Tax Court of Canada Settlement Conferences
The conventional settlement conference is the preferred apparatus most used by parties trying to settle a tax appeal. A settlement conference is a confidential conference where the parties and their counsel confer in a boardroom in the presence of a TCC Judge and is governed by section 126.2 of the Tax Court Rules. The Rule contains a series of operating principles and conditions that must be satisfied if a settlement conference is to be ordered.
It is important to note that the settlement conference can be set down by the Court on its own initiative. The usual course however is that one or both parties will request that a settlement conference be held to consider the possibility of settling any or all of the outstanding issues. It is usually in the case management context where a TCC judge is able to order a settlement conference.
The judge presiding over the settlement conference is not permitted to preside over the ultimate hearing of the appeal and shall not communicate with the judge hearing the appeal concerning anything that was said or done at the settlement conference. The rationale is obvious. The judge presiding over the settlement conference will have been privy to information and documentation that may not be adduced at trial.
The Court wants the parties themselves at the settlement conference. It would not be fruitful to only compel the attendance of counsel since counsel cannot settle without instructions. Also, the conference is a much more effective tool when the parties can face each other, observe body language, and speak candidly about their respective cases.
Each party is required to serve and file with the Court a 10-page settlement conference brief two weeks in advance of the settlement conference. The brief must contain
(a) an explanation of the party’s theory of the case;
(b) a statement of the material facts that the party expects to establish at the hearing of the appeal and how they will be established;
(c) a statement of the issues to be determined at the hearing; and
(d) a statement of the law and authorities that the party will rely on at the hearing of the appeal.
When issuing an order for a settlement conference, the Court will append a checklist that must be included as part of the settlement brief. This checklist asks the party, among other things, whether settlement offers have been exchanged, whether there are any remaining motions contemplated, and what each party feels is the greatest hindrance to settlement.
Parties should be thoroughly prepared prior to the settlement conference. No stone should be left unturned. The TCC judges are trying to learn the minutiae of the file, such that they are in a position to assist in settlement. In order for the Court to be creative in its suggestions, all relevant facts and issues must be before it.
The Judge’s Role
Each judge is different in her or his approach to settlement conferences. Some divide the groups up and act as a go-between so that the parties are not forced to reveal their positions to the other side. Some will request that the parties engage in (sometimes heated) settlement discussions, with client involvement actively encouraged. And there are also judges who will simply ask if one of the parties has a winning or losing case. The various approaches all differ in their effectiveness. However, in my personal experience, cases tend to settle rather quickly following a judge’s opinion on the merits of an appeal.
The Judge’s Goal
The judge is trying to:
- find the real issue;
- find what the parties have in common;
- look at alternative ways to put an agreement together;
- get the parties talking and keep them talking;
- talk to the parties about the worst case and best-case scenario should they go to trial;
- talk to the parties about the cost of litigation;
- keep the lines of communication open; and
- try to determine where the log jams might be and how this might be breached.
The parties do not necessarily need to settle the particular appeal in order to benefit from participating in a settlement conference. There is the possibility that the parties are able to settle one or two issues and enter into a partial consent to judgment prior to trial. It may even lead to the abandonment of one or more issues, narrowing the trial down to a single, distinct issue. If the parties do not settle their appeal as a result of the conference, then they at least have a much better understanding of their respective cases. This may also result in a reduction in the amount of documentary and viva voce evidence eventually adduced at trial.
An added benefit is for the client to directly hear about the weaknesses of its position from the judge. This is effective in situations where a client has stuck doggedly to a position, despite being advised of its weaknesses by their counsel. It can be incredibly compelling to hear about the weaknesses of one’s case from a TCC judge.
Practice Note 21: Settlement Conferences
Due in part to the conduct of many settlement conference participants, the TCC found it necessary to release Practice Note 21: Settlement Conferences. It is a pithy practice note dated November 20, 2018, directly addressing problematic issues experienced by the TCC in the context of settlement conferences. The Practice Note reads:
- 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
- Both parties must be present at all times during the settlement
- Parties to the settlement conference must ensure that a representative with full authority to settle the appeal is present at all times.
- 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.
For the most part, items 1-3 have been more or less required of parties for the conduct of a settlement conference. The fourth item was a new consideration introduced. It is presumably meant to address situations where a settlement conference brief is not satisfactory or where the behaviour of a party at the conference has been inappropriate.
In 2018, the TCC indicated that about 70% of appeals subject to a settlement conference ended in a settlement. This would seem to indicate that a settlement conference is an effective tool in the movement toward quicker and earlier resolution of tax appeals.
The TCC provided recent statistical information regarding conventional settlement conferences. Between 2016 and 2021, there were 547 files with settlement conferences. There were 117 Consents to Judgment filed prior to hearing. Surprisingly, there were 309 withdrawals filed prior to a hearing. And lastly, 121 of the files were adjourned prior to the hearing for numerous reasons. This statistical information suggests that not only are settlement conferences effective means of grouping the litigants together for settlement discussions, but the appeals are often times very settlable.