Citation : 2012 TCC 327
Date : 20120919
Docket: 2008-2808(IT)G
BETWEEN:
REYNOLD DICKIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Pizzitelli J.
[1]
Pursuant to my decision
of July 10, 2012, the parties were invited to tender written submissions if any
party was of the view that the normal costs award given in that decision was
not satisfactory. The Appellant submitted such submission and the Respondent
provided a reply to same.
[2]
The Appellant seeks either
costs on a full indemnity basis (solicitor and client) plus disbursements or in
the alternative costs, on a partial indemnity basis for an award between 50 to 75%
of his costs plus disbursements. On the aforesaid basis, the Appellant is
seeking either full costs of $133,000 plus $10,000 in disbursement, or in the
alternative, costs between $66,500 and $99,750 plus $10,000 in disbursements.
The Respondent argues the Appellant is not deserving of costs in excess of the Tariff
which would award him $13,000.
[3]
There is no dispute
that Section 18.26 of the Tax Court of Canada Act, R.S.C. 1985,
c, T-2 as amended, and Rule 147 of the Tax Court of Canada Rules (General
Procedure) deal with the Court’s jurisdiction with respect to costs and are
reproduced below:
18.26 (1) The
Court may, subject to the rules, award costs. In particular, the Court may
award costs to the appellant if the judgment reduces the aggregate of all amounts
in issue or the amount of interest in issue, or increases the amount of loss in
issue, as the case may be, by more than one half.
(2)
The Court may, in deciding whether to award costs, consider any written offer
of settlement made at any time after the notice of appeal is filed.
147. (1) The Court may
determine the amount of the costs of all parties involved in any proceeding,
the allocation of those costs and the persons required to pay them.
(2) Costs
may be awarded to or against the Crown.
(3) In exercising its
discretionary power pursuant to subsection (1) the Court may consider,
(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.
(4) The Court may fix all
or part of the costs with or without reference to Schedule II, Tariff B and,
further, it may award a lump sum in lieu of or in addition to any taxed costs.
(5) Notwithstanding any
other provision in these rules, the Court has the discretionary power,
(a) to
award or refuse costs in respect of a particular issue or part of a proceeding,
(b) to
award a percentage of taxed costs or award taxed costs up to and for a
particular stage of a proceeding, or
(c) to award all or part
of the costs on a solicitor and client basis.
(6) The Court may give
directions to the taxing officer and, without limiting the generality of the
foregoing, the Court in any particular proceeding may give directions,
(a) respecting
increases over the amounts specified for the items in Schedule II, Tariff B,
(b) respecting
services rendered or disbursements incurred that are not included in Schedule
II, Tariff B, and
(c) to
permit the taxing officer to consider factors other than those specified in
section 154 when the costs are taxed.
(7) Any
party may,
(a) within thirty days
after the party has knowledge of the judgment, or
(b) after
the Court has reached a conclusion as to the judgment to be pronounced, at the
time of the return of the motion for judgment,
whether or not the judgment
included any direction concerning costs, apply to the Court to request that
directions be given to the taxing officer respecting any matter referred to in
this section or in sections 148 to 152 or that the Court reconsider its award
of costs.
[4]
In brief, the Court may
determine the amount of the costs of all parties involved in any proceeding,
the allocation of those costs and the persons required to pay them under Rule
147(1) and in exercising its discretionary power thereunder may consider the
factors set out in Rule 147(3). Moreover under Rule 147(4), the Court may
fix all or part of the costs without reference to Schedule II, Tariff B and
further may award a lump sum in lieu of or in addition to taxed costs.
Rule 147(6) allows the Court to give directions to the taxing officer in
respect of, inter alia, increasing Tariff amounts.
[5]
Accordingly, in
exercising my discretion under the above Rule, I will consider the relevant
factors applicable to this matter as listed in Rule 147(3) addressed by the
parties in their submissions to the Court; not necessarily in order.
a)
The Result of the
Proceeding
[6]
There is no dispute the
Appellant was wholly successful in this appeal.
b) The Amounts in Issue
[7]
The Appellant’s taxable
income was reassessed at $688,927 for the 2003 taxation year, an increase
of $653,243 over the initial assessment, which would have resulted in an
approximate tax of $185,000. The Respondent conceded at trial that the Appellant
was allowed a deduction of $23,107. With interest and penalties this amount had
increased to $441,380.26 at the time of filing the appeal and by July 31, 2012,
the Appellant was advised by the Canada Revenue Agency (“CRA”) that it owed
$509,759.60.
[8]
To a small business
these amounts are substantial. However, the Appellant has submitted that the
parties were also in dispute with respect to the 2004 and 2005 taxation years
and agreed to hold the reassessements for those years in abeyance pending the
outcome of this appeal. The Appellant was advised by CRA dhat as of July 31, 2012,
the Appellant owed $325,448.33 for 2004 and $159,171.42 for 2005.
[9]
Having regard to the
amount owed by the Appellant for the 2003, 2004 and 2005 taxation years, the Appellant
stood to owe in excess of $994,379.35 if he had lost this appeal, a very
significant amount for a business of his size, which, as the Appellant’s
counsel alluded to in their submissions, would have resulted in financial ruin
for the Appellant. The Respondent made no comment on these submissions of the
Appellant in its response.
c) The Importance of the Issues
[10]
From a legal perspective,
the Appellant argues that the issue in this appeal ‑ the taxation of
income earned by aboriginal business and implicitly whether it is exempt or not
from taxation - is of national importance and the subject of much consideration
by the Supreme Court of Canada over the years, let alone by the lower courts if
I may add. The Respondent itself acknowledged in its response that this area of
law is developing and significant, however submits the “connecting factors”
test applicable here have been judicially considered in respect of many
business income contexts; suggesting in effect that there was little new here
to raise the importance factor of the issue.
[11]
With respect to the
Respondent, the appeal was one of the first aboriginal business income cases to
be heard following the decisions of Bastien Estate v. Canada, 2011 SCC
38, [2011] 2 S.C.R. 710, and Dubé v. Canada, 2011 SCC 39, [2011] 2
S.C.R. 764, which effectively changed the weight and importance of one of the
traditionally considered factors to be considered in the “connecting factors”
test; namely, the commerciality of the business thus creating a new dynamic in
the application of the connecting factors test. In fact, a strong case can be
made to argue that the only other post Bastien Estate and Dubé cases
brought before the Courts dealt with fishing and small scale logging
activities. The nature of the Appellant’s business in this case involved a
larger business that clearly competed with non-aboriginal businesses in what
has been traditionally considered in the commercial mainstream; a case of head
to head competition between an aboriginal business and non–aboriginal
competitors. In my view, the case has a significant impact on the
interpretation of the Bastien Estate and Dubé decisions of the Supreme
Court of Canada. While the name of the applicable “connecting factors” test did
not change, the weight and importance of the commercial mainstream factor was
significantly reduced and in fact almost obliterated in determining the issue
of residence on the reserve.
[12]
A great deal of
argument was made on the commercial mainstream issue notwithstanding Bastien
Estate and Dubé, and notwithstanding that the Respondent gave lip
service to the decision, it continued to strongly plead and argue the issue and
the collateral issue of advantage to aboriginal businesses not being intended
before the Court. A great deal of the Court’s time was spent on this issue and
a large portion of my decision dealt with it. Clearly, both sides considered
this Court’s interpretation of Bastien Estate and Dubé to be of
significant importance.
[13]
There is no dispute however
that the deductibility of management fees paid was only a secondary issue in
the hearing and I agree was of little overall importance from a legal
perspective.
d) Offer of Settlement
[14]
No offer of settlement
was made by either party in this proceeding.
f) Complexity of the Issues
[15]
This issue is clearly
linked to the importance of the issues discussed above. I would like to
add however that in my view, the Respondent’s pleadings and strong arguments in
the commerciality issue above clearly created a complexity to the issue in that
the Respondent clearly attempted to narrow the interpretation of the Supreme
Court of Canada in Bastien Estate and Dubé given to the issue.
The Appellant clearly was put to the task of spending a great deal of time
and effort in arguing the Supreme Court of Canada’s decisions were broader in
scope than the Respondent argued.
e) The Volume of Work
[16]
I find nothing in the
parties’ arguments to suggest that the process followed in this matter was
anything but routine for this type of case. The Appellant suggested the
Respondent served a Notice to Admit one month before trial and submitted further
written questions on examination for discovery one week before trial resulting
in increased work load to it but as the Respondent pointed out, the further
written questions were the result of documents listed in a supplementary list
of documents served on the Respondent the day before. Accordingly, I cannot find
the Respondent created additional last minute work for the Appellant.
[17]
However, having regard
to the importance and complexity of the issues discussed above, it is my view
that the Appellant was required to address, in a significant and onerous way,
the applicability of the commercial mainstream argument advanced by the
Respondent notwithstanding the decisions in Bastien Estate and Dubé.
As I have stated above, the Appellant was in my view forced to spend a great
deal of time on an issue the Supreme Court of Canada in my view clearly ruled
previously.
j) Other Matters
Relevant to the Question of Costs
[h) Denial,
Neglect or Refusal to Admit]
[18]
Under this factor, the
Appellant argues that, in light of the conclusions reached by the Supreme Court
of Canada in Bastien Estate and Dubé with respect to the income
earned in the commercial mainstream, it wrote a four-page letter to the
Respondent eight months before the hearing requesting it reconsider the
reassessment in order to avoid the expense of a trial which the Respondent denied
in a two-sentence response. The Appellant agrees this letter did not constitute
a settlement offer but argues in effect that had the Crown provided more
fulsome reasons for its rejection of the Appellant’s submissions regarding the
Supreme Court of Canada’s decisions above, it may have resulted in a
narrowing of the issues for appeal or possibly even settlement negotiations.
The Respondent counters that the Supreme Court of Canada’s decisions did not
provide a basis for exempting the Appellant’s business income from tax and as
such rejected the request.
[19]
I am in agreement with
the Respondent that the connecting factors test requires an analysis of more
than just the commercial mainstream argument and accordingly the Supreme Court
of Canada’s decision did not, in and of itself, give any reason to abandon the
full consideration of the test. It is in the nature of the test that all
evidence must be considered with a view to determining whether income was
situated on the Reserve or not, including with respect to the several other
factors constituting the connecting factors test. Simply conceding the
commercial mainstream argument was not of determinative value would not have been
determinative of the outcome either.
[20]
I do however also agree
with the Appellant that having regard to the clear wording and intention of the
Supreme Court of Canada’s decisions effectively reducing the importance of the
commercial mainstream factor, if not obliterating it, that the Respondent could
have shortened the proceeding by conceding this fact before trial. While the
Respondent’s counsel acknowledged the reduction in weight to be given to the
issue in argument at trial, she nonetheless maintained its assumptions in its
pleadings regarding the commercial mainstream and argued forcefully that such
factor would grant an advantage to aboriginal businesses over non-aboriginal
businesses, an argument in my opinion clearly not consistent with the Supreme
Court of Canada’s decisions on the issue. As I referred to in my decision, if
the other factors are sufficient to establish the income was situate on a Reserve,
then any such resulting advantage was acceptable. In my view, the Respondent
could have significantly reduced the length of the hearing by conceding the
argument before trial on receiving the Appellant’s counsel’s letter. In my
view, this matter falls under the heading of Rule 147(h) the denial or the
neglect or refusal of any party to admit anything that should have been
admitted. In my opinion, the Respondent paid lip service to the Supreme
Court of Canada’s decisions on the importance of the commercial mainstream
argument yet proceeded to trial on the basis it was one of its strongest
arguments.
g) Conduct of any party that tended to
shorten or lengthen unnecessarily the duration of the proceeding.
[21]
No argument was made
with respect to this factor directly other than the arguments of the Appellant
in addressing other factors contemplated in Rule 147(j) discussed above.
i) Whether any Stage in the Proceedings was
Improper, Vexatious, Unnecessary etc.
[22]
There was no argument
made directly on this issue.
[23]
Having regard to the
above analyses, I am of the view that there is no justification for granting
the Appellant a cost award based on full indemnification. The law is clear from
cases submitted by the Appellant himself, namely Consorzio del
Prosciutto di Parma v. Maple Leaf Meats Inc., 2002 FCA 417, [2003] 2 F.C.
451, and Zeller Estate v. Canada, 2009 TCC 135, 2009 DTC 1106, which
cases quoted Supreme Court of Canada decisions in Baker v. Canada (Minister
of Citizenship and Immigration), [1999] 2 S.C.R. 817 and Young v. Young,
[1993] 4 S.C.R. 3 respectively, that the award of full solicitor and client
costs remains exceptional and is generally associated with reprehensible,
scandalous or outrageous conduct on the part of one of the parties. I find no
such conduct shown on the part of the Respondent in this matter. The Appellant
itself acknowledged this in his submissions.
[24]
In the alternative, the
Appellant asks the Court to exercise its discretion to award lump sum costs in
excess of the Tariff given the factors to consider in Rule 147(3) above
discussed and relies on Re Consorzio del Proscuitto di Parma
where Rothstein J.A.(as he was then) stated at paragraph 10:
The
Court, therefore, does have discretion to depart from the Tariff, especially
where it considers an award of costs according to the Tariff to be
unsatisfactory. Further, the amount of solicitor-client costs, while not
determinative of an appropriate party-party contribution, may be taken into
account when the Court considers it appropriate to do so. Discretion should be
prudently exercised. However, it must be borne in mind that the award of costs
is a matter of judgment as to what is appropriate and not an accounting
exercise.
[25]
I am cognizant of the
Federal Court of Appeal’s caution in Finch v. Canada, 2003 FCA 267, 2003
DTC 5501 (F.C.A.), that an award of lump sum costs should not be the equivalent
of an award of solicitor–and-client costs unless there is something in the
record to justify such an award. As I said above, I see no justification for same.
I am further cognizant that the general rule is that a successful litigant is
entitled to party and party costs as stated by Bowman J. as he then was, in Merchant
v. Canada [1998] 3 DTC 2505 and in Continental Bank of Canada v. Canada,
[1994] T.C.J. No. 863 (QL). However, I am also in agreement with Hogan J. in General
Electric Capital Canada Inc. v. Canada, 2010 TCC 490, 2010 DTC 1353, at paragraph
26 who reasoned that aside from solicitor and client costs:
… I
believe that the Rules Committee was well aware of the fact that there are
numerous factors which can warrant a move away from the Tariff towards a
different basis for an award of party and party costs, including lump sum
awards. Subsection 147(3) of the Rules confirms this by listing specific
factors and adding the catch-all paragraph (j), which refers to “any
other matter relevant to the question of costs”. If misconduct or malfeasance
was the only case in which the Court could move away from the Tariff,
subsection 147(3) would be redundant. Words found in legislation are not
generally considered redundant….
[26]
In my view, having regard
to the clear victory of the Appellant in this matter, the sizeable amount of
taxes in dispute including for other years for which this case served as a test
case, the importance of the commercial mainstream issue in particular and the
complexity of the issue in light of the Respondent’s position notwithstanding
the Supreme Court of Canada’s decisions in Bastien Estate and Dubé
and the amount of work generated for the Appellant as a result of the
Respondent’s position on that issue and the importance it continued to give to
the commercial mainstream factor as above discussed, which in my view should
have been conceded before trial to shorten the trial and narrow the issues,
there clearly exist special circumstances justified by the application of factors
listed in Rule 147(3) to merit awarding the Appellant costs in excess of the
Tariff.
[27]
The Appellant asked for
between 50 and 75% of solicitor and client costs plus disbursements, consistent
with the range of traditional awards cited by author Mark Orkin in the Law
of Costs, 2nd ed., Vol. 1 (Aurora: Canada Law Book, 2008) at 2-3
as quoted by Campbell J. in Re Zeller Estate above at paragraph
9. The Appellant’s costs on a solicitor and client basis claimed are
$133,000 plus $10,000 in disbursements. In my opinion, the Appellant is deserving
of 60% of such claim, amounting to $80,000 plus $10,000 in disbursements, for a
total award of $90,000.
Signed at Ottawa, Canada, this 19th day of September 2012.
“F.J. Pizzitelli”
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