Citation: 2012 TCC 377
Date: 20121025
Dockets: 2009-3624(GST)G
2010-1733(GST)G
BETWEEN:
SWS COMMUNICATION INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2009-3625(GST)G
BETWEEN:
CENTRE LES VOYAGES MIRACLE
INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR ORDER
Hogan J.
I. INTRODUCTION
[1]
At the
end of my Reasons for Judgment in these appeals, I gave the parties 30 days
to agree on costs. If they could not, they had to make written submissions to
the Court.
[2]
On
April 27, 2012, SWS Communication Inc. (SWS) and Centre les Voyages Miracle
Inc. (CVM) presented a settlement offer regarding the amount of costs to the
respondent. Having received no response from the respondent, SWS and CVM filed
their written submissions on May 18, 2012. Counsel for the respondent did not file
any submissions. The parties also had the opportunity to argue their cases
during a teleconference on June 13, 2012.
II. APPELLANTS’
SUBMISSIONS
[3]
SWS
and CVM seek solicitor-client costs of $124,865.12, that is, billed costs of
$45,100.37 and costs to be billed of $29,464.75, plus a premium of $50,000. The
costs to be billed are fees calculated on an hourly basis that have not yet
been billed, but will be billed because the appellants were successful on the
merits. The appellants claim that it is appropriate for the Court to award them
costs in excess of the amounts set out in Schedule II, Tariff B of the Rules
(the Tariff) because of (1) the complexity of the appeals; (2) the respondent’s
rejection of written settlement offers that were more favourable to her than
the judgment; and (3) the respondent’s conduct during the litigation.
[4]
SWS
and CVM claim that their appeals were very complex mainly because of the
technology at issue, namely, the Voice over Internet Protocol (VoIP)
technology, which makes it possible to send information over the Internet
instead of through traditional telephone lines. Thus, the appellants are of the
view that, to prepare for the hearing, they had to have thorough knowledge of
this technology in order to be able to understand the application of the ETA
rules to it.
[5]
SWS
and CVM therefore ask the Court to depart from the Tariff, like it did in Taylor
v. The Queen,
because the issues are highly complex.
[6]
Basing
themselves on Practice Note No. 17,
as well as on IPAX Canada,
Barrington Lane Developments
and Imperial Oil Resources Ltd.,
the appellants also state that the existence of written settlement offers is
one of the main and most important factors to be considered when a court awards
costs.
[7]
SWS
and CVM stated that they had presented several offers in order to settle the
appeals, which dealt with tax that was apparently neither collected nor
remitted when certain services were provided by CVM to Convergia and by SWS to
Convergia and to BMT.
[8]
In the
first offer made to the respondent on December 8, 2010, that is, more than a
year before the hearing, the appellants were prepared to accept that the
assessments were confirmed with respect to the supplies to Convergia, given
that Convergia had a subsidiary company, Convergia Networks Inc., which was a GST
and QST registrant. However, the appellants sought to have the GST claimed for
the supplies to BMT cancelled.
[9]
That
offer was made again on January 26, December 1 and December 23,
2011. In addition, several verbal proposals were allegedly made to the
respondent in 2011. Finally, on February 1, 2012, the appellants
offered in writing to accept the assessment with respect to services supplied
to Convergia and also that 30% of the assessments’ amount be confirmed with
regard to GST for the supplies to BMT.
[10]
SWS
and CVM claim that the respondent stated her position with regard to the
settlement offers only the day before the trial, when counsel for the
respondent rejected the last offer presented to him.
[11]
SWS
and CVM put forward that, under paragraph 147(3)(g) of the Tax Court
of Canada Rules (General Procedure) (the Rules), the respondent’s lack of
cooperation should be discouraged by awarding costs in excess of the Tariff.
More specifically, the appellants allege that the respondent did not make the
assumptions of fact needed to justify the reassessments, did not respond to the
settlement offers made many times, failed to call back their counsel and to
answer their e‑mails and made her position on the last settlement offer known
only on the day before the hearing. The appellants stated that such conduct on
the part of the respondent should be discouraged.
III. RESPONDENT’S
SUBMISSIONS
[12]
The
respondent concedes that SWS and CVM are entitled to costs. The respondent
seeks, however, that costs be awarded to the appellants in accordance with the
Tariff.
[13]
The
respondent acknowledged the deficiency of her Replies to the Notices of Appeal
of SWS and CVM, but alleges that they stemmed mainly from the shortness of the
Notices of Appeal of SWS and CVM.
[14]
The
respondent admitted that she did not adequately respond to the settlement
offers presented to her. Counsel for the respondent stated that he had
responded verbally to the appellants’ first offer. After that, he could not
respond to the settlement offers because he had no mandate from his client
regarding this. He could refuse the final offer only the day before the
hearing.
[15]
The
respondent alleges that, in any case, these settlement offers should not be
taken into consideration when costs are awarded since it was legally impossible
for her to accept them because the proposed settlements had no factual basis. According
to the respondent, it was impossible to claim that some supplies were taxable
while others were not. The respondent compares the settlement offers of SWS and
CVM to those that were at issue in the Federal Court of Appeal decision in CIBC
World Markets.
[16]
Counsel
for the respondent stated that he had not engaged in inappropriate, incorrect,
reprehensible, outrageous or scandalous conduct. His failure to file written
submissions in accordance with the order dated April 4, 2012, resulted from not
understanding the order.
[17]
Counsel
for the respondent stated that the awarding of costs in excess of the Tariff is
therefore not justified in this case.
IV. ANALYSIS
A.
Possibility of overriding the amounts set out in the Tariff
[18]
It is
well established that a judge has absolute and unfettered discretion to award
or withhold costs, provided that power is not exercised in an arbitrary manner
but in compliance with the established principles and applicable rules. Sections 147
to 152.1 of the Rules provide a framework for the exercise of this
discretion under the general procedure.
[19]
Under
subsection 147(1) of the Rules, the Court may determine the amount of the costs,
the allocation of those costs and the persons required to pay them. Subsection 147(3)
of the Rules sets out that, in exercising its discretion, the Court may
consider the following:
(a) the
result of the proceeding;
(b) the
amounts in issue;
(c) the importance
of the issues;
(d) any
offer of settlement made in writing;
(e) the
volume of work;
(f) the
complexity of the issues;
(g) the
conduct of any party that tended to shorten or to lengthen unnecessarily the
duration of the proceeding;
(h) the
denial or the neglect or refusal of any party to admit anything that should
have been admitted;
(i) whether
any stage in the proceedings was,
(i) improper, vexatious, or unnecessary, or
(ii) taken through negligence, mistake or
excessive caution,
(j) any
other matter relevant to the question of costs.
[20]
Subsection
147(4) sets out that the Court may fix the costs with or without reference to
the Tariff and may award a lump sum in lieu of or in addition to any taxed
costs. Paragraph 147(5)(c) of the Rules grants the Court the power to
award costs on a solicitor and client basis.
[21]
These
provisions of the Rules show the broad discretion granted to the Court as
acknowledged by the Federal Court of Appeal in Canada v. Lau.
[22]
Although
SWS and CVM did not expressly use the words “costs on a solicitor‑client
basis” to describe the costs they were claiming, that is, in fact, what they
are claiming. Indeed, the appellants are claiming 100% of the fees and expenses
incurred for preparing for the litigation.
[23]
It is
well established that the awarding of costs on a solicitor-client basis is the
exception, not the rule. Such costs can be awarded only when the conduct of one
of the parties is reprehensible, scandalous or outrageous. Yet,
the conduct of counsel for the respondent does not meet that criterion. It is
true that he neglected to respond to the settlement offers presented to him
until the day before the hearing and that he did not comply with the Court’s
order. Although this conduct is far from exemplary, it cannot be characterized
as reprehensible, scandalous or outrageous. Thus, awarding solicitor-client
costs is not justified in this case.
[24]
However,
this finding does not necessarily mean that the costs awarded to the appellants
must fall within the amounts set out in the Tariff. Indeed, in several recent
judgments, the Court awarded costs that were lower than solicitor-client costs,
but higher than the Tariff amounts.
[25]
The
respondent argues that there must be malfeasance or misconduct for the judge to
be able to depart from the Tariff.
[26]
The
respondent’s reasoning is the result of not understanding the distinction
between solicitor‑client costs and party and party costs. There are two
distinct types of costs to which different rules apply. Thus,
the refusal to award solicitor‑client costs in Young and Alemu because
there was no reprehensible conduct by the respondent could not be directly
transposed to the analysis of party‑and‑party costs, which are a
different type of costs to which different rules apply.
[27]
In Continental
Bank of Canada v. The Queen,
Chief Justice Bowman (as he then was) made the following comments with respect
to the possibility of awarding costs in excess of the Tariff:
9.
It is obvious that the amounts provided in the tariff were never intended to
compensate a litigant fully for the legal expenses incurred in prosecuting an
appeal. The fact that the amounts set out in the tariff appear to be
inordinately low in relation to a party’s actual costs is not a reason for
increasing the costs awarded beyond those provided in the tariff. I do not
think it is appropriate that every time a large and complex tax case comes
before this court we should exercise our discretion to increase the costs
awarded to an amount that is more commensurate with what the taxpayers’ lawyers
are likely to charge. It must have been obvious to the members of the Rules
Committee who prepared the tariff that the party and party costs recoverable
are small in relation to a litigant’s actual costs. Many cases that come before
this court are large and complex. Tax litigation is a complex and specialized
area of the law and the drafters of our Rules must be taken to have known that.
10.
In the normal course the tariff is to be respected unless exceptional
circumstances dictate a departure from it. Such circumstances could be
misconduct by one of the parties, undue delay, inappropriate prolongation of
the proceedings, unnecessary procedural wrangling, to mention only a few. None
of these elements exists here.
[28]
At
first glance, this excerpt seems to militate heavily against deviating from the
Tariff, unless there are exceptional circumstances with respect to the parties’
conduct justifying the awarding of solicitor‑client costs. However,
nothing indicates that only outrageous conduct by one of the parties enables
the judge to depart from the Tariff. In addition, the examples of exceptional
circumstances cited by the former Chief Justice are, indeed, some of the
factors listed in subsection 147(3) of the Rules, which must be taken into consideration
when determining costs.
Thus, that decision supports the statement that analyzing the factors set out
in subsection 147(3) makes it possible to determine the appropriate amount of
costs.
[29]
Among
the nine factors listed in subsection 147(3) of the Rules, only three concern
the parties’ conduct; the other six are the result of the proceeding, amounts
in issue, importance of the issues, volume of work, complexity of the issues
and any other matter relevant to the question of costs.
[30]
In Velcro, recently
rendered by the Court, Associate Chief Justice Rossiter awarded costs in excess
of the Tariff despite the absence of any reprehensible conduct by the
respondent. In his analysis, the Associate Chief Justice treated the Tariff as “a
reference point only should the Court wish to rely upon it”. According
to him, it does not take exceptional circumstances to justify a deviation from
the Tariff – far from it.
Thus, the Associate Chief Justice proposed the following approach to awarding
costs:
17. It is my view that in
every case the Judge should consider costs in light of the factors in Rule
147(3) and only after he or she considers those factors on a principled basis
should the Court look to Tariff B of Schedule II if the Court chooses to do so.
[31]
It is
important now to apply this reasoning to the facts of these appeals and to
analyze the factors listed in subsection 147(3) of the Rules in order to
determine whether awarding costs in excess of the Tariff is justified in this
case.
B. Factors governing
the awarding of costs
[32]
Among
the criteria listed in subsection 147(3) of the Rules, six should be weighed in
this case, namely, the result of the proceeding, amounts in issue, importance
of the issues, volume of work, complexity of the issues, settlement offers
presented in writing and the respondent’s conduct.
Amounts
in issue and the result of the proceeding
[33]
The
amount of the assessments made against SWS and CVM totalled close to $110,000. Both
SWS and CVM obtained all that they sought, namely, the finding that all of the
supplies at issue were zero-rated.
[34]
As
indicated in General Electric Capital, there is a strong tendency in the
case law to accept the principle that costs awards should not be distributive,
with the amounts being based on the outcome of particular arguments of the
parties.
Thus, the appellants’ arguments should not be analyzed individually in order to
establish the amount of costs to be awarded. Only the overall result of the
appeals, that is, the complete vacation of the assessments made against the
appellants, is relevant.
Importance and complexity
of the issues
[35]
These
appeals have given the Court the opportunity to consider, for the first time,
the interpretation to be given to subsection 132(2) of the ETA. However, that provision
is not very complex. The respondent’s interpretation of it was simply erroneous
because it contradicted the meaning that was clear from the wording of the
provision.
[36]
The
appellants allege that the complexity of the appeals stemmed primarily from the
technology involved, namely, VoIP. It is true that the expert testimony about
the technology for transmitting oral communication over the Internet was
relevant and that the respondent must pay its cost, which she does not object
to. However, the appeals cannot be described as complex based solely on that
technological aspect, which was only incidental to the dispute between the
parties.
Settlement offers
[37]
The
presentation of settlement offers in writing plays a central role in awarding
costs.
[38]
The
respondent admitted that she did not adequately respond to the settlement
offers, which were presented to her several times by counsel for the
appellants. She stated, however, that those settlement offers should not be
taken into consideration when costs are awarded since it was legally impossible
for her to accept them because the proposed settlement had no factual basis.
[39]
The
respondent based her allegations on CIBC World Markets, where
the Federal Court of Appeal acknowledged that, for a rejection of a settlement
offer that is more favourable than the decision rendered to trigger adverse
cost consequences, it must be legally possible to accept the offer. In that
matter, the taxpayer had offered the respondent to settle the appeal by issuing
an assessment allowing the taxpayer to receive 90% of the input tax credits it
had claimed in its GST return.
The respondent, who stated that she could issue only an assessment that is
justified by the facts and the law, said that she was unable to accept that
offer, which could not be justified either by the facts or the law. The Federal
Court of Appeal stated the following, per Justice Stratas:
[19] Due
to the precise circumstances of this case, I agree with the Minister that under
no factual or legal scenario could CIBC World Markets have been granted 90% of
the input tax credits it claimed. The situation might have been different if,
for example, the quantum of input tax credits were in issue and, theoretically,
the Minister could defend the 90% figure on the facts and the law. But here,
the issue was an all-or-nothing question of statutory interpretation.
[40]
Thus,
since the Minister cannot issue an assessment on the basis of compromise,
regardless of the facts and the law before him, he
cannot be reproached for not accepting a settlement offer that cannot be justified
by the facts and the law.
[41]
In
this appeal, SWS and CVM first offered to have the assessments confirmed with
respect to the supplies made to one of the recipients, given that Convergia
owns a subsidiary corporation in Quebec, which is a GST and QST registrant, but
to have the assessments vacated with respect to the other recipient, namely,
BMT (the first offer). Then, SWS and CVM offered to accept the assessment with
respect to the services provided to Convergia and also to have the assessments
confirmed for 30% of the GST amounts related to the transactions with BMT (the
second offer).
[42]
The
respondent maintains that it was impossible to claim that some supplies were
taxable while others were not. According to her, this was only a yes-or-no
question. Thus, the respondent claims that she could not accept the offers on
the basis of compromise, regardless of the facts and the law before her.
[43]
The
first offer clearly has a factual basis, which was clearly shown by the
appellants when the offer was presented to counsel for the respondent. Indeed,
nothing prevented the respondent from supposing that one of the two recipients
was a resident of Quebec and that the supplies made to it were taxable, unlike
the supplies made to the second recipient because of its non-resident status in
Quebec.
[44]
In Potash, the
respondent alleged that she could not legally accept the settlement offer
presented by the taxpayer because this implied that she agreed to several
assumptions of fact, which the respondent said she was unable to do. However,
Justice Hershfield rejected the respondent’s claims and stated the following:
[58] .
. . There is nothing in the Federal Court of Appeal decision in CIBC World
Markets that suggests that the Crown is not at liberty to accept factual
resolves on the basis of probability which should afford the Crown considerable
leeway. As well, a concession might reflect appropriate recognition of
proportionality. Even the Crown might, in some circumstances, properly consider
the need to concede a fact that only has a marginal chance of being proven to
the satisfaction of a judge, where the cost of such concession is small
relative to the cost of having the question litigated.
[59]
If this were not the case, the Crown could justify never settling anything. . .
.
[45]
Thus,
nothing prevented the respondent from accepting the assumption that Convergia
was a resident of Quebec and that BMT was not. The respondent had no legal
reason to not be able to accept the first offer from SWS and CVM dated December 8,
2010, which was more favourable to it than the judgment.
[46]
The
second offer is also justifiable by the facts and the law. The offer, which
proposed to confirm 30% of the GST amounts related to transactions with BMT,
was also based on an assumption of fact that the respondent could accept. Indeed,
subsection 132(2) of the ETA sets out that, if a non-resident person has a
permanent establishment in Canada, the person shall be deemed to be resident in
Canada in respect of, but only in respect of the services that are used there. Thus,
it was entirely possible for the respondent to accept the assumption of fact
that 30% of the services supplied by SWS to BMT were used in Canada, and 70%
were used outside Canada.
[47]
Accordingly,
the first and the second offer presented may justify awarding costs in excess
of the Tariff.
Conduct of the respondent
[48]
SWS
and CVM claim that the respondent’s uncooperative conduct argues in favour of
awarding costs in excess of the Tariff. As stated above, it is true that the
lack of response from the respondent to the settlement offers made is
regrettable. The respondent’s failure to comply with the Court’s order to file
written submissions regarding the awarding of costs is equally regrettable. However,
nothing in the file makes it possible to attribute any kind of bad faith to
counsel for the respondent.
C. Other considerations
Premium
[49]
The
appellants are also seeking an award of a $50,000 premium because of the exceptional
result they have obtained.
[50]
Orkin
stated the following with respect to the possibility of including a premium in
calculating the costs:
In appropriate circumstances, a premium can be a proper component of
a party‑and‑party bill assessable on a solicitor-and-client basis,
but . . . a premium is incompatible with the party-and-party scale of costs.
[51]
The
appellants are relying on Debora v. Debora, in
stating that a premium may be validly awarded in the circumstances of this case. However,
it is essential to note that, in that decision, the Ontario Superior Court of
Justice awarded costs on a substantial indemnity basis. In addition, a premium
was included in calculating costs in Roberts v. Morana, where
part of the costs was calculated on a solicitor‑client basis. As stated
above, the lack of outrageous conduct by the respondent prevents a costs award
on the solicitor‑client basis, which also prevents the inclusion of a
premium in the costs calculations.
[52]
However,
it is important to note that Chief Justice Bowman (as he then was) seems to
have attached importance to the premium claimed by the appellants in Scavuzzo, despite
the fact that the Crown’s conduct was not deemed sufficiently reprehensible,
scandalous or outrageous to award solicitor‑client costs. In that
case, the costs sought by the appellants totalled $549,738.45 including a
premium of $107,000 (set out in the contingency fee agreement, if the appellants
succeeded in their appeal).
After determining that costs in excess of the Tariff should have been awarded,
the Court thoroughly analyzed many factors including the existence of a
$107,000 premium, which had been billed to the appellants. Thus,
the costs were fixed at $275,000, and Chief Justice Bowman specified that that
amount represented about 50% of the total amount billed (including the $107,000
premium).
[53]
In
this case, counsel for the appellants acknowledged that the premium sought had
not yet been billed to the appellants, and unlike in Scavuzzo, nothing
indicates that a contingency fee agreement exists between the appellants and
their counsel.
[54]
In any
case, even if a premium could be awarded in the case of party and party costs,
the circumstances of this case would not justify it. SWS and CVM claim that the
$50,000 premium was warranted because of the complexity of the appeals, the
exceptional results obtained
and the lack of response from the respondent to the settlement offers presented
to her. As stated above, the appeals cannot be described as very complex, and
the results as exceptional. Although the fact that the respondent did not
respond to the settlement offers until the day before the hearing supports
awarding costs in excess of the Tariff, it cannot also justify the award of a
premium equivalent to almost half of the costs sought.
Allocation of costs
between the two levels of government
[55]
The
Agreement with Respect to the Administration by Québec of Part IX of the
Excise Tax Act relating to the Goods and Services Tax concluded between the
governments of Canada and of Quebec (the Agreement), signed on August 11, 1992,
governs the relationship between the two levels of government with respect to
the administration of GST in Quebec. Under this agreement, Quebec is
responsible for the administration and collection of GST in Quebec. In
addition, Quebec counsel assume the conduct of litigation in GST matters in
Quebec, unless otherwise instructed.
[56]
Since
a GST assessment in Quebec flows from a QST assessment, two practically
identical appeals proceed concurrently: one before the Tax Court of Canada, the
other before the Court of Québec. It is standard practice that both parties’
counsel agree to move the file forward before one of the courts and to hold the
appeal in abeyance before the other court. In almost all cases, the second
appeal is settled based on the decision rendered by the court in the first
appeal. Thus, the work done by counsel in one of the two appeals is used for
both appeals.
[57]
Counsel
for the appellants claims that most of the costs sought are for preparing for
trial before this Court. However, it is worth noting that SWS and CVM indicated
that the premium sought was justified “because of the settlement offer and the
exceptional result of the GST and QST appeals”. In addition, counsel for the
appellants acknowledged that he intended to ask Revenu Québec to apply the
result of this appeal to the QST appeal. In this context, I believe it would
not be appropriate that the respondent assume all of the costs in this matter. SWS
and CVM should be awarded 50% of the costs claimed after the premium sought is
subtracted.
[58]
The
amount of $124,865.12 sought by the appellants is excessive. As stated above,
that amount represents solicitor‑client costs. The conduct of counsel for
the respondent cannot justify awarding this type of costs. Because of this,
adding a $50,000 premium is unjustified.
[59]
Having
analyzed in detail the factors listed above, it seems to me that awarding costs
in excess of the Tariff is completely justified. Subsection 147(4) of the
Rules expressly sets out that the Court may award a lump sum. In addition, the
Court has awarded a lump sum in several decisions.
[60]
As the
Federal Court of Appeal stated in Consorzio del Prosciutto di Parma v. Maple
Leaf Meats Inc.:
8. An award of party-party costs is not an
exercise in exact science. It is only an estimate of the amount the Court
considers appropriate as a contribution towards the successful party’s
solicitor-client costs (or, in unusual circumstances, the unsuccessful party’s
solicitor-client costs). . . .
[61]
In
this case, the amount of $37,282.56
seems appropriate, given the amounts in issue, the result of the proceeding,
the low importance and moderate complexity of the issues, the offers of
settlement unanswered until the day before the hearing, and the respondent’s
failure to comply with the Court’s instructions.
[62]
The
disbursements should be taxed in the usual way.
Signed at Ottawa, Canada, this 25th day of October
2012.
“Robert J. Hogan”
Translation certified true
On this 8th day of March 2016
Margarita Gorbounova, Translator
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