Citation: 2010TCC125
Date: 20100303
Docket: 2006-3312(IT)G
BETWEEN:
ROY WALSH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER AS TO COSTS
Sheridan, J.
[1] The Appellant,
Roy Walsh, is seeking an order pursuant to section 147 of the Tax Court of
Canada Rules (General Procedure) for costs payable to the Appellant to an amount
in excess of the tariff provided in the Rules; specifically, an order
for costs equal to 80 per cent of the fees charged to him after the offer of
settlement was made, together with disbursements.
Background
[2] The Minister of
National Revenue assessed the Appellant for source deductions not remitted by
Jardine Security Ltd. on the basis that he was a director of that corporation
within the two-year period prior to the assessment against him. The Appellant
filed an appeal of the assessment on November 16, 2006. The Appellant sent two letters
to the Respondent, dated March 30, 2007[1]
and June 11, 2007[2], respectively, the first asking the Respondent to
allow the appeal; the latter, proposing a formal offer of settlement. Both were
rejected by the Respondent[3]. At no time did the Respondent make an offer of settlement
to the Appellant. The appeal was heard on May 1, 2009. By Judgment dated
November 4, 2009, I allowed the appeal and vacated the assessment on the basis
that:
1.
the Minister has not proven that
the execution of the Writ of Seizure and Sale was returned unsatisfied as required by
paragraph 227.1(2)(a); and
2.
the Appellant ceased to be a
director of Jardine Security Ltd. on May 31, 2002 and is, therefore,
relieved of liability under subsection 227.1(4) of the Act.
Criteria
for the Awarding of Costs in Excess of the tariff
[3] Rule 147(3) sets
out the criteria for determining whether the Court ought to exercise its
discretionary powers under Rule 147(1):
147. (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] In the absence
of special circumstances, costs are to be awarded in accordance with the tariff[4]. In the present case, I am satisfied that an award of
costs in excess of the tariff is fully justified.
Paragraphs
147(3)(a) and (e): the result of the proceeding; and the volume of work.
[5] In my view,
these two factors are neutral. The fact that the Appellant was wholly
successful in his appeal does not, in itself, justify awarding additional
costs. Similarly, the amount of work involved in this appeal was not more than
would have been required in one involving similar issues.
Paragraphs
147(3)(b), (c) and (f): the amounts in issue; the importance of the issues; and
the complexity of the issues.
[6] The Respondent
argued that the Appellant ought not to be granted costs in excess of the tariff
as the amount in issue was not large in comparison to many other assessments
issued by the Minister. Nor was there anything novel or complex in the issues
raised: the principles for determining a director’s liability for tax payable
by a defaulting corporation are well-established; the disposition of the appeal
will depend on the facts of each case.
[7] While I agree with the Respondent’s characterization
of these factors, I do not accept that it justifies refusing the Appellant’s
request for additional costs. I agree
with counsel for the Appellant that, in all the circumstances of this case, the
relatively small amount involved and straight-forward nature of the appeal
ought to have motivated the Minister to give at least some consideration to the
Appellant’s offer to settle. With the exception of the Minister’s having failed
to prove the fact of his compliance with paragraph 227.1(2)(a) of
the Income Tax Act, the essential facts upon which the assessment was
based and the Judgment ultimately turned were known to, or capable of being
confirmed by the Minister long before the matter went to trial. Had the Canada
Revenue Agency officials paid more attention to their own policy directives on
directors’ liability, the information gathered during their inquiries and the
corroborative materials furnished, at their request, by the Appellant,
litigation might well have proven unnecessary.
[8] I also accept
the submission of counsel for the Appellant that this case falls in the same
category as Langille v. R.[5],
a decision of Boyle, J. in which he awarded costs in excess of the tariff where
the Minister had rejected an offer of settlement:
47. …
“The
taxpayer’s settlement offer was rejected by the Respondent on April 30th.
The Respondent’s rejection letter does not set out any reasons for not
accepting the offer beyond restating its position on the facts and law
concerning the dairy farm winding up issue. For example, the Respondent does
not say that it needs the complete facts to come out under oath and be tested
in cross-examination, etc., nor that there are any facts that remain uncertain.
The Crown had already examined the taxpayer for discovery under oath and the
taxpayer was the only witness who testified to the facts of his dairy farming
operation. Similarly, there has been no suggestion that the CRA was concerned
that a significant legal principle was involved that would affect other
taxpayers’ appeals of the CRA’s administrative practices.” (Emphasis added)
Paragraph
147(3)(d): any offer of settlement made in writing.
[9] The Respondent’s
position is that the Appellant’s letters of March 30, 2007 and June 11, 2007 were
not “offers of settlement in writing or otherwise”; rather, according to paragraph
7 of the Statement of Facts of the Written Submissions of the Respondent, they
were “two letters asking the Respondent to concede the appeal and pay costs to
the Appellant”. As such, they contained no “element of compromise”, a
prerequisite to a valid offer of settlement. In support of this proposition,
counsel for the Respondent cited paragraph 10 of Canadian Olympic
Association v. Olymel, Société en commandite[6].
[10] In my respectful view, that is an overstatement of the
principles arising from Canadian
Olympic Association. It is readily
apparent from the opening words of paragraph 10 that Lemieux, J. went to some
pains to limit the scope of his decision:
10 At
least for the purposes of the cost award before me which does not arise in an
action but in the context of an appeal from the Registrar of Trade-marks
awarding Olymel two trade-mark registrations, I am of the view that the
ingredient of compromise (or incentive to accept) is an essential element of an
offer to settle. Other considerations may apply when considering an offer to
settle liquidated or unliquidated damages in an action. [Emphasis added.]
[11] Further, in the
preceding paragraphs, the Court considered two Ontario Court of Appeal
decisions in which the “ingredient of compromise” was, according to the Ontario
Rules, merely a factor to be considered rather than an essential element of a
legitimate offer to settle. Given the Respondent’s reliance on Canadian
Olympic Association, it is perhaps instructive to set out in full the
relevant passages qualifying the decision ultimately reached by Lemieux, J.:
4 On September 29, 1997, Olymel's solicitor wrote to
the solicitors to COA the following letter:
On behalf of
our client, Olymel, Société en Commandite, we hereby confirm our client's offer
to settle both these Appeals on condition that the Appellant discontinue these
two Appeals on the basis that the two decisions of the Opposition Tribunal be
sustained whereby the Appellant [sic] two oppositions are rejected with costs
payable to the Respondent/Applicant. This offer is open until the Hearing of
this matter or unless revoked earlier by Olymel, Société en Commandite.
We reserve the
Respondent's right to refer to their Offer to Settle when dealing with costs.
5 Counsel
for COA says Olymel's September 29, 1997 offer is not an offer to settle within
the meaning of the Rules because that offer contains no element of compromise
or alternatively it is vague and uncertain and not capable of acceptance.
Moreover, in the further alternative, COA says that the words "unless
otherwise ordered by the Court" in Rule 420 empower the Court to order something
less than double costs.
6 The
question whether an offer to settle must contain an element of compromise was
considered by the Ontario Court of Appeal dealing with a somewhat analogous
provision under the Ontario Rules of Civil Procedure in the cases of Data General
(Canada) Ltd. v. Molnar Systems Group Inc. et al. (1991), 6 O.R. (3d) 409
and recently in Walker Estate et al. v. York Finch General Hospital et al.,
169 D.L.R. (4th) 689. Those two cases stand for the proposition that, under the
Ontario Rules, an element of compromise is not an essential feature of an offer
to settle but its absence can be a relevant factor to be taken into account in
ordering otherwise under the words "unless the Court orders
otherwise" under Ontario Rule 49.
7 Madam
Justice Reed, in Apotex Inc. v. Syntex Pharmaceuticals International Ltd. et
al., [1999] 2 C.P.R.(4th) 368, did not specifically deal with the issue
of whether an element of compromise was an integral part of an offer to settle
but seems to assume that it was.
8 In Apotex, supra, Apotex, as plaintiff, had
offered to settle an action for a declaration of non-infringement and patent
invalidity on the basis it would discontinue the action on a without costs
basis, and the defendants would acknowledge that Apotex's formulation of the
tablets was non-infringing and would consent to the Minister issuing Apotex its
notice of compliance.
9 At page 376 of the reported case, Madam Justice
Reed said this at paragraph 17:
Also, a
compromise is present in the offer. The plaintiff's formulation would have been
acknowledged as non-infringing, but the attack on the patent's validity would
have been discontinued. A disallowance of the action would have left the
defendants' patent unchallenged. As counsel for the plaintiff notes, there was
also room for a counter offer, the defendants could have offered to licence the
plaintiff.
[Emphasis
added.]
[12] It was against
this backdrop that Lemieux, J. then considered the merits of the Canadian
Olympic Association’s request for costs in excess of the tariff. As can be seen
from the passage below, in reaching its ultimate decision, the Court was
influenced by more than the lack of an “element of compromise”:
11 The purpose of the offer to settle rule, as
pointed out by Morden A.C.J.O. in Data General, supra, is to encourage
the termination of litigation by agreement of the parties -- more speedily and
less expensively than by judgment of the Court at the end of a trial. He added
the impetus to settle is a mechanism which enables a plaintiff to make a
serious offer respecting his or her estimate of the value of the claim which
will require the defendant to give early and careful consideration to the
merits of the case.
12 As argued by counsel for COA, Olymel's offer
contained no element of compromise although it was made after Olymel had filed
its respondent's memorandum of fact and law which, in my view, was not so
persuasive and convincing as to render COA's continuation of the appeal without
merit. In the circumstances, it was a request that COA capitulate an arguable
appeal. Olymel's offer did not, in my view, advance the purposes of the offer
to settle provision of the Rules.
13 Without an element of compromise in analogous
situations, an offer to settle could simply become a very easy mechanism
for a respondent to obtain double costs and clearly, such a device is not
within the intent of the Rules. [Emphasis added.]
[13] In my view, the
present case is not analogous to the circumstances in Canadian Olympic
Association. Firstly, given the Appellant’s background and the financial
and personal hardships he faced prior to his offers to settle, it is unlikely his
offers were part of a sophisticated maneuver for increased costs. His case is
also distinguishable from Canadian Olympic Association in other
important ways. There, the primary parties were on an equal footing, an element
clearly lacking in the present matter. Further, the matter in dispute,
trademark registration, was by its very nature more amenable to a certain
degree of give-and-take between the parties, more conducive to the notion of
compromise. In the context of the present appeal, it cannot be said that the
Appellant’s offers to settle were merely “… a request … to capitulate an
arguable appeal”. I agree with counsel for the Appellant that because the appeal
hinged on whether, as a question of fact, the Appellant was a director at the
relevant time, there was significantly less room for compromise in an offer of
settlement. By rejecting the Appellant’s offers without a counter-proposal (a
possibility mentioned by Reed, J. in Apotex, supra) or, at
the very least, further discussion, the Respondent seems to have been of the
same view. Notwithstanding the kind of information available to him at that
point, the Minister opted to take his chances. Finally, unlike the offer in Canadian
Olympic Association, the Appellant’s offers to settle were made well before
trial. While brief, the Appellant’s letters of March 30, 2007 and June 11,
2007, in their wording and the supporting documents attached, clearly signalled
the Appellant’s intention to seek an extra-judicial resolution of the matter. Whether
through indifference or by design, the Respondent chose instead, to risk riding
out the (relatively small) storm of the Appellant’s appeal. Having done so, he
must now accept the consequences.
Paragraphs
147(3)(g), (h) and (i): the conduct of any party that tended to shorten or to
lengthen unnecessarily the duration of the proceeding; the denial or the
neglect or refusal of any party to admit anything that should have been
admitted; and whether any stage of the proceedings was improper, vexatious or
unnecessary; or taken through negligence, mistake or excessive caution.
[14] Subject to the
general concerns set out above, the Respondent’s conduct does not come within
the ambit of these criteria. The Respondent’s conduct did not otherwise
unnecessarily lengthen the proceeding; nor was it on par with the behaviour of
officials criticized by Bowman, C.J. in Scavuzzo v. R., [2006] 2 C.T.C.
2429, (T.C.C.).
Paragraph 147(3)(j):
any other matter relevant to the question of costs.
[15] In respect of this criterion, I can do no better than to quote a
passage from Jolly Farmer Products Inc. v. The Queen[7] in which Boyle, J. provides an eloquent reminder of
the unique context of tax appeals, the inherent imbalance of power between the
parties, and the role of costs in ensuring that, in administering its statutory
duties, the Crown does not overstep its bounds:
26 There
are perhaps some arguments and some cases that the Canada Revenue Agency just
should not pursue. The Crown is not a private party. By reassessing a taxpayer
and failing to resolve its objection, the Crown is forcing its
citizen/taxpayers to take it to Court. If the Crown's position does not have a reasonable
degree of sustainability, and is in fact entirely rejected, it is entirely
appropriate that the Crown should be aware it is proceeding subject to the risk
of a possibly increased award of costs against it if it is unsuccessful. The
Crown is not a private party and tax litigation is not a dispute like others
between two Canadians. This is the government effectively pursuing one of its
citizens. There will be many times when the Crown will lose cases in
circumstances where prior to the hearing the Crown was not fully aware of the
taxpayer's evidence or could not test its credibility, or could not fully
understand the taxpayer's position. There will be times when the Crown
unsuccessfully pursues new or novel arguments. None of those appear to have been
the case here. The essential facts do not appear to have been in dispute and
there had been lengthy discovery of the taxpayer. As mentioned, the taxpayer's
first settlement letter included a detailed analysis of the taxpayer's legal
position.
[16] While the
proceedings in the present case were not as complicated as in Jolly Farmer
Products Inc., the above principles are nonetheless applicable. The
Appellant made his position clear from the outset, providing supporting
documentation and the corroborative evidence of his accountant. The same
material was offered in support of the Appellant’s offers to settle. Availing
himself of his not insignificant statutory powers, the Minister made his own
investigations during the audit and objection stage. Discoveries were
conducted. At trial, no challenge was made to the Appellant’s or the
accountant’s credibility; no surprising new facts were unearthed; no novel
arguments unveiled. In these circumstances, had the Minister been even a little
more attentive to the Appellant’s file, in general, and to his appeal, in
particular, much of the proceeding could well have been avoided.
Conclusion
[17] For the reasons set out above, the Appellant’s motion is granted; costs
are awarded to the Appellant in a lump sum amount equal to 80 per cent of the
fees charged to him after the March 30, 2007 offer of settlement, together with
disbursements.
Signed at Ottawa, Canada, this 3rd
day of March, 2010.
“G. A. Sheridan”
Email this Content