Citation: 2010 TCC 374
Date: 20100712
Dockets: 2000-2049(IT)G, 2000-2026(IT)G,
2000-2039(IT)G, 2000-2044(IT)G, 2000-2045(IT)G,
2000-2056(IT)G, 2000-2069(IT)G, 2000-1189(IT)G
BETWEEN:
YVES BEAUDRY, JAMES BULLOCK,
CHRISTOPHER HERTEN-GREAVEN, RAPHAËL EVANSON,
OLEG ROMAR, MARTIN TYLER, DAVIS ELKINS,
JAMES W. McCLINTOCK, EXECUTOR OF THE ESTATE
OF JOHN P. McCLINTOCK,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR TAXATION
Johanne
Parent, T.O., T.C.C.
[1] In a judgment dated January 30, 2008, the Honourable
Justice Angers dismissed, with costs, the appeals filed by the appellants
regarding assessments made pursuant to the Income Tax Act for the years
1985 to 1990. The taxation of the respondent's bill of costs took place April
7, 2010, on common evidence and submissions by the appellants Yves Beaudry,
Oleg Romar, David Elkins, James Bullock and Raphael Evanson. These appellants
were represented by counsel, Dominic C. Belley. The appellants
Christopher Herten‑Greaven and Martin Tyler, duly served, were not
represented at the hearing. Their respective trustees instead submitted their
bankruptcy notices to the Court files. Further to various unsuccessful
attempts, James McClintock, executor for John P. McClintock, was not served the
Notice to Appear for the hearing of the taxation of the bill of costs for the
respondent who, in this case, was represented by Antonia Paraherakis.
[2] In submissions disputing the bill of costs, the
appellants conceded all the costs claimed under Tariff B of the Tax Court of
Canada Rules (General Procedure) for a total amount of $41,350. The parties
agreed to remove the amounts claimed as goods and services tax (GST) from the
disbursements claimed, as stated in the respondent's reply dated March 30,
2010. Considering the adjustments to the amounts granted for certain costs, the
changes reflecting the GST adjustment were also made by the undersigned.
[3] In this case, the Minister of National Revenue made
assessments for more than 500 taxpayers, including the appellants, for various
taxation years, disallowing the deduction for business losses following their
participation in the partnerships ARMC and ARMC2. The taxation of the bill of
costs primarily involves the taxation of expert reports and photocopies
required in the cases in question.
APPELLANTS' ARGUMENTS
[4] The appellants' arguments regarding the disbursements
claimed can be thus summarized: they were neither reasonable nor essential for
the conduct of the proceeding. Referring to section 154 of the Tax Court of
Canada Rules (General Procedure), counsel for the respondent claimed that
the amounts in question might seem extreme or even huge, but the amount of the
expenses claimed is negligible compared to the amounts in question.
[5] Regarding the criterion
of the reasonableness of the disbursements, counsel for the appellants noted Axa
Canada Inc. v. The Queen (2006 TCC 334) a decision rendered by the
Honourable Justice Lamarre-Proulx:
As for the litigation disbursements, I feel that those regarding the
bailiff, photocopies and others, and counsel for the Appellant's trip can be
accepted as proposed by the Appellant. As for the fees for the expert report, I
find them very high. In my opinion, one third of the amount requested seems
reasonable.
In reference to subsection 1(2) of Tariff B of
the Tax Court of Canada Rules (General Procedure), which provides that
"[t]he
amounts that may be allowed for disbursements are all disbursements made under
Tariff A of this Schedule and all other disbursements essential for the conduct
of the proceeding…" he notes that the disbursements must be essential for
the purposes of the conduct of the case, which he feels does not apply to the
expert fees regarding the scientific research and experimental development,
which should be taxed at zero.
According to counsel for the appellants, the analysis of the complexity of
the issues in question in this case raises two issues: scientific research and
experimental development on one hand, and financial and accounting issues on
the other. In terms of the scientific research and experimental development, it
was argued that these issues were of no use in resolving the issues. The issue
of whether there was research is not a determining factor as to the appellants'
eligibility for a deduction. The determining factor and the one that would be
allowed was whether it was a business expense. Counsel for the appellants
admits there is a certain relevance for the work of economics, finance and
accounting experts.
[6] Referring to the invoices submitted in support of the
costs incurred for the experts, counsel for the appellants asks that no amount
be granted for Michael V. Norgard's fees. This witness' testimony was on
scientific research and experimental development and would not have been useful
for resolving the case and the unreasonable costs claimed. For the same
reasons, it was requested that no amount be granted for the experts Roger H.
Kennett, Bernard Brodeur and Louis Visentin. Moreover, the latter would
not have testified following the parties' admission of his testimony. According
to counsel for the appellants, since the research expertise was not necessary,
the only expert reports that would have been filed and administered were the
economic ones. The fact the respondent wanted to cover everything, and plead
everything was her choice.
[7] In regard to the amounts claimed for witness preparation,
counsel for the appellants refers to section 6 of Tariff A of the Tax Court
of Canada Rules (General Procedure): "No payment shall be made to or
received by a witness for what a witness has done in preparing to give evidence
or giving evidence except as permitted by this Tariff." It is therefore
submitted that for all the experts, no amount should be granted for the
purposes of preparation and it would also be unreasonable to allow it considering
the expert report would not involve a lawyer and is the exclusive jurisdiction
of the expert. It is also submitted that the expert, even if retained and paid
by the parties, is primarily on the case to advise the Court. Preparing the
expert's testimony and then requiring the bankrupt party to reimburse the costs
would undermine his independence.
[8] Counsel for the appellants therefore claims that certain
amounts in the invoice of expert Bernard Brodeur should not be allowed because
it is essentially preparation. The October 24, 2005, invoice indicates work by
Mr. Brodeur related to preparation: analysis of reports and review of
documentation. The invoices of April 1 and 7, 2006, refer to time spent
consulting and reviewing and for trial preparation, as is the case with the
September 28, 2006, invoice regarding hours claimed for consultation and review
of questions. As for the invoices of April 5 and May 2, 2006, the expert
services claimed are related to court preparation and testimony.
[9] The billing for expert Roger H. Kennett indicates
51.5 hours for travel, review of material and reports and his presence in
court. Considering the six hours in court, counsel for the appellants asks that
no money be granted for the remainder.
[10] In regard to the invoices submitted by US expert James W. Hoag for his testimony on Brazil's financial economy in 1985-1986, counsel
for the appellants submits that it was actually testimony with very similar
findings as that of expert William R. Cline. The Honourable Justice Angers
refers to the testimony of these two experts in his conclusions. Discussing the
reasonableness of their costs, counsel for the appellants notes that expert
Hoag claimed $750 an hour whereas expert Cline only claimed $400 an hour for
testifying on essentially the same issues. He admits that the respondent should
be compensated for a certain amount, but reasonably: $750 an hour would be $350
an hour too much. A reasonable amount should be around $400 an hour.
Another point raised about expert Hoag involves the number of hours spent
on preparation work; noting that the 500 hours to prepare two reports and 30
hours to write the response report are excessive, unjustified and
unsubstantiated. According to counsel for the appellants, one third of the 135 hours
should be retained as a reasonable amount. Additionally, the 40 hours requested
for preparation for the trial should not be granted, nor the hours claimed for
post-trial discussions, because it has no relation to the progress of the case.
[11] As for expert William Cline, it is requested that the
preparation time on the August 2, 2005 (8 hours), September 8, 2005 (8 hours),
March 25, 2006 (25 hours) and April 22, 2006 (2.5 hours) invoices not be
allowed. It is also requested that the preparation time on the April 22, 2006,
invoice as a reimbursement of the travel time and work with the lawyers, not be
allowed.
[12] As for the witness Robert Mason, counsel for the appellants
notes that he was not called as an expert witness despite the fact he testified
on some scientific research issues. As a result, the billing submitted for
document review and meetings and conversations with the respondent, in addition
to the preparation for testimony including his fees for travelling between the UK and Canada should not be taxed. Under Tariff A of the Tax Court of Canada Rules, he should
only be entitled to the amount set out in subsection 4(1), $75 a day. It
was also submitted that this witness, as with the other two witnesses in this
case, could have testified by videoconference. The appellants should not have
to pay for his expenses or preparation time.
[13] In view of section 154 of the Tax Court of Canada Rules
(General Procedure), according to counsel for the appellants, another issue
must be taken into consideration, namely the financial impact the requested
costs would have on the appellants compared to the financial impact the payment
of such costs would have on the Government of Canada's Consolidated Revenue
Fund.
RESPONDENT'S ARGUMENTS
[14] Counsel for the respondent states that contrary to the
appellants' allegations, the costs claimed by the respondent were necessary and
reasonable in the circumstances and the significance of the amounts at stake is
an essential criterion. In reference to the affidavit of Guy Laperrière in
support of the bill of costs, it was noted that the amount of disallowed costs
would total $70 million and the amounts in question would represent
approximately $19.5 million at this stage of the proceedings.
[15] Counsel for the respondent
submits that in consideration of the amount in question, the complexity of the
scientific, financial and economic issues that must be resolved before the
Court, the expert evidence was essential and actual costs were incurred. The
respondent also claims that the rates charged are in accordance with the market
rates for this type of expertise and that the criteria at rule 154 of the Tax
Court of Canada Rules are met.
[16] The scientific expertise was to be used to determine the
type of activity and whether it was research and development. If so, the
production cost of the product (monoclonal antibodies) would be more costly
than if it had been one of the company's main activities. In support of this
argument, the two parties produced experts with differing opinions: the
appellants arguing that the production of a monoclonal antibody cost around
$1.75 million whereas, in rebuttal, the evidence of the respondent's experts
(Michael V. Norgard, Ph.D., Roger H. Kennett, Ph.D. and Bernard Brodeur,
Ph.D.) put this production at $100,000. Reference was made to paragraph 142 of
the decision by Angers J. and his conclusions regarding the witnesses'
submissions:
In view of these considerations, I can
only conclude that the evidence does not support the Appellants' argument that
the price paid in the case at bar was reasonable having regard to the
circumstances. In my opinion, the Appellants have not met their onus of proof.
Their expert's evidence was strongly discredited by the Respondent's experts
and during cross‑examination.
The respondent also noted the Federal Court of Appeal reasons for judgment
in the appeal against the decision by Angers J. (2009 CAF 48) at
paragraphs 50 and 51:
50. Even if the appeal is allowed in part to give
effect to the respondent's consent to judgment, one fact remains. The
appellants did not discontinue their appeals. They attempted, but without
success, to have SR&ED expenditures of more than 143 million Canadian
dollars acknowledged. They are liable for the costs they incurred on appeal in
the pursuit of this objective that goes far beyond the consent to judgment.
51. As far as the costs of the three experts who
testified for the respondent before the Tax Court of Canada are concerned, I am
of the opinion that it is not appropriate to grant the appellants' request to
be exempted from their payment. The appellants had experts testify on matters
concerning research undertaken by CMRA and CMRA 2. In these circumstances,
expert evidence by the respondent became necessary for all intents and
purposes. In addition, this evidence was useful for the determination of the
issue.
[17] As for the costs for a fourth scientific expert, Dr. Louis
Visantin, it was noted that he did not have to testify at the hearing but he
allegedly visited with Dr. Brodeur in England and signed expert reports in 1987
and 1988. Despite his presence at the hearing, the similarity between the
testimony of Drs. Brodeur and Visantin was agreed upon, thereby eliminating Dr.
Visantin's further presence in court. In support of the claim for a witness who
would have been excused from testifying, the respondent refers to the decision
by Taxing Officer Reeve at paragraph 14 of Buddy L. Consultants Ltd. v.
Canada, 2000 DTC 2157. In that decision, the costs incurred to
compensate a witness who did not have to testify because another witness
present at the hearing could were deemed necessary and reasonable considering
the evidence submitted in support of the claim and the circumstances of the
case.
[18] In regard to witness preparation, counsel for the
respondent claims that the witness preparation fees are allowable. In support
of this argument, he refers to D. W Matheson & Sons
Contracting Ltd v. Canada, (2000) N.S.J. No. 96, which states:
"The key question then is not whether the Rules and the Tariff confer such
a discretion to make an allowance for preparation time; they clearly do. The
question is whether the discretion should be exercised."
[19] In regard to the economic and financial experts, the
respondent stated that Dr. Hoag was qualified by the court and his mandate was
to put into perspective or refute some of the opinions submitted by Dr.
Williamson, the economic expert the appellants called to testify. On this, in
its reasons for judgment, the court stated at paragraphs 88 and 96:
88. Dr. James Hoag was called
as an expert in financial economics. He was a professor of economics at
several U.S. universities. He taught Ph.D.-level courses in Brazil. His plentiful work experience in finance included a position as a consultant to Brazil's Rio de Janeiro stock exchange.
96. I found Dr. Hoag to be the most
credible, relevant and impartial witness during his testimony.
According to the respondent, the testimony given by Dr. Hoag, an expert in
financial economics, differed from that of Dr. Cline in that Dr. Cline was
an expert in macroeconomics. The purpose of their testimony was therefore
different. Guy Laperrière's sworn statement in support of the bill of costs
states the following, at paragraphs 33 and 34:
[translation]
33. I feel that Dr. Hoag's testimony was
necessary, in particular on the subject of inflationary expectations for
Brazilian markets and the devaluation of Brazilian currency. I felt his
testimony on the value of Brazilian money and the normal business practices for
operations involving Brazilian currency invaluable.
34. In its judgment, the Tax Court of
Canada relied on Dr. Hoag's opinion that the Brazilian money CMRA and CMRA 2
underwrote for Coral had zero value. In its reasons, the Court also referred to
Dr. Hoag's testimony about normal practices in operations involving Brazilian
currency.
[20] It seems that Dr. Cline's fees were for expert reports
about CMRA and CMRA2, the counter-expertise report (Dr. Williamson) and his
preparation for trial. The following information about Dr. Cline can be found
in Guy Laperrière's sworn statement at paragraphs 41 and 42:
[translation]
41. In seeking out Dr. Cline's
deposition in these cases, I felt that it would include a plus value and would
complete the expert report by the financial economist James W. Hoag, PhD. In
particular, the main reports by Dr. Cline on CMRA and CMRA2 provided a detailed
and chronological description of the measures the Brazilian government of the
time took to control inflation and the market reaction to them. Moreover, I
felt it was useful to include as evidence the long-term provisions regarding
inflation, as found in the economic magazine Latin American Outlook in
the 1980s by Dr. Cline.
42. The Tax Court of Canada decision makes note of Dr. Cline's PhD in economics, his publications about the Brazilian
economy and his professional activities in Brazil. The judgment also refers to
the main testimony Dr. Cline provided about the value of Brazilian money and on
the fact that the lack of indexation and the stated interest rate of Brazilian
currency was not normal business practice.
[21] In response to the appellant's comments that Dr. Hoag's
number of hours billed and his hourly rate were excessive and unreasonable, counsel
for the respondent relied on Canada Trustco Mortgage Company v. Canada,
2007 TCC 500. In that case also, counsel for the respondent noted that counsel
for the appellants had not explained why the number of hours billed was
unreasonable and what a reasonable and appropriate hourly rate might be. There
is no evidence from a similar expert with a different rate. Dr. Cline's rates
are not comparable, as the respondent suggested, because his expertise was in
macroeconomics.
In the above-noted decision, Taxing Officer Ritchie states, at paragraph
18:
The charges claimed for the services
of the expert witness must be found to be both essential for the conduct of the
proceeding and reasonable.
At paragraph 26, he adds:
Any attempt to strike a reasonable balance will be
to a large extent arbitrary and subjective. However, in the absence of
conclusive arguments by the two parties with respect to appropriate rates, I
see no alternative.
[22] As for Allan Wiener, accounting expert, the fees claimed
were for the preparation of a lead expert report and his preparation for and
presence at the trial to refute the testimony of the accounting expert called
by the appellant, among other things.
[23] Regarding Robert J. Mason's testimony, the respondent felt
his presence before the Tax Court of Canada was necessary. On this, we find the
following statements in Guy Laperrière's affidavit in support of the
respondent's bill of costs:
[translation]
86. In 1985 and 1986, Mr. Mason was an employee at
Coral assigned to the CMRA2 work on obtaining monoclonal antibodies against
human leukocyte antigens.
87. I found Mr. Mason's presence at the Tax Court of
Canada hearing necessary to establish the authenticity of more than 100
documents, of which he had knowledge and had given copies to Revenue Canada representatives in 1987 or 1988, during the audit carried out by Revenue Canada in Coral's former offices in England.
88. During the preparation work of the Beaudry et
al. case for the Tax Court of Canada hearing, the respondent attempted to have
the appellants authenticate the documents noted above in my sworn statement. On
September 2, 2004, the respondent sent counsel for the appellants a notice to
admit, requesting in particular, that the appellants admit that more than 100
documents listed in the notice were certified copies of the company Coral's
internal documents or correspondence, on work undertaken by Coral on behalf of
CMRA2. These notices to admit were at Nos. 482 and 483 of the September 2,
2004, notice to admit addressed to the firm Ogilvy Renault.
89. On September 30, 2004, counsel for the
appellants refused to admit the authenticity of various documents, including
the documents listed at Nos. 482 and 482 of the respondent's notice to admit,
for the following reasons:
The documents described at these numbers are either incomplete,
unsigned or of unknown origin and the appellants would have reason to argue as
to their relevance and admissibility as evidence. Lastly, some of these
documents are found at documents I-716 et seq. of the respondent's amended list
of documents, which was not in the appellants' possession at the time the reply
to the notice to admit was produced. (Emphasis of the deponent)
90. The documents covered by the notices to admit
Nos. 482 and 483 include numbers I-183 to I-705 and were not those described in
the appellants' reply to the notice to admit as those the appellants did not
have in their possession at the time the reply to the notice to admit was
produced.
91. To prepare his opinion about CMRA2, the
respondent sent Dr. Roger H. Kennett, Ph.D. the documents described in the
September 2, 2004, notices to admit Nos. 482 and 482 [sic]. I then felt
it was necessary to have Robert Masson testify to identify these documents, in
particular to support he factual basis of Dr. Kennett's opinion, which
addressed the qualification of CMRA2's work as scientific research and the
reasonable cost of obtaining monoclonal antibodies against human leukocyte
antigens.
On the payments to Mr. Mason, Mr. Laperrière stated that a copy of the
document, "Statement Regarding Witness Fees, Schedule II, Tariff A"
dated April 6, 2006, was submitted to the registrar that day, but returned
because the submission was premature.
[24] In regard to the other disbursements claimed, the
photocopying costs were argued by the parties. In reference to Gestion Louma
Inc. v. The Queen, 2010
TCC 61, the appellants asked that the photocopying costs be reimbursed at the rate of twenty
cents per copy.
In reply, the respondent indicated that in support of its bill of costs,
she produced all the documentary evidence related to the photocopies made and
submits that the total amount claimed for photocopying costs was $15,080 and by
dividing that amount by 20¢ a copy as suggested, it would represent around
75,000 copies; in fact, this would only be part of the costs incurred. As
mentioned in the written arguments, [translation]
"the respondent's file includes 76 boxes of archived documents…For
example, the respondent's list of documents alone has more than 700 documents
in six boxes."
In response, counsel for the appellants indicates that having a copy, even
when warranted, does not make it necessary. Relying on page 6 of the
respondent's reply, he stated that the list supplied seems fairly reliable and
inclusive of the documents for which copies were essential for the conduct of
the proceeding, namely the transcription of the interrogations, the list of
documents, exhibits, procedure books, motions and evidence. These documents
would justify 44,000 copies at 20¢ per page for a total of $8,800.
[25] Arguments were also made during the taxation hearing for
the breakdown of the amounts to be granted for costs; counsel for the
appellants Yves Beaudry, Oleg Romar, David Elkins, James Bullock and
Raphael Evanson asked that a decision be made per client, with a
proportional determination of the specific amount to be paid by each. On this,
two of the appellants asked that the amounts be broken down considering their
respective situations, settlement offers made and the significance of each of
the amounts in question on a pro rata basis. In the case of Mr. Beaudry,
this would mean a pro rata on $279,000 of the $19,042,743 in question, or the
equivalent of 1.467%, meaning he would only have to pay 1.467% of the costs
rather than the one-eighth suggested by the respondent.
The respondent had suggested that the breakdown be in equal parts among
the appellants.
DECISION
[26] Section 154 if the Tax Court of Canada Rules
determines the powers conferred on the taxing officer regarding discretion to
grant costs:
Where party and party costs are to be taxed, the
taxing officer shall tax and allow the costs in accordance with Schedule II,
Tariff B and the officer shall consider:
(a) the amounts in issue,
(b) the importance of the issues,
(c) the complexity of the issues,
(d) the volume of work, and
(e) any other matter that the Court has
directed the taxing officer to consider.
[27] After considering the Court records, the Honourable Justice
Angers' reasons for decision and the parties' arguments, I am of the view that
the case between the parties in this case was complex, the amounts involved
very substantial and the volume of work considerable.
During the hearing before the Tax Court of Canada, the respondent
presented the following expert witnesses:
Scientific experts: Michael
V. Norgard, Ph.D.
Roger H. Kennett, Ph.D.
Bernard Brodeur,
Ph.D.
Economics experts: James W
Hoag, Ph.D.
William R.
Cline, Ph.D.
Accounting experts: Allan Wiener, FCA
Bernard Brodeur, Ph.D., Michael V. Norgard, Ph.D. and Roger H. Kennett,
Ph.D. were called by the respondent as experts on scientific research and
experimental development issues. The case law is well settled: the costs
involved for preparing and drafting expert reports are recoverable when used
during the trial. The reports of the above-noted experts were produced and are
in the Court records.
In consideration for the role these experts had during the trial before
the Honourable Justice Angers and the comments in his decision regarding their
expert testimony, it is clear that the Court found their reports and expertise
essential in this case. In support thereof, I will reproduce paragraph 66 of
the Court decision where the Honourable Justice Angers wrote, after analyzing
the testimony of the experts Brodeur, Norgard and Kennett:
Based on the evidence adduced by the respondent, I
am unable to conclude, on a balance of probabilities, that Coral's activities
in relation to CMRA or CMRA1 had scientific content. Thus, I find that Coral's
work for CMRA and CMRA2 did not truly constitute SR&ED.
Paragraphs 50 and 51 of the Federal Court of Appeal judgment (2009 FCA
48), reproduced above, also confirm that.
In the light of
subsection 1(2) of Tariff B of the Tax Court of Canada Rules (General
Procedure), I find that the disbursements required for these experts were
essential to the proceedings.
[28] Once the contribution of these experts is determined to be
essential, a determination must be made as to whether the billing of their
services—hourly rates, number of hours charged for their presence in court and
for preparing and drafting their reports—was reasonable.
MICHAEL V. NORGARD: In support of the hours claimed, the respondent
produced two invoices listing the services rendered. The 22 hours claimed for
consultation and revision of prior reports and to prepare the court report were
not challenged by the appellants and are considered reasonable. These hours are
therefore allowed. Moreover, the hours submitted in the month preceding his
testimony in court for communications with the respondent, review of notes and
preparation for testimony are not allowed because they are not directly related
to the preparation and drafting of the report or his presence in court. On this,
see taxing officer Richie's ruling in Canada Trustco Mortgage Company
v. Canada, 2007 TCC 500 at paragraph 31:
I agree with counsel for the Respondent that some of
the charges claimed by Ms. McIntosh are not directly related to the preparation
of her report or her attendance at trial in the context of a taxation of costs
hearing. A total of 43 hours was charged for work done prior to her attendance
at trial. Preparatory meetings, comments on various documents, taking of notes
– these may be helpful to the Appellant but are not directly related to the
drafting of the report. I will allow 20 hours for the preparation of the
report.
Finally, although already reduced by contract to 30 hours, the invoice
submitted for 58.5 hours for Dr. Norgard's testimony in court on April 5, from
11:00 a.m. to April 7 at 9:30 a.m., is reduced to eight hours for his actual
availability and presence in court on April 7.
Dr. Norgard's hourly rate is not challenged by the appellants and there is
no evidence to indicate his hourly rate is unreasonable. Dr. Norgard's fees
will therefore be taxed at US$15,000 (CAN$17,194.66)
ROGER H. KENNETT: The billing for Dr. Kennett submitted in support of the
bill of costs was not challenged by the appellant except for the hours
requested for the period including his testimony in court (phase 3). Details of
this billing indicated that he billed 39 hours for his trip to Montreal for the trial. This number of hours would include, in addition to travel time, the
reviewing of material and reports for the purpose of his testimony. In
consideration of my findings regarding the preparation for witness Norgard, and
for the time actually spent in court on April 7, eight hours will be
granted. Costs claimed for preparing and drafting his report are granted as
requested. Dr. Kennett's hourly rate was not challenged and there is no
evidence to show that the hourly rate was unreasonable. His fees will therefore
be taxed at US$26,950 (CAN$31,174.34).
BERNARD BRODEUR Ph.D.: Mr.
Brodeur's hourly rate was not challenged and is considered reasonable. In
support of the number of hours claimed, the respondent produced detailed
invoices that establish, with relative accuracy, the work performed. In
consideration of my findings regarding witness Norgard's preparation time,
costs of $8,475 will be allowed specifically for the analysis work required to
prepare the report, modifications and revisions. Considering the actual time
Mr. Brodeur was in court during the hearing of the trial, I reduced the number
of hours claimed to 16 for a sub-total of $2,400. Dr. Brodeur's fees are
therefore taxed at $10,875.
[29] For scientific research and experimental development
issues, a fourth expert was present during the hearing before the Tax Court of
Canada but, as admitted by the parties, he was not required to testify because
his testimony would have been the same as Dr. Brodeur's. The experts' report
signed by Drs. Brodeur and Visentin was submitted to the court record during
the hearing. In support of this claim, the respondent cited the following cases
on experts who did not testify, but whose costs were considered recoverable: Buddy
L. Consultants Ltd. v. Canada (2000) T.C.J. No.354, RMM Canadian
Enterprises Inc. v. Equilease Corporation 97 DTC 420 and Carr v. Canada
(1996) F.C.J. No. 527.
In view of paragraph 31 of Canada Trustco Mortgage Company v. Canada,
2007 TCC 500, the billing submitted in support of this claim dated
April 5, 2006, for services rendered between March 1 and 30, 2006,
does not clearly establish that the work was related to the preparation or
drafting of the expert report; moreover, the report in the court records is
dated April 18, 1988. Therefore I can hardly grant an amount based on the
billing as submitted. However, considering his presence in court, Dr.
Visentin's travel and accommodation fees are allowed.
[30] The respondent called Allan Wiener to testify; this
accounting expert was asked to speak about generally accepted accounting
principles relevant to research and development costs. In particular, his
testimony was offered in refutation of the testimony of the appellant's expert.
At paragraphs 119, 120 and 121 of the Tax Court of Canada decision, the
Honourable Justice Angers relied on Mr. Wiener's testimony and accepted the
concepts he presented. The appellants did not challenge the contribution this
witness made to the case.
Mr. Wiener's first invoice, enclosed with the bill of costs, specifically
refers to the preparation of his expert report. It is not challenged and I have
no evidence to indicate that the costs claimed are unreasonable. This first
amount of $22,300 will therefore be granted as requested. Then there is another
invoice for $7,798 dated April 5, 2006, for services rendered to prepare for
court and a last invoice for services rendered in April 2006 to prepare for and
testify in court. The billing Mr. Wiener submitted is not detailed and there is
no evidence establishing his hourly rate. Moreover, the number of hours and the
details of the work performed were not indicated in any of the documents
submitted. Considering the date the expert report was completed, I doubt the
April 5 billing was in regard to his preparation or drafting. As for the last
invoice submitted for preparation for and presence in court, dated May 2, 2006,
it is possible to use the minutes of the trial to establish that Mr. Wiener's
testimony took place over two days, but no more. I cannot accept the
appellants' suggestion that the last amount should be reduced to zero because I
am of the view that the services this expert witness rendered were essential
for the conduct of the proceeding. With no evidence about the hourly rate and
no submissions about it from the parties, I must therefore impose an arbitrary
and subjective measure. I will therefore allow $4,000 for the May 2, 2006,
invoice. Dr. Wiener's fees will be taxed at $26,300.
[31] Two economics experts were called to testify in this case:
James W Hoag, Ph.D. and William R. Cline, Ph.D. The usefulness of their
testimony was admitted by both parties, but the reasonableness of Dr. Hoag's
fees was strongly challenged by the appellants.
[32] James Hoag produced expert reports and counter-expertise
about the financial aspect of CMRA and CMRA2. Before the court, he testified as
a financial economics expert. The court reviewed Dr. Hoag's testimony at
paragraphs 88 to 96 of its decision and concludes at paragraph 96:
I found Dr. Hoag to be the most credible, relevant
and impartial witness during his testimony. Based on the data obtained in
regard to the issue of the depreciation of Brazil's currency, it is difficult
to believe that the Appellants would not have known, in 1985 and 1986, that the
currency would depreciate to such an extent that it would cost them nothing to
pay the notes seven to ten years later. In my opinion, it was easy to
predict that hyperinflation would continue, along with the depreciation of Brazil's currency.
Dr. Hoag spent a total of 216 hours on this work at an hourly rate of
US$710.
During the taxation, counsel for the appellants submitted that Dr. Hoag's
billing was completely unreasonable on two grounds: (1) the hourly rate of
US$750.00 that does not compare to the US$400.00 Dr. Cline charged and
(2) the number of hours spent preparing reports.
It is undeniable that Dr. Hoag's hourly rate does not compare to Dr.
Cline's hourly rate, even if these two witnesses essentially testified on
similar issues. However, having read the Court's reasons for judgment and the
expert reports, I cannot find that Drs. Hoag and Cline testified on these issues
from the same perspective. The Court recognized and relied on the two
testimonies in its decision, but seemed to grant more credibility to Dr. Hoag's
testimony.
Therefore, I consider the services of these two expert witnesses to have
been essential for the conduct of this proceeding. Regarding the reasonableness
of Dr. Hoag's hourly rate, the parties did not submit any comparison of market
rates for experts in this field of expertise, except for Dr. Cline's hourly
rate. I must therefore assume that the hourly rates of these two experts
represent the current market rates for expert services in this field. Without
questioning the quality of Dr. Hoag's expertise, I do however feel that the
rate charged for his services was rather high in comparison to that of Dr.
Cline. In view of taxing officer Ritchie's decision in Canada Trustco
Mortgage Company v. Canada 2007 TCC 500 at paragraph 26:
Any attempt to strike a reasonable balance will be
to a large extent arbitrary and subjective. However, in the absence of
conclusive arguments by the two parties with respect to appropriate rates, I
see no alternative.
I would reduce Dr. Hoag's hourly rate to US$550.00 considering the
unsuccessful party should only be required to reimburse reasonable costs.
I have no reason to doubt Guy Laperrière's affidavit regarding the billing
submitted by expert Hoag in support of the respondent's bill of costs and the
hours this expert spent preparing expert reports and response reports; I will
therefore allow the 135 hours claimed for report preparation. However, the 40
hours submitted for preparation for trial and the 7¾ hours for post-trial
discussions will not be allowed. As my colleague Ritchie stated in the
above-noted case at paragraph 31: "these may be helpful to the Appellant but are not
directly related to the drafting of the report."
Considering this expert's actual time spent in court on April 10 and 11,
2006, the hours claimed for his presence at the trial were reduced to 19.75
hours. Dr. Hoag's fees will therefore be taxed at US$81,950.00 (CAN$94,782.20).
[33] The appellant did not present any arguments regarding the
reasonableness of Dr. Cline's hourly rate. Counsel however reviewed all the
billing submitted regarding the number of hours charged and the work carried out.
I had the opportunity to review the invoices submitted by Dr. Cline and I
am of the view that the invoices of August 2, 2005, and September 8, 2005,
October 10, 2005, and November 1, 2005, in support of time devoted to the
reviewing of the prior reports and the preparation of an opinion in response to
the Williamson report must be reimbursed. The 25 hours claimed on the March 25,
2006, invoice were challenged by the appellants in terms of preparation for the
reply to the questioning, the analysis of the Williamson report and preparation
for the reply to the second Williamson report. The invoice does not show the
time spent on each of the items and no argument was submitted. However, I am of
the view that the time devoted to the preparation of the reply to the second
Williamson report must be compensated and, with no other evidence, I will grant
five hours. The April 22, 2006, invoice will be reduced to the number of hours
that Dr. Cline's presence was required in court on April 10, 2006. In that
respect, I will abide by my comments as to all the other experts called to
testify whereby costs for travel time and presence in court were reduced to be
a more accurate reflection of the actual time. Dr. Cline's costs will therefore
be allowed in the amount of US$20,000 (CAN$23,468.26).
[34] The respondent claims
$13,216 for Robert Mason's professional services pursuant to
subsection 4(2) of Tariff A of the Tax Court of Canada Rules (General
Procedure):
(2) The party who
arranges for the attendance of a witness may pay such witness, in lieu of the
amount prescribed by subsection 4(1) of this Tariff a larger reasonable amount
for attending as witness in that proceeding, but he must, forthwith after he
makes such payment, or makes payment of the excess of the amount over the
amount provided for in subsection 4(1) of this Tariff, file in the Court Office
a statement of that payment and of the way in which he satisfied himself as to
the amount payable under this subsection.
As set out in subsection 4(2), the respondent attempted to produce a
document to the court registrar on April 6, 2006 entitled "Statement
regarding witness fees" including a statement by Guy Laperrière about
payments made to Mr. Mason supported by the professional services contract
binding Mr. Mason to the respondent. As attested to by the court stamp on the
document enclosed with Guy Laperrière's affidavit, it is clear this document
was received at the registry. I am therefore satisfied that the first condition
of subsection 4(2) is met.
Considering the statement by Guy Laperrière reproduced at paragraph 23 of
this decision, I am of the view that the presence of Mr. Mason was necessary to
identify the documents of which he had knowledge, following the appellant's
refusal to recognize the authenticity of more than 100 documents in support of
the factual basis of the opinion of expert Roger H. Kennett, Ph.D.
Now, it remains to be determined whether the costs incurred were
reasonable. The professional services contract enclosed with Guy Laperrière's
statement clearly sets out Mr. Mason's mandate and duties. The invoices
Mr. Mason submitted reproduce the costs covered in the agreement almost
exactly.
My interpretation of subsection 4(2), in particular this portion: "…
a larger reasonable amount for attending as witness in that proceeding"
leads me to find that the only costs incurred by the witness for his presence
in court were covered. As a result, I allow, as provided in the contract duly
paid by the respondent, Mr. Mason's travel fees and his time in court on April
6, 2006, in the amount of $7,209.
[35] As stated in paragraph
23 of this decision, the costs incurred for photocopying documents were
challenged by the appellants. As I noted in Gestion Louma Inc. at
paragraph 14: "With respect to the photocopying and faxing costs, one
principle remains: the costs incurred must be related to the proceedings
associated with the dispute before the Court." It is understood that the
number of copies made in this case and justified by the respondent were genuine,
even though the respondent did not provide any details regarding the documents
that were copied, when this information would have been very useful for
determining whether the copies were essential or necessary. As counsel for the
appellants noted, [translation]
"having a copy, even when justified, does not make it essential". I
had the opportunity to consult all the Court records in this case and I am of
the view that the supporting documentation provided by the respondent for this
claim do not enable me to clearly identify the copied documents. As a result,
considering the evidence, documents in the Court records, the copies required
for submission to the registry and for service, I consider the amount of
$10,000 to be reasonable for photocopying costs.
[36] In regard to the other disbursements claimed: transcription
fees of shorthand notes, messenger service, service fees, access to Internet
search tool fees for witness research and transportation and accommodation fees
for the expert witnesses and witnesses Michel Pagé and Ghislaine Mathieu, they
are considered essential costs for the conduct of this case and, with no
challenges, they will be allowed, as claimed in the bill of costs minus the
amount for goods and services tax.
[37] Counsel for the appellants noted during the taxation
hearing that the taxing officer should consider the financial impact that will
be borne by the appellants. The case law on the subject is very well settled: Earth
Fund/Fond pour la terre v. M.N.R., 2004 D.T.C. 6140 and Bowland v. The
Queen, 2003 DTC 5538. As a result, I cannot consider this argument.
[38] As for arguments on the breakdown of the costs, it is not
disputed that the appeals were heard on common evidence and the Honourable
Justice Angers rendered a decision for each case, accompanied by common reasons
for judgement for all the cases; each judgment allowed costs to the respondent.
I am very sympathetic to the situation the appellants presented during the
taxation but with no specific directive from the Court, I am not satisfied that
I have the necessary breakdown to distribute costs other than in equal parts.
On this, I will cite Mrkalj et al. v. The Queen, 2009
TCC 637, in which taxing officer Tanasychuk stated at paragraphs 7 and 8:
[7] Mr. MacPhee referred to the decision of the Taxing Officer in Mungiovi
v. Her Majesty the Queen, [unreported T.C.C. Docket No. 97-2223(IT)G,
December 5, 2000], which was contrary to the position he put forward on this
taxation. In that decision, the Taxing Officer held that unless the Court
ordered that each Appellant on an appeal heard on common evidence was jointly
and severally liable for the total costs, then each Appellant was only liable
for a proportionate share.
[8] Following
the decision in Mungiovi, I will apportion the costs equally between the
two Appellants.
[39] The respondent's bill of costs is taxed and allowed in
the amount of $276,479.71. Eight certificates will be issued as follows:
|
Docket No.
|
Appellant
|
Amount
|
|
2000-2049(IT)G
|
Yves Beaudry
|
$34,559.96
|
|
2000-2026(IT)G
|
James Bullock
|
$34,559.96
|
|
2000-2039(IT)G
|
Christopher Herten‑Graeven
|
$34,559.96
|
|
2000-2044(IT)G
|
Raphael Evanson
|
$34,559.96
|
|
2000-2045(IT)G
|
Oleg Romar
|
$34,559.96
|
|
2000-2056(IT)G
|
Martin Tyler
|
$34,559.96
|
|
2000-2069(IT)G
|
Davis Elkins
|
$34,559.96
|
|
2000-1189(IT)G
|
James W. McClintock, executor of the estate of John P. McClintock
|
$34,559.96
|
Signed at Toronto, Ontario, this 12th day
of July 2010.
"Johanne Parent"
Translation certified true
on this 18th day of November 2010.
François Brunet. Revisor
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