Many appeals before the Tax Court of Canada are settled and do not proceed all the way to trial. Although the parties to the hearing can enter into settlement negotiations and settle the appeal at any time, it often happens that appeals are settled after the examinations for discovery are completed. By that time, the parties have a better understanding of their respective positions and can assess the strength of their case.
It is important to note that settlement negotiations cannot revolve around numbers only, but must be grounded on legal principles. In other words, the settlement reached by the parties must have a legal basis. It’s not only about “give and take.”
What takes place during settlement negotiations cannot be disclosed to the Court until the appeal is heard and the Court renders its judgment. The Court should not be influenced by what a party is willing to concede during settlement negotiations since the Court’s duty is to decide the correctness of the reassessment(s) under appeal.
However, the parties’ conduct during settlement negotiations can have an impact on the award of costs, including whether a party rejected an offer that ended up being more favourable than the judgment rendered by the Court. Assume that an appeal deals with business expenses of $40,000 that were disallowed by the CRA. The appellant offered to settle the appeal on the basis that 50% of the expenses would be allowed, meaning that $20,000 of business expenses would be allowed to be deducted and $20,000 would be disallowed. If the Crown rejects this offer, proceeds to trial and the judgment rendered by the Court allows $30,000 of business expenses to be deducted, this will impact the award of costs made by the Court because the Crown rejected an offer that ended up being more favourable than the judgment rendered. Simply put, the Crown should have accepted the offer. Similarly, if an appellant rejects an offer made by the Crown, goes to Court and gets less than what the Crown offered, this may have an adverse impact on the award of costs made against the appellant.
It will sometimes happen that the Court will arrange a “settlement conference” (on its own initiative or at the request of a party). When that happens, the judge assigned to preside over the settlement conference will moderate the negotiations between the parties. That judge will only be there to facilitate the negotiations and cannot compel the parties one way or another. If a settlement cannot be reached, the judge presiding at the trial will not be the same as the one who presided at the settlement conference. Further, what took place during the settlement conference will remain confidential and cannot be disclosed to the trial judge.
There are two ways to settle an appeal before the Tax Court of Canada. An appeal can be settled by way of a consent to judgment or by way of minutes of settlement. Generally, a consent to judgment is when the parties consent in writing to a judgment disposing of the appeal. The consent to judgment must be filed with the Court. After reviewing the consent to judgment, the Court can decide to grant the judgment sought without a hearing. However, the Court is not required to do so and can direct that a hearing takes place or that written representations be filed. It is therefore important for the consent to judgment to have a legal basis. Generally, counsel for the Crown will volunteer to draft the consent to judgment.
It sometimes happens that a consent to judgment is not the preferred course of action (e.g. the settlement that the parties reached deals with taxation years not before the Court). In these rare instances, the parties will enter into minutes of settlement. The minutes of settlement are not filed with the Court. Instead, the CRA will be required to reassess in accordance with the agreement signed between the parties. Once the CRA has reassessed the appellant, the appellant then files a “notice of discontinuance” with the Court, putting an end to the appeal.
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Last updated: October 4, 2018