Citation : 2011TCC53
Date: 20110127
Docket: 2005-2386(IT)G
BETWEEN:
MICHEL GUIBORD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2005-2388(IT)G
BETWEEN:
GEORGE S. SZETO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2005-2389(IT)G
BETWEEN:
MEI GUIBORD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2005-2390(GST)G
BETWEEN:
GEORGE S. SZETO INVESTMENTS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent
Docket: 2005-2392(IT)G
BETWEEN:
GEORGE S. SZETO INVESTMENTS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS RESPECTING SUBMISSIONS ON COSTS
V.A. Miller J.
[1]
In my Judgment in these
appeals, I invited the parties to submit written submissions if they were unable
to reach an agreement with respect to costs.
[2]
The appeals were heard
on common evidence. The Minister of National Revenue used the net worth method
to reassess the individual Appellants’ income tax liability. He then reassessed
the corporate Appellant to include in its income the total of the unreported
income for the individual Appellants. The corporate Appellant’s taxation year
ends on October 31. The following amounts were included in the Appellants’
income:
|
YEAR
|
Michel
Guibord
|
Mei
Guibord
|
George
Szeto
|
George S.
Szeto
Investments
Limited
|
|
1995
|
$157,970
|
$157,970
|
$8,752
|
$336,967
|
|
1996
|
$136,440
|
$136,439
|
$55,016
|
$408,074
|
|
1997
|
$31,745
|
$31,746
|
$131,684
|
$173,410
|
The Minister also assessed subsection
163(2) penalties and he relied on subsection 152(4) to reassess the Appellants
beyond the statutory limitation period.
[3]
The corporate
Appellant’s GST appeal related to the reporting period November 1, 1994 to
October 31, 1997 and $62,650 of unreported GST was assessed.
[4]
The appeals were
allowed, in part, to reduce the amounts included in each of the individual
Appellant’s net worth and to delete subsection 163(2) penalties for each of the
individual Appellants.
[5]
Counsel for the
Appellants seeks costs on either a substantial indemnity basis or a lump sum basis
as follows:
A.
Substantial Indemnity
|
George S.
Szeto
Investments
|
George Szeto
|
Mei Guibord
|
Michel
Guibord
|
Total
|
|
$170,320.03
|
$56,773.34
|
$56,773.34
|
$56,773.34
|
$340,640.06
|
B.
Lump Sum Award
|
George S.
Szeto
Investments
|
George Szeto
|
Mei Guibord
|
Michel
Guibord
|
Total
|
|
$113,546.69
|
$37,848.90
|
$37,848.90
|
$37,848.90
|
$227,093.37
|
[6]
The Respondent requests
that she be awarded costs as a lump sum award in the amount of $255,721.10; or,
in the alternative that she be granted costs in accordance with the tariff in
the total amount of $98,693.65.
[7]
Section 147 of the Tax
Court of Canada Rules (General Procedure) (the Rules) gives the
Court a broad discretion in awarding costs but that discretion must be
exercised on a principled basis[1].
Section 147 of the Rules reads:
General
Principles
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.
[8]
The general rule for
awarding costs is in accordance with the Tariff. As stated by Bowman J. in Merchant
v. Canada[2],
at paragraph 58:
The general
rule is that a successful litigant is entitled to party and party costs. Where
success is divided it is not unusual for no order to be made for costs.
[9]
The Court has the discretion to
award costs beyond the Tariff where there are unusual circumstances to justify
doing so[3].
Solicitor and client costs (substantial indemnity) are generally awarded only
where there has been reprehensible, scandalous or outrageous conduct by one of
the parties[4]
[10]
According to the
submissions of the Appellants, the total fees and disbursements incurred by the
Appellants were $378,488.95. Counsel for the Appellants has argued that costs
on a substantial indemnity basis are warranted in these appeals. In support of
his position, he stated that the Minister of National Revenue’s (the Minister)
conduct was reprehensible as he had tried to intimidate the individual
Appellants with the threat of incarceration and fines; and, counsel for the
Minister would not consider settlement of the appeals while there was a
malicious prosecution action outstanding. I will give a brief history to
clarify counsel’s argument.
[11]
Counsel for the
Appellant relied on the fact that the Appellants had been charged with tax evasion
pursuant to paragraphs 239(1)(a) and (d) of the Income Tax Act
and paragraphs 327(1)(a) and (c) of the Excise Tax Act.
The trial on those charges took place in 2004 before Dempsey J. of the Ontario
Court of Justice. At the end of 13 days of trial and after the fourth day of
cross examination of the auditor, Crown counsel informed Dempsey J. that the
Crown did not intend to offer any further evidence and he invited the court to
dismiss the charges against the Appellants.
[12]
On February 17, 2005,
the Appellants initiated an action in malicious prosecution and negligent
investigation against the Minister, the auditor and others. In a letter dated
January 9, 2009 addressed to counsel for the Respondent, counsel for the
Appellants wrote the following:
“I hereby would like to confirm that your client cannot consider
settlement of the above-mentioned actions because of the outstanding malicious
prosecution brought by my clients against the CRA et al. I do not see what the
link is between the two. There is a different standard of proof and different
tests with respect to the liability for tax evasion and that to establish that
there was an unreported income.”
The Appellants state that the Respondent
did not reply to this letter. It is my opinion that the Respondent’s failure to
reply to this letter does not indicate that it was unwilling or refused to
attempt to settle these appeals. Nor does the Respondent’s failure to reply to
this letter signify that she agreed with the contents of the letter.
[13]
In fact, the letters
which the Appellants have included in their submissions do not support their
position that counsel for the Minister would not consider settlement of the
appeals. In a letter dated January 8, 2009, counsel for the Minister wrote:
“Please be advised that the Respondent cannot accept the Appellants’
global offer of settlement made during the pre-trial conference held on
December 19, 2008. Considering the amounts in issue in each of these appeals
and the rule to the effect that the Crown can only settle tax appeals based on
the facts and the law, your offer to pay a lump sum of $100,000 is hereby
rejected.
However, with respect to the penalties levied on the Appellants and
for settlement purpose only, we are proposing to settle the above noted
matters on the following bases:
·
All four Appellants’ reassessments in issue will
be maintained with respect to the income tax and GST assessed and interest
accruing thereon; and
·
The Respondent will renounce the penalties
levied pursuant to subsection 163(2) of the ITA and sections 280 and 285
of the ETA with respect to George S. Szeto Investments Ltd.
…
Last, we wish to apologize for the delay in responding to the
appellants’ offer of settlement. The delay was due to the fact that it was
necessary to obtain the details of the amounts in issue for each of the
appellant at a time when a number of persons were on vacation.”
[14]
The grounds put forward
by the Appellants do not support its position that a substantial indemnity
award is appropriate in the circumstances of these appeals. The correspondence
from counsel for the Respondent disclosed that the Respondent was willing to
attempt to settle these appeals, albeit on grounds which were not acceptable to
the Appellants. It is acknowledged that conduct which occurred prior to the
commencement of the proceedings before this court may be taken into account in
the assessment of costs[5]
in exceptional cases. As stated by the Federal Court of Appeal in The Queen
v. Landry[6]
at paragraph 24:
The judge has
the power to fix a lump sum for costs, in excess of the sum that would have
resulted from the usual application of the Tariff provided for in the Rules. To
do so, the judge must normally consider the conduct of the parties during the
proceedings. This can be seen from the factors listed at Rule 147 and the case
law: see Hunter v. R. (2002), 2003 D.T.C. 51 (T.C.C. [General
Procedure]) and the case law cited therein. Only in exceptional cases may the
Court take into account conduct prior to the proceedings: ibidem, see
also Merchant v. R., 2001 FCA 19 (Fed. C.A.), where the taxpayer's
conduct frustrated the audit process, and unduly and unnecessarily prolonged
the hearing, Merchant v. R., [1998] 3 C.T.C. 2505, 98 D.T.C. 1734
(T.C.C.).
[15]
However, the fact that the Crown brought an unsuccessful
criminal prosecution against the Appellants is not conduct that warrants a
substantial indemnity award in the proceedings before the Tax Court of Canada.
[16]
The Appellants have
calculated their party and party costs to be $65,007.41 and they have, alternatively,
requested costs in excess of the Tariff in accordance with Subsection 147(4) of
the Rules. After a consideration of the factors in subsection 147(3) of
the Rules and the facts in these appeals, I am satisfied that costs
should not be awarded to the Appellants in excess of the tariff. I have
considered the following:
a)
The result of the
proceeding:
All appeals were allowed in part. The
individual Appellants were substantially successful in their appeals, while the
corporate Appellant was successful in part. Gross negligence penalties imposed
against the individual Appellants were deleted.
b)
The amounts in
issue:
The amounts in issue were significant. The
total amount of taxes and penalties at issue under the Income Tax Act,
as of May 5, 2008 was $499,960.02. The amount of net tax and penalties at issue
under the Excise Tax Act, as of May 5, 2008, was $114,034.83.
c)
The importance of
the issues:
The result of the issues was important to
the Appellants. However, the issue was not important from a legal point of
view.
d)
Written settlement
offers:
The first written settlement offer was made
by the Respondent on January 8, 2009 and it was quoted in paragraph 13 herein.
The Respondent made a further written offer to settle on April 8, 2009. In this
offer, the Respondent offered to reduce the net worth calculation for each
individual Appellant by the amount of the cash deposits which appeared in their
shareholder loan account.
On December 10, 2009, after the hearing of
these appeals had started, the individual Appellants offered to settle their
appeals, with costs, on the basis that their unreported income was zero. The
corporate Appellant offered to settle its appeals on the basis that it had
failed to declare income in each of its taxation years. The offers were
rejected. The corporate Appellant made another offer to settle on January 11,
2010. This offer was similar to the one made on December 10, 2009 and was
rejected.
The Respondent’s offer to settle on April
8, 2009 was not unreasonable given the eventual outcome of these appeals and it
ought to have served as starting point for the Appellants to try to negotiate a
settlement. The individual Appellants did not make any meaningful attempt to
settle their appeals. Their “offers to settle” were really requests to the
Respondent to vacate the assessments and to pay costs.
e)
The volume of the
work:
There were numerous documents presented at
the hearing of these appeals. Many of the documents were duplicated and many
were not referred to by either party. The production of a joint book of
documents would have facilitated the hearing. According to submissions made by
counsel for the Respondent, it was her understanding that counsel for the
Appellants had originally agreed to a joint production of documents. However,
six days before the start of the hearing of these appeals, counsel for the
Appellants informed the Respondent that he was not prepared to forward his book
of documents as he was still receiving documents from the Appellants.
f)
The complexity of
the issues:
The Appellants were reassessed on a net
worth basis and as such the issue was not complicated.
g)
The conduct of any
party that tended to shorten or to lengthen unnecessarily the duration of the
proceeding:
The trial of these appeals were originally set for
five days but took thirteen days. Originally it was proposed that there would
be twelve witnesses called, two of whom were experts. I am satisfied that five
days of hearing would not have been sufficient. However, the hearing of these
appeals ought not to have taken thirteen days. The hearing was lengthened by
counsel for the Appellants’ attempt to introduce documents at the hearing that
had not been produced during the examination for discovery.
h)
The denial or the
neglect or refusal of any party to admit anything that should have been
admitted:
The Respondent served the Appellants with a
request to admit on September 5, 2009 which was supposed to be answered prior
to the hearing of these appeals on September 21, 2009. The Appellants provided
qualified answers to the request to admit and it was not until the twelfth day
of the hearing that the Respondent’s request to admit was submitted to the
court.
[17]
In view of the above
considerations, I am not persuaded to exercise my discretion to award the Appellants
costs in excess of the tariff. However, the individual Appellants were
substantially successful in their appeals. In the circumstances, I award the
Appellants one set of costs in the total amount of $50,000.
Signed at Ottawa, Canada, this 27th day of January
2011.
“V.A. Miller”
Email this Content