However, the appeal of Geoffrey Bailey also raised the
issue of his losses in respect to the Kilrush Limited Partnership while the
appeals of Francis and Sean O’Dea involved the additional issue of the
imposition of gross negligence penalties. All four appeals were heard together
on common evidence. A further eight appeals were held in abeyance pending the
hearing of the four appeals.
[2]
My Reasons for Judgment
were issued on June 1, 2009. The Respondent was substantially, although not
wholly, successful. My Order contained a direction to the parties that if they
were unable to reach a settlement on the issue of costs within 60 days of my
Reasons, they were to contact the Court to obtain dates for the filing of
written submissions. The paragraph containing that directive read as follows:
If the parties cannot settle the issue of costs within
60 days of the date of the within Reasons, they may contact the Court to obtain
dates for the filing of written submissions.
[3]
Almost three years from
the date of my Reasons and after three attempts to get a Bill of Costs correct,
the Respondent made a request to the Court to file written submissions in
respect to the issue of costs. A summary of the events that occurred since my
Order issued in June, 2009 demonstrates the unnecessary and unreasonable delays
by the Respondent in this matter.
[4]
On June 23, 2009, the
Appellants’ Counsel received the first proposed Bill of Costs, prepared in
accordance with Schedule II, Tariff B (the “Tariff”) of the Tax Court of
Canada Rules (General Procedure) (the “Rules”). This Bill of Costs
reflected one set of costs for all the appeals together with disbursements
incurred. This Bill of Costs listed total fees at $9,200.00 and disbursements
at $1,905.19 for a total of $11,105.19. An amount of $525.00 in respect to a
possible taxation of costs was added to $11,105.19, for a final total of
$11,630.19.
[5]
On July 7, 2009, the
Appellants requested supporting documentation for some of the disbursements
contained in this Bill of Costs.
[6]
On July 9, 2009, the
Respondent submitted its second Bill of Costs, revised primarily to reflect
further amounts claimed for fees, respecting examinations for discovery, and
for disbursements for court reporter’s fees. The total revised amount of this
Bill of Costs for fees and disbursements had now increased to $13,048.67 from
the $11,105.19 total on the first Bill of Costs. Again, the Respondent added an
amount of $525.00 for taxation of costs, bringing the total amount of this
second Bill of Costs to $13,573.67.
[7]
There was no further
correspondence between the parties for a two year period.
[8]
In the interim, two of
the Appellants, Sean O’Dea and Francis O’Dea, on March 17, 2010 and July 8,
1010 respectively, filed Notices of Intention to Make a Proposal under the Bankruptcy
and Insolvency Act, R.S.C. 1985, c. B-3, listing the Canada Revenue Agency
(the “CRA”) as one of the creditors.
[9]
On July 29, 2011, after
a two year hiatus, the Respondent again made a third attempt at getting the
correct figures into its Bill of Costs. This revised Bill of Costs, according
to paragraph 5 of the Respondent’s written submissions,
… largely reflects cost of one appeal under Class C of the Tariff:
the exception is that the respondent seeks its costs for services of counsel
prior to an examination for discovery for each of the Bailey, Rankin and O’Dea
appeals”. …
The total fees and disbursements, over two years
later, had now increased from $13,048.67 to $17,496.51. This reflected an
increase in fees for services related to the examinations for discovery and the
hearing but also reflected a reduction in the disbursements. The final amount
of this third Bill was $18,196.51 which reflected an additional amount of
$700.00 for a taxation of costs.
[10]
On October 13, 2011,
the Respondent wrote to the Court requesting that the matter be set down for a
taxation of costs.
[11]
On October 28, 2011,
the Court wrote to the parties advising that, since my Order had made no award
of costs to the Respondent, no action respecting a taxation of costs in the
matter could be taken.
[12]
On November 4, 2011,
the Respondent wrote to the Court requesting dates for the filing of
submissions in regard to costs. On November 30, 2011, Counsel for the
Appellants wrote to the Court advising the following: that her firm took instructions
from the two bankrupt Appellants on behalf of the group of investors during the
hearing of the appeals; that she had advised the Respondent that the O’Deas
were making a proposal in bankruptcy; that to her recollection no further
communication occurred, after this communication, until the summer of 2011; and
that, since the O’Deas were no longer in a position to provide her with
instructions on behalf of the investors, her firm was no longer engaged on
behalf of the Appellants to make submissions on costs.
[13]
On December 22, 2011,
the Court wrote to the parties directing them to file written submissions and
advising Counsel for the Appellants that, if she were no longer acting for the
Appellants, she would be required to remove herself as counsel of record
pursuant to section 33 of the Rules.
[14]
By letter dated January
12, 2012 to the Court, the Appellants’ Counsel advised that Geoffrey Bailey and
John Rankin had retained her to make submissions on their behalf in respect to
the issue of costs and that she would therefore be remaining as counsel of
record for all of the taxpayers affected by my Reasons of June 1, 2009 in
these appeals.
[15]
According to the
Appellants’ written submissions dated January 31, 2012, they would be unfairly
prejudiced if I awarded any costs to the Respondent in these circumstances.
Alternatively, if I did award costs, the Appellants submit that those costs
should be reduced and should not be awarded on a joint and several basis.
[16]
The Respondent submits
that I should award costs according to the Tariff and the third revised Bill of
Costs and that the liability should be on a joint and several basis among the
Appellants because the main issue in the appeals was the same for all of the
Appellants.
[17]
Section 147 of the Rules
gives the Court wide discretionary powers in awarding costs. When exercising
its discretion, the Court may consider one or more of the items listed in Rule
147(3).
[18]
The Respondent relies
upon a number of those factors set out in Rule 147(3) to establish its claim
for costs, including:
(a) it was
substantially successful;
(b) the amounts were
significant;
(c) the significant
volume of work involved;
(d) the appeals involved
a complex series of transactions and an assessment made outside the normal
reassessment period; and
(e) the Appellants made
a settlement offer on terms that were less favourable to the Respondent than
the Court decision.
[19]
The Court may fix the
costs with or without reference to the Tariff and award a lump sum in lieu of
or in addition to any taxed costs (Rule 147(4)). The Respondent seeks costs
that are largely in accordance with the Tariff amount based on one appeal.
According to established caselaw, absent special circumstances that are
justified by the application of the factors listed in Rule 147(3), the Court
will generally award costs in compliance with the Tariff. Awarding costs above
the Tariff is justified where exceptional circumstances exist (Rule 147(4) and Continental
Bank of Canada v The Queen, [1994] T.C.J. No. 863). Those special circumstances
that dictate a departure from the normal course include misconduct of one of
the parties, undue delay, inappropriate prolongation of a proceeding and
unnecessary procedural wrangling. Much of the caselaw addresses the
discretionary powers of this Court in awarding costs above the Tariff. The
Court can apply those same exceptional circumstances equally to support an
award of costs substantially below the Tariff or to support not awarding costs
at all.
[20]
There is an exceptional
and unwarranted delay on the Respondent’s part in addressing my direction on costs.
This matter never reached the stage of quantification of an award of costs
until over two and one-half years subsequent to my Reasons, when the Respondent
finally requested dates to provide written submissions on costs. Furthermore,
although I requested an explanation from the Respondent for this delay, I was
provided with none. The rather surprising response from the Respondent was:
We did not read this to mean that the parties were required to communicate
with the Court within those 60 days, but that we were permitted to contact the [C]ourt
regarding written submissions following those sixty days.
(Respondent’s correspondence to this Court
dated December 14, 2011)
[21]
My Order is clear. The
parties had 60 days from its date to resolve the issue of costs and, if they
were unable to do so, one or both would apply to the Court to obtain dates to
file written submissions on the issue. This did not mean two to three years
down the road or perhaps, as the Respondent might interpret it, potentially six
to nine years down the road. It meant within a reasonable time after the sixty
day period had expired, when the details of the appeals are fresh and when the
appeals can be concluded in an expeditious manner for all concerned. The
Respondent provided no explanation for the two-year delay between its
submission to the Appellants of the second revised Bill of Costs and its
submission of the third revised Bill of Costs. In fact, according to the
Appellants’ Counsel, the Respondent never communicated with her during this
time period and it appears from the documentation put before me that there was
absolutely no action whatsoever by the Respondent during this period. Nor does
it appear that the Respondent actively pursued any potential recovery through
the O’Deas’ bankruptcy proceedings. I infer this from the Respondent’s omission
to address it. Consequently, I cannot infer that the inordinate delay resulted
wholly or in part from efforts to resolve the costs issue.
[22]
Where a prolonged and
inexcusable delay in complying with an Order within a reasonable period exists
and no reasonable explanation is provided, then that party runs the risk of
having this Court refuse to award and fix costs in the matter. The Appellants’
Counsel referred me to several cases that addressed the issue of delay and
costs (Urbandale Realty Corp. v The Queen, [2008] F.C.J. No. 910, Xerox
Canada Inc. v Sweany, [1990] B.C.J. No. 1234, 407 ETR Concession Co. v
Ontario (Minister of Transportation), [2005] O.J. No. 1630). These
decisions suggest that a Court may consider an unjustified delay in exercising
its discretion in awarding costs. However, those decisions, as well as the more
recent decision in Whistler (Municipality) v Miller, 2009 B.C.S.C. 419,
state that, unless the paying party (the Appellants in this matter) is able to
demonstrate the precise nature of the prejudice that has resulted from the
delay, the undue delay itself will not bar an award of costs although it will
be considered in possibly reducing the quantum of costs.
[23]
The Appellants submit
that it would unfairly prejudice them if I award costs to the Respondent for
the following reasons: the decision was rendered over two and one-half years
ago; the Respondent provided no reason for this delay; and further potential
financial hardship could result for the two bankrupt Appellants. Although the
Appellants may have suffered prejudice, none of these reasons directly address
the nature of the prejudice claimed. If the Appellants had established the
particulars of the prejudice they claimed to have suffered, I would have awarded
no costs to the Respondent.
[24]
These are experienced
counsel who, between the two of them, should have produced a correct Bill of
Costs in the first instance. In these circumstances, I am allowing costs based
on the Respondent’s first Bill of Costs that was submitted to the Appellants’
Counsel on June 23, 2009. However, I am reducing the amount of total fees and
disbursements as reflected on this first Bill of Costs by one-third and apportioning
the balance severally among the Appellants rather than on a joint and several
basis of liability. Fixing an amount for an award of costs will avoid the
expense associated with a taxation of costs and expedite a conclusion to the
entire matter. The total fees and disbursements of $11,105.19 will therefore be
reduced by the amount of $3,701.73 and the resulting balance of $7,403.46 will
be divided four ways, with the four Appellants being individually responsible
for the amount of $1,850.86 in costs.
[25]
I have based this award
of costs on the first Bill of Costs and reduced it by one-third to compensate
for the inordinate and unexplained delays occasioned solely by the Respondent.
The Respondent made three attempts at a Bill of Costs over a period in excess
of two years before arriving at final figures for fees and disbursements.
Between the second and third revised Bill of Costs, two of the Appellants filed
notices in bankruptcy. The Respondent inexplicably waited yet another one-year
period after the second notice in bankruptcy was filed before initiating any
action in this matter. The bungling continued when the Respondent chose,
procedurally and incorrectly, to pursue a taxation of costs instead of
following the directions contained in my Order and applying to the Court for
dates for written submissions. In addition, it would appear from the
submissions before me that the Respondent did not pursue its rights as a
creditor under the bankruptcy proceedings although duly notified both within
the documentation and by the Appellants’ Counsel. The Respondent breached its
duty to act fairly and responsibly in bringing this issue to a timely
conclusion. The Respondent’s approach and actions were neither diligent nor
reasonable in the circumstances and prevented the paying parties, for a period
in excess of two and one-half years, from knowing exactly where they stood. I
apportioned the liability on a several basis because not all of the issues in
these appeals were common to all of the Appellants and, in addition, it remains
unclear whether the Respondent participated in the bankruptcy proceedings.
[26]
Each Appellant is
responsible for payment of his share in the amount of $1,850.86, to be paid within
30 days of the date of these Reasons.
Signed at Ottawa, Canada,
this 30th day of March 2012.
“Diane Campbell”
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