Date: 19980116
Dockets: 92-1812-IT-G; 92-1285-IT-G
BETWEEN:
L. & M. WOOD PRODUCTS (1985) LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for taxation
R. D. Reeve, Taxing Officer, T.C.C.
[1]
This taxation of costs was heard via conference call at 12:00 PM
(PST) on Friday November 7, 1997. It follows a judgment of the
Honourable Judge O'Connor on January 20, 1995
dismissing the appeals, with costs. The Bill of Costs flows from
an appeal pursuant to the Income Tax Act. Present was the
Respondent's counsel, Mr. Ted Fulcher, and the
Appellant's counsel, Mr. Murray Greenwood.
[2]
Mr. Greenwood advised that the only matter in issue in respect of
the Bill of Costs was the amount of $17,194.90 claimed for the
expert witness fees.
SUBMISSIONS
[3]
Mr. Greenwood submitted:
that it was not the concept of paying for an expert witness,
but it was more the quantum;
that for what was provided the fee submitted seemed rather
high and should not necessarily be passed on to this appellant in
this case;
that the appeal was abandoned not because of the merits but
because the matter was able to be dealt with in another fashion
and it became a "non-issue" resulting in the appeal
being abandoned;
that by abandoning the appeal the Appellant was not aware that
they would be expected to pay costs of this magnum;
that in determining what are appropriate costs to be awarded,
considerations are: the amount in issue, which in this case the
deductions were somewhere in the range of $120,000.00, for
whatever tax would be generated from that amount; the importance
of the issues, where it is not certain that there is any
importance here but rather the case involves a narrow confined
issue; the complexity of the issues, where in this matter there
was a fairly simple question or narrow issue at stake as to
whether the reforestation sums were deductible when they were
paid into a trust account or not deductible until they were
expended for reforestation?
that it seems that the volume of work by the accountant is
questionable when one starts out as an expert as to why it would
take 109 hours to prepare a report when that expert would still
have to show up and testify at trial;
that there did not appear to be an accounting but rather a
lump sum without having an idea of exactly how the amounts were
arrived at;
that he did not have a comment on the hourly rate for
accounting;
that the appellant would be prepared to agree to some figure
but this amount was high.
[4]
Mr. Fulcher submitted:
that the amount of tax in issue was about $40,000 to
$50,000;
that the importance of the issue was especially of concern to
Revenue Canada because of the implications to other taxpayers.
The importance takes on a different perspective for Revenue
Canada than for the individual taxpayer;
that it was a complex issue in terms of timing of
reforestation expenses and when they can be taken as deductions,
so this also involved a significant issue;
that Generally Accepted Accounting Principles were raised in
the notice of appeal;
that Generally Accepted Accounting Principles were clearly a
factor in terms of the Tax Court deciding how to work with these
expenses so the evidence of an expert was very relevant and
important to this litigation;
that while the expert was intended to be a witness at this
trial, the "fruits of the labour" in the
export's report has been not only to defeat this appellant
but applied to other reforestation matters in the system and to
also educate Revenue Canada on other similar litigation
matters;
that in terms of the GST claimed, whatever seems appropriate
based on when this was originally attempted to be included in the
costs would be acceptable.
[5]
The reason why Mr. Greenwood believed there was no accounting was
because he was unable to locate the affidavit breaking down the
costs. Mr. Fulcher undertook to provide a copy to Mr. Greenwood.
As a result of this, additional time was provided for any further
submission.
DECISION
[6]
This taxation of costs flows from an appeal filed by the
appellant on May 22nd, 1992. The amounts in issue were $38,285.00
and $54,345.30 claimed as a deduction from income in the 1988 and
1989 taxation years. The appeal was instituted under the General
Procedure Rules. This appeal was within Class A proceedings
pursuant to Tariff A. The amounts that may be allowed on the
taxation of costs are listed in Schedule II, Tariff B of the
General Procedure Rules. Having considered both submissions my
decision is as follows:
[7]
In respect to this Bill of Costs, fees were claimed in the amount
of $1,100.00 and disbursements in the amount of $18,775.21 for a
total of $19,875.21. The only matter in issue is the disbursement
amount claimed for $17,194.90 in relation to the expert report of
Kathryn Holgate dated December 1994. In his submission, the
Respondent's position was that the expert addressed
Generally Accepted Accounting Principles because this was an
issue raised in the Notice of Appeal. The Notice of Appeal,
in subparagraph 3(l), states:
"The company accrues the levies, monthly, based
on the timber harvested during that period. The month accrual is
credited to a liability account and a costs of goods manufactured
(expense) account is debited. Related disbursements are debited
to the liability account and interest earned on the account and
levies received from other parties are credited to the liability
account in accordance with generally accepted accounting
principles".
[8]
It is apparent that the Respondent took issue with the procedure
as it was stated. Some preparation to address issues is required
as the Court expects the parties to pursue the appeal or appear
at a status hearing, being prepared to address specific matters
in the process, such as the filing of relevant documents,
establishing time factors and possibly to set a date to pursue
the case. In an examination of the file, there does not appear to
be any indication that this appeal would not be pursued. In the
case of Shelby Michael Golab et al. v. Roderick
Thomas Danyluk et al. [1988] B.C.D. Civ. 3598-01 the
court stated:
"Counsel should not order unnecessary expert's
reports and thus inflate expenses but on the other hand counsel
must be allowed to prosecute a case with the client's
interest uppermost".
[9]
The principle of allowing counsel to prepare in order to
prosecute the case applies here. The expert's report was
not prepared immediately after the appeal was instituted but
rather many months into the process. The accounting practices in
the forest industry was an issue of some importance, both from
the Appellant's perspective and apparently by the
Respondent in considering this case and other similar fact cases.
Upon examining the issue that was raised and the timing of the
order of events it appears that the preparation of the report was
incidental to trial and reasonable in response to the instituting
of the appeal.
[10] The
actual report consists of 41 pages with appendices and schedules
and addresses three primary questions fairly elaborately in
respect to accounting practices, reforestation, and assets and
liabilities, while assuming certain facts and considering
existing agreements.
[11] The Bill
of Costs includes a sworn affidavit of Rita E. Link, with
paragraph 2, of the affidavit advising that the disbursement for
the expert was paid. Exhibit "A" to this affidavit is
on the letter head of Stephen Johnson, chartered accountant,
dated September 22, 1997, with page 2 breaking down the costs of
the report as follows;
Research re forest industry, including library
research,
10 hours
contacting trade organizations and review of industry
publications
Research re accounting practice, including review
of
20 hours
annual reports of companies in the forest industry,
CICA publications and accounting literature
Review of documents provided by the Department of
18 hours
Justice, including L. & M. Wood Products (1985) Ltd.
Forest Management License Agreement, transcript of
John Kennedy Davies and related undertakings, and
financial statements for L & M Wood Products (1985)
Ltd.
Preparation of quantitative schedules from
the
5 hours
undertakings, including Schedule of Reforestation Costs,
Schedule of Road Construction, Schedule of Volumes
Harvested, Schedule of Areas Harvested, and Schedule
of Dues
Analysis and reconciliation of data provided
regarding
12 hours
the Renewal Fund in the accountant's working papers,
Statement of Activity, financial statements, ledger cards
and bank records for 1987 to 1990
Preparation of
Evidence
36 hours
Review of Evidence and background documents
in
8 hours
preparation for
Trial
________
Time spent by Kathryn
Holgate
109 hours
@$130 $14,170
Partner Consultation, Review of
Evidence
9.5 hours
@$200 $ 1,900
$16,070
[12] In the
case of Chrystal Ann Quintal et al. v. Biswara Ranjan Datta et
al. [1987] Sask. D. 3598-02, it was held that fees that are
to be allowed for an expert must relate to work done to prepare
the expert to testify and not the time spent to search for
evidence or improve qualifications or knowledge. Ms.
Holgate's curriculum vitae and report indicates that she is
a chartered accountant. Time spent reviewing annual reports,
researching forest industry practices, including their accounting
practices, appears practical in order to acquaint the expert with
the specific matter and to determine any possible standard
procedure within the forest industry; however, included in the 20
hours claimed, is research of the Canadian Institute of Chartered
Accountants"CICA" publications and accounting
literature. CICA produces accounting and audit guidelines and
recommendations. From an examination of the report some of
this material was cited for reference. In examining the file, the
volume of work involved overall does not appear to be
unreasonable in view of the degree of complexity of the issue.
Considering that Kathryn Holgate is an expert, I believe this
specific research of the CICA publications and accounting
literature referred to in this second paragraph can be
distinguished as relating to refreshing or improving ones general
accounting knowledge; as a result the time claimed for this
research should be reduced. Considering the 10 hours of
time that was claimed in the first paragraph to conduct forest
and library research, contacting trade organizations and
reviewing industry publications, a reduction to 10 hours of time
for a review of their accounting practices and annual reports, is
reasonable. An examination of the other hours claimed provides no
rationale for variance.
[13] The
appellant took no position in respect to the hourly rate charged
by the expert, and there is no evidence to suggest that the fees
charged by the expert exceeds the range charged by individuals
with similar qualifications. The total time claimed will be
adjusted to 99 hours at $130 which equals $12,870, plus the
$1,900 for consultation for a total of $14,770.
[14] The
Respondent acknowledged that this report served to educate
themselves and their client, or the ‘fruits of the
labour" was used on similar cases pending within the
system. On this basis, it becomes a question whether the
Appellant should bear the entire costs of the report. One can not
speculate whether this case would be the sole use of the report
or whether it will be used in numerous similar cases in the
system; however it is not in contention that this report has
served to enlighten the Respondent to some degree on an
accounting of reforestation practices and as a result possibly to
provide some direction on similar cases. Consideration is given
to the amounts involved in this appeal, the considerable time and
effort expended to develop the report, and the fact that although
the expense of acquiring this expert report would not have
resulted without the instituting of this appeal, since the
Respondent did derive some benefit and value in respect to
similar cases, the cost to the Appellant should be reduced to 70
percent. The amount of the report will therefore be reduced to
$10,339.
[15] In
respect to the GST claimed, in the case of Warren v. Stuart
House International Ltd. and Stuart [1970],
2 O.R. 220 a new tariff of costs came into effect a
number of months after costs had been awarded. The Court held
that in the absence of a clear intention to the contrary, a new
tariff of costs applied only to cases where the order was made
after the new tariff came into effect. In this matter the Order
dismissing the appeal with costs is dated 20th day of January
1995. On December 11, 1996 provisions came into effect in the
Rules to allow for the recovery of taxes on disbursements. The
institution of this appeal begun and concluded before these new
provisions came into effect. In Warren v. Stuart
(supra) at p. 221 the case of Earl et al. v.
Burland (1904), 8 O.L.R. 174 was cited where at p. 176,
Street J. said:
The quantum of costs, as well as the right to them is
ascertained at the time of the judgment, and the quantum cannot
without the clearest words, be altered by a subsequent change in
the tariff, or by the creation of a tariff which had no existence
until after judgment.
[16] There is
no significant difference between an amendment to the tariff or
an amendment to a Rule. I see no clear intention for this rule to
apply retrospectively; and there was no provision to recover this
tax at the time the Order was made; therefore, the principle
applied above applies in this matter. The amount of
$1,124.90 claimed for the Goods and Services Tax will be taxed
off.
[17] The fees
claimed that were not in dispute totalling $1100.00 and the
remaining disbursements of $1,580.31 are allowed. The total Bill
of Costs with adjustments totals $13,019.31.
Dated at Vancouver, British Columbia this 16th day of January
1998.
R. D. Reeve, T.C.C.
Taxing Officer