BETWEEN:
INVESCO CANADA LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS
RESPECTING SUBMISSIONS ON COSTS
Campbell J.
[1]
On December 23, 2014, I issued reasons allowing
these appeals with costs to the Appellant. The issue involved a determination
of the correct value of the consideration paid by various mutual fund trusts to
the Appellant for the management services it provided to those funds. In
allowing the appeals, I concluded that the management fees had been reduced at
the point of sale and that the net fees consisted of the reduced amounts.
Consequently, the Appellant had properly collected and remitted Goods and
Services Tax (“GST”) on the reduced amount of
the management fees, being the correct value of the consideration.
[2]
On January 22, 2015, the Appellant filed a
Notice of Motion, by way of written representations, seeking a lump sum award
of costs on a party-party basis pursuant to Rule 147(1) of the Tax Court of
Canada Rules (General Procedure) (the “Rules”)
in the amount of $347,448. This amount represents 60 percent of the
Appellant’s actual legal fees of $481,299 and the HST on those reduced fees, as
well as all of the disbursements, in the amount of $18,886, and applicable HST
on those disbursements.
[3]
On February 11, 2015, the Respondent filed its
Written Representations Regarding Costs opposing the Appellant’s motion and proposing
an award of costs in accordance with the Tariff. In the alternative, the
Respondent submitted that an award in the range of 15 to 20 percent of the
Appellant’s fees and disbursements would be appropriate. The Respondent’s
alternative proposal would result in a costs award ranging between $71,478 and
$95,304.
[4]
On March 2, 2015, the Appellant wrote to the
Court conceding an error, which the Respondent had brought to its attention,
respecting costs incurred in meeting with another law firm in preparation for
the hearing. The concession of $5,399 represents $4,778 in legal fees and $621
in Harmonized Sales Tax (“HST”) on those fees.
The Appellant was claiming 60 percent of this aggregate adjustment or $3,239.
Consequently, the revised total party-party costs that the Appellant is seeking
is reduced to $344,209.
[5]
Section 147 of the Rules vests judges of
this Court with broad discretionary power in awarding costs beyond amounts set
out in the Tariff. A number of factors are listed in Rule 147(3) that should be
considered in awarding costs in excess of the Tariff. The Federal Court of
Appeal in The Queen v Landry, 2010 FCA 135, 2010 DTC 5093, at paragraph
22, confirmed that “discretion must be exercised on a
principled basis” to prevent it from being exercised in an arbitrary
manner. The underlying principle in awarding costs to a successful litigant is
that it be fair and reasonable in light of the application of the factors in
Rule 147(3), specific to the particular facts of the appeal, as well as any
other factors that the Court may consider to be relevant. The Federal Court of
Appeal in Consorzio del Prosciutto di Parma v Maple Leaf Meats, 2002 FCA
417, [2002] FCJ No. 1504, at paragraph 10, states that an award of costs is not
a mere accounting exercise but a matter of judgment as to what is appropriate
in the circumstances. The decision of Justice Boyle in Spruce Credit Union v
The Queen, 2014 TCC 42, 2014 DTC 1063, provides a comprehensive review of
the law to date in relation to awards of costs. The main principles that were
highlighted in those reasons include the following:
(a) a
lump sum may be awarded after consideration of the amounts at issue together
with the complexity and the importance of those issues, the work generated and
a party’s success (Scavuzzo v The Queen, 2006 TCC 902006 DTC 2311, Dickie
v The Queen, 2012 TCC 327, 2012 DTC 1276, and Blackburn Radio Inc. v The
Queen, 2013 TCC 98, 2013 DTC 1098);
(b) the
court must consider the Rule 147(3) factors although the amounts and complexity
of the issues alone may not be a reason for departing from the costs set out in
the Tariff (Jolly Farmer Products Inc. v The Queen, 2008 TCC 693, 2009
DTC 1040);
(c) there
must be egregious circumstances for a court to consider an award of
solicitor-client costs (Sommerer v The Queen, 2012 TCC 212, Transcript
of Oral Reasons delivered by conference call on July 14, 2011);
(d) increased
costs generally vary between 50 to 75 percent of solicitor-client costs (Zeller
Estate v The Queen, 2009 TCC 135, 2009 DTC 1106);
(e) increased
costs are not meant to be punitive (General Electric Capital Canada Inc. v
The Queen, 2010 TCC 490, 2010 DTC 1353) but an award is not limited to
instances of misconduct (Teelucksingh v The Queen, 2011 TCC 253, [2011]
TCJ No. 476); and
(f) exceptional
circumstances need not exist for an award of costs to move beyond the Tariff (Velcro
Canada Inc. v The Queen, 2012 TCC 273, [2012] TCJ No. 219).
[6]
A discussion of the factors set out in Rule
147(3), as they relate to the appeals that were before me, follows.
A. Result of the Proceeding
[7]
The Court agreed entirely with the Appellant’s
interpretation of the nature of the relevant transactions and payments that
were at issue. In doing so, the Court accepted the documentary and oral
evidence adduced by the Appellant. The Respondent relied upon, what I
concluded, were flawed assumptions in its pleadings and, consequently,
incorrect interpretations of the agreements and transactions.
B. The Amounts in Issue
[8]
The amount of $9,745,987 in GST was at issue
together with interest and penalties of over $13,000,000. The Appellant did not
pursue the assessments in respect to Aim Funds Management Inc. With respect to
subsequent years, which are under objection, there is an additional amount of
$685,553 to consider. This brings the total in GST, interest and penalties to
almost $24,000,000.
[9]
In addition, another appeal before this Court, Fidelity
Investments Canada ULC v The Queen (Docket 2013-1147(GST)G), was held in
abeyance pending the outcome of the Invesco Canada Ltd. appeals. The
amount in issue in Fidelity Investments is $9,294,665, thereby adding
this to the final amounts in issue. In Spruce Credit Union, Justice
Boyle, at paragraph 35, favoured considering the aggregate amounts at issue in
a lead case appeal:
[35] It is appropriate in a lead case appeal such as this to
consider the aggregate amount being contested by all bound taxpayers when
fixing costs. It is equally appropriate to consider that each taxpayer
generally has the right to pursue its own appeal to the Court, and that if each
other taxpayer pursued an appeal and were successful, they would generally
expect to be entitled to a costs award. The prudent and efficient use of public
resources through lead cases or otherwise in resolving tax disputes is to be
generally encouraged, not discouraged in any way.
[10]
The Respondent, citing Daishowa-Marubeni
International Ltd. v The Queen, 2013 TCC 275, 2013 DTC 1222, asks that
judicial notice be taken of the fact that, although the amounts in issue are in
the millions, they are nominal in comparison to the overall revenues and assets
of the Appellant and Fidelity Investments. In Daishowa, Justice Miller,
at paragraph 8, stated that the size of the amount in issue must be
contextualized:
[8] The amount in issue of approximately $14,000,000 of proceeds
seems a large number, but it must be contextualized. It was approximately six percent
of the proceeds of the major transaction in issue; it resulted, due to the use
of losses, in minimal tax in the years in issue; Daishawa is a multi-million
dollar business. So, what is a significant amount in this regard, a small
business facing a $100,000 tax bill that could bankrupt it, or a large
multi-national organization, bringing a case based on principle, regardless of
the numbers? I conclude the amount is not such a significant factor in this
case to justify increased costs.
[11]
Although the Respondent submits that enhanced
costs are not justified when the amount in issue is considered in context, I do
not believe that the size of the corporation alone can be used to completely
undermine the significance of an assessment of almost $25,000,000 in GST and
approximately $10,000,000 in interest and penalties. I fully support the
comments of Justice Miller that a lesser amount could effectively bankrupt a
much smaller business. However, where the amount in dispute is of particular
importance to the taxpayer, affecting the way in which it may conduct its
business in the future, increased costs may be justified under the factor, “importance of issues”, which I will address next (Zeller
Estates).
[12]
Considering both the aggregate amounts in issue,
the significance of these amounts to the Appellant and the fact that the
Appellant sought an advance tax ruling but not a GST ruling, this factor tends only
slightly in favour of increased costs.
C. The Importance of the Issues
[13]
The Respondent submits that the impact of the
decision is limited to this Appellant and to one other mutual fund manager,
Fidelity Investments. The Appellant contends that the case is of significant
importance not only to the Appellant but to the mutual fund industry as a
whole. The Respondent’s position on assessment effectively increased the cost
of offering a product to its investors, thereby affecting the Appellant’s
competitive position in the industry.
[14]
The outcome of the appeal was of importance to
the mutual fund industry as a whole, given that the type of fees and
transactions in issue were a common occurrence throughout the industry. As the
Appellant noted during the hearing, reference was made to ATR-65, a published
advance tax ruling, which contained similar ruling requests. In addition, the
Appellant’s witness, David Warren, testified that the management fee rebates
and distributions were widely used throughout the industry.
[15]
In addition, it provided the Court with its
first opportunity to comment on the Supreme Court of Canada decision in Sattva
Capital Corp. v Moly Creston Corp., 2014 SCC 53, respecting the proper
interpretation of contracts.
D. Offer of Settlement
[16]
There were no offers of settlement made.
E. The Value of the Work / The
Complexity of the Issues
[17]
I would characterize this matter as a
moderately complex appeal requiring a fairly significant volume of work. The
examinations for discovery took two days and the hearing lasted three days. The
parties put together a lengthy Joint Book of Documents which, I suspect,
required considerable time and effort. The Appellant submitted that “[t]he sheer number of funds involved (each with its own
documentation that needed to be assembled and analyzed) combined with the
number of taxation periods at issue created the need for significant extra effort.”
(Appellant’s Notice of Motion, Tab 2, page 5). Two experienced counsel had
conduct of the Appellant’s case. John Tobin focussed on the tax issues while Stuart
Svonkin addressed the evidentiary matters.
[18]
In addition, the
Court invited written submissions subsequent to the hearing respecting the
recently issued Supreme Court of Canada decision in Sattva.
F. Conduct of any Party that
Tended to Shorten or Lengthen Unnecessarily the Duration of the Proceedings
[19]
These appeals had a lengthy history, with the
audit commencing in 2002 and the first reassessments occurring in 2003. The
Appellant’s main argument respecting this factor is that, because the Appellant
has been cooperative throughout and was ultimately successful in the appeals,
the Respondent should have known the frailties of its own case and allowed the Appellant’s
objection. Thus, the appeals could have been prevented. I do not believe the
Appellant’s view of the Respondent’s conduct, in these circumstances, should
influence an award of costs. The Respondent differed from the Appellant in its
view of the documentation and the Court concluded that the Respondent’s view
was erroneous, but this does not amount to misconduct on the Respondent’s part
or mean that its position was frivolous or vexatious.
G. Any Other Matter Relevant to
the Question of Costs
[20]
There is some confusion about the time period
for which the Appellant is seeking costs. Although the Appellant states that it
is seeking costs from the date the Notice of Appeal was filed, the Respondent
argues that costs should not be awarded that relate to the period of time
pre-dating the preparation and filing of the Notice of Appeal.
[21]
The earliest notation listed in the Bill
of Costs is $4,277.05 for 3.8 hours relating to the “Notice
of Appeal and other Preliminary Work” (Appellant’s Notice of Motion, Tab
3, page 37). The Respondent may be directing its comments to the “other Preliminary Work” term and, in particular, the
2.3 hours that were spent “reviewing audit request;
drafting response” (Appellant’s Notice of Motion, Tab 4, page 96).
[22]
In addition to
the above factor, the Respondent states that the Appellant’s costs, that were
incurred in respect to documents acquired pursuant to an Access to Information
request, are not proper charges as they could have been obtained from the
Respondent during examinations for discovery. I do not have a response from the
Appellant concerning this, but I note that the Appellant, even if it could have
obtained those documents as the Respondent suggests, would still, in all likelihood,
have had to organize and review those documents.
[23]
The Respondent
also points out that the Bill of Costs contains legal fees for five counsel
although only two were present in Court. The Respondent argues that this is
unnecessary and unreasonable and points to potential inefficient billing practices
and duplication of effort.
[24]
I have taken these items
into consideration in my final award of costs.
Summary
[25]
The Tariff is to be used as a reference point
but, in these appeals, it is an unsatisfactory starting point as it could
provide for only a small percentage of the Appellant’s actual costs. A review
of the Rule 147(3) factors warrants the exercise of my discretion to award lump
sum costs to the Appellant in excess of the Tariff. However, in this case, they
do not support an award at the higher end. Given the success of the Appellant,
the importance of the issues to the mutual fund industry, the moderate
complexity and the significant volume of work, the appropriate award of costs
is 40 percent of the Appellant’s costs of $476,521 or $190,608, together with
HST on those costs. The Appellant is also entitled to 100 percent of its
disbursements in the amount of $18,886, together with applicable HST on those
disbursements. There were no inordinate delays, settlement offers to consider
or improper conduct that would support a higher percentage. Consequently, this
award is appropriate, fair and reasonable in the circumstances.
Signed at Ottawa, Canada, this 16th day of April 2015.
“Diane Campbell”
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