Citation:
2014 TCC 369
Date: 20141216
Dockets: 2010-128(IT)G
2009-3619(GST)G
BETWEEN:
EDWARD
KLEMEN,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Hogan J.
I. Overview
[1]
In my judgment disposing of the appeals, I
invited the parties to provide me with representations on costs. Both parties
filed written submissions and I am now prepared to dispose of this matter.
[2]
The Appellant is seeking a lump sum costs award
of $50,000 plus disbursements in respect of the two appeals. He says this costs
award represents approximately 75% of the actual solicitor-client costs of
$66,647.50. The Appellant says that of the $50,000 he seeks, $35,000 is in
respect of the income tax appeal and $15,000 is in respect of the goods and services
tax (“GST”) appeal.
II. Factual Background
[3]
The costs award sought by the Appellant is
significantly higher than the costs available to a successful party under the
Tariff, which would be approximately $5,000 in this case.
[4]
The appeals were heard together on common
evidence on April 28, 2014. There were four issues in the appeals:
(a)
Whether a second reassessment in respect of the
2004 taxation year was statute-barred;
(b)
Whether the proceeds of a 2005 disposition of
equipment (the “Equipment”) by the Appellant were on account of capital or
income;
(c)
What the adjusted cost base (“ACB”) of the
Equipment was; and
(d)
What amount of GST, if any, the Appellant was
liable for in respect of the transfer of the Equipment.
[5]
The Appellant was successful on the first and second
issues. The Respondent was successful on the third issue. The parties had
divided success on the fourth issue in that the Appellant was liable for some
GST but for less than the amount sought by the Respondent.
[6]
The Respondent argues that the parties experienced
divided success at trial and that thus no order for costs should be made or, if
one is made in the Appellant’s favour, that the Appellant should only receive
one set of Tariff B, Class B costs.
III. Analysis
[7]
As Justice Campbell Miller noted in Henco
Industries Limited v. The Queen,[1]
“the Tax Court of Canada is quite prepared to put aside
Tariff in favour of a more detailed analysis based on the factors set forth in
Rule 147(1) of the Tax Court of Canada Rules (General Procedure).”
[8]
The relevant portion of section 147 of the Tax Court of Canada Rules (General
Procedure) reads as follows:
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.
. . .
(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,
(i.1)
whether the expense required to have an expert witness was justified given
(i)
the nature of the proceeding, its public significance and any need to clarify
the law,
(ii)
the number, complexity or technical nature of the issues in dispute, or
(iii)
the amount in dispute; and
(j)
any other matter relevant to the question of costs.
A. Result of the Proceeding
[9]
As noted above, the Appellant was successful on
two of the four issues and unsuccessful on one, and the parties had divided
success on the fourth issue. However, the issues on which the Appellant was
successful dealt with a significantly higher portion of the overall amount in issue.
Overall, the Appellant was more successful in the appeals.
[10]
The jurisprudence indicates that a costs award
should not be determined on the results of individual arguments but rather on
the overall outcome.
[11]
Given that the Appellant was largely successful
in his appeals, this factor weighs strongly in favour of granting him at least
Tariff costs.
B. Amount in Issue
[12]
The amount in issue is not entirely clear from
the parties’ submissions on costs.
[13]
In the Respondent’s submissions, the only
information as to the amount in issue is a footnote stating that “the aggregate amount in issue prior to the hearing was
$77,985.42, including amounts that were resolved prior to the hearing and those
on which the Respondent was successful.”
However, the jurisprudence indicates that, when considering the amount in issue
for the purposes of a costs award, the courts should not include amounts with
regard to which there was a settlement before trial.
[14]
The Appellant simply states that the amount of
income tax he owed was reduced by $81,511.95 (not including interest), and the
amount of GST he owed was reduced by $10,533 (or $19,541.77 with accrued
interest and penalties), between the initial reassessment and the post-trial
reassessment. This would presumably also include amounts with respect to which
there was a settlement prior to trial, but it does not indicate how much money
was in issue at trial.
[15]
From the parties’ submissions and the reasons
for judgment in this case, I have been able to determine the following:
(a)
Issues 1 and 2: According to the Appellant’s
submissions, he obtained income tax savings of $81,511.95 from the initial
reassessment to the post-trial reassessment. This would include the amounts saved
as a result of success on the first and second issues at trial, but also amounts
saved as a result of settlements achieved before trial. The total amount saved
may therefore be higher than the amounts in issue at trial on the first and
second issues. However, because the first and second issues were binary (that
is, tax was either payable or not payable with respect to these matters), there
could not have been more money in dispute on these issues than the total amount
saved as a result of a favourable finding for the Appellant.
(b)
Issue 3: The Appellant states that, had he been
successful in his arguments regarding the ACB of the Equipment, the amount he would
have saved would have been $14,867.
(c)
Issue 4: The fourth issue, regarding the GST
obligation for 2004 and 2005, could have resulted in anywhere from zero tax
owing to $16,582 in tax owing,
so the amount in issue in this regard is $16,582.
[16]
Thus, the total amount in issue is at most
$112,961 (the total of the
amounts indicated above). The costs award requested by the Appellant, not
including disbursements, amounts to approximately 44% of this maximum amount in
issue.
[17]
This factor weighs in favour of granting some
additional costs to the Appellant, although not the full amount of additional
costs requested.
C. Importance of Issues
[18]
The Appellant argues that, because the issues in
the appeals were of significant financial importance to him, this factor
supports an increased costs award in his favour. However, the jurisprudence
suggests that the question is not how important the issues are to the
individual taxpayer (one might expect that any taxpayer bringing an appeal to
the Tax Court of Canada would consider his case to be of significant personal
importance), but rather whether the decision on the issues will have significant
precedential and jurisprudential value. For example, see Henco and General Electric
Capital Canada Inc. v. The Queen.
[19]
The issues in those cases were not of significant
precedential value. That being so, this factor does not weigh in favour of
granting increased costs to the Appellant.
D. Settlement Offers
[20]
The Appellant made a number of written
settlement offers to the Respondent, none of which was in its entirety equal to
or better than the result achieved at trial. Accordingly, subsection 147(3.1)
does not apply so as to entitle the Appellant to substantial indemnity costs.
However, the settlement offers must be considered within the context of all the
factors under subsection 147(3) when determining whether to grant increased
costs.
[21]
The Respondent argues that because both parties
made written settlement offers and actively attempted to resolve the issues
prior to trial, this factor should not weigh in favour of granting increased
costs.
[22]
The Appellant argues that his last settlement
offers were very close to the result at trial and that this should result in
increased costs in his favour.
[23]
Given the closeness of the Appellant’s
settlement offers to the ultimate result, it seems appropriate to grant some
additional costs on the basis of the settlement offers, although not the
substantial indemnity costs that the Appellant requests.
E. Volume of Work
[24]
Counsel for the Appellant provided a billing
history entitled “Ed Klemen – Re: 2004 – 2005
Reassessment”,
which indicated 244.70 hours worked on the file, resulting in costs of
$66,647.50.
[25]
The volume of work required of the Appellant’s
counsel in this case was significantly increased due to the Appellant’s own failure
to keep adequate records, and because of communication difficulties between the
Appellant and his counsel.
[26]
Furthermore, the billing history provided by the
Appellant does not show any breakdown of what was done during the 244.70 hours
of work, and the Respondent points out that an indeterminate portion of this
work may be attributable to duplication resulting from changes in counsel, or related
to matters that were resolved before trial.
[27]
This factor does not weigh in favour of granting
additional costs.
F. Complexity of Issues
[28]
The issues in this case were not particularly
complex. The Appellant points to the number of issues involved in the case and
the difficulty of gathering documents. However, these elements are factors to
be considered in relation to the volume of work rather than the complexity of
the issues.
[29]
This factor does not weigh in favour of granting
additional costs.
G. Conduct of Party That Tended to
Shorten or Lengthen Unnecessarily the Duration of the Proceeding
[30]
The Appellant argues that the Respondent did not
properly consider the merits of the case at the beginning of the proceedings or
before trial, and that this unnecessarily lengthened the proceedings. In the
Appellant’s view, if the Respondent had been more reasonable in settlement
discussions, a trial might not have been necessary. Essentially, the Appellant
says that the Respondent should have conceded certain issues prior to trial and
that her failure to do so was conduct that tended to lengthen the proceedings
unnecessarily.
[31]
The Respondent has not specifically addressed
this issue, but I am wary of creating a practice of awarding increased costs on
the basis of hindsight. As Justice Campbell Miller noted in Henco, “[f]or
this factor to be determinative, it must be clear . . . that
a party has acted unreasonably in its conduct.”
The mere fact that the Respondent was unsuccessful on certain issues at trial
does not mean that it was unreasonable to pursue those issues.
IV. Conclusion
[32]
The remaining subsection 147(3) factors do not
apply in this case. The applicable factors do not justify the percentage
of solicitor-client costs requested by the Appellant, but they do justify
awarding some amount above Tariff costs. The Appellant requested 75% of his
solicitor-client costs plus disbursements. An award of approximately 30% of solicitor-client
costs plus disbursements seems appropriate in this case. For these reasons, I
conclude that the Appellant is entitled to a lump sum of $20,000 plus
disbursements.
Signed at Ottawa, Canada, this 16th day of December 2014.
“Robert J.
Hogan”
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