he has no control.

Expert testimony must be the product of the expert's personal opinion based onestablished facts the existence of which is proved, and not on conjectures or information he receives from third persons. [64] I certainly agree with the respondent that the SCC has repeatedly stated that the nature of the sources on which an expertopinion is based cannot affect its admissibility (see, in particular, R. v. Marquard, supra, and Saint John (City) v. Irving Oil Co., (SCC), [1966] S.C.R. 581). However, I also feel that, no matter what it is, a source must be clearly identified in the expertreport.

On this, Judge Dussault's comments in Mathew v. R., (TCC), [2001] 4 C.T.C. 2101 are of particular interest(at para 29) : [29] None of the authorities referred to by the Respondent's counsel refute this general principle. Although I recognize that thenature of the source upon which an expert opinion is based cannot affect the admissibility of the opinion itself, as stated by the SupremeCourt of Canada in the Saint John case, I am of the opinion that that source, regardless of its nature, has to be clearly stated.

Similarly, Iagree with the Respondent's counsel that deficiencies in the expert opinion that may result from reliance on inaccurate assumptions areonly relevant in assessing the weight of the opinion, as the Supreme Court of Canada stated in the Warsing case, supra. However, I amalso of the opinion that the unknown character of the assumptions relied on is relevant to the determination of the admissibility of theexpert opinion.

In my view, the fact that the opinion is based on the expert's own findings of fact (as appears to be the case with Mr.Taylor's report), which are unknown to the Court, is an issue that relates to its admissibility. It seems obvious to me that the admission ofthe expert evidence in the present case would, as a result of the extreme difficulty in determining what assumptions were actually reliedon and how accurate they were as well as which ones were not considered, leave the Court wondering when assessing the weight to beattached to that evidence.

In no way can this meet the test of clear and unambiguous hypothetical facts. [65] If not to accord some value to the expert opinion, a determination must still be made about the facts on which it is based: R. v.Abbey, (SCC), [1982] 2 S.C.R. 24, supra; R. v. J.-L.J., supra, and R. v. D.D., supra).

As Justice Lawton stated in R. v.Turner (Terence), [1975] 1 Q.B. 834, at p. 840, this "elementary principle is frequently overlooked." [66] In the present case, Goulet did not make any mention of his computer security co-worker in his report and this co-worker wasnot present to attest to his knowledge to the satisfaction of the Court.

However, once again, Goulet freely admitted that it is essential toproperly understand and identify the characteristics and particularities of the software developed by Prospector to be able to accuratelyvaluate the franchises they offer on the market. [67] More specifically, Goulet admitted on cross-examination that Rousseau's opinions regarding the qualification of software, theinnovative character of the software programs and their utility compared to other products available on the market at the relevant timesconstituted an integral and inseparable part of his report. [68] However, an expert opinion that relies significantly on other people's opinions that are unproven and the content of which iscontentious and outside the knowledge of the person who is seeking to qualify it is devoid of probative value. [69] The reliability-effect factor is of particular importance when assessing the admissibility of expert evidence and, as a result, Ifeel that it is appropriate to conclude that Goulet's proposed expert testimony fails this exercise.

The necessity in assisting the trier of fact

[70] Now, we shall determine the admissibility of the expert evidence that the respondent wishes to introduce in the light of thislast criterion, the necessity in assisting the trier of fact. [71] The first question is whether the expert is providing information necessary for the trier of fact to assess the issue given itstechnical nature: R. v. Burns, supra; R. v. Mohan, supra; R. v. Lavallée, supra and R. v. Abbey, Kelliher (Village of) v. Smith, supra. [72] According to Mohan, the risks associated with expert evidence must not be taken lightly. Mere relevance or "helpfulness" isnot enough.

The issue is whether the expert is providing information likely to be outside the ordinary experience and knowledge of thetrier of fact: R. v. D.D., supra, at p. 298 and R. v. Mohan, supra, at p. 23. [73] Logically, Justice Sopinka indicated the need for expert evidence to be "assessed in light of its potential to distort the fact-finding process" (R. v. Mohan, supra, at p. 24). [74] In this case, when questioned on the scope of his mandate, Goulet stated that he paid particular attention to the economicreality underlying the transactions that the appellant conducted.

More specifically, he clearly noted that his mandate consisted not only ofassessing the FMV of the franchise the appellant acquired but also of examining the reasons that justified this purchase. Indeed, for him,these two assignments were interrelated and interdependent (see paras. 251 to 255 of the transcript). [75] But, Justice McIntyre, for the SCC in R. v.

Béland, (SCC), [1987] 2 S.C.R. 398, stated the following withregard to the circumstances that require expert testimony (at para 16): The function of the expert witness is to provide for the jury or other trier of fact an expert's opinion as to the significance of, or theinference which may be drawn from proved facts in a field in which the expert witness possesses special knowledge and experience goingbeyond that of the trier of fact. The expert witness is permitted to give such opinions for the assistance of the jury.

Where the question isone which falls within the knowledge and experience of the triers of fact, there is no need for expert evidence and an opinion will not bereceived. [76] This comment is completely in line with another SCC case, R. v. Abbey, supra, in which Justice Dickson, later Chief Justice,stated, at p. 42: With respect to matters calling for special knowledge, an expert in the field may draw inferences and state his opinion.

An expert'sfunction is precisely this: to provide the judge and jury with a ready-made inference which the judge and jury, due to the technical natureof the facts, are unable to formulate. "An expert's opinion is admissible to furnish the Court with scientific information which is likely tobe outside the experience and knowledge of a judge or jury. If on the proven facts a judge or jury can form their own conclusions withouthelp, then the opinion of the expert is unnecessary" (Turner (1974), 60 Crim. App.

R. 80, at p. 83, per Lawton L.J.) [77] It is true that the respondent cites Marquard to submit that it would be overly formalistic to dismiss the testimony of an expertmerely because the witness provides an opinion beyond the field of expertise for which he was qualified: R. v. Marquard, supra, at para.37. [78] However, even that SCC case stands for a rejection of Goulet's testimony. This Court, per Judge Dussault, could not havebeen more clear in Mathew v.

R., supra on this subject (at para. 30): [30] Moreover, I think that the Marquard case, supra, relied on by the Respondent's counsel, is a further argument for refusal of theevidence in question. In that case, the issue was whether the expert witnesses, as practising physicians, possessed some specialknowledge related to the burns and child abuse with respect to which they testified and which were alleged to lie outside their field ofexpertise.

The Supreme Court of Canada found that while they were not medical specialists in burns, there could be no doubt that "aspractising physicians they possessed an expertise on burns which is not possessed by the ordinary untrained person." It is in this contextthat the Court stated that "[t]he only requirement for the admission of expert opinion is that the 'expert witness possesses specialknowledge and experience going beyond that of the trier of fact'". As stated by the Appellants' counsel, the evidence at issue containsseveral conclusions of fact and law in respect of which Mr.

Taylor does not possess any special knowledge and experience going beyond

that of the trier of fact. Mr. Taylor readily admitted as much when questioned by the Appellants' counsel with respect to no less than 30such conclusions. [79] During his cross-examination, the expert proposed by the respondent deliberately stated that not only did he examine theunderlying economic reality of the transactions at the heart of this case, but also that this review was necessarily inseparable from hisconsideration of the FMV of the franchise. [80] As a result, I believe that it is sufficient for me to cite the following comment made by the SCC in Adam v.

Campbell, (SCC), [1950] 3 D.L.R. 449 (SCC) in order to seriously question the need for such testimony: Neither experts nor ordinary witnesses may give their opinions upon matters of legal or moral obligation, or general human nature, or themanner in which other persons would probably act or be influenced. [81] The goal of expert testimony is to assist the trier of fact by providing specific knowledge. It does not substitute the expert forthe trier of fact.

As a result, Goulet's proposed testimony as an expert before this Court cannot be justified in the light of the necessitytest. [82] We will now address the second question, which is as follows: can the Court, if it finds it relevant do to so, separate Goulet'sreport and only authorize him to testify as an expert on part of his report? [83] In my opinion, the answer must be in the negative.

To justify my position, I believe it is sufficient to reproduce the followingreasons, both concise and flawless, given by Judge Dussault: [35] With respect to counsel for the Respondent's alternative argument to the effect that Mr. Taylor should be permitted to testify onlimited matters within his area of expertise, I agree with the submissions of counsel for the Appellants. To accept Mr. Taylor's testimonyon limited matters confined to market rates of return or proper calculation of rates of return would be to engage in a completely differentexercise than the one Mr.

Taylor undertook and which was from the outset an unauthorized fact-finding mission. First of all, suchacceptance would imply, as counsel for the Appellants said, that Mr. Taylor could "disabuse himself" of the clearly inadmissibleevidence contained in his report. This would appear to be more easily said than done and the result would probably be more theoreticalthan practical. Secondly, notice was given pursuant to

section 145 of the Tax Court of Canada Rules (General Procedure) that theevidence Mr. Taylor was going to give was that contained in his report. Based on his evaluation of the type of evidence contained in thereport, counsel for the Appellants proceeded to trial on the assumption that the report could not be admitted in evidence and that arebuttal opinion was not necessary in the circumstances. After nine days of trial we are at a point where counsel for the Respondent isasking the Court to at least accept Mr. Taylor's testimony on limited matters within his area of expertise. In my opinion, proceduralfairness embodied in

section 145 of the Rules requires that the report filed and served represent the evidence that the expert is preparedto give in the matter. The 30 days' notice ensures that the other party can prepare his case accordingly (Mathew v. R., supra, at para. 35) [84] For all these reasons, I feel that Goulet's testimony and report are not admissible as evidence.

AMENDED REASONS FOR ORDER Bédard J. [1] Now, we will address the appellant's objection to the hearing of the following seven witnesses the respondent called totestify: Van Khiem Ngo, Dave Rioux, Christian Thériault, Gino Villeneuve, Marc Ghannoum, Charles Godbout and Pascale Cauchi. Background [2] The appellant has appealed from a reassessment dated August 27, 2009, in which the Minister of National Revenue (theMinister) disallowed the business loss deduction of $85,875.33 for the 2008 taxation year.

[3] The appellant signed a franchise contract with Prospector International Networks Inc. (Prospector International) for the sale and marketing of computer software. [4] From his income in the 2008 taxation year, he deducted a business loss composed of interest and amortization expenses, which were allegedly related to the operation of this franchise. [5] The appeal raises the following issues: (

a) Did the appellant operate a business during the 2008 taxation year? (

b) Did the appellant purchase the franchise for the purpose of operating a business? (

c) Was the amount the appellant paid for the franchise reasonable? [6] The respondent's theory is essentially based on allegations of a sham with respect to the contracts involving the purchase and operation of the franchise. [7] On January 17, 2012, a few days before the trial began, the respondent informed the appellant of her intention to call as witnesses five other Prospector International franchisees, as well as two financial advisors who had sold franchises. and were also franchisees themselves. [8] From the first days of the hearing, the appellant made a preliminary objection to the admission into evidence of these seven testimonies.

The parties were asked to submit written representations on the subject and the Court agreed to wait until the appellant's evidence could be assessed before rendering its order. [9] Until now, the trial had been going on for three weeks, focusing on the appellant's evidence. Five witnesses were called to testify, including the appellant himself. He came to testify about his own experience, his intentions and the facts surrounding the purchase of his franchise.

Claude Duhamel, president of the Réseau and representative of Prospector International also testified, particularly with regard to the circumstances surrounding the signing of contracts with franchisees. Issue [10] The Court must determine whether the impugned testimonies are admissible as evidence. Appellant's position [11] The appellant objects to this testimony on the ground that it is irrelevant and inadmissible and it would be unjust and unfair for both the appellant and the witnesses to allow the respondent to offer this in evidence. 1.

Testimony is inadmissible because irrelevant prima facie [12] First, he submits that the testimony of the seven witnesses are inadmissible in evidence because it is irrelevant prima facie with regard to the alleged facts and issues of the case. A sham requires proof of intent to mislead by the parties to the contract, namely the appellant and Prospector. Moreover, according to

article 1434 CCQ, a contract binds and affects only the parties to that contract. Therefore, the appellant is of the view that the intent of the other franchisees when they concluded contracts with Prospector, the circumstances surrounding the signing of these contracts and the representations that may have been made to these franchisees are not relevant either to interpret the appellant's contract or to determine its effects. This statement is all the more relevant because the franchisees did not use the same financial advisor as the appellant.

[13] In support of his submissions, he also cites Kiwan v. R., 2004 TCC 136, where Justice Dussault states "that the evidence ofthe activities of third parties is neither admissible nor relevant to decisions concerning the activities of the Appellants." 2. Testimony constituting similar fact evidence not admissible [14] Additionally, the appellant submits that the testimony constitutes similar fact evidence, which is generally inadmissible givenits prejudicial nature which normally outweighs its probative value. [15] On this, he cites R. v. Balla, 2010 BCSC 486 and R. v.

Handy, 2002 SCC 56, both criminal cases whereby the courts warnedagainst the potential prejudice of such evidence. These decisions would also apply in civil matters: Johnson v. Bugera, 1999 BCCA 170which cited Mood Music Publishing Co. v.

The Wolfe Ltd., [1976] Ch 119, [1976] 1 All ER 763. [16] The appellant admits that similar fact evidence is admissible under certain exceptional conditions that, in his opinion, are notmet in this case. [17] For example, he refers to Kiwan, supra, in which this Court allowed the testimony of four third parties that had fraudulentlyreceived charitable donation receipts from the same organization as the appellants. He distinguishes the facts in that case from thepresent case in that no evidence shows or indicates there is a fraudulent or criminal scheme.

He adds that if the Minister wished to invokethe scheme, he had the responsibility to make the allegation in his Reply to the Notice of Appeal. [18] He also cites, by way of example, Petit v. R. 2003 TCC 713 where this Court allowed the evidence submitted by the RevenueQuebec auditor regarding the le modus operandi of a tax shelter promoter with no registration number with which the appellant wasdealing directly. He brought the Court's attention to the fact the documents about other taxpayers who had invested in the same productand through the same promoter had been withdrawn from evidence. 3.

Admitting the testimony into evidence would compromise procedural fairness [19] The appellant submits that, to assess the admission of similar evidence, the "fundamental question that must be determined iswhether the probative value of the evidence outweighs its prejudicial effect" (R. v. Arp, (SCC), [1998] 3 S.C.R. 339).He also cites O'Brien v.

Chief Constable of South Wales Police [2005] UKHL 26, at para 6, which describes the importance ofprocedural fairness more generally. [20] On the one hand, the appellant states that the respondent cannot claim that the impugned testimony has probative value, whenher counsel admitted at the hearing that they never spoke to the witnesses. [21] On the other hand, he submits that admitting this testimony as evidence would cause serious procedural unfairness to him andthe witnesses. [22] First, the Minister is seeking to amend the de facto proceedings to include the scheme, which is contrary to rule 49 of the TaxCourt of Canada Rules (General Procedure) (the Rules) that requires the Reply to the Notice of Appeal to include "the findings orassumptions of fact made by the Minister when making the assessment." He cites Johnston v.

MNR., (SCC), [1948]S.C.R. 486 (at pp. 489-490) and Canada v. Anchor Pointe Energy Ltd. 2007 FCA 188 (at paras 27 to 29). He submits that this approachis contrary to fairness, which requires the parties to be able to clearly understand what they will have to prove in order to adequatelyprepare for the hearing, particularly in a case such as this one, where the taxpayer is facing the State, with its unlimited resources andconsiderable power: Walsh v. R., 2008 TCC 282 (at para 22), Cudmore v. The Queen, 2010 TCC 318, Canderel Ltd. v. Canada, (FCA), [1994] 1 FC 3 (CA), Ketteman v.

Hansel Properties, [1988] 1 All ER 38 (HL), Special Risks Holdings Inc. v. TheQueen (1984), 38 D.T.C. 6054 (FCTD). [23] The appellant adds that it is impossible for his counsel to adequately prepare for this testimony without having had an

opportunity to question the witnesses in advance. Such a process would lead to a delay in the proceedings and would add to the burden ofthe appeal. He cites Kajat v.

Arctic Taglu (The) (CA), (FCA), [2000] 3 F.C. 96, (at para 21) where the Federal Courtof Appeal restated the importance of advising the opposing party when similar fact evidence is to be offered. [24] Moreover, the appellant argues that the respondent used her significant access to information powers to select witnesses thatare favourable to her case, which would give her an unfair advantage over the appellant who does not have this same level of informationregarding the other franchisees.

In his opinion, the sample is not representative of the hundreds of franchisees and the seven financialadvisors, which could mislead the Court. He adds that he should have an opportunity to select franchisees that would be favourable to hiscase. [25] He submits that the admission of the impugned testimony would also lead to procedural unfairness for the franchiseewitnesses, in that their testimony could be used against them in their own appeals.

He is of the view that the respondent is placing themin a vulnerable position without their having their own counsel, especially since their testimony could have criminal consequences.According to the doctrine and the case law, prejudice to the witness is to be considered when assessing prejudice: Claude Marseille, Larègle de la pertinence en droit de la preuve civile québécois, éditions Yvon Blais, 2004, at pp. 38-40. 4.

Admitting the testimony into evidence would result in an abuse of procedure [26] He adds that the admission of the impugned testimony would compromise the proportionality of the proceedings, and increasethe complexity and length of the appeal.

The examinations for discovery, testimony of additional witnesses selected by the appellant andthe potential that these witnesses will be called back to the stand would require adjournments, long delays and significant costs, whichmust be considered in the assessment of the admissibility of similar fact evidence. [27] He also opines, contrary to the respondent's submissions, that it is unlikely that an hour is sufficient to complete theexamination of each witness, considering the appellant himself testified for at least a day and a half. [28] In that respect, he cites R. v.

Mohan, (SCC), [1994] 2 S.C.R. 9 (cited at para. 24 of Mathew v. The Queen,2001 D.T.C. 742 (TCC)), where the Supreme Court of Canada addressed the cost-benefit analysis when assessing the admissibility ofevidence and restated that the principle of proportionality of the proceedings is codified in

article 4.1 of the CCQ. He also cites O'Brienv. Chief Constable of South Wales Police, [2005] UKHL 26 (at para. 6). [29] The appellant adds that the admission of the testimony would turn an individual appeal into a commission of inquiry.However, under

section 231.4 of the Income Tax Act, rules are provided specifically for this type of proceeding, which were notrespected in this case. Respondent's position [30] The respondent recalls the basic principle of

article 2857 CCQ, which provides that "all evidence of any fact relevant to adispute is admissible and may be presented by any means." She adds that this principle is a consequence of the right to be heard and aimsto meet the main objective of any trial, seeking the truth. [31] She submits that the evidence that would be submitted by the franchisees and the financial planners is relevant both to refutethe appellant's evidence and to prove the facts alleged in the Reply to the Notice of Appeal. [32] In particular, the respondent wants the witnesses she summoned to testify to show, among other things, that (at para 3 of therespondent's written representations) [translation]

(

a) They acquired the same type of franchise as that involved in the present case; (

b) The contracts signed by the appellant and the promissory notes he allegedly received, were shams; (

c) André Drouin, did not operate a business any more than the other franchisees did, because this business was non-existent; (

d) Réseau Prospector and MarketX Services Inc. did not operate a business on behalf of André Drouin or the other franchisees; (

e) The structure implemented by Groupe Prospector was established based on tax rebates the franchise purchasers could obtain; (

f) The franchise vendors indicated to future buyers that purchasing a Prospector franchise would give them a tax benefit greater than the amount paid; (

g) André Drouin, as with the other franchisees, was not taking any financial risk; (

h) The activities related to the Prospector franchises had no commercial aspect and did not offer any possibility of making a profit other than tax savings; (

i) The price noted in the contracts does not represent the actual amount the franchisee paid. [33] The respondent submits that the impugned testimony directly addresses the same facts as those affecting the appellant, namely the tax implications of purchasing a Prospector franchise. Therefore, it is circumstantial evidence and not similar fact evidence. [34] She adds that if the testimony were considered similar fact evidence, it would still be admissible since the probative value outweighs the prejudicial effect on the opposing party. [35] As to the admissibility of this type of evidence, she cites Kajat v.

Arctic Taglu (The) , supra , which cites the admissibility rule propounded in Mood Music Publishing Co. v. DeWolfe Ltd. , supra . [36] She contends that the impugned testimony would be of significant probative value, considering the high degree of similarity between the facts at issue and the facts to which the franchisees and financial advisors would testify ( Kajat v. Arctic Taglu (The) , supra , citing Justice Cory in R. v.

Arp , supra ). [37] She also contends that the admission of the testimony would not result in prejudice to the appellant or the proposed witnesses that would call for the exclusion of the testimony. [38] She submits that the witnesses are compellable even though they filed an objection with the CRA regarding their own tax case. Moreover, she notes that none of them is a party to a criminal proceeding and, at any rate, under

section 5 of the Evidence Act none of the testimonies given before the Tax Court of Canada could be used against them in a criminal proceeding. [39] Regarding the notice, she submits that under the Rules, she had no obligation to communicate the names of the witnesses prior to the trial. She adds that regardless, the appellant has known since at least January 17, 2012, that the witnesses were subpoenaed by the respondent. Moreover, she submits that the failure to give notice does not necessarily warrant exclusion ( Kajat v. Arctic Taglu (The) , supra ).

She submits that the right to examine the witnesses as requested by the appellant is not automatic, and the Court's prior authorization is required. [40] In response to the appellant's arguments, she adds that he cannot claim that the Reply to the Notice of Appeal does not inform him of the burden he has to meet because the elements the respondent is seeking to have submitted to evidence are to prove the allegations the respondent has the burden to prove.

Allowing the objection would entail a serious barrier to her ability to meet her burden. [41] The respondent adds that the appellant was able to anticipate the presence of the other franchisees and financial planners at the hearing considering the terms of her reply, which refers to franchisees in a general manner. The appellant himself admitted at paragraph 25 of his notice of appeal that many franchises were sold through financial advisors. He could therefore certainly expect the presence of other franchisees to rebut the evidence he presented.

[42] She feels that around one hour per witness would be needed, which is not excessive or disproportionate considering the volume of the appellant's evidence. Analysis and conclusion [43] The two parties do not agree on the nature of the evidence the impugned testimony represents. The appellant submits that it is similar fact evidence while the respondent submits that is it simply circumstantial evidence. [44] It is appropriate to reproduce paragraphs 22 to 24 of the respondent's written submissions, which read as follows: [ translation ] 22.

The respondent submits that the testimonies of the franchisees and the financial planners are entirely relevant according to the criteria of the Supreme Court because these people were involved in transactions identical to those involving the appellant and thus will give evidence that may increase the likelihood that the contracts signed by the appellant and the promissory note allegedly given to him are in fact shams. 23.

The testimonies of the franchisees and the financial planners will also increase the likelihood that representations were made to the Prospector franchise buyers to the effect that buying a franchise would give them a tax benefit in excess of the amount paid by them. 24. The testimonies of the franchisees and the financial planners will also increase the likelihood that no businesses were actually carried on through Prospector franchises. [45] It seems clear to me after reading these paragraphs that the impugned testimony will constitute similar fact evidence.

In fact, the testimony will address transactions that were conducted between Prospector and each of the witnesses and not the transaction between Prospector and the appellant. [46] At any rate, similar fact evidence is a type of circumstantial evidence: "Circumstantial evidence often is in the form of similar fact evidence" ( Cudmore , Civil Evidence Handbook , 1994, at p. 2:41). [47] The test used to determine the admissibility of similar fact evidence in civil cases was propounded in Mood Music Publishing Co. v. DeWolfe Ltd. , supra , and was cited in Kajat v.

Arctic Taglu (The) , supra , which both parties cited: [21] This is similar fact, sometimes referred to as similar act evidence. It is admissible in civil cases: ... if it is logically probative, that is if it is logically relevant in determining the matter which is in issue; provided that it is not oppressive or unfair to the other side; and also that the other side has fair notice of it and is able to deal with it. [48] It must therefore be determined first whether the evidence is "logically probative" or "logically relevant" in determining the matter in issue.

Then, the prejudicial effects of this testimony must be determined and it must be decided whether its relevance outweighs the prejudicial effects. Is the evidence "logically probative"? [49] I was not provided with any additional information regarding the meaning to grant to the expression "logically probative". I noted, among others, a case in which the Supreme Court of Canada provides more explanations on the meaning to give this expression, namely R. v. Fontaine , 2004 SCC 27 : Where mental disorder automatism is raised as a defence, an assertion of involuntariness on the part of the accused, supported by the

logically probative opinion of a qualified expert, will normally provide — as it did in this case — a sufficient evidentiary foundation forputting the defence to the jury. By “logically probative”, I simply mean relevant — that is, evidence which, if accepted by the jury,would tend to support the defence of mental disorder automatism. Accompanying instructions in law will make it clear to the jury thatthe burden remains on the accused to establish the defence to the required degree of probability. [50] In R. v.

Blackman, 2008 SCC 37 , [2008] 2 SCR 298, cited by the respondent, the Supreme Court of Canada, perJustice Cory, cited from Arp, supra, regarding the expression "logically relevant" The reality that establishing threshold relevance cannot be an exacting standard is explained by Professors D. M. Paciocco and L.Stuesser in The Law of Evidence (4th ed. 2005), at p. 29, and, as the authors point out, is well captured in the following statement of CoryJ. in R. v.

Arp, (SCC), [1998] 3 S.C.R. 339, at para. 38: To be logically relevant, an item of evidence does not have to firmly establish, on any standard, the truth or falsity of a fact in issue.

Theevidence must simply tend to “increase or diminish the probability of the existence of a fact in issue”. [51] Moreover, in Arp, Justice Cory decided that the degree of similarity between the alleged acts and the acts sought to beintroduced as evidence should be a consideration, as long as the improbability of coincidence was established ... where similar fact evidence is adduced to prove a fact in issue, in order to be admissible, the trial judge should evaluate the degree ofsimilarity of the alleged acts and decide whether the objective improbability of coincidence has been established.

Only then will theevidence have sufficient probative value to be admitted. [52] In this same decision, Justice Cory suggests that "as a general rule if there is such a degree of similarity between the acts thatit is likely that they were committed by the same person then the similar fact evidence will ordinarily have sufficient probative force tooutweigh its prejudicial effect and may be admitted." [53] We must clarify that this was a criminal case, in which the similar fact evidence was adduced to establish identity.

However,as the appellant correctly states, the same similar fact evidence principle applies in criminal and civil matters. [54] In Handy, supra, on which the appellant relied, the Supreme Court of Canada also had to rule on the admissibility of similarfact evidence. It determined that the probative value of this evidence was to be assessed on the purpose for which it was produced: 69 McLachlin J. speaks in B. (C.R.), supra, of the “value of the evidence in relation to an issue in question” (p. 732 (emphasisadded)).

McIntyre J., in Sweitzer, supra, emphasized that whether or not probative value exceeds prejudicial effect can only bedetermined in light of the purpose for which the evidence is proffered (p. 953). The importance of issue identification was alsoemphasized in D. (L.E.), supra, at p. 121; C. (M.H.), supra, at p. 771; R. v. Litchfield, (SCC), [1993] 4 S.C.R. 333, atp. 358; R. v. B. (F.F.), (SCC), [1993] 1 S.C.R. 697, at p. 731; R. v.

Lepage, (SCC), [1995] 1 S.C.R.654, at para. 35; and Arp, supra, at para. 48. [55] In Blackman, supra, to which the respondent cited, the Supreme Court stated that the assessment of relevance is "an ongoingand dynamic process".

Also, "[r]elevance can only be fully assessed in the context of the other evidence at trial." This statement is all themore relevant given that the evidence could assist the court when determining the probative value of the testimony. [56] These decisions show that "logically probative" or "logically relevant" evidence is evidence that tends to "increase or diminishthe probability of the existence" of a fact or issue.

Therefore, a high similarity between the facts in a case and the facts a party seeks tohave admitted as evidence favours the probative value of these facts. [57] The parties also cited a few cases in which this Court applied the similar fact evidence rule. Both parties commented onKiwan. I agree with the respondent that this decision must be interpreted as allowing evidence of the state of affairs or context and notonly evidence of a scheme. Justice Dussault's words in Kiwan indicate that the scheme is one case in which similar fact evidence can berelevant:

This was all within a context that is impossible to ignore. It does not, however, mean that all donors were issued fake receipts. Ascounsel for the Appellants maintained, we cannot blame the Appellants nor other taxpayers, for that matter, for the reprehensibleactivities of third parties and conclude that they too were involved in the scheme.

We need not refer to many decisions to recognize thatthe evidence of the activities of third parties is neither admissible nor relevant to decisions concerning the activities of the Appellants.However, in my opinion, evidence of the state of affairs or the context, such as, in the case at hand, the existence of a large-scale schemecarried out over a number of years, is both admissible and relevant. [58] In my opinion, Petit, supra, is of little use with regard to the issue of admissibility of testimony as similar evidence.

JusticeLamarre asked that evidence be removed that was strictly about the other taxpayers who had invested in the same franchise as theappellant. The judgment does not offer any explanation about the reasons for the judge's request.

It seems that none of these othertaxpayers were present at the hearing, and their statements were reported by another witness. [59] In this case, the appellant submits that the respondent cannot argue that this evidence has probative value since she neverspoke to the witnesses. [60] As for the respondent, she argues that the testimony has significant probative value considering the high degree of similaritybetween the transactions with Prospector and all the franchisees.

She submits that they are relevant because they aim to refute theappellant's evidence and establish that the contracts and promissory notes signed by the franchisees and the franchisor are shams. [61] In my opinion, the appellant cannot criticize the respondent for not speaking to the witnesses, who are clearly hostile.

Therespondent identified the claims in her Reply to the Notice of Appeal that the testimony would attempt to prove and the specific issuesthese facts aim to prove, which is sufficient. [62] In this case, the probative value of the evidence to be presented flows essentially from the high similarity between thecontractual relationships between Prospector and the appellant and Prospector and the other franchisees. These similarities are apparentupon reading paragraph 26 of the Reply to the Notice of Appeal (see subparagraphs (d), (f), (h), (i), (

q) and (v)). They also emerge fromthe evidence the appellant presented over the past three weeks: the franchisor provided a form contract to a dozen financial advisors whosold the franchises to their clients. All the franchisees signed the same documents, with only a very few exceptions. [63] Clearly, the appeal only involves Mr. Drouin and the intent of the other franchisees to deceive the tax authorities could notlead to a finding on Mr. Drouin's intent. The Court does not intend to hold a trial for the other franchisees. The respondent's theoryresides on allegations of a sham.

As the appellant submitted, in order for a transaction to be considered a sham, the parties to thattransaction must have taken acts "which are intended by them to give to third parties or to the court the appearance of creating betweenthe parties legal rights and obligations different from the actual legal rights (if any) which the parties intended to create." (Snook v.London & West Riding Investments Ltd., [1967] 1 All ER 518, cited in Minister of National Revenue v. Cameron, (SCC), [1974] S.C.R. 1062, at p. 1068 and in Stubart Investments Ltd. v.

R., (SCC), 1984 CarswellNat 690, [1984] 1S.C.R. 536, [1984] C.T.C. 294, 53 N.R. 241, [1984] 1 S.C.R. 536, 10 DLR (4th) 1, 84 D.T.C. 6305. [64] The respondent must therefore prove the intention of both the appellant and Prospector International (or its representatives).To this end, the testimony would tend in particular to prove the representations made to the financial advisors and the franchisees. [65] Moreover, in civil matters, the courts have allowed evidence of transactions between a party to the litigation and a third party.In this case, Prospector is not exactly a party to the litigation between the Minister and the appellant but it seems that counsel for theappellant themselves admitted during the examinations that it is a company involved in the case.

The allegation of a sham between thefranchisor and the franchisee Drouin makes any evidence about the franchisee and his network relevant. What are the prejudicial effects? [66] The second step is to weigh the probative value of this evidence against its prejudicial effects.

[67] I agree with the appellant that evidence that is likely to create a prejudicial effect could warrant an exclusion despite its relevance.

As noted by the Supreme Court of Canada in Mohan , supra : Evidence that is otherwise logically relevant may be excluded on this basis, if its probative value is overborne by its prejudicial effect, if it involves an inordinate amount of time which is not commensurate with its value or if it is misleading in the sense that its effect on the trier of fact, particularly a jury, is out of proportion to its reliability. [68] The judge has broad discretion with regard to allowing all types of evidence.

This is even truer for similar fact evidence. [69] As Justice Binnie noted in Handy , supra , citing the High Court of Australia in Pfennig, "[o]ne of the difficulties...is the absence of a common basis of measurement: 'The probative value of the evidence goes to proof of an issue, the prejudicial effect to the fairness of the trial.' The two variables do not operate on the same plane." [70] In this case, I must decide whether, as the appellant claims, admitting the testimony as evidence is unfair and unjust to the point of outweighing its relevance 1.

Amendment to proceedings [71] The appellant submits that submitting this testimony is the respondent's way of amending the proceedings de facto to include the " Kiwan " strategy. The respondent maintains that this testimony is to prove the allegations at paragraph 26 of her Reply to the Notice of Appeal. [72] On this, I noted some inconsistencies between the respondent's written submissions and the Reply to the Notice of Appeal.

For example, in the written representations, the respondent explains that she wants to show, among other things, that André Drouin, as the other franchisees , did not run any financial risk (subparagraph 3(g)). Strangely, she refers to the claim at subparagraph 26(

n) of the Reply to the Notice of Appeal, which only refers to the appellant. [73] The same can be said for subparagraphs 3(

c) and (

d) of the written submissions which refer to subparagraph 26(

l) of the reply: these allegations involve only the appellant and the management mandate between Réseau or Market X Services Inc. and the appellant only. [74] However, it is true that certain allegations in paragraph 26 of the reply, in particular subparagraphs (q), (v), and (w), that the respondent is seeking to prove, are allegations that refer to the franchisees in general. [75] Therefore, I cannot come to the same radical conclusion as the one the appellant is suggesting.

The respondent's representations indicated that she is validly seeking to prove the facts alleged in the reply, which is her burden, and, as she claims, will attempt to prove the allegations of a sham. The respondent is also entitled to the opportunity to refute the appellant's evidence, in particular, regarding the circumstances surrounding the contract agreements, on which the president, Mr. Duhamel, testified. [76] I will, however, criticize the drafting of the respondent's reply to the notice to appeal.

The few paragraphs that refer to Groupe Prospector and the franchisees as a group could have been highlighted instead of being concealed among the allegations regarding only the appellant. 2. Reasonable notice

[77] The case law has also recognized the importance of giving the opposing party reasonable notice so it can refute the similar fact evidence. It is a major element to take into consideration when assessing prejudicial effects. [78] The respondent submits that [ translation ] "the appellant was able to anticipate the presence of the franchisees and financial planners at the hearing because the Reply to the Notice of Appeal states that many individuals purchased franchises from Groupe Prospector through vendors...and therefore these individuals are likely to provide evidence related to the argument of a sham raised by the respondent." She referred to subparagraphs 26 (d), (f), (i), (

v) and (

w) of her Reply to the Notice of Appeal. She also noted in her written submissions that [ translation ] "the appellant has known since at least January 17, 2012, that the witnesses were subpoenaed by the respondent." This statement was not challenged by the appellant. [79] After carefully reviewing the paragraphs in question from the Reply to the Notice of Appeal, I am of the view that they do not constitute clear notice of the similar fact evidence the respondent wishes to produce. Moreover, notice given five days prior to the start of the hearing is certainly not reasonable notice.

I therefore find that the appellant did not have a reasonable amount of time to properly prepare for this evidence. [80] I will take the liberty once more of criticizing the drafting of the respondent's Reply to the Notice of Appeal. The parties to a dispute both benefit from clear and explicit pleadings. The principle that the other party cannot be taken by surprise implies that the pleadings must be drafted carefully. I must say we now have a borderline case. [81] I refer to Kajat v .

Arctic Taglu (The) , supra , more specifically, to paragraph 22, to which both parties made reference, and which states the following: [22] While we accept that no advance notice of this evidence was given, we are not persuaded that the lack of notice by itself establishes that its admission was unfair or oppressive . The object of notice is to ensure that the opposing party has a fair opportunity to investigate the incidents that are alleged to

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