Practice Note No. 21 & the Rhetoric
Practice Note No. 21 (dated November 30, 2018) is the Tax Court of Canada’s directive on how settlement conferences are to be handled. According to the Court:
1. Settlement conferences will not be scheduled unless parties to the litigation have confirmed that a written offer of settlement has been made and that a written reply has been provided;
2. Both parties must be present at all times during the settlement conference;
3. Parties to the settlement conference must ensure that a representative with full authority to settle the appeal is present at all times; and
4. The Court may award costs against a party where it deems the conduct of that party to have impeded on the efficient functioning of the settlement conference.
Mandatory Settlement Conferences?
There are Canadian courts and tribunals with mandatory settlement conferences. Not the Tax Court. According to the Court:
Parties are encouraged to settle their dispute early in the litigation process. An early settlement has the added advantage of reducing the costs borne by the parties but also has the effect of preserving judicial resources. Parties are entitled to make and accept offers of settlement at any time before there is a judgment and any written offer to settle will be considered by the Court in assessing costs.
The Canada Revenue Agency (CRA) is represented by the taxpayer funded Department of Justice (DOJ). Considering the imbalance of power and resources many taxpayers face, would mandatory settlement conferences facilitate more equitable outcomes?
Does Practice Note 21 Facilitate Settlement?
When the CRA, represented by the DOJ, do not want to settle they do not respond to a settlement offer. Or if they do respond it is cursory. For example, an email advising we will review and get back to you. In our experience, this “written” response is not sufficient to meet the requirements of Practice Note 21 (“PN21”).
By not responding to the content of the offer, possibly with just a simple yes/no, DOJ, or the taxpayer, can prevent the scheduling of a settlement conference and further delay and/or obstruct the chance of settlement. Despite the Tax Court’s rhetoric about preserving judicial resources and encouraging settlement, in our experience parties will simply rely on not meeting the first requirement of PN21 to further prohibit the chance of settlement.
Should a Procedural Condition be relied upon to Hinder Settlement?
In the case of the Tax Court of Canada, before a settlement conference is scheduled should a condition be that a party must respond in writing to the offer? By simply not responding, a settlement conference request will likely be denied. Could the solution be that if a party makes an offer with a principled basis then a third-party can decide based on the content of the offer whether to compel the opposing party to at least consider the offer and respond accordingly? Would this be more aligned with the Court’s rhetoric?
Regardless of a potential solution, no doubt a complicated determination, the current rules regarding settlement conferences do not match the Court’s rhetoric and in our opinion inhibit settlement by providing parties with the ability to simply rely upon a procedural obstacle to forestall discussions.
SpenceDrake Tax Law – Tax Lawyers
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